<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SOUTHERN FOODS GROUP, L.P.
SFG CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 2026 75-2571364
DELAWARE 2026 75-2754115
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
PATRICK K. FORD
SOUTHERN FOODS GROUP, L.P.
3114 SOUTH HASKELL 3114 SOUTH HASKELL
DALLAS, TEXAS 75223 DALLAS, TEXAS 75223
(214) 824-8163 (214) 824-8163
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of telephone
registrant's principal executive offices) number, including area code, of agent for
service)
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Copy to:
CAROL GLENDENNING, ESQ.
STRASBURGER & PRICE, L.L.P.
901 MAIN STREET, SUITE 4300
DALLAS, TEXAS 75202
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER NOTE OFFERING PRICE REGISTRATION FEE(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 7/8% Senior Subordinated
Series A Notes due 2007.... $150,000,000 100% $150,000,000 $44,250
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(1) Calculated in accordance with Rule 457(f)(2). For purposes of this
calculation, the Offering Price per Exchange Note was assumed to be the
stated principal amount of each Outstanding Note which may be received by
the Registrants in the exchange transaction in which the Exchange Notes will
be offered.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 2, 1998
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
($150,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
9 7/8% SENIOR SUBORDINATED SERIES A NOTES DUE 2007
($150,000,000 PRINCIPAL AMOUNT)
OF
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<S> <C>
SOUTHERN FOODS GROUP, L.P.
SFG CAPITAL CORPORATION [LOGO]
</TABLE>
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
---------------------
Southern Foods Group, L.P. (the "Company"), and SFG Capital Corporation
("SFG Capital" and, together with the Company, the "Issuers") hereby offer (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange up to an aggregate principal amount of $150,000,000
of their 9 7/8% Senior Subordinated Series A Notes due 2007 (the "Exchange
Notes") for an equal principal amount of their outstanding 9 7/8% Senior
Subordinated Notes due 2007 (the "Outstanding Notes" and, together with the
Exchange Notes, the "Notes"), in integral multiples of $1,000. The Exchange
Notes are substantially identical (including principal amounts, interest rate,
maturity and redemption rights) to the Outstanding Notes for which they may be
exchanged pursuant to this Exchange Offer, except for certain transfer
restrictions, registration rights and liquidated damages provisions relating to
the Outstanding Notes. The Outstanding Notes have been, and the Exchange Notes
will be, issued under an Indenture dated as of September 4, 1997 (the
"Indenture"), among the Company and SFG Capital, as joint and several obligors,
and Chase Bank of Texas, National Association (formerly named Texas Commerce
Bank National Association), as trustee (the "Trustee"). See "Description of the
Notes."
(Cover text continued on next page)
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SEE "RISK FACTORS" ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISKS TO BE
CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND IN EVALUATING AN INVESTMENT
IN THE EXCHANGE NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
(Continued from Cover)
The Company will accept for exchange any and all validly tendered
Outstanding Notes on or prior to 5:00 p.m., New York City time, on ,
1998, or such later date and time to which it is extended by the Issuers (the
"Expiration Date"). Tenders of Outstanding Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date; otherwise such
tenders are irrevocable. Chase Bank of Texas, National Association is also
acting as the Exchange Agent in connection with the Exchange Offer. The Exchange
Offer is not conditioned upon any minimum principal amount of Outstanding Notes
being tendered for exchange, but is otherwise subject to certain customary
conditions.
The Exchange Notes will mature on September 1, 2007. The Exchange Notes
will bear interest from the date of issuance (or the most recent Interest
Payment Date (as defined) to which interest on such Exchange Notes has been
paid), at a rate equal to 9 7/8% per annum and on the same terms as the
Outstanding Notes. Interest on the Exchange Notes will be payable semiannually
on March 1 and September 1 of each year commencing September 1, 1998. Holders of
the Exchange Notes will also receive on September 1, 1998 an amount equal to the
interest accrued on the Outstanding Notes from March 1, 1998 to the date of
issuance of the Exchange Notes. The Outstanding Notes that are accepted for
exchange will cease to accrue interest upon issuance of the Exchange Notes.
The Exchange Notes will be unsecured and subordinated in right of payment
to all existing and future Senior Indebtedness (as defined) of the Issuers. The
Exchange Notes will rank pari passu with any future Senior Subordinated
Indebtedness (as defined) of the Issuers and will rank senior to all other
subordinated indebtedness of the Issuers. See "Description of the Notes." As of
December 31, 1997, the Issuers had outstanding approximately $197 million
aggregate principal amount of Senior Indebtedness (exclusive of unused
commitments), all of which was Secured Indebtedness (as defined), and the
Issuers had no Senior Subordinated Indebtedness outstanding other than the
Outstanding Notes and no indebtedness that was subordinate or junior in right of
repayment to the indebtedness represented by the Notes. See "Description of the
Notes -- Ranking."
While the Company and SFG Capital will be jointly and severally liable for
the obligations under the Exchange Notes, SFG Capital, a wholly-owned subsidiary
of the Company, has no assets, does not conduct any operations and was formed
solely in order to facilitate the issuance of debt for the Company.
Except as described below, the Issuers may not redeem the Exchange Notes
prior to September 1, 2002. On or after such date, the Issuers may redeem the
Exchange Notes, in whole or in part, at the redemption prices set forth herein,
together with accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time on or prior to September 1, 2000, the Issuers may, subject
to certain requirements, redeem up to one third of the original aggregate
principal amount of the Exchange Notes with the Net Cash Proceeds (as defined)
of one or more Public Equity Offerings (as defined) by the Company at a price
equal to 109.875% of the principal amount to be redeemed together with accrued
and unpaid interest, if any, provided that at least two thirds of the original
aggregate principal amount of the Exchange Notes remain outstanding immediately
after each such redemption. The Exchange Notes will not be subject to any
sinking fund requirement. Upon the occurrence of a Change of Control (as
defined), each holder will have the right to require the Issuers to repurchase
such holder's Exchange Notes at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
repurchase. See "Description of the Notes."
The Outstanding Notes were sold to the Initial Purchaser in transactions
not registered under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon the exemption provided in Section 4(2) of the Securities
Act. The Initial Purchaser subsequently placed the Outstanding Notes with
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act. Accordingly, the Outstanding Notes may not be re-offered, resold or
otherwise transferred in the United States unless so registered or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
the obligations of the Company under an Exchange and Registration Rights
Agreement dated September 4, 1997 (the "Registration Rights Agreement") among
the Issuers and Chase Securities Inc. (the "Initial Purchaser"). See "The
Exchange Offer."
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<PAGE> 4
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Issuers believe that Exchange Notes issued pursuant to this
Exchange Offer may be offered for resale, resold and otherwise transferred by a
holder who is not an affiliate of the Issuers without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder is acquiring the Exchange Notes in its ordinary course of
business and is not participating in and has no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes. Persons wishing to exchange Outstanding
Notes in the Exchange Offer must represent to the Issuers that such conditions
have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer (a "Participating Broker-Dealer") must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal for the Exchange Offer states
that by so acknowledging and delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of Exchange
Notes received in exchange for Outstanding Notes where such Outstanding Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Issuers have agreed to make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale for a period of 90 days after the Expiration Date. See "Plan of
Distribution."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUERS ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OUTSTANDING NOTES IN ANY JURISDICTION
IN WHICH THIS EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN
COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Company does not intend to list the Exchange Notes on any national
securities exchange or to seek the admission thereof to trading on The Nasdaq
Stock Market. The Initial Purchaser has advised the Company that it intends to
make a market in the Exchange Notes; however, it is not obligated to do so, and
any market-making may be discontinued at any time without notice. Accordingly,
no assurance can be given that an active public or other market will develop for
the Exchange Notes or as to the liquidity of or the trading market for the
Exchange Notes.
The Company expects that the Exchange Notes issued pursuant to this
Exchange Offer will be issued in the form of a Global Note (as defined herein),
which will be deposited with, or on behalf of, The Depository Trust Company
("DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global Exchange Note representing the Exchange Notes
will be shown on, and transfers thereof to qualified institutional buyers will
be effected through, records maintained by DTC and its participants. After the
initial issuance of the Global Exchange Note, Exchange Notes in certificated
form will be issued in exchange for the Global Exchange Note on the terms set
forth in the Indenture. See "Book-Entry; Delivery and Form."
The Issuers will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that any Outstanding Notes of other holders
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Outstanding Notes could be adversely affected. Following consummation
of the Exchange Offer, the holders of Outstanding Notes will continue to be
subject to the existing restrictions upon transfer thereof. See "Risk
Factors -- Exchange Offer Procedures and Consequences of the Exchange Offer to
Non-Tendering Holders of Outstanding Notes."
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No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Issuers. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any security
other than the Exchange Notes offered hereby, nor
ii
<PAGE> 5
does it constitute an offer to sell or the solicitation of an offer to buy any
of the Exchange Notes to any person in any jurisdiction in which it is unlawful
to make such an offer or solicitation to such person. Neither the delivery of
this Prospectus nor any sale made hereunder shall under any circumstances create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof.
AVAILABLE INFORMATION
The Issuers have filed with the Commission a registration statement on Form
S-4 (the "Registration Statement") under the Securities Act, with respect to the
Exchange Notes. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Items of information omitted from this Prospectus but contained in
the Registration Statement may be inspected and copies at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the following regional offices of
the Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates. Electronic filings filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval System ("EDGAR")
are publicly available through the Commission's home page on the Internet at
http://www.sec.gov.
As a result of this offering, the Issuers will become subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In the event that the
Issuers cease to be subject to the informational requirements of the Exchange
Act, the Issuers have agreed to file with the Commission and provide to the
Trustee and the holders of Notes annual reports and the information, documents
and other reports otherwise required pursuant to Sections 13 and 15(d) of the
Exchange Act. See "Description of the Notes -- Certain Covenants -- SEC
Reports."
No separate financial statements of SFG Capital have been included herein.
The Issuers do not consider that such financial statements would be material to
holders of the Notes because SFG Capital, a wholly-owned subsidiary of the
Company, has no assets, does not conduct any operations, was formed solely in
order to facilitate the issuance of indebtedness for the Company and is not
engaged in and does not propose to engage in any activity other than serving as
co-issuer and co-guarantor of certain debt obligations of the Company, including
the Notes.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus and any related amendments or
supplements to this Prospectus under the captions "Prospectus Summary", "Risk
Factors", "Unaudited Pro Forma Combined Consolidated Statement of Income",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business" and elsewhere herein are "forward-looking statements."
Such statements include, without limitation, any statement that may predict,
forecast, indicate, or imply future results, performance or achievements, and
may contain the words "believe," "anticipate," "expect," "estimate," "project,"
"will be," "will continue," will likely result," or words or phrases of similar
meaning. Such statements involve risks, uncertainties or other factors which may
cause actual results to differ materially from the future results, performance
or achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors include, among others, the
following: heightened competition, including specifically the intensification of
price competition; adverse state and federal legislation and regulation; loss of
key executives; general economic and business conditions which are less
favorable than expected; unanticipated changes in industry trends; demographic
changes; changes in consumer preferences; the size, timing and mix of purchases
of the Company's products; customer service; adverse publicity; fluctuations and
difficulty in forecasting operating results; the ability of the Company to
sustain, manage or forecast its growth; new product development and
introduction; the ability to secure and protect trademarks, patents, and other
intellectual
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<PAGE> 6
property; the entry of new competitors and the development of new products or
services by new and existing competitors; failure to obtain new customers or
failure to retain existing customers; inability to carry out marketing and sales
plans; the loss of significant suppliers; business disruptions including
conditions affecting the public health and the production process; product
recalls; changes in business strategy or development plans; liability and other
claims asserted against the Company; the ability to attract and retain qualified
personnel; and other factors referenced in this Prospectus. Moreover, the
Company operates in a very competitive and rapidly changing environment. New
risk factors emerge from time to time and it is not possible for management to
predict all such risk factors, nor can it assess the impact of all such risk
factors on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. These forward-looking statements
represent the estimates and assumptions of management only as of the date of
this Prospectus. The Issuers expressly disclaim any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein to reflect any change in their expectations with regard thereto or any
change in events, conditions or circumstances on which any statement is based.
Given these risks and uncertainties, investors should not place undue reliance
on forward-looking statements as a prediction of actual results.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, risk factors and historical
and pro forma financial statements, including the related notes, appearing
elsewhere in this Prospectus. The Outstanding Notes were issued by the Issuers
on September 4, 1997, in connection with the transactions described under the
caption "The Transactions" (collectively, the "Transactions"), which included
the acquisition (the "Acquisition") by DFA (as defined), an affiliate of the
Company, of Borden/Meadow Gold Dairies Holdings, Inc. ("Holdings"), the holding
company for certain dairy operations of Borden, Inc. Thereafter, DFA contributed
certain assets and liabilities of Holdings and its subsidiaries consisting of
Meadow Gold (as defined) to the Company, and the Company acquired certain
intellectual property rights relating to the dairy operations of Holdings. As
used in this Prospectus, unless the context otherwise requires, (i) the
"Company" or "SFG" refers to Southern Foods Group, L.P., and its predecessors,
and after September 4, 1997 includes Meadow Gold (as defined), (ii) with respect
to periods prior to September 4, 1997, "Meadow Gold" refers to the dairy
operations of Holdings operated under the Meadow Gold trademarks, as constituted
prior to the Transactions, and its predecessors, and, with respect to periods on
or after September 4, 1997, refers to the Meadow Gold operations of the Company,
(iii) "SFG Capital" refers to SFG Capital Corporation, (iv) the Company and SFG
Capital are collectively referred to as the "Issuers," and (v) "DFA" refers to
Dairy Farmers of America, Inc. or, with respect to periods before December 3,
1997, Mid-America Dairymen, Inc. Unless otherwise noted, all market data
presented in this Prospectus is based on the Company's research and estimates.
Schepps(TM), Oak Farms(TM), Meadow Gold(TM), Mountain High(TM), Lite Line(TM)
and Viva(TM) are registered trademarks of the Company and the Company has
applied for federal trademarks for "Barbe's" and "Brown's Velvet Dairy."
Borden(TM), Elsie(TM), Foremost(TM) and Flav-O-Rich(TM) are registered
trademarks licensed to the Company and the Company has arrangements under which
it packages and sells products under the Nestle(TM) and Tampico trademarks. This
Prospectus also includes trademarks of companies other than the Company
including Haagen Dazs(TM), Blue Bell(TM), Dannon(TM), Yoplait(TM), Snickers(TM)
and Tropicana(TM).
THE COMPANY
OVERVIEW
The Company is a leading processor and distributor of fluid milk products
in the United States. The Company markets its products in many of the rapidly
growing Southern and Western states, including Texas, Louisiana, Utah, Montana,
Idaho, Colorado and Hawaii. Major cities served by the Company in these areas
include Dallas/Fort Worth, Houston, San Antonio, Salt Lake City, Denver and
Honolulu. The Company has attained its strong market positions through a series
of strategic acquisitions as well as through internal growth.
The Company's predecessor businesses have produced premium quality, branded
dairy products for over 50 years. The Company processes and distributes fluid
milk products, cultured products (cottage cheese, sour cream and yogurt), ice
cream products and fruit juices and drinks under the Schepps, Oak Farms, Meadow
Gold, Mountain High, Viva, Foremost, Flav-O-Rich, Barbe's and Brown's Velvet
Dairy brand names, as well as various third party labels (including Tropicana
and Tampico) and private labels. These brand names are widely recognized in
their respective markets. The majority of the Company's sales are from fluid
milk products, which include fresh packaged milk and chocolate milk in whole,
reduced fat and fat-free varieties, whipping cream, half-and-half and
buttermilk. The Company also distributes other branded dairy products under
various third party labels, such as Dannon, Yoplait, Haagen Dazs, Blue Bell,
Nestle and Snickers, as well as other dairy related products such as cheese,
eggs, butter, margarine and non-dairy creamers.
The Company's customer base includes retail accounts, such as supermarkets
and convenience stores, and food service accounts, such as restaurants, hotels,
schools, hospitals, airlines and other institutions. The Company processes its
products in 26 dairy processing plants and distributes its products from those
plants and from 34 other major distribution facilities as well as numerous
smaller distribution facilities.
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<PAGE> 8
COMPETITIVE STRENGTHS
The Company believes that the following competitive strengths provide it
with a foundation to enhance the Company's position as an industry leader.
- STRONG MARKET POSITION AND CUSTOMER BASE. The Company believes it is a
leading supplier of fluid milk products in each of the major metropolitan
markets it currently serves. The Company's markets are concentrated in
states which are experiencing rapid population growth and are projected
by the U.S. Bureau of the Census to continue to grow rapidly. In
addition, in the markets it serves, management believes the Company is
the largest provider of fluid milk to many well-known companies that
require significant amounts of fluid milk in their day-to-day operations,
including retail accounts and food service accounts.
- LOW COST/HIGH VOLUME PROVIDER. As a result of significant investments in
facilities, equipment and personnel and high production volumes,
management believes that most of the Company's processing plants operate
on a highly efficient basis. In addition, the Company has acquired
dairies in attractive markets and improved the efficiency of its
operations by integrating dairy processing plants and distribution
routes, increasing utilization of the Company's plants and implementing
operating improvements while maintaining high product quality and
customer service standards. These investments and acquisitions have
resulted in a relatively low cost structure and provide a platform for
the Company to further increase operating efficiencies and enhance
economies of scale as production volumes increase.
- STRONG BRAND RECOGNITION. The Company enjoys substantial brand awareness
in the markets it serves. Additionally, the Company processes many fluid
milk products sold under major supermarket private labels that are
well-known and highly regarded in their markets. Although the Company
currently does not widely use the Borden and Elsie trademarks, the rights
the Company obtained as a result of the Transactions should provide an
opportunity to increase revenues by introducing these trademarks into new
markets or sublicensing them to other dairies. The Company's high level
of brand recognition provides a broad market for its products and enables
customers to easily identify its products at the dairy case.
- LEADER IN CUSTOMER SERVICE. Due to the short shelf life of fresh fluid
milk and the necessity of providing customers with a continuous supply of
milk, customer service is a critical element of the competitive
environment. The Company's commitment to customer service includes
dependable seven day-a-week delivery coordinated through its 60
processing and major distribution facilities, customized delivery
arrangements, high quality products and assurance of product
availability. The Company also serves its customers by providing a full
line of dairy products, from fluid milk and related products processed by
the Company to third-party products such as branded ice cream and yogurt
that the Company distributes.
- EXPERIENCED MANAGEMENT TEAM. The Company's two most senior managers each
have over 35 years experience with the Company and its predecessor
businesses. Pete Schenkel, the Company's President and Chief Executive
Officer, has been in the dairy business since 1958 and owns 50% of the
common equity interests in the Company. Tony Ward, formerly Meadow Gold's
Chief Executive Officer, has been in the dairy industry since 1961 and is
the Vice Chairman of the Company.
- RELATIONSHIP WITH DAIRY FARMERS OF AMERICA, INC. DFA is a 50% owner of
the Company. DFA is the largest dairy cooperative in the United States as
a result of the recent merger of DFA, Milk Marketing, Inc., Western
Dairymen Cooperative, Inc., and the southern region of Associated Milk
Producers, Inc. Effective January 1, 1998, the Company entered into an
agreement under which all of the Company's raw milk requirements are
supplied by DFA.
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<PAGE> 9
BUSINESS STRATEGY
The Company's strategy is to enhance its position as an industry leader
through the following key initiatives:
- SERVE MAJOR METROPOLITAN AREAS. By concentrating on major metropolitan
areas such as Dallas/Fort Worth, Houston, San Antonio, Salt Lake City,
Denver and Honolulu, the Company is able to operate many of its plants
with high production volumes in centralized locations, resulting in
significant processing efficiencies. Additionally, the Company has
established and maintained strong relationships with major retail and
food service customers located in these areas. Serving these large
customers allows the Company to make high volume deliveries to individual
customers, which minimizes distribution costs and product returns. The
principal metropolitan areas currently served by the Company have been
growing rapidly in recent years, contributing to increased sales and
improved operating results.
- INCREASE MARKET PENETRATION. Management plans to capitalize on its
relationships with large retail and food service customers as these
customers consolidate their suppliers and expand their operations in
existing and new major markets. Also, as a result of the Meadow Gold
Contribution (as defined), the Company expects to benefit from
opportunities to cross-sell certain Meadow Gold branded products,
including ice cream, extended shelf life products and yogurt.
- ENHANCE OPERATING EFFICIENCIES. Management constantly reviews the
Company's operations for opportunities to further reduce costs and
increase manufacturing efficiencies through improved utilization of
processing facilities and distribution routes and more efficient human
resource allocation. For example, the Company's Norand data management
system enables it to effectively interface between its processing
facilities and route salesmen, as well as certain customers, in order to
optimize scheduled delivery routes and efficiently manage inventory
levels.
- PURSUE SELECTIVE EXPANSION. Since its inception in 1987, the Company has
actively pursued growth opportunities through selective acquisitions of
dairy operations in attractive markets. These acquisitions have enabled
the Company to grow in the markets it historically served and to expand
operations into new geographic areas. These acquisitions have also
enabled the Company to improve the efficiency of its operations through
the consolidation of processing and distribution facilities and
personnel. Management's acquisition strategy is to focus primarily on
dairies that are located near large markets and have high volume
customers. The Company will continue to assess viable acquisition
opportunities as they arise.
COMPANY HISTORY AND OWNERSHIP
Southern Foods Group, Inc. ("SFG Inc."), the predecessor business to the
Company, was founded in 1987 by Pete Schenkel and Allen Meyer for the purpose of
acquiring dairy companies in the Southern United States. In February 1994, DFA
and certain affiliates acquired a significant interest in SFG Inc. In December
1994, SFG, a limited partnership organized under the laws of the State of
Delaware, was formed to be the successor to the business of SFG Inc. Immediately
prior to the Acquisition, Mr. Meyer sold his interest in the Company and in SFG
Management Limited Liability Company, the general partner of the Company ("SFG
Management" or the "General Partner"), to Mr. Schenkel. Currently, the Company
is owned by DFA (49.5%) and Mr. Schenkel, the Company's President and Chief
Executive Officer (49.5%), as limited partners, and SFG Management (1%), as its
general partner. Further, the General Partner, which has no operations or
significant assets other than its investment in the Company, is owned 50% by DFA
and 50% by Mr. Schenkel. DFA and Mid-Am Capital LLC, an affiliate of DFA
("Mid-Am Capital"), also hold non-voting preferred limited partnership interests
(the "Preferred Interests") in the Company, which at December 31, 1997
aggregated $238.7 million in stated amount of Preferred Interests. See Note 10
of Notes to the Financial Statements of the Company, "The Business -- Company
History and Ownership" and "Description of Preferred Interests."
3
<PAGE> 10
The Company's principal corporate offices are located at 3114 South
Haskell, Dallas, Texas 75223, and the Company's telephone number is (214)
824-8163.
SFG Capital is a wholly owned subsidiary of the Company that was
incorporated in Delaware for the purpose of serving as co-issuer and co-obligor
of certain debt obligations of the Company, including the Notes. SFG Capital
does not have any operations or assets and will not earn any revenues. As a
result, holders of the Exchange Notes should not expect SFG Capital to
participate in servicing the interest and principal obligations on the Notes.
AFFILIATION WITH DAIRY FARMERS OF AMERICA, INC.
The Company is an affiliate of DFA, the nation's largest dairy cooperative.
At January 31, 1998, DFA had over 18,600 member farms operating in 42 states.
DFA receives milk from its farmer members which it processes in its own plants
or markets to its affiliates, including the Company, and others. In 1997, on a
pro forma combined basis DFA marketed for its members 28.3 billion pounds of
milk, representing approximately 18% of total U.S. milk production. DFA's dairy
products, which include milk, cheese, butter, nonfat dry milk and formulated
dairy food products, are processed in DFA's plants and sold to wholesale and
retail customers. DFA's pro forma combined revenues for the year ended December
31, 1997 were approximately $6.2 billion.
In addition to its 50% interest in the Company, DFA has equity interests in
a number of other dairy affiliates and joint ventures (the "Joint Ventures"),
including Hiland Dairy Foods Company, Roberts Dairy Company, Adohr Farms LLC,
Tuscan/Lehigh Dairies L.P., Sinton Dairy Foods Company, L.L.C., Valley Rich
Dairy, Ideal American Dairy, Land-O-Sun Dairies, L.L.C., Melody Farms, L.L.C.,
Western Quality Foods, L.C., and Lea County Cheese Factory, Ltd. Co. DFA also
has a 50% equity interest in Mid-Am Capital.
SUMMARY OF THE TRANSACTIONS
On September 4, 1997, DFA acquired all of the outstanding capital stock of
Holdings, the holding company for certain dairy operations of Borden, Inc. and a
Borden affiliate (collectively, "Borden"), and the Company obtained the license
(the "Borden License") to use the Borden and Elsie trademarks in all 50 states
and Mexico, subject to certain sublicenses, for certain products which were then
being produced by Holdings (the "Borden Trademarks"). The aggregate purchase
price for the capital stock of Holdings and the Borden License was approximately
$435 million. Holdings was the owner of (i) the Meadow Gold dairy operations of
Borden located in the Western United States that manufacture and sell dairy
products primarily under the Meadow Gold and Viva trademarks (the "Meadow Gold
Trademarks") and (ii) other dairies in Texas, Louisiana and New Mexico (the
"Borden Dairies") that manufacture and sell dairy products primarily under the
Borden Trademarks.
Immediately following the Acquisition, DFA contributed substantially all of
the assets and liabilities of Meadow Gold (excluding the Meadow Gold Trademarks)
to the Company in exchange for (a) the assumption by the Company of DFA's
obligations for up to $190.0 million aggregate principal amount of term loans
(the "Term Loans"), of which $175.0 million was borrowed by DFA in connection
with the Acquisition, and a $60.0 million revolving credit facility, under which
no amounts were drawn at closing, (the "Revolving Credit Facility," and together
with the Term Loans, the "Senior Bank Facilities"), with a group of lending
banks, and (b) the issuance by the Company to DFA of $90.0 million in stated
amount of Series B 10% payment-in-kind preferred limited partnership interests
(the "Series B Preferred Interests"). This contribution is hereinafter referred
to as the "Meadow Gold Contribution". The contributed assets were comprised
primarily of 17 dairy processing plants and 36 major distribution facilities.
These assets had a fair value at the time of contribution of approximately $265
million. Meadow Gold had revenues of approximately $493 million and $313 million
for the year ended December 31, 1996 and for the period from January 1, 1997 to
September 4, 1997, respectively.
On September 4, 1997, the Company also acquired the Meadow Gold Trademarks
from Borden/Meadow Gold Dairies Investments, Inc. ("Investments"), which at the
time of such purchase was a
4
<PAGE> 11
subsidiary of DFA, for their appraised value of $50.0 million. In addition, the
Company obtained the Borden License directly from Borden for the appraised value
of the Borden Trademarks of $55.0 million. The acquisition of the Borden License
and the Meadow Gold Trademarks are collectively hereinafter referred to as the
"Trademark Acquisitions".
Concurrently with the Meadow Gold Contribution, DFA sold the Borden Dairies
(the "Divestiture") to Milk Products, LLC ("Milk Products"), an independent
company wholly owned by Mr. Meyer, who divested his interest in the Company
immediately prior to the Acquisition by selling it to Mr. Schenkel (the "Meyer
Divestiture"). The Company sublicensed the Borden Trademarks on a royalty-free
basis to Milk Products for use in several states, including Texas, Louisiana and
New Mexico (the "Borden Sublicense"). See "The Transactions -- The Divestiture;
the Borden Sublicense."
The Company issued the Outstanding Notes in connection with the
Transactions, and used the proceeds from the sale of the Outstanding Notes,
together with $45.0 million contributed by Mid-Am Capital for $45.0 million in
stated amount of Preferred Interests of the Company (the "Mid-Am Capital
Preferred Interests"), and the remaining $15.0 million borrowed by the Company
under the Term Loans, to repay substantially all of the Company's indebtedness
outstanding at the closing of the Transactions (the "Existing Indebtedness") and
to fund the Trademark Acquisitions.
5
<PAGE> 12
THE EXCHANGE OFFER
The Exchange Notes......... The forms and terms of the Exchange Notes are
identical in all material respects to the terms of
the Outstanding Notes for which they may be
exchanged pursuant to the Exchange Offer, except
for certain transfer restrictions, registration
rights and liquidated damages provisions relating
to the Outstanding Notes described below under
"Description of the Notes" and "Exchange and
Registration Rights Agreement."
The Exchange Offer......... The Issuers are offering to exchange up to
$150,000,000 aggregate principal amount of the
Exchange Notes for up to $150,000,000 aggregate
principal amount of the Outstanding Notes.
Outstanding Notes may be exchanged only in integral
multiples of $1,000.
Expiration Date;
Withdrawal of Tender..... The Exchange Offer will expire at 5:00 p.m., New
York City time, on the Expiration Date. The tender
of Outstanding Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the
Expiration Date. Any Outstanding Notes not accepted
for exchange for any reason will be returned
without expense to the tendering holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer. See "The
Exchange Offer -- Expiration Date; Extensions;
Amendments."
Certain Conditions to
the Exchange Offer....... The Exchange Offer is subject to customary
conditions, which may be waived by the Issuers.
Such conditions include, (i) to the extent it may
materially impair the ability of the Issuers to
proceed with the Exchange Offer, the initiation or
threat of initiation of any action or proceeding,
(ii) to the extent it may materially impair the
ability of the Issuers to proceed with the Exchange
Offer, the proposal or adoption of any rule,
statute or regulation, or (iii) the inability to
obtain any required governmental approval. In the
event that the Issuers assert or waive a condition
to the Exchange Offer which constitutes a material
change to the terms of the Exchange Offer, the
Issuers will disclose such change in a manner
reasonably calculated to inform prospective
investors of such change and will extend the period
of the Exchange Offer by five business days. See
"The Exchange Offer -- Certain Conditions to the
Exchange Offer."
Procedures for Tendering
Outstanding Notes........ Each Holder of Outstanding Notes wishing to accept
the Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Outstanding Notes and any other required
documentation to the Exchange Agent (as defined) at
the address set forth herein. Each holder whose
Outstanding Notes are held through DTC and who
wishes to participate in the Exchange Offer may do
so through DTC's Automated Tender Offer Program
("ATOP"). By executing the Letter of Transmittal or
tendering through DTC's ATOP, each holder will
represent to the Issuers that, among other things,
(i) any Exchange Notes to be received by it will be
acquired in the ordinary course of business, (ii)
it has no arrangement or understanding with any
person to participate in the distribution of the
Exchange Notes, (iii) it is not engaged in and does
not intend to engage in a distribution of the
Exchange Notes, and (iv) it is not an "affiliate,"
as defined in Rule 405
6
<PAGE> 13
of the Securities Act, of the Issuers or, if it is
an affiliate, it will comply with the registration
and prospectus delivery requirements of the
Securities Act to the extent applicable. See "The
Exchange Offer -- Procedures for Tendering."
Interest on the Exchange
Notes.................... Interest on the Exchange Notes, at the rate of
9 7/8% per annum, will accrue upon issuance (the
"Exchange Note Issue Date") and will be payable
semi-annually in arrears on each March 1 and
September 1, commencing on September 1, 1998.
Holders of the Exchange Notes will also on
September 1, 1998 receive an amount equal to the
interest accrued from March 1, 1998 on the
Outstanding Notes. Interest on the Outstanding
Notes accepted for the exchange will cease to
accrue upon issuance of the Exchange Notes. See
"The Exchange Offer -- Interest on the Exchange
Notes."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Outstanding Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Outstanding Notes in the
Exchange Offer should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. Any
financial institution that is a participant in
DTC's system may utilize DTC's ATOP to tender. See
"The Exchange Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedure.................. Holders of the Outstanding Notes who wish to tender
their Outstanding Notes and whose Outstanding Notes
are not immediately available or who cannot deliver
their Outstanding Notes, the Letter of Transmittal
or any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Outstanding
Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Registration
Requirements............... The Issuers have agreed to use their best efforts
to consummate on or prior to 300 days after
September 4, 1997, the date of original issuance of
the Outstanding Notes (the "Issue Date"), the
registered Exchange Offer pursuant to which holders
of the Outstanding Notes will be offered an
opportunity to exchange their Outstanding Notes for
the Exchange Notes which will be issued without
legends restricting the transfer thereof. In the
event that applicable interpretations of the staff
of the Commission do not permit the Issuers to
effect the Exchange Offer or in certain other
circumstances, the Issuers have agreed to file a
Shelf Registration Statement (as defined) covering
resales of the Outstanding Notes and to use their
best efforts to cause such Shelf Registration
Statement to be declared effective under the
Securities Act and, subject to certain exceptions,
keep such Shelf Registration Statement effective
until two years after the Issue Date. If the
Issuers fail to consummate the Exchange Offer on or
prior to 300 days after the Issue Date or, in the
event that the Issuers are not in compliance with
certain obligations under the Registration Rights
Agreement, the Issuers shall be obligated to pay
liquidated damages to holders of the Outstanding
Notes. See "Exchange and Registration Rights
Agreement."
7
<PAGE> 14
Federal Income Tax
Considerations........... The exchange of Notes pursuant to the Exchange
Offer will not be a taxable event for federal
income tax purposes. See "Federal Income Tax
Considerations."
Use of Proceeds............ There will be no proceeds to the Issuers from the
exchange of Notes pursuant to the Exchange Offer.
For a discussion of the use of proceeds of the
Outstanding Notes see "Use of Proceeds."
Exchange Agent............. Chase Bank of Texas, National Association will act
as exchange agent for the Company in the Exchange
Offer (the "Exchange Agent"). The address and
telephone number of the Exchange Agent are set
forth in "The Exchange Offer -- Exchange Agent."
THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes except that the Exchange Notes will be registered under
the Securities Act and, therefore, will not bear legends restricting the
transfer thereof and will not contain the registration rights and liquidated
damages provisions relating to the Outstanding Notes. See "Description of the
Notes" and "Exchange and Registration Rights Agreement."
Issuers.................... Southern Foods Group, L.P. and SFG Capital
Corporation, as co-obligors.
Securities Offered......... $150,000,000 principal amount of 9 7/8% Senior
Subordinated Series A Notes due 2007. See
"Description of the Notes."
Maturity................... September 1, 2007
Interest Payment Dates..... March 1 and September 1 of each year, commencing on
September 1, 1998. Holders of the Exchange Notes
will also on September 1, 1998 receive an amount
equal to the interest accrued from March 1, 1998 on
the Outstanding Notes. Interest on the Outstanding
Notes accepted for exchange will cease to accrue
upon issuance of the Exchange Notes.
Sinking Fund............... None
Optional Redemption........ Except as described below, the Issuers may not
redeem the Notes prior to September 1, 2002. On or
after such date, the Issuers may redeem the Notes,
in whole or in part, at any time at the redemption
price set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption.
In addition, at any time on or prior to September
1, 2000, the Issuers may, subject to certain
requirements, redeem up to one third of the
original aggregate principal amount of the Notes
with the Net Cash Proceeds of one or more Public
Equity Offerings by the Company at a redemption
price equal to 109.875% of the principal amount to
be redeemed, together with accrued and unpaid
interest, if any, to the date of redemption,
provided that at least two thirds of the original
aggregate principal amount of the Notes remains
outstanding immediately after each such redemption.
See "Description of the Notes -- Optional
Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, each
holder will have the right to require the Issuers
to make an offer to repurchase such holder's Notes
at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest,
if any, to the date of repurchase. See
8
<PAGE> 15
"Description of the Notes -- Change of Control." In
the event of a Change of Control, the Company could
be required to repay the indebtedness under the
Senior Bank Facilities in full and there can be no
assurance that the Company will have sufficient
funds to repay such indebtedness and to make any
required repurchases of the Notes. See "Risk
Factors -- Change of Control."
Ranking.................... The Notes will be unsecured and subordinated in
right of payment to all existing and future Senior
Indebtedness of the Issuers. The Notes will rank
pari passu with any future Senior Subordinated
Indebtedness of the Issuers and will rank senior to
all other subordinated indebtedness of the Issuers.
The Company does not currently have any
subsidiaries other than SFG Capital; however, the
Indenture will not restrict the ability of the
Company to create, acquire or capitalize certain
subsidiaries in the future. As of December 31,
1997, the Issuers had outstanding $197 million
aggregate principal amount of Senior Indebtedness
(excluding estimated unused revolving credit
commitments of $43.9 million) (all of which was
Secured Indebtedness), and the Issuers had no
Senior Subordinated Indebtedness outstanding other
than the Notes and no indebtedness that is
subordinate or junior in right of payment to the
indebtedness represented by the Notes. See
"Description of the Notes -- Ranking."
Restrictive Covenants...... The Indenture restricts (i) the incurrence of
additional indebtedness by the Issuers and the
Company's subsidiaries, (ii) the payment of
distributions on, and redemption of, equity
interests in the Issuers and the Company's
subsidiaries and the redemption of certain
subordinated obligations of the Issuers and the
Company's subsidiaries, (iii) certain investments,
(iv) sales of assets, (v) certain transactions with
affiliates, (vi) the sale or issuance of equity
interests of subsidiaries, (vii) the creation of
certain liens, (viii) the lines of business in
which the Issuers and the Company's subsidiaries
may operate, (ix) certain sale and leaseback
transactions and (x) consolidations, mergers and
transfers of all or substantially all the assets of
the Issuers. The Indenture also prohibits certain
restrictions on distributions from subsidiaries.
However, all of these limitations and prohibitions
are subject to a number of important qualifications
and exceptions. See "Description of the
Notes -- Certain Covenants"; and "-- Merger and
Consolidation."
RISK FACTORS
See "Risk Factors" for a discussion of certain risks that should be
considered by holders of Outstanding Notes in connection with the Exchange
Offer.
9
<PAGE> 16
SUMMARY PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME DATA
The following table sets forth certain unaudited summary pro forma combined
consolidated statement of income data of the Company for the year ended December
31, 1997. The unaudited summary pro forma combined consolidated statement of
income data gives effect to the Transactions as if they had occurred on January
1, 1997. The unaudited summary pro forma combined consolidated statement of
income data does not purport to represent what the Company's results of
operations or financial condition would have actually been had the Transactions
been consummated as of such date or to project the Company's results of
operations or financial condition for any future period. The unaudited summary
pro forma combined consolidated statement of income data has been derived from
and should be read in conjunction with the Unaudited Pro Forma Combined
Consolidated Statement of Income and the notes thereto. See "Unaudited Pro Forma
Combined Consolidated Statement of Income" and the separate historical financial
statements of the Company and Meadow Gold and the notes thereto appearing
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
STATEMENT OF INCOME DATA:
Net sales................................................. $1,054.3
Gross profit.............................................. 268.1
Selling, distribution and general and administrative
expenses............................................... 202.0
Interest expense.......................................... 32.9
Net income................................................ 18.4
</TABLE>
10
<PAGE> 17
SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth summary financial data of the Company for
the years ended December 31, 1995, 1996, and 1997. The statement of income and
balance sheet data for the years ended December 31, 1995, 1996, and 1997 are
derived from the Company's audited historical financial statements. The summary
financial data below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Selected
Historical Financial Data" and the historical financial statements and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................................................. $475.2 $551.6 $741.0
Gross profit.............................................. 115.6 126.6 193.8
Selling, distribution and general and administrative
expenses............................................... 89.7 100.2 140.4
Interest expense.......................................... 9.1 7.6 16.5
Net income................................................ 10.1 11.5 26.1
OTHER DATA:
Ratio of earnings to fixed charges........................ 1.9x 2.2x 2.3x
BALANCE SHEET DATA (END OF PERIOD):
Total assets.............................................. $177.7 $182.5 $646.3
Total long-term debt...................................... 103.2 96.0 346.7
</TABLE>
11
<PAGE> 18
RISK FACTORS
In evaluating participation in the Exchange Offer, holders of Outstanding
Notes should carefully consider the following risk factors as well as the other
information set forth elsewhere in this Prospectus.
SUBSTANTIAL LEVERAGE
The Company incurred substantial indebtedness in connection with the
Transactions and is highly leveraged. At December 31, 1997, the Company's total
debt was approximately $347 million (exclusive of unused commitments), and its
total debt to total capitalization ratio was 64.6%. In the ordinary course of
business, the Company has incurred and, subject to certain restrictions in the
Senior Bank Facilities and the Indenture, will continue to incur additional
indebtedness from time to time to fund working capital requirements and for
other corporate purposes. See "Capitalization," "Description of Senior Bank
Facilities," "Description of the Notes," and the historical financial statements
of the Company, including the notes thereto, and the unaudited pro forma
combined consolidated financial data appearing elsewhere in this Prospectus.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including the following: (i) the Company's
ability to obtain financing in the future for working capital or other corporate
purposes may be impaired; (ii) a substantial portion of the Company's cash flow
from operations will be required to be dedicated to the payment of principal and
interest on its indebtedness, including the Notes, thereby reducing the funds
available to the Company for other purposes; (iii) the indebtedness outstanding
under the Senior Bank Facilities is secured by substantially all the assets of
the Company and will mature prior to the maturity of the Notes; (iv) certain of
the Company's borrowings will be at variable rates of interest, which could
result in higher interest expense in the event of increases in interest rates;
and (v) the Company's high degree of leverage will make it more vulnerable to
economic downturns and may limit its ability to withstand competitive pressures.
The Company's ability to pay the interest on and retire the principal of
the Notes and the Company's other indebtedness is dependent upon its future
operating performance, which in turn is subject to general economic conditions
and to financial, business and other factors, many of which are beyond the
Company's control. The Company believes that, based upon current levels of
operations and anticipated growth and availability under the Senior Bank
Facilities, it will be able to meet its payment obligations in respect of the
Notes and the Company's other indebtedness. There can be no assurance, however,
that the Company's business will generate sufficient cash flow from operations
or that future working capital borrowings will be available in an amount
sufficient to enable the Company to service its indebtedness, including the
Notes. If the Company cannot generate sufficient cash flow from operations or
borrow under the Senior Bank Facilities to meet such obligations, then the
Company may be required to take certain actions, including reducing or delaying
capital expenditures, attempting to restructure or refinance its debt, selling
material assets or operations, or seeking additional equity. There can be no
assurance that such actions could be effected or would be effective in allowing
the Company to meet such obligations. The failure to generate such sufficient
cash flow or to achieve such alternatives could significantly adversely affect
the market value of the Notes and the Company's ability to pay the principal of,
and interest on, the Notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
SUBORDINATION OF NOTES
The Notes are unsecured obligations of the Issuers that are subordinated in
right of payment to all existing and future Senior Indebtedness of the Issuers,
including all indebtedness under the Senior Bank Facilities. In addition to
being contractually subordinated, the Notes are unsecured and thus effectively
rank junior to any secured indebtedness of the Issuers or the Company's
subsidiaries, including the indebtedness outstanding under the Senior Bank
Facilities, which is secured by liens on substantially all the assets of the
Company. As of December 31, 1997, approximately $197 million of Senior
Indebtedness was outstanding and the Company had borrowing availability of
approximately $43.9 million under the Senior Bank Facilities. The Indenture and
the Senior Bank Facilities permit the Issuers to incur additional Senior
Indebtedness, provided
12
<PAGE> 19
that certain conditions are met, and the Issuers expect from time to time to
incur additional Senior Indebtedness. Furthermore, the Indenture does not limit
the Issuers' ability to secure Senior Indebtedness. In the event of the
insolvency, liquidation, reorganization, dissolution or other winding up of the
Company or upon a default in payment with respect to, or the acceleration of, or
if a judicial proceeding is pending with respect to, any default under any
Senior Indebtedness, the lenders under the Senior Bank Facilities (the
"Lenders") and any other creditors who are holders of Senior Indebtedness must
be paid in full before a holder of the Notes may be paid. Accordingly, there may
be insufficient assets remaining after such payments to pay principal of, or
interest on, the Notes. See "Description of the Notes -- Ranking."
The Company's obligations under the Senior Bank Facilities are secured by
substantially all of the assets of the Company. If a default occurs in respect
of the credit agreement (the "Credit Agreement") under which the Senior Bank
Facilities are provided, and the Company is unable to repay such borrowings, the
Lenders would have the right to exercise the remedies available to secured
creditors under applicable law and pursuant to the Senior Bank Facilities.
Accordingly, the Lenders will be entitled to payment in full from the assets
securing such indebtedness prior to any payment to holders of the Notes. If the
Lenders or the holders of any other secured indebtedness were to foreclose on
the collateral securing the Company's obligations to them, it is possible that
there would be insufficient assets remaining after satisfaction in full of all
such indebtedness to satisfy in full the claims of holders of the Notes.
RESTRICTIVE DEBT COVENANTS
The Credit Agreement and the Indenture contain a number of significant
covenants that, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, pay dividends,
prepay, redeem or repurchase subordinated indebtedness (including, in the case
of the Senior Bank Facilities, the Notes), enter into sale-leaseback
transactions, create liens, engage in mergers or consolidations, make capital
expenditures and make certain investments or acquisitions and otherwise restrict
business activities. In addition, under the Senior Bank Facilities, the Company
is required to comply with specified financial covenants, including, without
limitation, minimum fixed charge coverage ratios, minimum interest coverage
ratios, minimum net worth tests and maximum leverage ratios. The ability of the
Company to comply with such provisions may be affected by events beyond the
Company's control. See the historical financial statements of the Company,
including the notes thereto, appearing elsewhere in this Prospectus. The breach
of any of these covenants could result in a default under the Senior Bank
Facilities. See "Description of Senior Bank Facilities." In the event of any
such default, depending upon the actions taken by the Lenders, the Company could
be prohibited from making any payments of principal of, or interest on, the
Notes. See "Description of the Notes -- Ranking." In addition, the Lenders could
elect to declare all amounts borrowed under the Senior Bank Facilities, together
with accrued interest, to be due and payable or could proceed against the
collateral securing such indebtedness. If the indebtedness under the Senior Bank
Facilities were accelerated, there could be no assurance that the assets of the
Company would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company, including the Notes.
POSSIBLE INCREASES IN PRICES OF RAW MILK
The principal raw material used by the Company is fluid milk. The price of
raw milk is determined by a number of factors, including competitive factors as
well as federal, state and regional regulations and support programs. See
"Business -- The Dairy Industry -- Raw Milk Pricing" and "Business -- Raw
Materials." There have been significant fluctuations in raw milk prices from
time to time. Historically, the Company has generally been able to pass price
increases through to its customers. There can be no assurance, however, that
material increases in milk prices will not occur or that the Company will be
able to pass any such price increases through to its customers.
On November 6, 1997, a federal judge in Minnesota enjoined the United
States Department of Agriculture ("USDA") from collecting Class I differentials
in most federal market orders that establish the federally mandated minimum
price of raw milk, beginning with November raw milk sales. The USDA has obtained
a stay of this ruling pending the outcome of the USDA's appeal to the U.S. Court
of Appeals for the 8th Circuit. Additionally, the USDA has proposed new rules
for the federal milk marketing program which
13
<PAGE> 20
have been published for public comment. The comment period expires April 30,
1998. The USDA is also considering, as part of formal rulemaking, a proposal to
establish a temporary price floor for raw milk. In addition, certain states have
formed or are in the process of attempting to form regional milk-price compacts
designed to ensure that cheaper milk from other regions does not undercut local
producers' prices, which may result in higher milk prices than the federally
mandated minimum prices. While management does not believe that these matters
should have a material adverse effect on the Company's business, neither the
outcome of the court proceedings, the final form of any new federal regulations
or the existence or location of any additional state compacts nor the effect of
such matters on the Company can be predicted with any certainty.
COMPETITION; CONSOLIDATION OF THE DAIRY INDUSTRY
The Company's dairy and fruit drink processing and distribution businesses
are subject to competition from other regional dairy processors and from large
national food service distributors that also operate in the markets served by
the Company. Competition in these businesses is based primarily upon service,
price, brand recognition, quality and breadth of product line. The Company
competes with independent processors, large national food service distributors
and the business of Borden Dairies, which is operated by Milk Products. The
business operated by Milk Products remains the Company's most significant
competitor in Texas and Louisiana. See "Business -- Competition."
The dairy processing industry has excess capacity and has been in the
process of consolidation due to limited growth in the demand for fresh milk
products, more efficient processing techniques and the establishment by large
grocery retailers of captive dairy product processing plants. See
"Business -- The Dairy Industry."
DEPENDENCE ON KEY EMPLOYEES; PUT BY MR. SCHENKEL
The success of the Company's future business operations is dependent in
part upon the efforts and skills of certain key members of management. These
persons include Mr. Schenkel and Mr. Ward. The loss of either of these persons
could have an adverse effect on the Company. The Company has entered into
employment contracts with each of Messrs. Schenkel and Ward which will have
terms that will extend until 2002 and contain certain compensation arrangements
and non-compete provisions. See "Management -- Executive Compensation." The
Company has not obtained key man life insurance with respect to any of its key
members of management.
Commencing January 1, 2003, Mr. Schenkel has the right to put his interest
in the Company to the Company or, if the Company does not elect to purchase Mr.
Schenkel's interest, to DFA, and DFA has the right to call 20% of his interest
in the Company. Any exercise of a put or call with respect to the Company
triggers a corresponding put or call with respect to Mr. Schenkel's member
interest in SFG Management. However, DFA may be prohibited from accepting or
purchasing any interest in the Company or SFG Management if, after such
purchase, DFA would own more than 50% of the voting interests in the Company or
SFG Management. In October 1997 DFA and Mr. Schenkel entered into an agreement
that sets forth Mr. Schenkel's remedies if DFA is unable to perform its
obligations. See "Description of the Partnership Agreement and Operating
Agreement -- Put and Call Relating to Mr. Schenkel's Interest in the Company and
SFG Management."
POTENTIAL DEADLOCK AND CONFLICTS OF INTEREST BETWEEN MEMBERS OF THE GENERAL
PARTNER
Except as otherwise provided by the SFG Amendments, major decisions by the
General Partner of the Company require the unanimous consent of representatives
of DFA and Mr. Schenkel who are members of its management committee (the
"Committee"). This creates the potential for deadlocks. In the event of a
deadlock, the Partnership Agreement and the Operating Agreement each provides
for arbitration of any disputes. See "Description of the Partnership Agreement
and Operating Agreement."
The Company is 50% owned by DFA, the nation's largest dairy cooperative.
The Company has an agreement with DFA under which all of the Company's raw milk
requirements are supplied by DFA. DFA's stated mission is to provide the highest
possible return to its members for their milk. Although this
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relationship may create the potential for conflicts of interest in the Company's
milk purchase and other activities, the Company believes that its relationship
with DFA has not adversely affected the Company to date. The Company has agreed
in the Indenture that its transactions with DFA and other Affiliates (as
defined) will be conducted only in the ordinary course of business on terms not
materially less favorable to the Company than would be obtainable in a
comparable transaction with a person not an Affiliate of the Company. See
"Description of the Notes -- Certain Covenants -- Limitation on Transactions
with Affiliates."
ENVIRONMENTAL LIABILITIES
The Company's operations and properties are subject to federal, state and
local laws, regulations and ordinances relating to environmental matters,
particularly those that govern discharges to air, soil and water, as well as the
management of hazardous and toxic substances ("Hazardous Substances") or that
impose liability for the costs of remediating sites affected by, and for damages
resulting from, past disposal or other releases of Hazardous Substances
("Environmental Laws"). Ammonia, a refrigerant used extensively in the Company's
operations, is considered an "extremely" Hazardous Substance pursuant to federal
Environmental Law due to its toxicity. In the past, the Company has experienced
occasional accidental releases of ammonia. The Company has established
procedures and provided for containment systems to prevent or minimize the
impact of any such releases in the future. However, there can be no assurance
that any such future releases will not have a material adverse effect on the
operations of a facility that may be the source of any such release. Many of the
Company's owned and leased facilities, particularly those that provide
maintenance services for truck fleets, store Hazardous Substances (e.g.,
gasoline, diesel fuel and used motor oil) in underground storage tanks. Leaks
and spills associated with these tanks could require remediation of soil and/or
groundwater, perhaps at substantial cost.
Particular environmental regulations affecting the Company include
stringent wastewater discharge standards and governmental requirements for the
safe handling and storage of Hazardous Substances such as laboratory chemicals,
cleaning and maintenance supplies and paints and solvents that are used in the
Company's day-to-day operations. Failure to comply with these requirements may
result in increased expenditures associated with governmental enforcement
actions, cleanup costs, surcharges or capital improvements to correct
non-compliance. See "Business -- Regulatory Environment -- Environmental
Matters."
CHANGE OF CONTROL
A Change of Control could require the Company to refinance substantial
amounts of its indebtedness. Upon the occurrence of a Change of Control, the
Issuers could be required to offer to repurchase the Notes at a purchase price
equal to 101% of the principal amount of such Notes, plus accrued and unpaid
interest, if any, to the date of purchase. However, the Credit Agreement
prohibits the purchase of the Notes by the Company in the event of a Change of
Control, unless and until such time as the indebtedness under the Senior Bank
Facilities is repaid in full. The Issuers' failure to purchase the Notes would
result in a default under the Indenture and the Senior Bank Facilities. The
Credit Agreement also provides that the indebtedness under the Senior Bank
Facilities could be accelerated in the event of a "Change of Control" as defined
therein. A Change of Control as defined in the Indenture would constitute a
"Change of Control" under the Credit Agreement. The inability to repay the
indebtedness under the Senior Bank Facilities, if accelerated, could have
adverse consequences to the Company and the holders of the Notes. In the event
of a Change of Control, there can be no assurance that the Company would have
sufficient assets to satisfy all of its obligations under the Senior Bank
Facilities and the Notes. See "Description of Senior Bank Facilities" and
"Description of the Notes -- Change of Control."
FRAUDULENT CONVEYANCE
The incurrence of indebtedness and the use of proceeds thereof are subject
to review under relevant federal and state fraudulent conveyance statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
the obligor. Under these statutes, if a court were to find that obligations were
incurred with the intent of hindering, delaying or defrauding present or future
creditors or that the obligor received less
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<PAGE> 22
than a reasonably equivalent value or fair consideration for those obligations
and, at the time of the occurrence of the obligations, the obligor (i) was
insolvent or rendered insolvent by reason thereof, (ii) was engaged or was about
to engage in a business or transaction for which its remaining unencumbered
assets constituted unreasonably small capital or (iii) intended to or believed
that it would incur debts beyond its ability to pay such debts as they matured
or became due, such court could void or subordinate the obligations in question.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair saleable value of its assets at that time is less than the amount
that would be required to pay its probable liability on its existing debts as
they become absolute and mature. There can be no assurance, however, as to the
standard a court would apply to evaluate the parties' intent or to determine
whether the Company was insolvent at the time of, or rendered insolvent upon
consummation of, the Transactions or that, regardless of the standard, a court
would not determine that the Company was insolvent at the time of, or rendered
insolvent upon consummation of, the Transactions.
ABSENCE OF PUBLIC MARKET
The Exchange Notes are new securities for which there currently is no
market. Although the Initial Purchaser informed the Company that it currently
intends to make a market in the Exchange Notes, it is not obligated to do so and
any such market making may be discontinued at any time without notice. In
addition, such market making activity may be limited during the pendency of the
Exchange Offer or the effectiveness of a shelf registration statement in lieu
thereof. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Exchange Notes. The Outstanding Notes have been
designated for trading in the Private Offerings, Resales and Trading through
Automatic Linkages ("PORTAL") market. The Exchange Notes will not be eligible
for trading in the PORTAL market and the Company does not intend to apply for
listing of the Exchange Notes on any securities exchange or on any automated
dealer quotation system. The liquidity of, and trading market for, the Exchange
Notes also may be adversely affected by general declines in the market for
similar securities. Such a decline may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects for,
the Company.
EXCHANGE OFFER PROCEDURES AND CONSEQUENCES OF THE EXCHANGE OFFER TO
NON-TENDERING HOLDERS OF OUTSTANDING NOTES
Issuance of the Exchange Notes for Outstanding Notes pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
tendered Outstanding Notes, a properly completed, duly executed Letter of
Transmittal and all other required documents or, in the alternative, after
timely compliance with DTC's ATOP procedures described below. Therefore, holders
desiring to tender their Outstanding Notes in exchange for Exchange Notes should
allow sufficient time to ensure timely delivery.
The Issuers are under no duty to give notification of defects or
irregularities in the tender of Outstanding Notes for exchange. Any Outstanding
Notes that are not tendered or are tendered but not accepted will, following the
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof and, upon consummation of the Exchange Offer,
the registration rights under the Registration Rights Agreement generally will
terminate. In such event, holders of Outstanding Notes seeking liquidity in
their investment would have to rely on exemptions from the registration
requirements under the securities laws, including the Securities Act. Following
the Exchange Offer, holders of the Notes will not be entitled to receive any
liquidated damages that would otherwise be payable by the Issuers if the Issuers
failed to consummate the Exchange Offer in accordance with the terms of the
Registration Rights Agreement.
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<PAGE> 23
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement, the Issuers have agreed (i)
to file a registration statement with respect to an offer to exchange the
Outstanding Notes for senior debt securities of the Issuers with terms
substantially identical to the Outstanding Notes (except that the Exchange Notes
will not contain terms with respect to transfer restrictions, registration
rights and liquidated damages) on or prior to 210 days after the Issue Date and
(ii) to use best efforts to cause such registration statement to become
effective under the Securities Act within 270 days after the Issue Date. In the
event that any change in law or applicable interpretations thereof by the staff
of the Commission do not permit the Issuers to effect the Exchange Offer as
contemplated thereby, or if certain holders of the Outstanding Notes notify the
Issuers that they are not eligible to participate in, or would not receive
freely tradeable Exchange Notes in exchange for tendered Outstanding Notes
pursuant to the Exchange Offer, the Issuers will use their best efforts to cause
to become effective a shelf registration statement (the "Shelf Registration
Statement") with respect to the resale of the Outstanding Notes and, with
certain exceptions, to keep the Shelf Registration Statement effective until two
years after the Issue Date. In the event that the Issuers are not in compliance
with certain obligations under the Registration Rights Agreement, the Issuers
shall be obligated to pay liquidated damages to holders of the Outstanding
Notes. See "Exchange and Registration Rights Agreement."
Each holder of the Outstanding Notes that wishes to exchange such
Outstanding Notes for Exchange Notes in the Exchange Offer will be required to
make certain representations, including representations that (i) any Exchange
Notes to be received by it will be acquired in the ordinary course of its
business, (ii) it has no arrangement or understanding with any persons to
participate in the distribution of the Exchange Notes, and (iii) it is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Issuers or if
it is an affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third-parties, except as described below, the
Issuers believe that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a holder which is an "affiliate"
of the Issuers within the meaning of Rule 405 under the Securities Act or
broker-dealers, as set forth below) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder (i) is not engaged in and does not intend to engage in a
distribution of such Exchange Notes and (ii) has no arrangement or understanding
with any person to participate in the distribution of such Exchange Notes. Any
holder who tenders in the Exchange Offer with the intention or for the purpose
of participating in a distribution of the Exchange Notes cannot rely on such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing the selling security
holder's information required by Item 507 of Regulation S-K under the Securities
Act. This Prospectus may be used for an offer to resell, resale or other
retransfer of Exchange Notes only as specifically set forth herein. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Outstanding Notes, where such Outstanding Notes were acquired by such
broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Issuers have agreed that, for a period of 90 days, if required, after the
Expiration Date, it will make the Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution." In that
regard, each participating broker-dealer who surrenders Outstanding Notes
pursuant to the Exchange Offer will be deemed to have agreed, by
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<PAGE> 24
execution of the Letter of Transmittal or delivery of an Agent's Message in lieu
thereof that, upon receipt of notice from the Issuers of the occurrence of any
event or the discovery of any fact which makes any statement contained or
incorporated by reference in this Prospectus untrue in any material respect or
which causes this Prospectus to omit to state a material fact necessary in order
to make the statements contained or incorporated by reference herein, in light
of the circumstances under which they were made, not misleading or of the
occurrence of certain other events specified in the Registration Rights
Agreement, such participating broker-dealer will suspend the sale of the
Exchange Notes pursuant to this Prospectus until the Issuers have amended or
supplemented this Prospectus to correct such misstatement or omission and have
furnished copies of the amended or supplemented Prospectus to such participating
broker-dealer or the Issuers have given notice that the sale of the Exchange
Notes may be resumed, as the case may be.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept for exchange any and
all Outstanding Notes properly tendered and not withdrawn prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Issuers will issue $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal amount
of Outstanding Notes surrendered pursuant to the Exchange Offer. Outstanding
Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same in all material
respects as the form and terms of the Outstanding Notes, except the Exchange
Notes will be registered under the Securities Act and hence will not bear
legends restricting the transfer thereof. The Exchange Notes will evidence the
same debt as the Outstanding Notes. The Exchange Notes will be issued under and
entitled to the benefits of the Indenture, which also authorized the issuance of
the Outstanding Notes, such that both series will be treated as a single class
of debt securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered for exchange.
As of the date of this Prospectus, $150.0 million aggregate principal
amount of the Outstanding Notes are outstanding. This Prospectus, together with
the Letter of Transmittal, is being sent to all registered holders of
Outstanding Notes. There will be no fixed record date for determining registered
holders of Outstanding Notes entitled to participate in the Exchange Offer.
The Exchange Offer is not being made to, nor will the Issuers accept
surrenders for exchange from, holders of Outstanding Notes in any jurisdiction
in which this Exchange Offer or the acceptance thereof would not be in
compliance with the securities or blue sky laws of such jurisdiction.
The Issuers intend to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Outstanding Notes which are not tendered for exchange in the Exchange Offer will
remain outstanding and continue to accrue interest, will be entitled to the
rights and benefits such holders have under the Indenture but, subject to
certain limited exceptions, will not be entitled to the rights and benefits such
holders previously had under the Registration Rights Agreement.
The Issuers shall be deemed to have accepted for exchange properly tendered
Outstanding Notes when, as and if the Issuers shall have given oral or written
notice thereof to the Exchange Agent and complied with the provisions of Section
1 of the Registration Rights Agreement. The Exchange Agent will act as agent for
the tendering holders for the purposes of receiving the Exchange Notes from the
Issuers. The Issuers expressly reserve the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Outstanding Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
specified below under "-- Certain Conditions to the Exchange Offer."
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Outstanding Notes pursuant to the Exchange Offer. The Issuers will pay all
charges and
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<PAGE> 25
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
NEITHER THE GENERAL PARTNER OF THE COMPANY NOR THE BOARD OF DIRECTORS OF
SFG CAPITAL IS MAKING ANY RECOMMENDATION TO HOLDERS OF OUTSTANDING NOTES AS TO
WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR
OUTSTANDING NOTES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN
AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OUTSTANDING NOTES MUST
MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF
SO, THE AGGREGATE AMOUNT OF OUTSTANDING NOTES TO TENDER AFTER READING THIS
PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISERS, IF
ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998, unless the Issuers extend the Exchange Offer, in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended.
The Issuers expressly reserve the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Outstanding Notes. During any such
extensions, all Outstanding Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Issuers.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Outstanding Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the Expiration Date as in
effect prior to such extension. Without limiting the manner by which the Issuers
may choose to make public announcements of any delay in acceptance, extension,
termination or amendment of the Exchange Offer, the Issuers shall have no
obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service.
The Issuers reserve the right (i) to delay accepting for exchange any
Outstanding Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Certain Conditions to
the Exchange Offer" shall not have been satisfied, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent or (ii) to
amend the terms of the Exchange Offer. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders of Outstanding Notes. If the
Exchange Offer is amended in a manner determined by the Issuers to constitute a
material change, the Issuers will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and
the Issuers will extend the period of the Exchange Offer, depending upon the
significance of the amendment and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 9 7/8% per annum,
payable semi-annually, on March 1 and September 1 of each year, commencing on
September 1, 1998. Holders of Exchange Notes will receive interest on September
1, 1998 from the date of initial issuance of the Exchange Notes, plus an amount
equal to the accrued interest on the Outstanding Notes. Interest on the
Outstanding Notes accepted for the exchange will cease to accrue upon issuance
of the Exchange Notes.
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CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Issuers will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Outstanding Notes, and may terminate the Exchange Offer as provided herein
before the acceptance of any Outstanding Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
of competent jurisdiction by or before any governmental agency with respect
to the Exchange Offer which, in the Issuers' reasonable judgment, might
materially impair the ability of the Issuers to proceed with the Exchange
Offer;
(b) Any rule, statute, or regulation is proposed, adopted or enacted,
or any existing law, statute, rule or regulation is interpreted by the
staff of the Commission, which, in the Issuers' reasonable judgment, might
materially impair the ability of the Issuers to proceed with the Exchange
Offer; or
(c) any governmental approval has not been obtained, which approval
the Issuers shall, in their reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The foregoing conditions are for the sole benefit of the Issuers and may be
asserted by the Issuers regardless of the circumstances giving rise to any such
condition or may be waived by the Issuers in whole or in part at any time and
from time to time in their sole discretion. The failure by the Issuers at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. In the event the Issuers assert or
waive a condition to the Exchange Offer which constitutes a material change to
the terms of the Exchange Offer, the Issuers will follow the procedures for an
extension or amendment of the Exchange Offer.
In addition, the Issuers will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the TIA (as
defined).
PROCEDURES FOR TENDERING
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
therein guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date or, in the
alternative, comply with DTC's ATOP procedures described below. In addition,
prior to the Expiration Date (i) Outstanding Notes must be received by the
Exchange Agent along with the Letter of Transmittal, (ii) a properly transmitted
Agent's Message and timely confirmation of book-entry transfer (a "Book-Entry
Confirmation") of such Outstanding Notes, if such procedure is available, into
the Exchange Agent's account at DTC (sometimes hereafter referred to as the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below must be received by the Exchange Agent, or (iii) the
holder must comply with the guaranteed delivery procedures described below. See
"Book-Entry; Delivery and Form."
PHYSICAL DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Issuers in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. IF THE HOLDER IS NOT USING DTC'S ATOP, IT IS RECOMMENDED THAT
HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE,
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INSTEAD OF DELIVERY BY MAIL. IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE ISSUERS. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
OTHER NOMINEES TO EFFECT THE ABOVE DESCRIBED TRANSACTION FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Outstanding Notes to tender on such beneficial owner's
behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case may be, must be guaranteed by an Eligible Institution (as
defined below) unless the Outstanding Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantor must be a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act which is a member of one of the recognized
signature guarantor programs identified in the Letter of Transmittal (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Outstanding Notes listed therein, such Outstanding
Notes must be endorsed or accompanied by a properly completed bond power, signed
by such registered holder as such registered holder's name appears on such
Outstanding Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and unless waived by the
Issuers, should submit evidence satisfactory to the Issuers of their authority
to so act with the Letter of Transmittal.
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at DTC for purposes of the Exchange Offer promptly
after the date of this Prospectus. The Exchange Agent and DTC have confirmed
that any financial institution that is a participant in DTC's system may utilize
DTC's ATOP to tender. Accordingly, participants in DTC's ATOP may, in lieu of
physically completing and signing the Letter of Transmittal and delivering it to
the Exchange Agent, electronically transmit their acceptance of the Exchange
Offer by causing DTC to transfer the Outstanding Notes to the Exchange Agent in
accordance with DTC's ATOP procedures for transfer. DTC will then send an
Agent's Message to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that DTC has received an express acknowledgment from a participant in DTC's ATOP
that is tendering Outstanding Notes which are the subject of such book entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal (or, in the case of an Agent's Message
relating to guaranteed delivery, that such participant has received and agrees
to be bound by the applicable Notice of Guaranteed Delivery), and that the
agreement may be enforced against such participant.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Outstanding Notes and withdrawal of tendered
Outstanding Notes will be determined by the Issuers in their sole discretion,
which determination will be final and binding. The Issuers reserve the absolute
right to reject any and all Outstanding Notes not properly tendered or any
Outstanding Notes, the Issuers' acceptance of which would, in the opinion of
counsel for the Issuers, be unlawful. The Issuers also reserve the right to
waive any defects, irregularities or conditions of tender as to particular
Outstanding Notes. The Issuers' interpreta-
21
<PAGE> 28
tion of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Outstanding Notes must be cured within such time as the Issuers shall
determine. Although the Issuers intend to notify holders of defects or
irregularities with respect to tenders of Outstanding Notes, neither the
Issuers, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Outstanding Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Outstanding Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holder,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Outstanding Notes, a properly completed
and duly executed Letter of Transmittal and all other required documents or a
timely Book-Entry Confirmation (with Agent's Message) of such Outstanding Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility. If any
tendered Outstanding Notes are not accepted for exchange for any reason set
forth in the terms and conditions of the Exchange Offer or if Outstanding Notes
are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Outstanding Notes will be returned
without expense to the tendering holder thereof (or, in the case of Outstanding
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Outstanding Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Outstanding Notes and the principal amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three Nasdaq Stock Market trading days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof), and any other
documents required by the Letter of Transmittal, together with the
Outstanding Notes, or a Book-Entry Confirmation and properly transmitted
Agent's Message, as the case may be, will be delivered by the Eligible
Institution to the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), and any other documents required by the Letter of
Transmittal, as well as all tendered Notes in proper form for transfer or a
Book-Entry Confirmation and properly transmitted Agent's Message, as the
case may be, are received by the Exchange Agent within three Nasdaq Stock
Market trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
22
<PAGE> 29
For a withdrawal to be effective, (i) a written notice of withdrawal must
be received by the Exchange Agent at the Dallas, Texas address set forth below
under "-- Exchange Agent" or (ii) holders must comply with the appropriate
procedures of DTC's ATOP system. Any such notice of withdrawal must specify the
name of the person having tendered the Outstanding Notes to be withdrawn,
identify the Outstanding Notes to be withdrawn (including the principal amount
of such Outstanding Notes), and (where certificates for Outstanding Notes have
been transmitted) specify the name in which such Outstanding Notes were
registered, if different from that of the withdrawing holder. If certificates
for Outstanding Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If
Outstanding Notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Outstanding Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Issuers, whose
determination shall be final and binding on all parties. Any Outstanding Notes
so withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Outstanding Notes which have been tendered
for exchange but which have been withdrawn will be returned to the holder
thereof, and subsequently may be retendered by such holder, each in accordance
with the procedures described under "-- Procedures for Tendering."
EXCHANGE AGENT
Chase Bank of Texas, National Association has been appointed as Exchange
Agent of the Exchange Offer.
Unless the holder is complying with the appropriate procedures of DTC's
ATOP system, Outstanding Notes, the Letter of Transmittal and other required
documents must be received by the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date addressed as follows:
Chase Bank of Texas, National Association
c/o Texas Commerce Trust Company of New York
Attention: Steve Horowitz, Corporate Trust Securities Window
North Building, Room 234, Window 20
55 Water Street
New York, New York 10041
Questions, requests for assistance and notices of withdrawal should be
directed to the Exchange Agent addressed as follows:
Chase Bank of Texas, National Association
Attention: Gary Jones
2200 Ross Avenue, 5th Floor
Dallas, Texas 75201
Telephone: (214) 965-3510
Facsimile: (214) 965-3577
Requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notice of Guaranteed Delivery should be directed to
the Exchange Agent as follows:
Chase Bank of Texas, National Association
Attention: Steve Kohansion
Telephone: (214) 672-5751
Facsimile: (214) 672-5963
23
<PAGE> 30
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, facsimile, telephone or in person by officers and
regular employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker dealers or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The expenses to be incurred in connection with the Exchange Offer,
including registration fees, fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, and related fees and
expenses, will be paid by the Issuers.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Outstanding Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of Outstanding Notes tendered, or if tendered
Outstanding Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
TRANSFER TAXES
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct the Issuers to register Exchange Notes in the name of, or request
that Outstanding Notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes, as set forth (i) in the
legend thereon as a consequence of the issuance of the Outstanding Notes
pursuant to the exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws and (ii) otherwise set forth in the Offering Memorandum dated August 27,
1997 distributed in connection with the offering of the Outstanding Notes. In
general, the Outstanding Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Issuers do not currently anticipate that they will register the
Outstanding Notes under the Securities Act. Based on interpretations by the
staff of the Commission, Exchange Notes issued pursuant to the Exchange Offer
may be offered for resale, resold or otherwise transferred by holders thereof
(other than any such holder which is an "affiliate" of the Issuers within the
meaning of Rule 405 under the Securities Act or broker-dealers) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in ordinary
course of such holders' business and such holders have no arrangement or
understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
(i) could not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the Exchange Notes may not be offered or sold
unless they have been registered or such securities laws have been complied
with. The Issuers have agreed, pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein, to register or qualify the
24
<PAGE> 31
Exchange Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the Exchange Notes may request in writing.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, as reflected in the Issuers' accounting records on the date
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Issuers. The cost of the Exchange Offer and the unamortized
expenses related to the issuance of the Outstanding Notes will be amortized over
the term of the Exchange Notes.
25
<PAGE> 32
THE TRANSACTIONS
OVERVIEW
On September 4, 1997, DFA acquired all of the issued and outstanding
capital stock of Holdings and the Company acquired the Borden License for an
aggregate purchase price of approximately $435 million. Holdings was the owner
of Meadow Gold and the Borden Dairies.
Immediately following the Acquisition, DFA made the Meadow Gold
Contribution to the Company in exchange for (a) the assumption by the Company of
DFA's obligations with respect to the Senior Bank Facilities, which included
$175.0 million of Term Loans that were outstanding under the facilities at the
time of the contribution and (b) the issuance by the Company to DFA of $90.0
million in stated amount of Preferred Interests.
The Company acquired the Meadow Gold Trademarks from Investments for their
appraised value of $50.0 million. In addition, the Company obtained the Borden
License directly from Borden for the appraised value of the Borden Trademarks of
$55.0 million. The Borden License grants to the Company rights to use the Borden
Trademarks in all 50 states and Mexico.
Concurrently with the Meadow Gold Contribution, DFA sold Borden Dairies to
Milk Products for $65.0 million. Immediately prior to the Acquisition, Mr. Meyer
divested his interest in the Company by selling it to Mr. Schenkel for $3.4
million. The Company sublicensed its rights to use the Borden Trademarks and
related trademarks on a royalty-free basis to Milk Products for use in certain
states, including Texas, Louisiana and New Mexico.
In connection with the Meadow Gold Contribution, the Company issued the
Outstanding Notes, and used the proceeds from the sale of the Outstanding Notes,
together with $45.0 million contributed by Mid-Am Capital for Preferred
Interests and an additional $15.0 million borrowed under the Term Loans, to
repay all of the Existing Indebtedness, other than approximately $1.5 million,
and to fund the Trademark Acquisitions.
THE ACQUISITION
Pursuant to a Stock Purchase and Merger Agreement among DFA, Borden and
Holdings (the "Acquisition Agreement"), a wholly-owned subsidiary of DFA
("Acquisition Subsidiary") acquired all the outstanding capital stock of
Holdings owned by Borden. Immediately thereafter, Acquisition Subsidiary merged
with and into Holdings, and cash payments were made to the remaining
shareholders of Holdings, who were members of Holdings' management team. As a
result of such merger, Holdings became a wholly-owned subsidiary of DFA. The
aggregate purchase price paid by DFA for all of the capital stock of Holdings
and by the Company for the Borden License was $435 million. In addition, Borden
received $14.9 million from Holdings, the aggregate amount of earnings before
income taxes of Holdings and its subsidiaries for the period from January 1,
1997 to September 4, 1997, after deducting certain distributions and payments
for taxes made by Holdings to Borden and other agreed-upon adjustments.
THE MEADOW GOLD CONTRIBUTION
After the Acquisition, Holdings and its subsidiaries (other than
Investments and the subsidiary that owned the Borden Dairies) were merged into
DFA. Immediately thereafter, DFA contributed the assets and liabilities that
relate to Meadow Gold (other than the Meadow Gold Trademarks) to the Company.
Upon receipt of the Meadow Gold Contribution, the Company issued to DFA
$90.0 million in stated amount of Series B Preferred Interests and the Company
assumed all of DFA's obligations under the Senior Bank Facilities, which
consisted of $175.0 million of borrowings that were outstanding under the Term
Loans at the time of the contribution.
Pursuant to the terms of the Acquisition Agreement, until September 4, 1998
the Company is obligated to offer employee benefits to the employees of Meadow
Gold that are comparable in the aggregate to the employee benefits that are
currently in effect for such employees. The Company has adopted employee benefit
26
<PAGE> 33
plans for the employees of Meadow Gold that are substantially similar to their
existing employee benefit plans. In consideration of the transfer of assets
relating to the employees of Meadow Gold from the Borden, Inc. pension plans,
the Company assumed the obligation to provide benefits to such employees with
respect to such plans.
THE TRADEMARK ACQUISITIONS
In connection with the Acquisition, the Company paid Borden the appraised
value of the Borden License, which was $55.0 million. The Borden License
authorizes the Company to process, sell and distribute certain products being
processed, sold and distributed by Holdings and its subsidiaries on September 4,
1997, using the Borden Trademarks in the United States and to sell dairy
products using the Borden Trademarks in Mexico. The license agreement is for an
initial term of five years and will be automatically renewed, subject to the
Company remaining in compliance with the terms of the License, for continuous
five-year periods unless it is terminated by the Company. In addition, the
Company received an assignment from Borden of certain of the state trademarks
used by Meadow Gold. Other licenses enabling the licensees to use the Borden
Trademarks in certain additional states are outstanding and the Borden License
will be subject to these existing third party licenses. However, the Company
will be entitled to any fees paid under the licenses.
Immediately after the Acquisition, the Company purchased from Investments
(which at the time of purchase was a wholly-owned subsidiary of DFA) all of the
intellectual property rights relating to Meadow Gold owned by Investments,
including the Meadow Gold Trademarks. The Company paid Investments the appraised
value of the Meadow Gold Trademarks, which was $50.0 million.
Upon consummation of the Trademark Acquisitions, the Company executed a
trademark license agreement with Borden Foods Corporation ("Borden Foods")
pursuant to which the Company granted Borden Foods an exclusive, royalty-free
license (the "Borden Foods License") throughout the United States to use the
Meadow Gold Trademarks in connection with the manufacture and distribution of
sweetened condensed milk. In addition, Borden Foods executed a trademark license
agreement with the Company to allow the Company to use the Eagle Brand
trademarks (the "Eagle Brands License") in connection with the manufacture and
distribution of ice cream until September 4, 1998, to permit the Company to
fulfill Meadow Gold's existing contractual obligations and to convert its
production to its other ice cream brands.
ISSUANCE OF MID-AM CAPITAL PREFERRED INTERESTS AND AMENDMENT OF SERIES A
PREFERRED INTERESTS
Mid-Am Capital made a $45.0 million cash investment in the Company through
the purchase of the Mid-Am Capital Preferred Interests, which consisted of $15.0
million in stated amount of the 10% Series C Preferred Interests and $30.0
million in stated amount of the 9.5% Series D Preferred Interests. In addition,
the SFG Amendments (as defined) amended the 10% Series A Preferred Interests
held by DFA at the time of the Acquisition (the "Series A Preferred Interests")
to provide for payment-in-kind distributions on the Series A Preferred
Interests, and to provide that the Series A Preferred Interests rank pari passu
with the Preferred Interests.
MEYER DIVESTITURE
Immediately prior to the Acquisition, Mr. Meyer sold his 24.5% limited
partner interest in the Company and his 25% member interest in SFG Management to
Mr. Schenkel for $3.4 million. This sale terminated Mr. Meyer's interest in the
Company and in SFG Management.
THE DIVESTITURE; THE BORDEN SUBLICENSE
Borden/Meadow Gold Dairies, Inc., the subsidiary of Holdings that owned the
Borden Dairies, sold Borden Dairies to Milk Products for $65.0 million. In
connection therewith, DFA agreed with the Department of Justice ("DOJ") to amend
the agreements relating to certain of its Joint Ventures (the "Joint Venture
Agreement Amendments") and entered into a consent decree (the "DOJ Consent
Decree") with regard to the Divestiture, a loan to be provided by Mid-Am Capital
to Milk Products and certain other matters (collectively, "HSR Conditions").
DFA, the Company and Milk Products also entered into a consent decree
27
<PAGE> 34
with the Texas Attorney General relating to the loan provided by Mid-Am Capital
to Milk Products and certain other matters (the "Texas Consent Decree"). See
"Description of the Partnership Agreement and Operating Agreement" and
"Business -- Governmental Investigations and Litigation."
In addition, the Company granted to Milk Products the Borden Sublicense and
pursuant to another license agreement granted to Milk Products the right to use
certain other marks currently used by the Borden Dairies, such as the Poinsettia
and Lite Line trademarks. The Borden Sublicense is subject to other existing
licenses of these marks, but is an exclusive license for Texas, Louisiana and
New Mexico. Pursuant to these licenses, Milk Products also received a
non-exclusive license of these marks for use in Arkansas, Mississippi, Florida,
Alabama and Tennessee and the parts of Mexico currently served by the operations
of the Borden Dairies, but only for the types of products sold by the Borden
Dairies in those areas on September 4, 1997. The Borden Sublicense is for an
initial term of five years and will be automatically renewed, subject to Milk
Products remaining in compliance with the terms of the Borden Sublicense, for
continuous five-year periods unless it is terminated by Milk Products.
SFG DEBT REFINANCING
Immediately prior to the Transactions, the Company had outstanding (i)
$70.9 million in secured debt owed to its existing bank lenders, (ii) $21.1
million in subordinated debt owed to Mid-Am Capital, (iii) $0.5 million in
subordinated debt owed to SFG Management, and (iv) $1.5 million to various
creditors. As part of the Transactions, all of the Existing Indebtedness other
than the $1.5 million referenced in clause (iv) was repaid in full.
SFG FINANCING
In connection with the Transactions, DFA entered into the Senior Bank
Facilities in an aggregate principal amount of up to $250.0 million, consisting
of $190.0 million principal amount of the Term Loans and the Revolving Credit
Facility in an aggregate principal amount of up to $60.0 million provided by a
group of lending banks. The Company assumed the obligations of DFA with respect
to the Senior Bank Facilities in connection with the Meadow Gold Contribution,
including $175.0 million initially borrowed by DFA under the Term Loans. See
"Description of Senior Bank Facilities."
The aggregate amounts paid by the Company to meet its obligations in
connection with the Transactions consisted of approximately (i) $92.5 million to
repay the Existing Indebtedness, (ii) $50.0 million to purchase the Meadow Gold
Trademarks from Investments, (iii) $55.0 million to acquire the Borden License,
and (iv) $16.1 million to pay costs and expenses incurred by the Company in
connection with the Transactions (of which approximately $11.4 million was paid
at Closing). The funds required by the Company to consummate the Transactions
were provided by the proceeds from the offering of the Outstanding Notes, the
issuance of the Mid-Am Capital Preferred Interests and the remaining $15.0
million of term loan borrowings under the Senior Bank Facilities.
DFA FINANCING OF ACQUISITION PURCHASE PRICE
After deducting the amount paid by the Company for the Borden License, DFA
was required to pay $380.0 million in connection with the Acquisition. These
required funds were provided by (i) borrowings by DFA of $175.0 million under
the Senior Bank Facilities (which were assumed by the Company in connection with
the Meadow Gold Contribution), (ii) $65.0 million from the sale of Borden
Dairies to Milk Products, (iii) $50.0 million from the sale by Investments of
the Meadow Gold Trademarks to the Company, and (iv) $90.0 million of borrowings
under DFA's credit facilities.
AMENDMENTS TO PARTNERSHIP AGREEMENT AND OPERATING AGREEMENT
In connection with the Transactions, DFA and Mr. Schenkel also amended the
partnership agreement of the Company (the "Partnership Agreement") and the
limited liability company agreement of the General Partner (the "Operating
Agreement"). These amendments (collectively, the "SFG Amendments") authorized
the issuance of the Preferred Interests issued in the Transactions. They also
implemented certain
28
<PAGE> 35
amendments agreed upon by DFA and the DOJ that restrict DFA's ability to
participate in certain decisions about the operation of the Company,
particularly decisions to expand its business. See "Description of the
Partnership Agreement and Operating Agreement" and "Business -- Governmental
Investigations and Litigation." The SFG Amendments also amended the put and call
agreements relating to Mr. Schenkel's interest in the Company and SFG
Management, so that at any time on or after January 1, 2003, Mr. Schenkel may
require the Company or DFA to purchase all of his partnership interests in the
Company, and DFA has the option to purchase up to 20% of Mr. Schenkel's interest
in the Company. See "Description of the Partnership Agreement and Operating
Agreement -- Put and Call Relating to Mr. Schenkel's Interest in the Company and
SFG Management."
29
<PAGE> 36
USE OF PROCEEDS
There will be no proceeds to the Issuers from the exchange of Notes
pursuant to the Exchange Offer. The Company used the $150.0 million gross
proceeds from the sale of the Outstanding Notes, together with the $45.0 million
investment in the Company by Mid-Am Capital and $15.0 million of borrowings
under the Senior Bank Facilities, as follows: (i) $92.5 million to repay the
Existing Indebtedness, (ii) $105.0 million to make the Trademark Acquisitions,
and (iii) approximately $11.4 million to pay costs and expenses due at the
closing in connection with the Transactions. See "Capitalization" and "The
Transactions -- SFG Financing."
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of December 31, 1997, as derived from the Company's audited historical
financial statements. This table should be read in conjunction with the
historical financial statements of the Company and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Long-term debt:
Term Loans................................................ $181.0
Revolving Credit Facility................................. 14.3
Notes..................................................... 150.0
Existing Indebtedness..................................... 1.4
------
Total long-term debt.............................. 346.7
Less current maturities................................ (.8)
------
Long-term debt, net of current maturities................. $345.9
Partners' equity:
Preferred Interests....................................... $176.2
General partner -- common interest........................ .4
Limited partners -- common interest....................... 13.8
------
Partners' equity....................................... 190.4
------
Total capitalization.............................. $536.3
======
</TABLE>
30
<PAGE> 37
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
The following Unaudited Pro Forma Combined Consolidated Statement of Income
for the year ended December 31, 1997 gives effect to the Transactions as if they
had occurred January 1, 1997. The Unaudited Pro Forma Combined Consolidated
Statement of Income is based on the historical financial statements of the
Company and Meadow Gold and the assumptions and adjustments described in the
accompanying notes. The Unaudited Pro Forma Combined Consolidated Statement of
Income does not purport to represent what the Company's results of operations
actually would have been if the Transactions had occurred as of the date
indicated or what such results will be for any future periods.
The Unaudited Pro Forma Combined Consolidated Statement of Income is based
upon assumptions that the Company believes are reasonable and should be read in
connection with the historical financial statements of the Company and Meadow
Gold and the accompanying notes thereto included elsewhere in this Prospectus.
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MEADOW PRO FORMA PRO FORMA
SFG(A) GOLD(B) ADJUSTMENTS COMBINED
------- ------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................................... $741.0 $313.3 $ $1,054.3
Cost of sales....................................... 547.2 238.6 .4(c) 786.2
------ ------ ------ --------
193.8 74.7 (.4) 268.1
Selling, distribution and general and administrative
expenses......................................... 140.4 61.6 202.0
Amortization of goodwill and other intangible
assets........................................... 12.0 1.2 (1.2)(d) 16.5
2.7(e)
1.8(f)
------ ------ ------ --------
Income from operations.............................. 41.4 11.9 (3.7) 49.6
Interest expense.................................... 16.5 -- 16.4(g) 32.9
Other income, net................................... (1.2) (0.5) (1.7)
------ ------ ------ --------
Net income.......................................... $ 26.1 $ 12.4 $(20.1) $ 18.4
====== ====== ====== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Statement of Income.
31
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED
STATEMENT OF INCOME
The Unaudited Pro Forma Combined Consolidated Statement of Income gives
effect to the following unaudited pro forma adjustments:
(a) The results for SFG for the year ended December 31, 1997 include
the operations of Meadow Gold from September 4, 1997, the date of
contribution. Pro forma adjustments have been made to recognize only the
additional expenses that would have been incurred had the Transactions
taken place on January 1, 1997.
(b) Represents the revenues, expenses and division income of Meadow
Gold for the period from January 1, 1997 through September 4, 1997.
(c) Represents the additional depreciation expense resulting from the
revaluation to fair value of property, plant and equipment contributed to
the Company by DFA.
(d) Represents the elimination of Meadow Gold's historical
amortization of goodwill.
(e) Represents the additional amortization of goodwill associated with
the assets and liabilities of Meadow Gold contributed to the Company by
DFA, which resulted in goodwill of $169.1 million to be amortized over a 40
year period.
(f) Represents the additional amortization of the Trademark
Acquisitions. The intellectual property acquired in the Trademark
Acquisitions has a value of $105.0 million and will be amortized over 40
years.
(g) Pro forma adjustments to interest expense are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
(DOLLARS IN MILLIONS)
<S> <C>
Elimination of interest on Existing Indebtedness........... $(5.8)
Additional interest on the Notes........................... 10.0
Additional interest on Term Loans (assumed average variable
rate of 8.5%)............................................ 10.9
Additional interest on the Revolving Credit Facility and
bank fees (assumed variable rate of 9.75%)............... .4
Additional amortization of deferred financing costs
incurred in connection with the Notes and the Senior Bank
Facilities............................................... .9
-----
Net increase............................................... $16.4
=====
</TABLE>
An increase of 1/8% in the variable interest rate associated with the
Term Loans and Revolving Credit Facility would result in incremental annual
pro forma interest expense of $0.2 million.
32
<PAGE> 39
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial data of the Company for
the period from February 17, 1994 through December 31, 1994, and for the years
ended December 31, 1995, 1996, and 1997. The statement of income and balance
sheet data for the periods from February 17, 1994 through December 31, 1994 and
for the years ended December 31, 1995, 1996, and 1997 are derived from the
Company's audited historical financial statements. The table also sets forth
selected financial data for the year ended December 31, 1993 and for the period
from January 1, 1994 to February 16, 1994, which has been derived from the
unaudited historical financial statements of SFG Inc., the predecessor of the
Company. In the opinion of management, the unaudited data include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the data for such periods. The selected financial data below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Historical Results of
Operations," "Summary Historical Financial Data" and the historical financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(a) SFG
-------------------------------------- --------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED DECEMBER 31,
YEAR ENDED JANUARY 1, 1994 TO FEBRUARY 17, 1994 TO ---------------------------
DECEMBER 31, 1993 FEBRUARY 16, 1994 DECEMBER 31, 1994 1995 1996 1997(c)
----------------- ------------------ -------------------- ------ ------ -------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................. $393.3 $55.6 $387.5 $475.2 $551.6 $741.0
Gross profit.............. 98.7 12.4 91.4 115.6 126.6 193.8
Selling, distribution and
general and
administrative
expenses................ 84.7 15.6 72.3 89.7 100.2 140.4
Interest expense.......... 4.1 0.6 8.3 9.1 7.6 16.5
Net income (loss)......... 6.0 (2.4) 4.3 10.1 11.5 26.1
OTHER DATA:
Ratio of earnings to fixed
charges(b).............. 2.8x (d) 1.4x 1.9x 2.2x 2.3x
BALANCE SHEET DATA (END OF
PERIOD):
Total assets.............. $ 92.5 $96.4 $181.7 $177.7 $182.5 $646.3
Total indebtedness........ 35.5 43.1 120.8 103.2 96.0 346.7
</TABLE>
- ---------------
(a) Due to a change in the basis of accounting for net assets of SFG at
February 17, 1994 and to related financing activity associated with the
purchase of an interest in SFG Inc. by DFA and certain affiliates, the
financial results for the year ended December 31, 1993 and for the period
from January 1, 1994 through February 16, 1994 and for the period from
February 17, 1994 through December 31, 1994 include components, such as
interest expense, amortization of goodwill and income taxes, which are not
comparable between periods. The Predecessor was subject to income taxes,
but SFG, as a partnership, is not subject to income taxes. Additionally,
the total of the operations for the year ended December 31, 1993 and for
the period from January 1, 1994 through February 16, 1994 for SFG Inc. and
for the period from February 17, 1994 through December 31, 1994 for the
Company are not necessarily comparable to financial information of the
Company for the years ended December 31, 1995, 1996, and 1997.
(b) For purposes of computing this ratio, earnings consist of net income and
fixed charges. Fixed charges consist of interest expense, amortization of
debt discount and one third of rental expenses which is that portion of
rentals considered to be representative of interest.
(c) Results for the year ended December 31, 1997 are not necessarily comparable
to prior periods as Meadow Gold's operations are included in the
consolidated results from September 4, 1997, the date of the Meadow Gold
Contribution.
(d) Earnings were inadequate to cover fixed charges during the period from
January 1, 1994 to February 16, 1994. The deficiency was $3.9 million.
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<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On September 4, 1997, DFA contributed the operations, assets and
liabilities of Meadow Gold to SFG. As a result of this transaction, the
accompanying financial statements include the results of Meadow Gold from
September 4, 1997, the date of the contribution, which is essentially four
months of activity. During that period, Meadow Gold contributed $149.8 million
to sales and $2.5 million to income from operations, which includes $2.2 million
of amortization of goodwill and trademarks. SFG also acquired a small dairy,
Land-of-Pines Dairy, in March 1997, and the operations of Barbe's Dairy were
contributed to SFG by an affiliate of DFA in February 1997. Additionally, the
1997 period includes a full year of results for the operations of Pure Milk and
Ice Cream Company, Inc. ("Pure Milk"), which was acquired in February 1996,
while 1996 only includes a partial period of results for Pure Milk. Barbe's
Dairy and Pure Milk (now operating as Oak Farms-Waco) have continued as
operating dairy plants, while production and routes from Land-of-Pines Dairy
have been consolidated into other processing and distribution facilities.
The following discussion and analysis of the historical results of
operations and financial condition of the Company covers periods before
completion of the Transactions. Accordingly, the discussion and analysis of such
historical periods does not fully reflect the significant impact that the
Transactions will have on the Company. See "Unaudited Pro Forma Combined
Consolidated Statement of Income." This discussion and analysis should be read
in conjunction with the historical financial statements of SFG and Meadow Gold
and the notes thereto included elsewhere in this Prospectus. SFG Capital, a
wholly-owned subsidiary of the Company, was formed solely for the purpose of
serving as co-issuer and co-obligor with respect to certain debt obligations of
the Company, including the Notes, and has no operations.
HISTORICAL RESULTS OF OPERATIONS
General
SFG operates 26 facilities which process and package fluid milk products,
cultured products, ice cream products, fruit juices and drinks and other dairy
related products. The majority of SFG's sales are from fluid milk products,
which include fresh packaged milk and chocolate milk in whole, reduced fat and
fat-free varieties, whipping cream, half-and-half and buttermilk. These products
are produced and marketed primarily under the Schepps, Oak Farms, Meadow Gold,
Viva, Foremost, Brown's Velvet, Barbe's and Flav-O-Rich brand names, as well as
various private labels. SFG produces cultured products, such as sour cream,
cottage cheese and yogurt, as well as ice cream and fruit juices and drinks
under its brand names, various private labels and third-party labels. SFG also
distributes cultured products, fruit juices and drinks, ice cream products and
other dairy related products such as cheese, eggs, butter and non-dairy creamers
purchased from third parties.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales increased 34% to $741.0 million for the year ended December 31,
1997 compared to $551.6 million for the year ended December 31, 1996. The
increase is due to increased volumes, offset partially by lower prices. The
increase in volumes is primarily attributable to the addition of the operations
of Meadow Gold, Barbe's Dairy and Land-of-Pines Dairy, as well as growth in
SFG's existing customer base as large customers continued to expand operations
and open new stores. These increases were partially offset by a decline in raw
milk costs and therefore the prices charged to customers.
Gross profits increased 53% to $193.8 million for the year ended December
31, 1997 compared to $126.6 million for the year ended December 31, 1996. This
increase is attributable to the increase in net sales combined with an increase
in gross margin percentage to 26.2% in 1997 compared to 22.9% in 1996. The gross
margin percentage increase is due to improved recovery of raw milk cost changes,
as well as improved results at two of SFG's smaller plants resulting from
management changes and capital improvements.
Selling, distribution and general and administrative expenses increased 40%
to $140.4 million for the year ended December 31, 1997 compared to $100.2
million for the prior period. This increase is attributable to the operations of
Meadow Gold and Barbe's Dairy, as well as an increase in distribution costs to
support the higher
34
<PAGE> 41
level of sales. Selling, distribution and general and administrative expenses as
a percentage of revenues increased to 19.0% for the 1997 period as compared to
18.2% for the 1996 period, primarily as a result of the decrease in prices
received from customers.
Amortization of goodwill and other intangible assets increased 56% to $12.0
million for the year ended December 31, 1997 as compared to $7.7 million for the
prior period. This increase is due to higher amortization of goodwill,
trademarks and other intangible assets resulting from the Meadow Gold, Barbe's
Dairy and Land-of-Pines Dairy transactions.
Interest expense increased 116.0% to $16.5 million for the year ended
December 31, 1997 as compared to $7.6 million for the prior year due to higher
average outstanding debt balances as a result of the Transactions, as well as
higher weighted average interest rates under the Notes and Senior Bank
Facilities.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased 16.1% to $551.6 million in 1996 as compared to $475.2
million in 1995. The increase is attributable to the purchase of a new dairy in
early 1996, higher milk prices and increased volume. In February 1996, SFG
purchased certain assets of Pure Milk in Waco, Texas, which contributed $17.5
million to net sales in 1996. Additionally, the average cost of raw milk
increased approximately 16% in 1996 as compared to 1995, which resulted in
higher prices to customers. Excluding the volumes sold by Pure Milk, the total
volume of milk products sold in 1996 increased approximately 5.2% over 1995 due
primarily to new customers in 1996.
Gross profit increased 9.5% to $126.6 million in 1996 compared to $115.6
million in 1995. This increase is due primarily to the higher level of sales in
1996. Although the increase in raw milk costs were generally passed through to
customers, the increased costs, combined with an increase in costs of certain
packaging materials and items purchased for resale, caused the gross margin
percentage to decline to 22.9% in 1996 from 24.3% in 1995.
Selling, distribution and general and administrative expenses increased
11.7% to $100.2 million in 1996 as compared to $89.7 million in 1995. This
increase is due primarily to the addition of the operations of Pure Milk which
was acquired in February 1996 and costs related to the integration of the Pure
Milk operations into SFG.
Although income from operations increased in 1996 over 1995, income from
operations as a percentage of net sales declined slightly to 3.4% in 1996 from
3.8% in 1995. This decrease is due to the additional costs incurred in 1996 to
integrate the Pure Milk operations with those of SFG.
Interest expense decreased 16.1% to $7.6 million in 1996 as compared to
$9.1 million in 1995. The decrease is attributable primarily to a reduction in
the average balance outstanding under the existing term loan and a reduction of
the average interest rate on both the existing term loan and revolving loan
facilities.
Net income increased 14.3% in 1996 over 1995 as a result of the factors
noted above. Net income as a percentage of net sales was consistent from 1995 to
1996 as the increases in selling, distribution and general and administrative
expenses were offset by the decrease in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities of $43.8 million for the year ended
December 31, 1997 was $10.5 million higher than the prior year, due primarily to
increased cash provided by working capital changes combined with higher net
income. Cash and cash equivalents on hand at December 31, 1997 were $4.7 million
compared to $2.0 million at December 31, 1996.
Cash used in investing activities for the year ended December 31, 1997 of
$125.1 million is primarily the result of the Trademark Acquisitions in
September 1997 for $105.0 million. Cash used for acquisitions during the year
ended December 31, 1997 also includes amounts paid for Land-of-Pines Dairy along
with transaction fees related to the Meadow Gold Contribution. Cash used for
additions to property, plant and equipment increased to $12.1 million in 1997
compared to $7.2 million in 1996, primarily as a result of the Meadow Gold
35
<PAGE> 42
Contribution. Cash used for acquisitions during the year ended December 31, 1996
relates to the February 1996 acquisition of Pure Milk.
Cash provided by financing activities was $84.1 million for the year ended
December 31, 1997. This increase is a result of the proceeds from the $150.0
million of Notes, $15.0 million in proceeds under the Senior Bank Facilities,
and $45.0 million of Mid-Am Capital Preferred Interests issued in connection
with the Transactions, net of repayments of existing bank debt and related party
notes. Additionally, SFG had refinanced outstanding debt in February 1997.
Noncash investing and financing activities include $175.0 million of term loans
under the Senior Bank Facilities which were assumed by SFG and $90.0 million of
Series B DFA Preferred Interests in conjunction with the Meadow Gold
Contribution to SFG in September 1997. Additionally, in February 1997 SFG issued
$8.0 million in Series A Preferred Interests to an affiliate of DFA in
conjunction with the affiliate's contribution of Barbe's Dairy to SFG.
SFG's total debt at December 31, 1997 was $346.7 million. The $150.0
million of Notes bear interest at a rate of 9 7/8%, payable semi-annually
beginning March 1, 1998, and mature September 1, 2007. The Term Loans consist of
borrowings under two tranches, Tranche A for $90.0 million and Tranche B for
$100.0 million. Both tranches bear interest at variable rates, which weighted
average rates were 8.39% and 8.87% for Tranche A and Tranche B, respectively, at
December 31, 1997. SFG had $14.3 million of borrowings and $1.8 million of
letters-of-credit outstanding against its $60.0 million Revolving Credit
Facility, leaving available borrowings of $43.9 million at December 31, 1997.
In 1997 and 1998, the Company began to utilize interest rate collars and
swaps to manage interest rate exposures. The principal objective of such
contracts is to reduce the impact of changes in interest rates on its variable
rate debt. The Company does not utilize financial instruments for trading or
other speculative purposes. Swap agreements are contracts to exchange variable
rates for fixed rate payments periodically over the life of the agreements
without the exchange of the underlying notional amounts. The notional amounts of
interest rate agreements are used to measure interest to be paid or received.
The Company makes interest payments on the Senior Bank Facilities based on the
floating rate plus the applicable margin, and then either makes a payment to or
receives a payment from the counterparty to the swap agreement based on the
related notional amount and the difference between the fixed swap rate and the
applicable floating rate.
In January 1998, in order to fix the interest rates on the majority of the
Company's bank debt, the Company entered into various interest rate swap
agreements. The fixed LIBOR rate under these agreements ranges between 5.565%
and 5.63%. These agreements have an aggregate initial notional amount of $127
million, which declines annually over a five-year period to a final aggregate
notional amount of $23 million, and are cancellable at the counterparty's option
at the end of three or four years, based on the individual agreement. The
Company also has an interest rate collar with a notional amount of $28.0 million
and a LIBOR rate cap of 7% and a floor of 5.65%. This agreement expires in
October 2000.
Interest payments on the Notes and on the Senior Bank Facilities represent
significant liquidity requirements for SFG. SFG anticipates that the Notes will
require annual interest payments of approximately $15 million and the Senior
Bank Facilities will require substantial interest payments based on the
unamortized loan balance and variable interest rates in effect (approximately
$16 million annually based on December 31, 1997 balances and applicable interest
rates). In addition to its debt service obligations, SFG will require liquidity
for capital expenditures and working capital needs. Management believes that the
cash flow generated from its operations, together with amounts available under
the Revolving Credit Facility, should be sufficient to fund its debt service
requirements, working capital needs, anticipated capital expenditures and other
operating expenses. SFG's future operating performance and ability to service or
refinance the Notes and to extend or refinance the Senior Bank Facilities will
be subject to future economic conditions and to financial, business and other
factors, many of which are beyond SFG's control.
The Senior Bank Facilities and the Notes impose restrictions on SFG's
ability to make capital expenditures and limit SFG's ability to incur additional
indebtedness. Such restrictions, together with the highly leveraged nature of
SFG, could limit SFG's ability to respond to market conditions, to provide for
unanticipated capital investments or to take advantage of business or
acquisition opportunities. The covenants contained in the Senior Bank Facilities
and the Notes also, among other things, limit the ability of SFG to
36
<PAGE> 43
dispose of assets, repay indebtedness or amend other debt instruments, pay
distributions, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances and make acquisitions.
On November 6, 1997, a federal judge in Minnesota enjoined the USDA from
collecting Class I differentials in most federal market orders that establish
the federally mandated minimum price of raw milk, beginning with November raw
milk sales. The USDA has obtained a stay of this ruling pending the outcome of
the USDA's appeal to the U.S. Court of Appeals for the 8th Circuit.
Additionally, the USDA has proposed new rules for the federal milk marketing
program which have been published for public comment. The comment period expires
April 30, 1998. The USDA is also considering, as part of formal rulemaking, a
proposal to establish a temporary price floor for raw milk. In addition, certain
states have formed or are in the process of attempting to form regional
milk-price compacts designed to ensure that cheaper milk from other regions does
not undercut local producers' prices, which may result in higher milk prices
than the federally mandated minimum prices. While management does not believe
that these matters should have a material adverse effect on the Company's
business, neither the outcome of the court proceedings, the final form of any
new federal regulations or the existence or location of any additional state
compacts nor the effect of such matters on the Company can be predicted with any
certainty.
SFG is involved in certain threatened and pending governmental
investigations and legal proceedings in the ordinary course of business.
Although neither the outcome of these investigations and proceedings nor the
effect of such outcome can be predicted with certainty, in the opinion of
management, the outcome of these matters should not have a material adverse
effect on the financial condition or results of operations of SFG.
The Company has conducted an internal review of its computer systems to
identify systems that could be affected by the "Year 2000" issue. The Year 2000
issue is the result of computer programs being written using two digits rather
than four to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. Based upon its internal review, the Company presently believes
that the Year 2000 issue will not pose significant operational problems for the
Company's computer systems. However, the Company intends to utilize outside
consultants during the first half of 1998, at an estimated cost of $100,000, to
test its computer systems for Year 2000 compliance. The Company also intends to
use reasonable efforts to assess whether any Year 2000 noncompliance of the
computer systems of entities with which the Company's computer systems interact,
including suppliers, customers and financial services organizations, could have
an adverse impact on the Company. The Company expects its Year 2000 compliance
program to be completed on a timely basis. However, there can be no assurance
that the computer systems of other entities on which the Company's computer
systems rely also will be Year 2000 compliant on a timely basis or that any such
failure to be Year 2000 compliant would not have an adverse impact on the
Company.
37
<PAGE> 44
BUSINESS
OVERVIEW
The Company is a leading processor and distributor of fluid milk products
in the United States. The Company markets its products in many of the rapidly
growing Southern and Western states, including Texas, Louisiana, Utah, Montana,
Idaho, Colorado and Hawaii. Major cities served by the Company in these areas
include Dallas/Fort Worth, Houston, San Antonio, Salt Lake City, Denver and
Honolulu. The Company has attained its strong market positions through a series
of strategic acquisitions as well as through internal growth.
The Company's predecessor businesses have produced premium quality, branded
dairy products for over 50 years. The Company processes and distributes fluid
milk products, cultured products (cottage cheese, sour cream and yogurt), ice
cream products and fruit juices and drinks under the Schepps, Oak Farms, Meadow
Gold, Mountain High, Viva, Foremost, Flav-O-Rich, Barbe's and Brown's Velvet
Dairy brand names, as well as various third party labels (including Tropicana
and Tampico) and private labels. These brand names are widely recognized in
their respective markets. The majority of the Company's sales are from fluid
milk products, which include fresh packaged milk and chocolate milk in whole,
reduced fat and fat-free varieties, whipping cream, half-and-half and
buttermilk. The Company also distributes other branded dairy products under
various third party labels, such as Dannon, Yoplait, Haagen Dazs, Blue Bell,
Nestle and Snickers, as well as other dairy related products such as cheese,
eggs, butter, margarine and non-dairy creamers.
The Company's customer base includes retail accounts, such as supermarkets
and convenience stores, and food service accounts, such as restaurants, hotels,
schools, hospitals, airlines and other institutions. The Company processes its
products in 26 dairy processing plants and distributes its products from those
plants and from 34 other major distribution facilities as well as numerous
smaller distribution facilities.
COMPETITIVE STRENGTHS
The Company believes that the following competitive strengths provide it
with a foundation to enhance the Company's position as an industry leader.
- STRONG MARKET POSITION AND CUSTOMER BASE. The Company believes it is a
leading supplier of fluid milk products in each of the major metropolitan
markets it currently serves. The Company's markets are concentrated in
states which are experiencing rapid population growth and are projected
by the U.S. Bureau of the Census to continue to grow rapidly. In
addition, in the markets it serves, management believes the Company is
the largest provider of fluid milk to many well-known companies that
require significant amounts of fluid milk in their day-to-day operations,
including retail accounts and food service accounts.
- LOW COST/HIGH VOLUME PROVIDER. As a result of significant investments in
facilities, equipment and personnel and high production volumes,
management believes that most of the Company's processing plants operate
on a highly efficient basis. In addition, the Company has acquired
dairies in attractive markets and improved the efficiency of its
operations by integrating dairy processing plants and distribution
routes, increasing utilization of the Company's plants and implementing
operating improvements while maintaining high product quality and
customer service standards. These investments and acquisitions have
resulted in a relatively low cost structure and provide a platform for
the Company to further increase operating efficiencies and enhance
economies of scale as production volumes increase.
- STRONG BRAND RECOGNITION. The Company enjoys substantial brand awareness
in the markets it serves. Additionally, the Company processes many fluid
milk products sold under major supermarket private labels that are
well-known and highly regarded in their markets. Although the Company
currently does not widely use the Borden and Elsie trademarks, the rights
the Company obtained as a result of the Transactions should provide an
opportunity to increase revenues by introducing these trademarks into new
markets or sublicensing them to other dairies. The Company's high level
of brand recognition
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<PAGE> 45
provides a broad market for its products and enables customers to easily
identify its products at the dairy case.
- LEADER IN CUSTOMER SERVICE. Due to the short shelf life of fresh fluid
milk and the necessity of providing customers with a continuous supply of
milk, customer service is a critical element of the competitive
environment. The Company's commitment to customer service includes
dependable seven day-a-week delivery coordinated through its 60
processing and major distribution facilities, customized delivery
arrangements, high quality products and assurance of product
availability. The Company also serves its customers by providing a full
line of dairy products, from fluid milk and related products processed by
the Company to third-party products such as branded ice cream and yogurt
that the Company distributes.
- EXPERIENCED MANAGEMENT TEAM. The Company's two most senior managers each
have over 35 years experience with the Company and its predecessor
businesses. Pete Schenkel, the Company's President and Chief Executive
Officer, has been in the dairy business since 1958 and owns 50% of the
common equity interests in the Company. Tony Ward, formerly Meadow Gold's
Chief Executive Officer, has been in the dairy industry since 1961 and is
the Vice Chairman of the Company.
- RELATIONSHIP WITH DAIRY FARMERS OF AMERICA, INC. DFA, the largest dairy
cooperative in the United States, is a 50% owner of the Company.
Effective January 1, 1998, the Company entered into an agreement under
which all of the Company's raw milk requirements are supplied by DFA.
BUSINESS STRATEGY
The Company's strategy is to enhance net sales and profitability and
strengthen its position as an industry leader through the following key
initiatives:
- SERVE MAJOR METROPOLITAN AREAS. By concentrating on major metropolitan
areas such as Dallas/Fort Worth, Houston, San Antonio, Salt Lake City,
Denver and Honolulu, the Company is able to operate many of its plants
with high production volumes in centralized locations, resulting in
significant processing efficiencies. Additionally, the Company has
established and maintained strong relationships with major retail and
food service customers located in these areas. Serving these large
customers allows the Company to make high volume deliveries to individual
customers, which minimizes distribution costs and product returns. The
principal metropolitan areas currently served by the Company have been
growing rapidly in recent years, contributing to increased sales and
improved operating results.
- INCREASE MARKET PENETRATION. Management plans to capitalize on its
relationships with large retail and food service customers as these
customers consolidate their suppliers and expand their operations in
existing and new major markets. Also, as a result of the Meadow Gold
Contribution, the Company expects to benefit from opportunities to
cross-sell certain Meadow Gold branded products, including ice cream,
extended shelf life products and yogurt.
- ENHANCE OPERATING EFFICIENCIES. Management constantly reviews the
Company's operations for opportunities to further reduce costs and
increase manufacturing efficiencies through improved utilization of
processing facilities and distribution routes and more efficient human
resource allocation. For example, the Company's Norand data management
system enables it to effectively interface between its processing
facilities and route salesmen, as well as certain customers, in order to
optimize scheduled delivery routes and efficiently manage inventory
levels.
- PURSUE SELECTIVE EXPANSION. Since its inception in 1987, the Company has
actively pursued growth opportunities through selective acquisitions of
dairy operations in attractive markets. These acquisitions have enabled
the Company to grow in the markets it historically served and to expand
operations into new geographic areas. These acquisitions have also
enabled the Company to improve the efficiency of its operations through
the consolidation of processing and distribution facilities and
personnel. Management's acquisition strategy is to focus primarily on
dairies that are located near large markets
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<PAGE> 46
and have high volume customers. The Company will continue to assess
viable acquisition opportunities as they arise.
COMPANY HISTORY AND OWNERSHIP
SFG Inc., the predecessor business to the Company, was founded in 1987 by
Pete Schenkel and Allen Meyer for the purpose of acquiring dairy companies in
the Southern United States. In February 1994, DFA and certain affiliates
acquired a significant interest in SFG Inc. In December 1994, SFG, a limited
partnership organized under the laws of the State of Delaware, was formed to be
the successor to the business of SFG Inc. Immediately prior to the Acquisition,
Mr. Allen Meyer divested his interest in the Company and the General Partner to
Mr. Schenkel in the Meyer Divestiture. Currently, the Company is owned by DFA
(49.5%) and Mr. Schenkel (49.5%), as limited partners, and SFG Management (1%),
as its general partner. Further, the General Partner, which has no operations or
significant assets other than its investment in the Company, is owned 50% by DFA
and 50% by Mr. Schenkel. DFA and Mid-Am Capital also hold Preferred Interests in
the Company, which at December 31, 1997 aggregated $238.7 million in stated
amount of Preferred Interests. See Note 10 of Notes to the Financial Statements
of the Company and "Description of Preferred Interests."
SFG Capital is a wholly owned subsidiary of the Company that was
incorporated in Delaware for the purpose of serving as co-issuer and co-obligor
of certain debt obligations of the Company, including the Notes. SFG Capital
does not have any operations or assets and will not earn any revenues. As a
result, holders of the Exchange Notes should not expect SFG Capital to
participate in servicing the interest and principal obligations on the Notes.
AFFILIATION WITH DAIRY FARMERS OF AMERICA, INC.
The Company is an affiliate of DFA, the nation's largest dairy cooperative.
At January 31, 1998, DFA had over 18,600 member farms operating in 42 states.
DFA receives milk from its farmer members which it processes in its own plants
or markets to its affiliates, including the Company, and others. In 1997, on a
pro forma combined basis DFA marketed for its members 28.3 billion pounds of
milk, representing approximately 18% of total U.S. milk production. DFA's dairy
products, which include milk, cheese, butter, nonfat dry milk and formulated
dairy food products, are processed in DFA's plants and sold to wholesale and
retail customers. DFA's pro forma combined revenues for the year ended December
31, 1997 were approximately $6.2 billion.
In addition to its 50% interest in the Company, DFA has equity interests in
a number of other dairy affiliates and joint ventures, including Hiland Dairy
Foods Company, Roberts Dairy Company, Adohr Farms LLC, Tuscan/Lehigh Dairies
L.P., Sinton Dairy Foods Company, L.L.C., Valley Rich Dairy, Ideal American
Dairy, Land-O-Sun Dairies, L.L.C., Melody Farms, L.L.C., Western Quality Foods,
L.C. and Lea County Cheese Factory, Ltd. Co. DFA also has a 50% equity interest
in Mid-Am Capital. In connection with the Transactions, DFA entered into the
Joint Venture Agreement Amendments, including the SFG Amendments. See "The
Transactions" and "Business -- Governmental Investigations and Litigation."
THE DAIRY INDUSTRY
Overview
The dairy processing industry is characterized as mature. Generally flat
demand for fluid milk has resulted in an emphasis on the development of more
efficient manufacturing processes. In order for processors to achieve economies
of scale, high volume production has become increasingly important in dairy
operations. As a result, the industry has undergone consolidation in recent
years and larger, regional dairy processors have emerged. The Milk Industry
Foundation estimates that the number of plants producing fluid milk products,
has declined by 17% over the past five years from an estimated 749 plants in
1992 to an estimated 622 plants in 1996.
The demand for fluid milk has been generally flat over the past ten years
with declines in per capita consumption largely offset by population growth.
Overall milk demand can be broken down into fluid milk and
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<PAGE> 47
its derivative products, with fluid milk accounting for an estimated 37% of
current demand, cheese accounting for 35% and other products including butter,
nonfat dry milk, evaporated milk, ice cream and yogurt accounting for the
remaining 28%. Although milk demand as a whole has remained stable, changes in
the mix of fluid milk products have occurred as demand has increased for
products with lower fat content, while demand has decreased for products with
higher fat content.
Raw Milk Supply
The USDA estimates that in 1996 approximately 85% of the nation's milk
supply was produced and marketed by approximately 237 dairy cooperatives and the
other 15% was produced and marketed by independent producers. Total milk
production increased by 9.5% from 143 billion pounds in 1985 to 156.6 billion
pounds in 1997. The increase in production is due primarily to the increase in
the output of milk per cow. According to the USDA, while the number of cows has
declined an average of 0.8% per year over approximately the past 20 years, milk
production has increased an average of 1.4% per year over the same period due to
improved dairy farming practices and innovative techniques.
In addition, the production of milk has been increasing in the West and
Southwest and decreasing in the Midwest, which has traditionally been the
largest supplier of milk. Currently, California, Wisconsin, New York,
Pennsylvania and Minnesota are the five leading suppliers of milk. However,
Idaho, Arizona, New Mexico and Florida are expected to realize sizeable
production increases over the next several years due to population growth and
the increase in milk output per cow. Several factors are contributing to the
geographic shift, including rapid population growth in, and migration to, the
West and Southwest, climate and costs. Population growth in the West and
Southwest has resulted in an increased demand for milk in those areas. As a
result of this increased demand and the perishability of fluid milk products
which requires that production facilities be located in reasonably close
proximity to the consumer, the production of milk will continue to move closer
to the population centers in the West and Southwest. In addition, because of the
milder climate in the West and Southwest, dairy farms in those regions have
ample supplies of quality forage, abundant labor and lower land and facilities
costs, resulting in lower costs.
Raw Milk Pricing
The price of raw milk purchased by dairy processors is determined based on
a combination of factors including supply and demand and federal and state
regulations. The federal government regulates raw milk pricing through the
federal market orders and price support programs, and state governments can
regulate raw milk pricing by establishing their own market order programs or by
forming compacts that establish minimum prices for raw milk.
On a monthly basis federal and state market orders determine the minimum
price processors are required to pay for raw milk. Raw milk which is used to
produce fluid milk is categorized as Class I, cultured products and ice cream as
Class II, and butter, powdered milk and hard cheese as Class III. The market
orders set the "basic formula price" per one hundred pounds of Class III milk,
and establish incremental increases in the price for Class I and Class II milk.
Class I differentials are based on the location of the plant while Class II
differentials are the same in all market orders. Additionally, processors pay a
"butterfat differential" based on whether the milk contains more or less than
3.5% butterfat.
The price actually paid by processors is based on the market order price
discussed above plus administrative and handling fees and premiums that may be
charged by the cooperative or independent producer. Cooperatives also generally
provide a receiving credit to processors which is based on processing plants
receiving deliveries evenly seven days a week. Payments for the market order
price and for the Class I and butterfat differentials are coordinated through
the market order administrator, but payments for premiums and other fees charged
by the producer are made directly to the cooperative or independent producer. As
a result of this pricing mechanism, processors in the same market order areas
pay essentially the same price for raw milk, and there is rarely any shortage in
the amount of raw milk available for Class I or Class II products.
Federal price support programs set the price the federal government will
pay for certain products such as hard cheese and dry milk. As utilization of
these programs by dairy farmers has declined in recent years, the
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<PAGE> 48
federal government is phasing out price supports through 1999, at which time
price supports will be replaced with a loan program under which loans for
specified products will be available at the 1999 support price.
On November 6, 1997, a federal judge in Minnesota enjoined the USDA from
collecting Class I differentials in most federal market orders that establish
the federally mandated minimum price of raw milk, beginning with November raw
milk sales. The USDA has obtained a stay of this ruling pending the outcome of
the USDA's appeal to the U.S. Court of Appeals for the 8th Circuit.
Additionally, the USDA has proposed new rules for the federal milk marketing
program which have been published for public comment. The comment period expires
April 30, 1998. The USDA is also considering, as part of formal rulemaking, a
proposal to establish a temporary price floor for raw milk. In addition, certain
states have formed or are in the process of attempting to form regional
milk-price compacts designed to ensure that cheaper milk from other regions does
not undercut local producers' prices, which may result in higher milk prices
than the federally mandated minimum prices. While management does not believe
that these matters should have a material adverse effect on the Company's
business, neither the outcome of the court proceedings, the final form of any
new federal regulations or existence or location of any additional state
compacts nor the effect of such matters on the Company can be predicted with any
certainty.
PRODUCTS
The Company produces a variety of dairy products, fruit juices and drinks.
The Company's product mix is heavily weighted towards fluid milk. In addition,
the Company produces cultured products, ice cream products, and other dairy
related products.
The table below illustrates management's estimate of the contribution of
each product line to total sales:
<TABLE>
<CAPTION>
PRODUCT LINE SALES CONTRIBUTION(a)
------------ ---------------------
<S> <C>
Fluid milk products....................................... 79.8%
Cultured products......................................... 7.6
Fruit juices and drinks................................... 5.0
Ice cream products........................................ 4.6
Other..................................................... 3.0
-----
Total........................................... 100.0%
</TABLE>
-----------------------
(a) Based on total sales for the month ended December 31, 1997
Fluid Milk Products. The Company produces fluid milk products such as fresh
packaged milk and chocolate milk in whole, reduced fat and fat-free varieties,
as well as buttermilk, half-and-half and whipping cream. Fluid milk products are
sold under proprietary brand names as well as certain private labels. The
Company produces milk under the Schepps, Oak Farms, Foremost, Flav-O-Rich,
Barbe's, Brown's Velvet Dairy, Meadow Gold and Viva brand names. The Company
also sells and distributes branded fluid milk products such as lactose-reduced
and fortified products manufactured by third parties.
Cultured Products. Cultured products include cottage cheese, sour cream and
yogurt. The Company produces these products under the Schepps, Oak Farms,
Foremost, Barbe's, Brown's Velvet Dairy, Meadow Gold, Viva and Mountain High
brand names. The Company also produces these products under various private
labels, and distributes Dannon and Yoplait brands of yogurt.
Fruit Juices and Drinks. The Company produces orange juice and fruit drinks
under the Schepps, Oak Farms, Meadow Gold, Brown's Velvet Dairy, Flav-O-Rich and
Foremost brand names as well as under certain private labels.
Ice Cream Products. The Company provides ice cream mix to fast food
restaurant chains and produces ice cream, frozen yogurt and certain ice cream
novelties, such as ice cream sandwiches, which are sold under the Meadow Gold,
Olde Fashioned Recipe and Viva brand names. The Company also distributes ice
cream and frozen novelties purchased from outside sources.
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<PAGE> 49
RAW MATERIALS
Raw Milk. The most significant raw material used in the Company's
operations is raw milk. Effective January 1, 1998 the Company entered into an
agreement with DFA pursuant to which the Company has agreed to source all of its
milk from DFA. Prices charged to the Company by DFA under the supply arrangement
are at competitive market prices. The agreement is initially for a term of one
year and thereafter may be canceled on 12 months' notice. See "-- The Dairy
Industry -- Raw Milk Pricing." See "Certain Relationships and
Transactions -- Affiliation with DFA."
Distributed Products. The Company purchases ice cream, yogurt and other
dairy related products for distribution to its customers from numerous third
party manufacturers. The Company selects these manufacturers, which include both
large multi-line suppliers such as Nestle, and smaller specialty suppliers such
as Haagen Dazs, primarily on the basis of their brand names and product lines.
The Company has no significant long-term purchase obligations for the products
it distributes, and management believes that the Company has adequate
alternative sources of supply for the branded refrigerated and frozen food
products it distributes.
Crates, Packaging and Other Materials. Other production materials such as
juice concentrates, sweeteners, flavorings and various packaging supplies,
including milk crates, are purchased from numerous sources. The Company also
purchases resins for blowmolding into plastic containers. The Company is not
dependent upon any single supplier for such commodities.
PRODUCTION PROCESS
The fluid milk production process includes the steps described below.
Raw Milk Purchase and Processing. Milk producers transport their raw milk
to the Company's processing facilities on an "as needed" basis. The weight of
the milk is checked with either tank or truck scales. If raw milk passes the
Company's quality control testing, the Company takes ownership of the milk and
the raw milk is pumped into refrigerated silos. The milk is then transferred
from the silos either to the separator or directly into the blending process.
The separator is used to separate the butterfat from the skim milk. At this
point, the milk is standardized (reduced fat milks are standardized to 1/2%, 1%
or 2% milkfat) before being blended with vitamins and, in some cases (such as
chocolate milk), flavorings. The milk is then pasteurized by flash-heating to
approximately 168 degrees Fahrenheit to destroy harmful bacteria. Following the
pasteurization process, the milk is homogenized, which breaks up the butterfat
molecules so that the fat will not separate and rise to the top.
Packaging. After pasteurization and homogenization, the Company packages
milk into many different varieties of paper and plastic packages, including
half-gallon, quart, pint and half-pint sizes. The Company blowmolds some of its
own plastic containers in both gallon and half-gallon sizes. These containers
are made in the processing facility through a blowmold process and then moved
across conveyors to allow for cooling prior to being filled. For food service
accounts, the Company often packages its products in bulk plastic bags. The
Company stamps each product with an expiration date ranging from 12 to 17 days
from the date of shipment, depending on certain state regulatory requirements.
In addition, the Company provides certain nutritional information on the label
of each container in accordance with regulations promulgated by the Food and
Drug Administration ("FDA"). See "-- Regulatory Environment."
Short-Term Storage. Each processing facility has its own temporary cold box
storage space proportionate to its production capacity. Fluid milk products are
generally stored in these facilities for no more than 24 hours. Products other
than fluid milk may be kept in cold box storage longer. The products are then
loaded into the Company's extensive distribution fleet for delivery to its
customers.
Quality Control. The Company has strenuous quality control procedures to
ensure that its milk meets grade "A" standards. Upon receiving raw milk from its
suppliers, the Company implements a series of checks on the milk's level of
water, butterfat and non-fat solids and the presence of antibiotics and other
residues. This ensures that raw milk purchased by the Company is of appropriate
quality. Each processing facility has its own laboratory personnel who
continually oversee the production process, checking products in each stage of
production from raw materials to finished product. The Company keeps a sample of
every batch of product
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<PAGE> 50
on hand for a reasonable period in order to monitor product quality after it
goes to market and to respond promptly in the case of a problem. The Company has
set a general requirement that at least 90% of its products stay fresh for two
days after the stamped expiration date. The manufacturing equipment is cleaned,
washed, scrubbed and sanitized on a daily basis. The Company has invested in
equipment in its major facilities that can be cleaned in place. This allows the
Company to properly cleanse its equipment on a daily basis without disassembly.
The Company also emphasizes the importance of keeping the manufacturing and
storage areas clean and sanitary. The Company's products and processing
facilities are subject to frequent inspections by federal and state government
officials.
PROCESSING FACILITIES
The Company operates a total of 26 processing facilities in 11 states. All
of the Company's plants produce fluid milk except for the facilities in Des
Moines, Orem and Perry, which only produce ice cream. Each of the Company's
processing facilities currently runs multiple shifts per day. In addition, each
processing facility also serves as a distribution facility.
The following table provides detailed information regarding the Company's
processing facilities:
PROCESSING FACILITIES
<TABLE>
<CAPTION>
GALLONS PROCESSED SQUARE
IN 1997 OWNED OR FOOTAGE
(IN MILLIONS) LEASED (THOUSANDS)
------------------ -------- -----------
<S> <C> <C> <C>
Dallas, TX (Schepps Dairy)................. 54.5 Owned 59.6
Houston, TX................................ 52.1 Owned 68.2
Dallas, TX (Oak Farms Dairy)............... 34.5 Owned 85.0
Salt Lake City, UT......................... 33.8 Leased 74.9
San Antonio, TX............................ 27.8 Owned 63.5
Boise, ID.................................. 23.2 Owned 34.6
Shreveport, LA............................. 22.3 Owned 58.5
Englewood, CO.............................. 19.6(a) Owned 88.7
Tulsa, OK.................................. 18.3 Leased 63.7
Lincoln, NE................................ 14.9 Leased 103.7
New Orleans, LA............................ 13.0 Owned 100.0
Greeley, CO................................ 12.9 Owned 74.9
Waco, TX................................... 12.7 Owned 51.3
Delta, CO.................................. 11.5 Owned 15.2
Canton, MS................................. 11.5 Leased 36.3
Great Falls, MT............................ 8.3(a) Owned 39.0
Pocatello, ID.............................. 8.1 Leased 21.0
Westwego, LA............................... 7.0 Owned 24.6
Des Moines, IA............................. 6.4(b) Owned 41.1
Honolulu, HI............................... 6.4(a) Leased 80.1
Billings, MT............................... 5.8 Owned 34.4
Kalispell, MT.............................. 5.1 Owned 25.3
Perry, IA.................................. 4.7(b) Owned 28.8
Orem, UT................................... 4.5(b) Owned 36.7
Hilo, HI................................... 1.6 Leased 17.6
Puhi, HI................................... 0.8 Leased 13.8
</TABLE>
- ---------------
(a) Amount includes some ice cream production.
(b) Amounts represent ice cream production.
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<PAGE> 51
MARKETS
The Company's markets are concentrated in several states which are
experiencing and are projected by the U.S. Bureau of the Census to continue to
experience rapid population growth. Because per capita fluid milk consumption
has been declining, one of the most important factors in determining growth in
the consumption of dairy products is the rate of population growth in that
market. Population growth in the states in which the Company markets its
products is currently projected by the U.S. Bureau of the Census to increase at
a faster rate than for the U.S. as a whole.
The following table presents the contribution to the Company's pro forma
combined sales in 1997 by marketing area:
<TABLE>
<CAPTION>
MARKETING AREA SALES CONTRIBUTION
-------------- ------------------
<S> <C>
Dallas/Ft. Worth, TX........................................ 25.9
Houston, TX................................................. 8.3
San Antonio, TX............................................. 7.5
Salt Lake City, UT.......................................... 7.4
Denver, CO.................................................. 6.3
Honolulu, HI................................................ 5.9
Shreveport, LA.............................................. 5.5
Boise, ID................................................... 4.4
Tulsa, OK................................................... 4.1
Lincoln, NE................................................. 3.1
Grand Junction, CO.......................................... 3.1
Other....................................................... 18.5
----
Total............................................. 100%
====
</TABLE>
CUSTOMERS
The Company's customer base consists primarily of retailers and food
service accounts. Most supply arrangements are terminable on short notice or at
will. Albertson's Inc., which the Company estimates accounted for approximately
12% of the Company's pro forma combined net sales for 1997, was the only
customer which accounted for more than 10% of the Company's pro forma combined
net sales in that year.
Retailers. Retail accounts consist primarily of supermarkets and
convenience stores. Supermarkets (local supermarket chains in particular) and
convenience stores typically purchase dairy products from local dairies such as
those operated by the Company.
Food Service Accounts. Food service accounts include schools, restaurants,
hotels, hospitals, airlines and other institutions. Food service customers are
highly service oriented and less sensitive to price changes than retail
customers. In particular, more service is required for ordering, stocking and
rotating stock. Additionally, food service customers require more delivery
frequency, yet have more limited delivery times. Numerous specialty products and
various bulk products are also delivered to these customers. As a result of
these factors, strong relationships are important to maintain food service
customers, and dependable service can lead to customer loyalty.
MARKETING AND DISTRIBUTION
The Company sells products primarily through its own sales force. In
addition, independent distributors are utilized primarily in rural areas and for
the sale of certain product lines such as ice cream novelties, including ice
cream sandwiches, creamsicles, popsicles, and brokers are utilized for
distribution of Mountain High yogurt.
The Company distributes products from 60 major facilities, 26 of which also
serve as processing facilities. The Company owns 25 of its major distribution
branches. The following table provides additional information
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<PAGE> 52
with respect to the Company's major distribution facilities with 1,000 square
feet or more (excluding the processing facilities):
DISTRIBUTION FACILITIES
<TABLE>
<CAPTION>
SQUARE FOOTAGE
(THOUSANDS) OWNED OR LEASED
-------------- ---------------
<S> <C> <C>
Houston, TX............................................ 43.7 Owned
Austin, TX............................................. 27.0 Owned
Missoula, MT........................................... 25.0 Owned
Grand Junction, CO..................................... 20.0 Owned
Thibodaux, LA.......................................... 15.6 Owned
Riverton, WY........................................... 13.9 Owned
Colorado Springs, CO................................... 13.8 Owned
Ogden, UT.............................................. 10.3 Owned
Butte, MT.............................................. 10.0 Owned
Las Vegas, NV.......................................... 9.7 Owned
Longview, TX........................................... 9.2 Owned
Humble, TX............................................. 8.6 Owned
Wichita, KS............................................ 7.5 Owned
San Antonio, TX........................................ 7.3 Owned
Oklahoma City, OK...................................... 6.0 Owned
Pueblo, CO............................................. 5.5 Leased
Helena, MT............................................. 5.0 Owned
St. George, UT......................................... 4.5 Leased
Idaho Falls, ID........................................ 4.0 Owned
Jackson, WY............................................ 4.0 Owned
Evansville, WY......................................... 4.0 Owned
Paris, TX.............................................. 3.0 Owned
Twin Falls, ID......................................... 2.5 Owned
Wichita Falls, TX...................................... 2.5 Leased
Cheyenne, WY........................................... 2.3 Owned
Austin, TX............................................. 2.0 Owned
Beaumont, TX........................................... 2.0 Owned
Baton Rouge, LA........................................ 2.0 Leased
Wichita Falls, TX...................................... 2.0 Leased
Vernal, UT............................................. 2.0 Owned
Denison, TX............................................ 2.0 Leased
Gulfport, MS........................................... 1.8 Leased
Price, UT.............................................. 1.8 Leased
Lufkin, TX............................................. 1.0 Leased
</TABLE>
Products are distributed to customers primarily through the Company's own
distribution fleets directly to customers' stores. Centralized deliveries to
customer warehouses are generally performed by common carrier. The Company's
distribution fleet includes approximately 1,600 tractors and route trucks and
approximately 900 trailers that are used to service its customer network. The
Company's distribution fleet is approximately 62% owned and 38% leased.
COMPETITION
The Company's processing and distribution businesses are subject to
competition from other regional dairy processors and from large national food
service distributors that also operate in the markets served by the Company.
Competition in these businesses is based primarily upon service, price, brand
recognition, quality and breadth of product line. Increased competition has
resulted from the fact that the dairy processing
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<PAGE> 53
industry has excess capacity and has been in the process of consolidation due to
limited growth in the demand for fresh milk products, more efficient processing
techniques and the establishment by large grocery retailers of captive dairy
product processing plants.
In Texas and Louisiana markets, the Company, Borden Dairies, other regional
dairies and captive processing plants operated by supermarket chains are
currently the only significant dairy processors. In addition, there are a few
small scale independent processors in Texas and Louisiana against whom the
Company competes within specific markets, but each of these small processors
competes only in its specific geographic market. The Company's competitors
outside of Texas and Louisiana consist primarily of smaller, regional dairy
processors and captive supermarket processing plants. The Company will also
continue to compete with large national food service distributors which also
provide dairy products from other dairy processors to their customers.
EMPLOYEES
As of February 28, 1998, the Company employed approximately 4,600 people,
of whom approximately 10% are supervisory level employees. Approximately 27% of
employees are members of collective bargaining units, including units of the
International Brotherhood of Teamsters. The Company's management considers its
relations with employees to be good and believes that its employees are a key
element to the continuing success of the Company. The Company has never
experienced a work stoppage.
Following the consummation of the Acquisition, the Company kept in place
the corporate offices of Meadow Gold in Ogden, Utah. The Company anticipates
that it will be able to consolidate the administrative operations of Meadow Gold
in Dallas, so that the Ogden corporate offices will likely be closed by early
1999.
REGULATORY ENVIRONMENT
Federal Regulation of Milk Prices and Related Matters
The federal government has two programs, price supports and market orders
that can affect the prices paid by the Company for raw milk and thus can affect
the net sales and net margins of the Company. The price support program will be
phased out in 1999 and replaced with a loan program in 2000, and the number of
market orders will be reduced from 32 to between 10 and 14 by April 1999. While
the modification of these programs under the existing regulations is not
expected to adversely affect the Company's net sales and net margin, portions of
the federal milk order regulations have been successfully challenged, and new
rules have been proposed by the USDA. See "-- The Dairy Industry -- Raw Milk
Pricing" and "-- Raw Materials -- Raw Milk."
As a purchaser and processor of milk, the Company is required to pay
certain assessments to the National Dairy Promotion and Research Board and the
National Processor Advertising and Promotion Board and its pro rata share of
administrative expenses of administering the market order program.
State Regulation of Milk Prices and State Compacts
Various state governments also have programs which affect the price of
milk. For instance, Hawaii, Montana and California have their own milk market
order programs that set basic formula prices for raw milk produced by dairy
farmers in these states. Recently, Congress authorized the formation of a state
compact that has authority to regulate the price received by dairy farmers for
raw milk in the states of Vermont, New Hampshire, New York, Connecticut and
Massachusetts and certain other states are in the process of attempting to form
additional regional milk-price compacts. To date, the basic formula prices
established in Hawaii, Montana and California and by the compact generally have
exceeded the basic formula price established under the federal milk market order
program. While management does not believe that these developments should have
an adverse effect on the Company's business, neither the existence of or
location of any additional state compacts nor their effect on the Company can be
predicted with any certainty.
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<PAGE> 54
Tariffs
The Federal government imposes quota restrictions on certain imported dairy
products, which limit the quantity that may be imported at a given tariff rate
during a specified period. These tariff quotas are designed to protect the
integrity of the dairy price support program and the domestic dairy industry. If
these tariff quotas are removed and there is dumping of dairy products in this
country, the Company and the industry could be adversely affected. The NAFTA and
GATT accords provide for tariffs on certain imported dairy products to decrease
or be eliminated over time, but only if certain conditions are met. For
instance, a number of different dairy products may currently be imported
duty-free from Mexico, subject to quantitative limitations. Reduction of tariffs
on imported dairy products may adversely affect domestic producers or processors
of competitive products, such as the Company.
Public Health
As a processor and distributor of food products, the Company is subject to
the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder
by the FDA. This comprehensive regulatory scheme governs the manufacture
(including composition and ingredients), labeling, packaging and safety of food.
The FDA regulates manufacturing practices for food through its good
manufacturing practices regulations, specifies the standards of identity for
certain foods, including many of the products sold by the Company, and
prescribes the format and content of certain information required to appear on
food product labels.
In addition, the FDA enforces the Public Health Service Act and related
regulations, which are designed to prevent the introduction, transmission or
spread of communicable diseases. These regulations require, for example,
pasteurization of milk and milk products. The Company's products and facilities
are subject to both scheduled and unannounced inspections by the FDA and the
USDA and by various state agencies. The Company and its products are also
subject to state and local regulation such as the licensing of dairy processing
facilities, enforcement by state and local health agencies of state standards
for the Company's products, inspection of the Company's facilities and
regulation of the Company's trade practices in connection with the sale of dairy
products. As is the case with other dairy processors, the Company may recall
products either voluntarily or as a result of regulatory action. The Company has
not been required by a regulatory agency to recall any products in recent years.
Environmental Matters
The Company's operations and properties are subject to extensive regulation
pursuant to Environmental Laws, particularly those governing the management,
release and disposal of Hazardous Substances. Ammonia, a refrigerant used
extensively in the Company's operations, is considered an "extremely" Hazardous
Substance pursuant to federal Environmental Law due to its toxicity. In the
past, the Company has experienced occasional accidental releases of ammonia. The
Company has established procedures and provided for containment systems to
prevent or minimize the impact of any such releases in the future. However,
there can be no assurance that any such future releases will not have a material
adverse affect on the operations of a facility that may be the source of any
such release.
Wastewater discharges from the Company's processing plants are typically
subject to sewer use ordinances, pretreatment regulations and permit
requirements imposed by the municipalities that receive and treat and the
plants' wastewater. From time-to-time, a plant's discharge may exceed
established municipal wastewater limits for biochemical oxygen demanding
materials, total suspended solids and pH. Generally, excess discharges result in
the payment of wastewater surcharges to the affected municipalities. In the case
of severe or persistent violations, however, the affected municipalities may
impose fines, require the construction and operation of pretreatment facilities
or require the processor to take other action to abate such violations.
Many of the Company's owned and leased facilities, particularly those that
provide maintenance services for truck fleets, store Hazardous Substances (e.g.,
gasoline, diesel fuel and used motor oil) in underground storage tanks. Leaks
and spills associated with these tanks could require remediation of soil and/or
groundwater, perhaps at substantial cost. Moreover, underground storage tanks
are subject to extensive regulations covering operation and maintenance, leak
detection and reporting, financial responsibility,
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<PAGE> 55
corrective action and closure. The Company may need to make expenditures from
time-to-time to remain in compliance with these regulations and to upgrade
existing facilities.
In addition to ammonia, the Company's facilities utilize a variety of other
Hazardous Substances in the ordinary course of business. These substances
include laboratory chemicals, cleaning and maintenance supplies and paints and
solvents. The Company is required to report inventories of certain Hazardous
Substances, including ammonia, to state and local emergency response agencies
and to maintain and, if necessary, implement emergency plans at affected
facilities. Some of the Company's facilities were constructed with
asbestos-containing materials ("ACM"). The presence of ACM may impose additional
operating costs on the Company in connection with building maintenance,
protection of affected employees and renovation or demolition of structures that
contain ACM.
The Company believes that it is in compliance in all material respects with
all applicable Environmental Laws. To date, compliance with such requirements
has not had a material adverse impact on the Company's capital expenditures,
earnings or competitive position.
TRADEMARKS
The Company owns a number of registered United States trademarks, including
Schepps, Oak Farms, Meadow Gold, Mountain High, Lite Line, Profile, Big Dip,
So-Lo, None, Midwest Farms, Golden Royal, Cabell's, The Dairy Best, Knowlton's,
Jersey Gold, Dairy Land, Holland Dutch, Skim-Line, Econo-Way, Olde Fashioned
Recipe, Farmstead, Go Lightly, Viva-Yo, Blue Valley, Grand Old Vanilla,
Starflake, Poinsettia, Svelte and Frostick. In addition, the Company has filed
federal trademark applications for its Barbe's and Brown's Velvet Dairy
tradenames. The Company is also licensed to use the Borden, Elsie, Flav-O-Rich
and Foremost trademarks to process and sell dairy products. The Company also has
arrangements with the owners of the Nestle and Tampico trademarks to package and
sell products under those registered trademarks. In addition, the Company
distributes a number of products that are manufactured by third parties and sold
by the Company under registered trademarks of the third parties. Management is
not aware of any facts that would materially adversely impact continuing use of
the trademarks and tradenames currently used by the Company.
GOVERNMENTAL INVESTIGATIONS AND LITIGATION
In connection with the Transactions, DFA, the Company, and Milk Products
entered into the DOJ Consent Decree. The DOJ Consent Decree required DFA to
divest the Borden Dairies, but provided that the sale to Milk Products as part
of the Transactions satisfied this requirement. The DOJ Consent Decree also
required Mid-Am Capital to divest the Milk Products loan over approximately a
two-year period. The DOJ Consent Decree prohibits, among other things, DFA,
Mid-Am Capital and the Company from purchasing membership interests in or assets
of, or from making additional loans to, Milk Products. The Company does not
expect that the terms of the DOJ Consent Decree will have a material adverse
effect on its operations.
As a further part of the HSR Conditions, DFA implemented the Joint Venture
Agreement Amendments relating to the Company and two other Joint Ventures
(Hiland and Roberts) that operate in part of the territory previously served by
Meadow Gold. The Joint Venture Agreement Amendments, including the SFG
Amendments, restrict DFA's access to non-public, competitively sensitive
information relating to packaged fluid milk products. In addition, the Joint
Venture Agreement Amendments restrict DFA's ability to initiate unilaterally the
termination of the Joint Ventures (including the removal of the General Partner
of the Company) or to increase its ownership in the Joint Ventures to greater
than 50%. The Joint Venture Agreement Amendments also restrict DFA's ability to
vote on matters involving budgets and capital expenditures, the incurrence of
new debt relating to capital expenditures, and the selection and compensation of
officers. With respect to Sinton, another Joint Venture that operates in part of
the territory currently served by Meadow Gold, DFA representatives have resigned
from Sinton's representative committee and DFA will have no further rights to
participate in Sinton's management.
The Company, Mr. Schenkel, DFA, Borden, Inc., Mr. Meyer, and Milk Products
received civil investigative demands ("CIDs") from the State of Texas relating
to the Transactions. DFA, Milk Products and the Company entered into the Texas
Consent Decree, which also requires Mid-Am Capital to divest its
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interest in the loan to Milk Products on terms similar to those contained in the
DOJ Consent Decree. The Texas Consent Decree prohibits, among other things, DFA,
Mid-Am Capital and the Company from purchasing membership interests in or assets
of, or from making additional loans to Milk Products.
In July 1991, Schepps-Foremost, Inc., a predecessor of SFG Inc.
("Schepps-Foremost"), entered into a consent judgment and agreed permanent
injunction to settle certain civil antitrust claims made by the State of Texas
against it for the sale of dairy products to the State of Texas, its agencies
and Texas public schools during the period from 1975 to 1989. Schepps-Foremost
agreed to pay a civil fine of $575,000 to the State of Texas, to pay damages of
$5.2 million to the Texas public schools and to be restrained from violating the
Texas Antitrust Act. Also in the late 1980's DOJ initiated federal grand jury
investigations in a number of states into suspected bid-rigging and market
allocation in the dairy industry. In May 1994, SFG Inc. entered into a
Settlement Agreement pursuant to which it paid the United States an aggregate of
approximately $3 million in damages and fines and pled guilty to conspiring to
rig bids to supply fluid milk products to Texas and Louisiana public schools.
SFG Inc. entered into compliance agreements with certain federal agencies,
including the USDA (except for certain ongoing reporting requirements, most of
the substantive provisions of which expired January 13, 1998) and the Defense
Logistics Agency (except for certain ongoing reporting requirements, most of the
substantive provisions of which expired October 24, 1997), to implement
antitrust compliance and other programs to demonstrate that SFG, Inc. remains an
eligible government contractor. If the Company does not comply with these
agreements, cause for suspension and/or debarment from participating in federal
nonprocurement programs may exist. Management of the Company believes it is in
substantial compliance with these agreements and that compliance does not have a
material adverse effect on the Company.
On August 6, 1997, a lawsuit entitled David Curry, et.al. vs Borden, Inc.,
Southern Foods Group, LP., et.al. was filed against the Company and other dairy
processors in Texas in the District Court of Harris County, Texas. The plaintiff
alleges that containers of processed milk sold by the Company and the other
dairy processing defendants to grocery stores and schools were under-filled and
did not contain the volume of milk stated on the carton based upon certain tests
allegedly performed by the USDA. The plaintiff alleges violation of the Texas
Deceptive Trade Practices-Consumer Protection Act, breach of express warranty,
breach of the warranty of merchantability and common law fraud. The plaintiff is
asserting a claim for an unspecified amount of damages. The plaintiff seeks to
maintain the case as a class action on behalf of all persons who purchased
retail milk from the defendants in gallon, quart, pint or half-pint containers
in the State of Texas from August 5, 1993 to August 5, 1997. A hearing on
whether the case will be maintained as a class is set for August 17, 1998. The
case is not set for trial. This matter is in the early stages of discovery. The
Company believes it has meritorious defenses and intends to vigorously defend
the lawsuit. Although the outcome of this matter is uncertain, management does
not believe that the lawsuit will have a material adverse effect on the Company.
The Company is party to certain litigation in the normal course of
business. Management does not believe the outcome of any of these proceedings
will materially affect the Company's financial position or results of
operations.
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MANAGEMENT
The following table sets forth the executive officers of the Company and
the executive officers and Representatives (as defined) on the Committee of SFG
Management.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Pete Schenkel.............. 61 President, Chief Executive Officer and Representative
Anthony R. Ward............ 57 Vice Chairman
Patrick K. Ford............ 31 Chief Financial Officer
Gary E. Hanman............. 64 Representative
Gerald L. Bos.............. 58 Representative
Jerry W. Frie.............. 59 Representative
</TABLE>
Pete Schenkel has served as President of the Company since 1987, became
Chief Executive Officer in 1994 and has served on the Committee since the
formation of SFG Management in December 1994. Mr. Schenkel became President of
Schepps in January 1985, where he previously served as President of the Northern
Division and General Manager. Mr. Schenkel joined Schepps in 1958 when a local
dairy company owned by his father was purchased by Schepps. Mr. Schenkel is a
past Chairman of the Dallas/Fort Worth International Airport Board of Directors
and was former Texas Governor Clement's appointee to the Board of Directors of
Texas Tourism and Development Agency. He is also a member of the Board of
Goodwill Industries and the Dallas Citizen Council. He is a member of the Board
of Directors at First Bank and for the Milk Industry Foundation. Mr. Schenkel is
also the President and Chief Executive Officer of SFG Capital.
Anthony R. Ward serves as Vice Chairman of the Company. Mr. Ward was
appointed Chairman of the Board of Directors, President and Chief Executive
Officer of Borden/Meadow Gold in May 1995. Prior to assuming this position, Mr.
Ward served as Western Region Manager of the Dairy Division of Borden since 1993
and Western Region Sales Manager since 1992. Mr. Ward has over 36 years of
experience in the dairy industry, all of which have been with Borden and the
Company.
Patrick K. Ford joined SFG in June 1997 and assumed the position of Chief
Financial Officer upon Mr. Frie's resignation from that position in December
1997. Mr. Ford served as Assistant Controller-Corporate with Weatherford
Enterra, Inc. from September 1996 through May 1997. Prior to assuming that
position, Mr. Ford was employed by Price Waterhouse LLP since 1990, most
recently serving as Senior Manager. During his tenure with Price Waterhouse LLP,
Mr. Ford served as an auditor of SFG from 1990 through 1995. Mr. Ford is the
Chief Financial Officer, Secretary and Treasurer of SFG Capital.
Jerry W. Frie has served as a Representative on the Committee of SFG
Management since September 4, 1997. Mr. Frie served as Chief Financial Officer
of SFG from 1987 to December 1997, and has 30 years of experience in the dairy
industry in both accounting and operations management functions. Mr. Frie began
his career with Foremost where he progressed from a junior accountant, to
Controller, to General Manager of Foremost's Shreveport production facility. In
1985, Mr. Frie became the Controller and Treasurer for Schepps. Mr. Frie is
Chairman of the Master Dairies Financial Group, and a member of M.I.F. Federal
Milk Order Committee. Mr. Frie continues to serve as a part time employee of the
Company for various matters such as raw milk pricing policies.
Gary E. Hanman has served as a Representative on the Committee of SFG
Management since the formation of SFG Management in December 1994. Mr. Hanman
who is the President and Chief Executive Officer of DFA, became its Chief
Executive Officer in July 1988. Prior to that time, Mr. Hanman was Executive
Vice President and General Manager of DFA from 1975, and before that was Vice
President of Fluid Marketing for DFA. Mr. Hanman previously was employed by the
Federal Milk Market Administrator at St. Louis, Missouri from 1956 until 1964.
In 1994, Mr. Hanman was appointed to a three year term on the National Fluid
Milk Promotion Board by the Secretary of Agriculture. This 20 member board,
composed of fluid milk processors, administers the $55 million, handler-funded
advertising and promotion program aimed at increasing Class I fluid milk sales
throughout the U.S. In January 1995 he was elected President of the National
Council of Farmer Cooperatives, a national organization that represents 100 of
the nation's
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agricultural cooperatives in Washington, D.C. for a two year term. Mr. Hanman
also chaired the NCFC's Political Action Committee.
Gerald L. Bos has served as a Representative to the Committee of SFG
Management since the formation of SFG Management in December 1994. Mr. Bos is
the Chief Financial Officer of DFA. Mr. Bos joined DFA as Vice
President -- Finance and Accounting in April 1979, and became the Chief
Financial Officer of DFA on January 1, 1998. Mr. Bos worked with the accounting
firm of Touche Ross & Co. from 1963 to 1979, and was a partner in that firm.
EXECUTIVE EMPLOYMENT AGREEMENTS
In connection with the Transactions, the Company entered into executive
employment agreements with Pete Schenkel and Anthony R. Ward. The employment
agreements are for a term of five years and the term automatically extends for
one or more one year terms unless either the Company or the employee, not less
than 90 days prior to the commencement of any term, notifies the other party
that the agreement will expire at the end of the term. The employment agreements
provide for the payment of an annual salary, which cannot be less than the base
salary of $359,000 for Mr. Schenkel and $336,000 for Mr. Ward, an annual bonus
as determined from time to time by the Company, which in the case of Mr. Ward
will be an amount equal to .66% of the earnings before interest, income taxes,
depreciation and amortization of Meadow Gold not to exceed his base salary for
the year, and certain other employee benefits. If the Company terminates the
executive without cause or if the Company materially breaches the agreement and
such breach is not cured within 30 days, the Company is obligated to pay the
employee a severance benefit. The severance benefit is equal to the base salary
for the then remaining term of the agreement payable in monthly installments,
plus the annual bonus, if any, which would have otherwise been paid to the
employee during each year of the remaining term. The employment agreements
define "cause" as death of the employee; total disability of the employee; the
dissolution and liquidation of the Company other than as a part of a
reorganization or sale of all or substantially all of the assets of the Company
where the Company's business is continued; a conviction or plea of guilty or no
contest by the employee to a felony involving fraud, embezzlement, theft or
dishonesty or other criminal act; habitual neglect of the employee's duties or
failure to perform obligations that is not remedied within 30 days after written
notice from the Company; or any material breach by the employee of the agreement
which is not cured within 30 days after written notice from the Company.
In addition, Mr. Ward's employment agreement provides that for a period of
two years after termination of his employment he may not compete with the
business of the Company in any of the states of the United States located west
of the Mississippi River as long as the Company continues to conduct business in
that area. In addition, he may not solicit customers or employees of the Company
during that period. Mr. Schenkel's employment agreement also contains a two year
non-compete provision after termination of his employment and a non-solicitation
provision. Mr. Schenkel's non-compete provision is limited to Texas, Louisiana,
Oklahoma, and Arkansas. Mr. Schenkel's employment agreement provides that in the
event of his death during the term of the agreement, his base salary will
continue to be paid to his estate for a year and one-half of his base salary
will be paid for an additional year.
RETIREMENT PLANS
The Company maintains the Southern Foods Group, L.P. Employees Savings and
Profit Sharing Plan ("Profit Sharing Plan"). All employees of the Company are
eligible to participate in the Profit Sharing Plan upon completion of six months
of service, as defined. The Company matches employee contributions equal to 50%
of the participant's contribution up to 3% of the participant's compensation.
The Company may also make discretionary contributions based on profits.
Employees vest in the Company's contribution after two to five years of service.
Selected management personnel are eligible to participate in the Management
Security Plan, an unqualified plan. The Company matches 100% of contributions up
to 3% of each participant's compensation. Employees vest in the Company's
contribution after two years of service.
Effective October 1, 1996, the Company adopted the Supplemental Executive
Retirement Plan ("SERP"). The SERP is available to certain specified executives
of the Company ("SERP Participants") and provides benefits based on a percentage
of the executives' salaries. Benefits are payable monthly for the
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SERP Participant's life upon retirement, disability or involuntary termination.
Such monthly amount will be equal to 70% of the greatest annual earnings
received by the SERP Participant from the Company during any consecutive twelve
calendar month period on or prior to the SERP Participant's retirement date,
less the sum of the maximum monthly amount that could be payable to the SERP
Participant under the Profit Sharing Plan and the monthly retirement benefit
payable to the SERP Participant by the Social Security Administration, whether
or not actually paid. The SERP is non-qualified and unfunded and there is no
calculation of market value or fair value of the assets in the SERP. The
estimated annual benefits payable under the SERP upon retirement for Pete
Schenkel and Jerry Frie are $174,000 and $54,000, respectively.
Meadow Gold employees are eligible to participate in a 401(k) plan upon
date of hire. The Company matches contributions equal to 50% of the
participant's contribution up to 5% of each participant's compensation.
Employees vest in the Company's contribution over five years. Most Meadow Gold
employees also participate in a retirement cash contribution plan where benefits
are based generally on compensation and credited service. For most hourly
employees, benefits under this plan are based on specified amounts per year of
credited service.
See Note 8 of Notes to the Financial Statements of the Company.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
to the Company's Chief Executive Officer and the other executive officers of the
Company for the fiscal years shown.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(a)
---------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(b) COMPENSATION($)(c)
------------------ ---- --------- -------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Pete Schenkel 1997 $358,651 $455,888 $2,000,000 $ 740,260(d)
Chief Executive 1996 361,800 319,507 746,563 20,354
Officer.................. 1995 334,039 285,747 21,341
Jerry W. Frie 1997 117,832 124,146 -- 77,070
Chief Financial 1996 114,869 72,876 7,454
Officer(e)............... 1995 111,142 71,481 6,668
Allen Meyer 1997 259,076 614,286 2,000,000 1,137,272(d)
Former Vice 1996 348,400 272,542 751,754 18,229
President(f)............. 1995 73,442 253,642 4,406
Tony Ward
Vice Chairman(g)......... 1997 110,200 6,612
</TABLE>
- ---------------
(a) Excludes the aggregate, incremental cost to the Company of perquisites and
other personal benefits, securities or property, the aggregate amount of
which, with respect to the named individual, does not exceed the lesser of
$50,000 or 10% of reported annual salary and bonus for such person.
(b) Represents amounts distributed to the partners of the Company as
Partnership Tax Amounts to pay federal and state income tax due on
partnership income. See "Description of the Partnership Agreement and
Operating Agreement."
(c) Represents amounts contributed by the Company under retirement plans, less
the amounts set forth in footnote (d) below, where applicable.
(d) Includes special distributions made to Mr. Schenkel ($700,000) and Mr.
Meyer ($1,100,000), as partners in the Company, in connection with the
Transactions. See "Certain Relationships and Transactions -- Certain
Distributions and Related Party Payments."
(e) Jerry W. Frie resigned as Chief Financial Officer of the Company effective
December 31, 1997.
(f) Allen Meyer resigned as Vice President of the Company effective May 22,
1997, and has had no affiliation with the Company since September 4, 1997.
Mr. Meyer owns Milk Products, an independent company which acquired and
operates the assets of the Borden Dairies.
(g) Tony Ward became an employee of the Company on September 4, 1997. Amounts
shown represent the salary paid to Mr. Ward for the period September 4,
1997 to December 31, 1997, but exclude $119,301 of bonus earned in such
period but paid in 1998.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
AFFILIATION WITH DFA
The Company is an affiliate of DFA. DFA owns a 49.5% limited partnership
interest, Mr. Schenkel owns a 49.5% limited partnership interest and SFG
Management owns a 1% general partnership interest in the Company. SFG Management
is owned 50% by DFA and 50% by Mr. Schenkel. In addition, as of December 31,
1997, DFA owns $192.3 million in net stated amount of Preferred Interests,
including unpaid preferred returns, and Mid-Am Capital owns an additional $46.4
million in stated amount of Preferred Interests, including unpaid preferred
returns, of the Company. Mid-Am Capital is owned 50% by DFA and 50% by seven
other companies, including the Company, which has a seven percent equity
interest in Mid-Am Capital. For a description of the Transactions, see "The
Transactions" and for a description of the governance of the Company see
"Description of the Partnership Agreement and Operating Agreement."
Effective January 1, 1998, DFA and the Company entered into a written milk
supply agreement pursuant to which the Company agreed to source all of its raw
milk requirements from DFA or from other dairy cooperatives with which DFA has
cooperative marketing agency agreements as long as DFA's prices are competitive
with those which could be obtained from independent sources.
On January 1, 1998, DFA merged with three other large dairy cooperatives.
The other cooperatives were Milk Marketing Inc. of Strongsville, Ohio, Western
Dairymen Cooperative Inc., and the southern region of Associated Milk Producers,
Inc. Together, these cooperatives represented over 18,600 member farms in 1997.
Total sales of the combining cooperatives were approximately $6.2 billion in
1997. The consolidation did not constitute a "Change of Control" within the
meaning of the restrictive covenant described under "Description of the
Notes -- Change of Control."
In connection with the Acquisition, DFA assumed Borden's rights and
obligations with respect to certain equipment and vehicles used by Holdings in
its dairy operations by entering into new master lease agreements with the
lessors. DFA subleased the leased equipment used by Meadow Gold to the Company
on the basis of passing through DFA's rights and obligations under the new
master lease agreements. In addition, DFA has agreed to pay to Borden any
contributions in excess of $5 million that the Pension Benefit Guaranty
Corporation may require to be made by Borden to benefit plans that the Company
will sponsor for employees of Meadow Gold. Since such contributions are for the
benefit of the Company, the Company will issue Additional Preferred Interests to
DFA in a stated amount equal to any such DFA contribution. See "Description of
Preferred Interests."
In July 1994, DFA entered into a lease agreement with Unionbanc Leasing
Corporation pursuant to which Unionbanc leased to DFA certain equipment used by
the Company. DFA has subleased the equipment to the Company on a pass through
basis.
The Company employs Mr. Jerry Bos, the CFO of DFA and a Representative on
the Committee, as a consultant on financial services. The Company paid Mr. Bos
consulting fees of $100,000 and $125,000 for 1997 and 1998, respectively.
OWNERSHIP REORGANIZATION AND CONTRIBUTION BY DFA OF THE BARBE'S DAIRY ASSETS
In October 1996, Messrs. Meyer and Schenkel each purchased for $100,000 a
10% membership interest in SFG Management from Mid-Am Finance, Inc., the
predecessor of Mid-Am Capital and an affiliate of DFA. In February 1997, Messrs.
Schenkel and Meyer each increased their ownership in the Company by contributing
$3.1 million each for a 24.75% Common Limited Partnership Interest (as defined).
DFA retained the remaining 49.5% Common Limited Partnership Interest and
received Series A Preferred Interests in a stated amount of $76.9 million. At
that time, an affiliate of DFA also contributed to the Company the assets and
liabilities of Barbe's Dairy, Inc. and received Series A Preferred Interests in
a stated amount of $8.0 million. See "Description of the Partnership Agreement
and Operating Agreement."
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LEASE OF AND OPTION TO PURCHASE PROCESSING PLANT AND LICENSE OF TRADEMARKS FROM
FLAV-O-RICH, INC.
Flav-O-Rich, Inc. ("Flav-O-Rich"), a wholly owned subsidiary of DFA, has
leased a dairy processing plant owned by it in Canton, Mississippi to the
Company, pursuant to a Lease Agreement between the Company and Flav-O-Rich dated
February 28, 1995. The lease initially was for a one year term and, so long as
the Company is in compliance with its terms, extends automatically for one year
terms unless terminated by either party upon at least 90 days' notice. The lease
is a net lease and the annual base rent is $180,000. The Company has a right of
first refusal to purchase the plant in the event that Flav-O-Rich receives an
offer or desires to sell the plant. In addition, the Company has an option to
purchase the Canton plant at any time during the term of the lease, at an option
price that varies depending on the month in which the option is exercised
ranging from an option price of $1,066,250 if the option is exercised in May
1998 to $820,000 if the option is exercised in February 2000. In addition, the
Company obtained a royalty-free license to use the Flav-O-Rich trademarks in the
states of Louisiana, Mississippi and Arkansas and a portion of Tennessee for
specified dairy products. The license continues so long as the lease agreement
is in effect and for three years after any exercise of the option to purchase
the plant. The Company believes that these agreements are on terms substantially
equivalent to those obtainable from an unaffiliated party.
CERTAIN DISTRIBUTIONS AND RELATED PARTY PAYMENTS INVOLVING PARTNERS
Immediately prior to the closing of the Acquisition, the Company
distributed to Mr. Meyer approximately $1.1 million in cash as a special
distribution. In addition, the Company made a special distribution to Mr.
Schenkel of approximately $700,000 in cash and approximately $400,000 in stated
amount of Series E Preferred Interests, all of which interests were immediately
contributed to the Company. The Company also issued to DFA approximately $2.2
million in stated amount of Series E Preferred Interests, of which $400,000 was
immediately contributed to the Company. Such distributions were made in
connection with the Meyer Divestiture and to maintain equality with respect to
the Common Partner Interests of DFA and Mr. Schenkel. In addition, on September
10, 1997 the Company made additional distributions to Messrs. Schenkel and Meyer
of $2.0 million each as a distribution of Partnership Tax Amounts (as defined)
in respect of certain tax liabilities and to DFA of $4.0 million of Series E
Preferred Interests. See "Description of Preferred Interests."
Mr. Schenkel's son is employed by the Company as the Company's sales
manager and Mr. Schenkel's son-in-law is employed as the general manager of the
Dallas Oak Farms plant. In 1997, they received compensation from the Company in
the amounts of $68,984 and $95,936, respectively.
PUT AND CALL RELATING TO MR. SCHENKEL'S INTEREST IN THE COMPANY AND SFG
MANAGEMENT
At any time on or after January 1, 2003, Mr. Schenkel may require the
Company or DFA to purchase all of his partnership interests in the Company and
his member interest in SFG Management, and DFA has the option to purchase up to
20% of Mr. Schenkel's interest in the Company. See "Description of the
Partnership Agreement and Operating Agreement -- Put and Call Relating to Mr.
Schenkel's Interest in the Company and SFG Management."
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<PAGE> 62
DESCRIPTION OF THE PARTNERSHIP AGREEMENT
AND OPERATING AGREEMENT
The following discussion summarizes provisions of the Partnership Agreement
and the Operating Agreement, as amended through March 31, 1998.
The Partnership Agreement authorizes both common partnership interests
("Common Interests") that participate in the Company's profits and losses and
have voting rights and preferred limited partnership interests ("Preferred
Interests") that are only entitled to the return of the stated amount of the
Preferred Interests, but are entitled to a preferred return from the Company's
profits (the "Preferred Return") and do not have voting rights other than as
required by law or as specified in the Partnership Agreement. Currently the
Company has one general partner, SFG Management, which has a common general
partnership interest in the Company, and two limited partners, Pete Schenkel and
DFA, which have common limited partnership interests in the Company
(collectively, the "Common Limited Partners", and together with the General
Partner, the "Common Partners"). The Company also has outstanding five series of
Preferred Interests, four of which were issued in connection with the
Transactions. The holders of Preferred Interests are hereinafter referred to as
"Preferred Limited Partners", and together with the Common Partners, the
"Partners" (each a "Partner"). At December 31, 1997 the Company had an aggregate
of $238.7 million stated amount of Preferred Interests outstanding.
The Company is managed by its General Partner, SFG Management, except that
without the prior written consent of the Common Limited Partners, the General
Partner does not have authority to take certain actions, including taking any
action which would cause a limited partner to be personally liable to a creditor
of the Company or which would possess or assign partnership property for other
than a Company purpose.
The membership interests of SFG Management are owned 50% each by DFA and
Mr. Schenkel. SFG Management is governed by its members (collectively, the
"Members", and each a "Member") which act through the Committee, consisting of
two members appointed by DFA and two members appointed by Pete Schenkel
(collectively, the "Representatives" and each a "Representative"). DFA appointed
Messrs. Hanman and Bos as members of the Committee and Mr. Schenkel appointed
himself and Mr. Jerry Frie, the former Chief Financial Officer of the Company,
as members of the Committee. Actions by the Committee require a written consent
signed by all Representatives or that a quorum, consisting of one Representative
of each member, be present and that all Representatives present approve the
action.
The Committee may delegate its powers to officers of SFG Management except
that it may not delegate the powers in respect of certain matters, including any
actions or approvals to be taken by SFG Management on behalf of the Company, the
appointment or removal of any officer of SFG Management or the Company, and the
acquisition, expansion or disposal of facilities of SFG Management or the
Company.
Pursuant to the SFG Amendments, DFA agreed to certain revisions to the
Partnership Agreement and the Operating Agreement that restrict or modify its
rights to have its Representatives participate and vote with respect to certain
matters affecting the Company. For instance, with respect to matters relating to
the acquisition, expansion or disposal of facilities, DFA has agreed to certain
restrictions regarding its ability to participate in the capital budget and
capital expenditure process, particularly when the Company contemplates an
expansion of its business. With respect to budgeting and capital expenditures
relating to the processing and sale of fluid milk products, DFA has agreed that
it will not participate in a vote on expenditures unless the total project cost
exceeds $3 million. In that case, DFA is obligated to vote in favor of an
expenditure unless it has persuaded an independent decisionmaker (an individual
experienced in accounting and financial matters who is not affiliated with DFA)
that the expenditure would not be a rational business decision and would
threaten the ongoing financial viability of the Company. With respect to
budgeting and capital expenditures relating to products other than fluid milk
products, DFA may not disapprove projects of under $3 million and may only
disapprove capital expenditures on projects with a total project cost of more
than $3 million if it persuades an independent decisionmaker that the
expenditure would not be a rational business decision for a company whose
primary business purpose is to process and sell products with milk as their
primary ingredient. In addition, DFA has agreed to not participate in a vote
regarding the incurrence by the Company of any new borrowings relating to the
capital expenditures described above unless such approval is necessary to
satisfy
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requirements imposed by a creditor of the Company. With respect to the
appointment or removal of any officer of the Company or the General Partner, the
Representatives appointed by Mr. Schenkel will nominate all officers and DFA
will be obligated to vote for such officers unless the nominee lacks appropriate
management experience or other qualifications. No officer, director or employee
of DFA or its Joint Ventures (other than the Company) may serve as an officer of
the Company or the General Partner. In addition, compensation decisions with
respect to the officers will be restricted to Representatives appointed by Mr.
Schenkel. The SFG Amendments will restrict the rights of the Representatives of
DFA to vote on certain other matters with respect to the Company.
CERTAIN ACTIONS THAT REQUIRE MEMBER APPROVAL
The Committee may not undertake certain actions unless it first receives
the consent of all of the Members, which actions include the sale, lease,
transfer or other disposition of all or substantially all of SFG Management's
assets or business; any increase or decrease in the capitalization of or the
admission of any new Member to SFG Management; the making of loans by or from
SFG Management with, any guarantee of debt on behalf of or contract or amendment
to any contract with, any Member or any affiliate of any Member; the making of a
material tax election under the Code affecting SFG Management or its Members
unless specifically allowed pursuant to the terms of the Operating Agreement;
the confession of a judgment or bankruptcy filing by or the liquidation or
dissolution of SFG Management; the conversion of SFG Management into another
form of entity; the offering of any securities or membership interests to third
parties by SFG Management; and any amendment or modification of the Operating
Agreement or the Certificate of Formation of SFG Management.
ARBITRATION OF DISPUTES
The Partnership Agreement provides that all controversies, claims and
matters of difference between the Partners will be submitted to arbitration in
Dallas, Texas, and that the Partners agree to abide by all awards rendered in
the proceedings. During the pendency of arbitration proceedings relating to a
default, no party is considered in default until the final award has been
rendered. The Operating Agreement also provides for arbitration of disputes.
INDEMNIFICATION AND FIDUCIARY STANDARDS
Each Partner has agreed to indemnify and hold harmless the Company and its
other Partners from all losses, liabilities, claims and expenses arising out of
any breach of the Partnership Agreement by such Partner or actions or omissions
of the Partner that are outside of the scope of its authority as a Partner.
The Company has agreed to indemnify the General Partner and its officers,
managers, employees, members and agents to the fullest extent permitted by law
from all costs and expenses incurred by such parties as a result of acting on
behalf of or having been associated with the Company so long as the indemnified
party is not ultimately adjudged to have engaged in gross negligence, willful
misconduct or a breach of a material provision of the Partnership Agreement.
The Operating Agreement provides that SFG Management must indemnify to the
fullest extent permitted by law each representative, member and officer of SFG
Management or the Company against all costs, expenses and liabilities incurred
in connection with any action, suit or proceeding with which such person may be
involved by reason of having been a representative, member or officer of SFG
Management or the Company.
ALLOCATIONS AND DISTRIBUTIONS
Allocations. Subject to certain special allocations, net profits of the
Company for any fiscal year will be allocated first to the Preferred Interests
to bring their capital accounts to an amount equal to the cumulative Preferred
Returns on such interests for all prior and current periods. Next, net profits
will be allocated ratably to eliminate any deficit balance in any Partner's
capital account balance. Next, to the extent net losses have been allocated in
prior periods in amounts that were not pro rata among the Common Interests, net
profits will
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be allocated to cause the balances of the capital accounts related to the Common
Interests to be in proportion to such Common Interests and the remainder will be
allocated pro rata to the Common Interests. Subject to certain special
allocations, losses will be allocated to the Common Interests pro rata except
that no Common Limited Partner may receive an allocation which would cause such
Common Limited Partner to have a deficit in its capital account at the end of
any fiscal year of the Company.
Distributions. The Company intends to distribute to its Partners its gross
cash receipts from operations (as well as any net cash proceeds received from
the sale or financing of its assets unless it is a sale of all or substantially
all of the assets of the Company) less the portion required to pay the Company's
expenses and less any reserves established by the General Partner for operating
expenses, taxes, maintenance, insurance, capital expenditures, repairs and other
items deemed reasonable and necessary for the Company's business or operations
(collectively, "Net Operating Cash Flow"). Net Operating Cash Flow may be
distributed to the Partners so long as (i) after the distribution is made, the
liabilities of the Company, excluding the Company's liability to its Partners
for their capital contributions, do not exceed the fair market value of the
assets of the Company and (ii) no distribution would reduce a Partner's capital
account below zero unless it is a distribution of Partnership Tax Amounts.
Net Operating Cash Flow is distributed first to certain Partners (the
"Eligible Partners") until each of the Eligible Partners has received a
distribution in an amount equal to the combined federal, state and local income
tax on the amount of such Partner's net amount of taxable income of the Company
allocated to it for the taxable period using the highest combined tax rates (or
alternative minimum tax rates) under federal, state and local law after taking
into account any deductibility of such taxes on any other tax return (the
"Partnership Tax Amount"). The Eligible Partners are (i) Mr. Schenkel and (ii)
prior to the Meyer Divestiture, Mr. Meyer. In the event Net Operating Cash Flow
is insufficient to make any distribution of Partnership Tax Amounts for a
period, the deficiency must be satisfied as soon as Net Operating Cash Flow is
available. Next, within 45 days after the end of each fiscal semi-annual period
Net Operating Cash Flow is distributed to the Preferred Limited Partners who are
entitled to cash payments of Preferred Returns until each Preferred Limited
Partner has received a distribution equal to the excess of the cumulative
Preferred Return due to such Preferred Limited Partner for the period from the
issuance of the Preferred Interest to the end of the semi-annual period over the
sum of all Preferred Returns previously paid to such Partner (the "Unpaid
Preferred Return"). Finally, in the discretion of the General Partner, the
balance of any Net Operating Cash Flow may be distributed to the Common Partners
or to the Preferred Partners, subject, however, to any limitations on such
distributions contained in any agreement to which the Company is a party. In
connection with the Transactions, the Partnership Agreement was amended to
provide that all Preferred Returns with respect to the Series A Preferred
Interests must be paid in kind and to make corresponding changes to the
distributions to Partner provisions.
Distributions on liquidation of the Company will initially be made in
accordance with capital account balances, and will be made first to pay any net
profits allocated with respect to Preferred Returns that have not previously
been distributed in cash, then to pay all Unreturned Preferred Capital Balances
and then to pay the capital accounts of the Common Partners. Once each Partner
has been paid the amount of its capital account, any remaining assets will be
distributed pro rata to the holders of Common Interests.
ISSUANCE OF ADDITIONAL PARTNERSHIP INTERESTS
Additional Common Interests may not be offered by the Company except with
the approval of the Committee.
The General Partner has the authority to create the terms of additional
series of additional Preferred Interests ("Additional Preferred Interests") in
the Company, such as the Preferred Interests issued as part of the Transactions.
In creating any such series the General Partner is to establish the designation
of the series; the number of interests included in such series, which number may
be increased or decreased from time to time unless otherwise provided when the
series is created; the rate of return payable on the Additional Preferred
Interests and whether such return is intended to be a guaranteed payment or is
based upon the Company's profits and losses; the annual distribution rate or
allocation of profits and losses and the date on
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which such amounts are to be payable; whether the distributions are cumulative
and, if cumulative, the date on which such rate of return becomes cumulative;
the amount to be paid upon dissolution or termination of the Company; the prices
at which the Additional Preferred Interests may be redeemed or purchased by the
Company; the obligation, if any, of the Company to purchase or redeem the
Additional Preferred Interests and the prices and other terms on which they may
be redeemed; and all other rights, powers and preferences of the Additional
Preferred Interests that are not inconsistent with the Partnership Agreement.
The General Partner may create series of Additional Preferred Interests
without approval of any Partner, except approval of the Common Limited Partners
is required when the Additional Preferred Interests grant any right to vote as a
partner or to participate in the management of the Company. If any series of
Additional Preferred Interests is ranked above, has priority over or affects the
rights of any existing holders of Preferred Interests or Common Interests, the
prior written approval of all Partners so affected must be obtained.
LIMITATIONS ON TRANSFER OF PARTNERSHIP INTERESTS
No Transfers Permitted. Under the Partnership Agreement, any transfer or
pledge of a partnership interest by a Partner is subject to the consent of the
Partners, except the individual limited partners may freely transfer their
partnership interests into an entity in which a Partner and members of his
family own more than a 50% interest. In addition, DFA and Mid-Am Capital may
transfer their partnership interests to any successor by merger or consolidation
without obtaining consent of the other Partners. Neither SFG Management nor any
Partner of the Company is permitted to transfer any or all of their respective
partnership interests in the Company if such transfer will adversely affect the
Company's tax status. In addition, DFA is prohibited from purchasing or
accepting a transfer of any additional interests in the Company or in the
General Partner if the purchase or transfer would cause DFA to own more than 50%
of the voting interests of the Company or the General Partner in existence at
the time of the transfer or purchase.
Right of First Refusal. Transfers of partnership interests by a Partner are
subject to a right of first offer to the other Partners of the Company and to
the Company itself.
PUT AND CALL RELATING TO MR. SCHENKEL'S INTEREST IN THE COMPANY AND SFG
MANAGEMENT
At any time on or after January 1, 2003, Mr. Schenkel may require the
Company or DFA to purchase all of his partnership interests in the Company, and
DFA has the option to purchase up to 20% of Mr. Schenkel's interest in the
Company. In the event of Mr. Schenkel's death, his successors-in-interest have
the right to require the Company or DFA to purchase all of his interests in the
Company. In addition, the Company and DFA have a right to require Mr. Schenkel's
successors-in-interest to sell to the Company or DFA, as the case may be, all of
his interests in the Company in the event of his death. Any exercise of a put or
call with respect to the Company triggers a corresponding put or call with
respect to Mr. Schenkel's member interest in SFG Management. The purchase price
for Mr. Schenkel's interests in the Company and SFG Management will be the
greater of (i) $6.8 million if the put or call notice date is on or before
January 1, 2003, and $10 million thereafter or (ii) six times the average of the
Company's last three fiscal years' earnings before interest, income taxes and
depreciation and amortization less the aggregate amount of all the Company's
outstanding interest bearing debt and the amount of outstanding Preferred
Interests along with any Preferred Return on the Preferred Interests that has
been accumulated but not paid multiplied by the quotient of the Common Partner
Interests owned by Mr. Schenkel divided by the total outstanding Common Partner
Interests. If the Company does not elect to purchase Mr. Schenkel's interests
when a put is exercised, DFA is required, subject to certain limitations under
DFA's current debt agreements, to purchase such interests. However, under the
SFG Amendments, DFA will be prohibited from accepting or purchasing any interest
in the Company or SFG Management if, after such purchase, DFA would own more
than 50% of the voting interests in the Company or SFG Management. As a result,
DFA may not be able to purchase Mr. Schenkel's interests in the Company or SFG
Management unless (a) it gives prior written notice to DOJ of its intention to
modify the SFG Amendments and DOJ does not challenge any proposed purchase or
transfer of Mr. Schenkel's interests or (b) DFA first reduces its ownership
interest in the Company and SFG Management so that the purchase of Mr.
Schenkel's interests would not cause DFA to own more than 50% of the voting
interests in the Company or SFG Management. In October 1997 DFA and Mr. Schenkel
entered into an agreement that sets
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forth Mr. Schenkel's remedies if DFA is unable to perform its obligations to
purchase Mr. Schenkel's interests within 180 days after exercise of the put. In
such case, DFA will deliver a note to Mr. Schenkel in principal amount equal to
the put price, payable in 120 equal monthly installments. If the put is
exercised on or before January 1, 2003, the note bears interest at the prime
rate, but if such put is exercised after January 1, 2003, the note will not bear
interest. If any subsequent purchase of Mr. Schenkel's interests by DFA or an
alternative buyer is subsequently permitted, the aggregate amount of all
principal payments made under the note will be credited against the purchase
price for Mr. Schenkel's interests.
DISSOLUTION OF THE COMPANY
The Company will continue until December 31, 2050, unless sooner dissolved
upon a sale of all or substantially all of the assets of the Company, the
written consent of the Partners or the withdrawal or bankruptcy of the General
Partner or the occurrence of any other event that results in the General Partner
ceasing to be a general partner unless the Common Partners agree to continue the
business and appoint a new general partner. Under the SFG Amendments, DFA may
seek a dissolution of the Company or the General Partner only if the General
Partner has been declared bankrupt, insolvent or placed in receivership,
indicted for or convicted of a felony, or held by a court or arbitrator to have
committed fraud against DFA or the Company, except that DFA may seek to dissolve
the Company or the General Partner where it has persuaded an independent
decisionmaker that termination is necessary to minimize long-term financial
losses to the Company.
MODIFICATION AND TERMINATION OF THE SFG AMENDMENTS
The SFG Amendments may not be modified without sixty days' prior notice to
DOJ; however, they will terminate if DFA or its affiliates no longer have a
financial interest in the Company or the General Partner. In addition, if any
non-affiliate of DFA purchases any of DFA's interests in the Company or the
General Partner, such purchaser will not be bound by the SFG Amendments.
DESCRIPTION OF PREFERRED INTERESTS
At December 31, 1997, the Company had outstanding $93.4 million stated
amount of Series A Preferred Interests with a book value at December 31, 1997 of
$30.9 million. See Note 10 of Notes to the Financial Statements of the Company.
In connection with the Transactions, the Company issued Preferred Interests in a
net aggregate stated amount of $136.8 million. These Preferred Interests were
issued in four series, one of which was received by DFA in exchange for the
Meadow Gold Contribution, two of which were issued to Mid-Am Capital in exchange
for a $45.0 million contribution to the Company, and one of which was issued for
certain Company purposes, including in connection with certain distributions of
Partnership Tax Amounts. See "The Transactions" and "Certain Relationships and
Transactions -- Certain Distributions and Related Party Payments."
In connection with the Meadow Gold Contribution, the Company issued to DFA
a series of Preferred Interests consisting of its "Series B 10% Payment-in-Kind
Preferred Limited Partner Interests" in a stated amount of $90.0 million. Each
holder of such Series B DFA Preferred Interests is entitled to receive an
allocation of net profits in the Company equal to a Preferred Return of up to
ten percent per annum.
As part of the Transactions, the Company also issued to Mid-Am Capital in
two series the Mid-Am Capital Preferred Interests. One series was the Company's
"Series C 10% Payment-in-Kind Preferred Limited Partner Interests" in a stated
amount of $15.0 million. Each holder of such 10% Mid-Am Capital Preferred
Interests is entitled to receive an allocation of net profits in the Company
equal to a Preferred Return of up to ten percent per annum. The second series
issued to Mid-Am Capital by the Company was its "Series D 9 1/2% Preferred
Limited Partner Interests" in a stated amount of $30.0 million. Each holder of
such 9 1/2% Mid-Am Capital Preferred Interests is entitled to receive an
allocation of net profits in the Company equal to a Preferred Return of up to
nine and one half percent per annum.
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In connection with the Transactions, the Company authorized a series of
Additional Preferred Interests, consisting of its "Series E 10% Payment-in-Kind
Preferred Limited Partner Interests" ("Series E Preferred Interests"). Each
holder of the Series E Preferred Interests is entitled to receive an allocation
of net profits in the Company equal to a Preferred Return of up to ten percent
per annum. Initially, Series E Preferred Interests were issued in an aggregate
stated amount of $2.6 million to DFA and Mr. Schenkel, each of whom immediately
recontributed $400,000 of such interests to the Company. In addition, in
mid-September 1997 the Company made distributions of Partnership Tax Amounts in
respect of certain tax liabilities in cash to Messrs. Schenkel and Meyer of $2
million each. At that time, the Company issued an additional $4 million in
stated amount of Series E Preferred Interests to DFA. The Company is also
authorized to issue additional amounts of Series E Preferred Interests under
certain circumstances. For instance, DFA will receive additional Series E
Preferred Interests if and when other distributions of Partnership Tax Amounts
are made to other Partners or if DFA is required to make a payment to Borden
with respect to the benefit plans that the Company sponsors for employees of
Meadow Gold. See "Certain Relationships and Transactions -- Affiliation with
DFA."
In connection with the Transactions, certain other amendments were made to
the Partnership Agreement that affected the Preferred Interests. The
distribution provisions were amended to provide that the General Partner may
elect, after the payment of all Partnership Tax Amounts and all Preferred
Returns payable in cash from Net Operating Cash Flow, to use any remaining Net
Operating Cash Flow to return all or a portion of the Unreturned Preferred
Capital Balances to Preferred Interests. The General Partner retains the right
to determine whether to make such a distribution to the Preferred Interests or
to the Common Partners. The Indenture and the Credit Agreement restrict any such
distributions so long as the Notes are outstanding or the Senior Bank Facilities
remain in place. See "Description of the Partnership Agreement and Operating
Agreement -- Allocations and Distributions -- Distributions."
Each holder of the Preferred Interests is entitled to receive an allocation
of net profits equal to the net profits allocated as Preferred Return (the
"Allocated Preferred Return"), which is cumulative and semi-annually compounded,
in an amount equal to the Preferred Return for the series for the actual number
of days occurring in the period for which the Preferred Return is being
determined. The Allocated Preferred Return is required to be distributed
semi-annually in kind to the extent Net Operating Cash Flow is available. If in
any semi-annual period the Preferred Return is not distributed because Net
Operating Cash Flow is not available, but Net Operating Cash Flow later becomes
available for distribution, each Preferred Limited Partner is entitled to
receive distributions until it has received all cumulated Preferred Returns due
from the issuance of the Preferred Interests to the end of the semi-annual
period. The Preferred Return is based on the average daily balance of the sum of
the unreturned Preferred Interest balances outstanding during the period to
which the Preferred Return relates plus the Preferred Return outstanding from
the date of issuance of the Preferred Interests.
None of the series of Preferred Interests has any voting rights unless
Delaware limited partnership law so provides. If the General Partner establishes
a series of Additional Preferred Interests that is ranked above, has priority
over, or affects the right of existing holders of Preferred Interests the
holders of the Preferred Interests must consent to the issuance of the
Additional Preferred Interests. In addition, none of the series of Preferred
Interests has any mandatory redemption requirements, but the Company has the
option to redeem the Preferred Interests subject to the terms of any restriction
contained in any agreement to which the Company is a party, such as the
Indenture or the Credit Agreement.
Upon dissolution of the Company, the holders of Preferred Interests will be
entitled to preferred distributions equal to the aggregate amount of net profits
allocated with respect to Preferred Returns that has not previously been
distributed in cash and to the aggregate Unreturned Preferred Capital Balances
of all of the Preferred Limited Partners before any distributions may be made to
the Common Partners with respect to their Common Partner Interests in the
Company.
All series of the Preferred Interests will rank pari passu with respect to
distributions and upon dissolution.
With the exception of the 9 1/2% Mid-Am Capital Preferred Interests, the
other series of Preferred Interests will receive payment of the Preferred
Return, if any, in payments of additional Preferred Interests in
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the stated amount of the Allocated Preferred Return due. In the case of the
9 1/2% Mid-Am Capital Preferred Interests, so long as the Company is in
compliance with certain covenants contained in the Senior Bank Facilities and
the Indenture, the Company is entitled to pay Allocated Preferred Returns to the
holders of the 9 1/2% Mid-Am Capital Preferred Interests in cash. See
"Description of the Notes -- Certain Covenants -- Limitation on Restricted
Payments."
DESCRIPTION OF SENIOR BANK FACILITIES
The Senior Bank Facilities were provided by a syndicate of banks and other
financial institutions led by The Chase Manhattan Bank, as administrative agent
and collateral agent (the "Agent"), that provided the Term Loans in an aggregate
principal amount of $190.0 million and the Revolving Credit Facility in an
aggregate principal amount of up to $60.0 million. At March 31, 1998, $181.8
million was outstanding under the Senior Bank Facilities. The Company assumed
all of DFA's obligations under the Credit Agreement immediately upon completion
of the Meadow Gold Contribution and DFA was released from all obligations
thereunder. Chase Securities Inc. acted as advisor and arranger in connection
with the Senior Bank Facilities (the "Arranger"). The following is a summary
description of the principal terms of the Credit Agreement and is subject to,
and qualified in its entirety by reference to, the definitive Credit Agreement,
a copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
Structure. Loans under the Credit Agreement consist of (i) a term loan (the
"Tranche A Term Loan") in an aggregate principal amount of $90.0 million; (ii) a
second term loan (the "Tranche B Term Loan," which together with the Tranche A
Term Loan, comprises the "Term Loans") in an aggregate principal amount of
$100.0 million; and (iii) the Revolving Credit Facility in an aggregate
principal amount of up to $60.0 million (of which up to $5.0 million is
available in the form of letters of credit and up to $10.0 million may be
extended in the form of swingline loans). DFA used $175.0 million of the Term
Loans to provide a portion of the funding necessary to consummate the
Acquisition. The Company assumed DFA's obligations under the Senior Bank
Facilities immediately upon consummation of the Meadow Gold Contribution and
borrowed $15.0 million of the amount available as Term Loans in connection with
the Transactions.
Security, Guarantees. The obligations of the Company under the Senior Bank
Facilities are unconditionally and irrevocably guaranteed, jointly and
severally, by each subsequently acquired or organized domestic (and, to the
extent no adverse tax consequences would result, foreign) subsidiary of the
Company (collectively, the "Guarantors"). In addition, the obligations of the
Company under the Senior Bank Facilities and the guarantees thereunder are
secured by substantially all the assets of the Company and the Guarantors
(collectively, the "Collateral"), including but not limited to (a) a
first-priority pledge of (i) all the partnership interests of the Company (other
than those that are held by DFA or Mid-Am Capital), including the partnership
interests of the Company held by SFG Management, and (ii) all the capital stock
or other equity interests held by the Company or any domestic subsidiary of the
Company of each subsequently acquired or organized domestic subsidiary of the
Company and (b) perfected first-priority security interests in, and mortgages
on, substantially all tangible and intangible assets of the Company and the
Guarantors (including but not limited to accounts receivable, contract rights,
inventory, equipment, intellectual property, general intangibles, real property,
cash and cash accounts and proceeds of the foregoing), in each case subject to
certain limited exceptions. The Collateral also includes the capital stock and
other equity interests and the assets of any subsequently acquired foreign
subsidiaries of the Company, to the extent no adverse tax consequences to the
Company would result from such inclusion. In addition, each holder of any
partnership interests in the Company agreed not to enter into or permit to exist
any agreement prohibiting or restricting in any way the creation or assumption
of any lien or security interest on, or the pledge of, partnership interests in
the Company at any time held by such holder, including any such lien, security
interest or pledge to secure the obligations of the Company under the Senior
Bank Facilities.
Availability. The full amount of the Term Loans was drawn in two drawings
at the closing of the Transactions, and amounts repaid or prepaid under the Term
Loans may not be reborrowed. As of December 31, 1997, $14.3 million was drawn
under the Revolving Credit Facility and $1.8 million was outstanding under
letters of credit. The remaining portion of the Revolving Credit Facility is
available in
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varying minimum principal amounts, depending on the type of interest rate chosen
by the Company, the lowest of which permits a minimum draw of $1.0 million, and
amounts repaid under the Revolving Credit Facility may be reborrowed. For at
least three periods (each of which shall be at least 14 consecutive days) in
each fiscal year, the aggregate amount of loans and letters of credit
outstanding under the Revolving Credit Facility shall not exceed $20 million.
Amortization, Interest. The Tranche A Term Loan is repayable in quarterly
principal payments through September 4, 2004 and bears interest at a rate per
annum equal (at the Company's option) to: (a) an adjusted London inter-bank
offered rate ("Adjusted LIBOR") plus the applicable margin (the "Applicable
LIBOR Margin") or (b) an Alternate Base Rate (equal to the highest of the
Agent's prime rate, a certificate of deposit rate plus 1% and the Federal Funds
effective rate plus 1/2 of 1%) plus the applicable margin (the "Applicable ABR
Margin" and, together with the Applicable LIBOR Margin, the "Applicable
Margins") where the Applicable Margins are determined by reference to the levels
specified for the Company's ratio of (i) consolidated total debt as of the date
of determination to (ii) consolidated EBITDA (as defined in the Credit
Agreement) for the period of four consecutive fiscal quarters most recently
ended as of such date of determination. The Tranche B Term Loans are repayable
in quarterly principal payments through March 4, 2006 and bear interest at a
rate per annum equal (at the Company's option) to: (i) Adjusted LIBOR plus 3.0%
or (ii) the Alternate Base Rate plus 1.75%. The Revolving Credit Facility has a
final maturity on September 4, 2004, and bears interest at a rate per annum
equal (at the Company's option) to: (i) Adjusted LIBOR plus the Applicable LIBOR
Margin or (ii) the Alternate Base Rate plus the Applicable ABR Margin. The
Applicable LIBOR Margin and the Applicable ABR Margin for the Term Loans and
loans under the Revolving Credit Facility will be increased by 0.25% if the
ratio of consolidated total debt to consolidated EBITDA exceeds the prescribed
level at any time. Principal amounts under the Senior Bank Facilities not paid
when due shall bear interest at a default rate equal to 2.00% per annum above
the otherwise applicable rate. Other amounts not paid when due under the Senior
Bank Facilities shall bear interest at the interest rate then applicable to
Alternate Base Rate loans under the Term Loans and Revolving Credit Facility
plus 2.00% per annum.
Prepayments. Voluntary prepayments of borrowings under the Term Loans and
the Revolving Credit Facility and voluntary reductions of the unutilized
portions of the Revolving Credit Facility are permitted at any time. The Company
is required to make mandatory prepayments of Term Loans, subject to certain
exceptions, in amounts equal to (i) 75% of excess cash flow of the Company and
its subsidiaries, (ii) 100% of the net cash proceeds of dispositions of all
non-ordinary-course asset sales or other property by the Company or any of its
subsidiaries, (iii) 100% of the net proceeds of issuances of debt obligations of
the Company or any of its subsidiaries (other than the Notes) and (iv) 50% of
the net proceeds of issuances of equity of the Company and its subsidiaries.
Fees. The Company is required to pay the lenders, on a quarterly basis, a
commitment fee ranging from 0.35% to 0.50% per annum on the undrawn portion of
the commitments, based upon the Company's ratio of (i) consolidated total debt
as of the date of determination and (ii) consolidated EBITDA for the period of
four consecutive fiscal quarters most recently ended as of such date of
determination. The Company is also required to pay (a) a per annum letter of
credit fee, on a quarterly basis, equal to the Applicable LIBOR Margin on the
aggregate face amount of outstanding letters of credit under the Revolving
Credit Facility, (b) a fronting bank fee, on a quarterly basis, equal to 1/4 of
1% per annum of the aggregate face amount of outstanding letters of credit under
the Revolving Credit Facility and customary issuance and administrative fees for
the letter of credit issuing bank, and (c) agent, arrangement and other similar
fees.
Covenants. The Senior Bank Facilities contain a number of covenants that,
among other things, restrict the ability of the Company and its subsidiaries,
subject to certain exceptions, to dispose of assets, incur additional
indebtedness, incur guarantee obligations, prepay other indebtedness or amend
other debt instruments, make distributions or pay dividends on partnership
interests or capital stock, redeem and repurchase partnership interests or
capital stock, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances, make acquisitions, engage in
mergers or consolidations, change the business conducted by the Company or its
subsidiaries, make capital expenditures or engage in certain transactions with
affiliates and otherwise restrict certain business activities. In addition, the
Company
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is required to comply with specified financial ratios and tests, including
minimum interest coverage ratios, minimum fixed charge coverage ratios, maximum
leverage ratios, minimum current ratios and minimum net worth tests.
The Senior Bank Facilities also contain provisions that prohibit any
modification of the Indenture in any manner adverse to the Lenders and that
limit the Company's ability to refinance or otherwise prepay the Notes without
the consent of such Lenders.
Events of Default. The Senior Bank Facilities contain customary events of
default, including payment defaults, breach of representations and warranties,
covenant defaults, cross-defaults and cross-acceleration to certain other
indebtedness, certain events of bankruptcy and insolvency, ERISA events,
judgment defaults, actual or asserted invalidity of any security documents or
guarantees, change of control, the voluntary creation of security interests
relating to partnership interests in the Company or the voluntary creation of
any prohibition on the creation of such security interests.
DESCRIPTION OF THE NOTES
GENERAL
The Outstanding Notes were, and the Exchange Notes will be, issued under an
indenture, dated as of September 4, 1997 (the "Indenture"), among the Company
and SFG Capital, as joint and several obligors, and Chase Bank of Texas,
National Association (formerly Texas Commerce Bank National Association), as
trustee (the "Trustee"). The following summary of certain provisions of the
Indenture and the Notes does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the TIA. Capitalized terms used herein and not otherwise
defined have the meanings set forth in the section "-- Certain Definitions"
below. A copy of the Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. References to the Notes includes
the Exchange Notes unless the context otherwise requires.
Principal of, premium (if any) and interest on the Notes are payable, and
the Notes may be exchanged or transferred, at the office or agency of the
Issuers in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee, at 55 Water Street, New York, New
York 10041, Attention: Corporate Trust Securities Window, North Building, Room
234, Window 20), except that, at the option of the Issuers, payment of interest
may be made by check mailed to the registered holders of the Notes at their
registered addresses.
The Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Issuers may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes are unsecured senior subordinated obligations of the Issuers,
limited to $150.0 million aggregate principal amount, and will mature on
September 1, 2007. Each Note bears interest at a rate per annum shown on the
front cover of this Prospectus from the Issue Date, or from the most recent date
to which interest has been paid or provided for, payable semiannually to Holders
of record at the close of business on the February 15 or August 15 immediately
preceding the interest payment date on March 1 and September 1 of each year,
commencing September 1, 1998.
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OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the option
of the Issuers prior to September 1, 2002. On and after such date, the Notes
will be redeemable, at the Issuers' option, in whole or in part, at any time
upon not less than 30 nor more than 60 days' prior notice mailed by first-class
mail to each Holder's registered address, at the following redemption prices
(expressed as a percentage of principal amount), plus accrued and unpaid
interest (if any) to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date that is on or prior to the date of redemption), if
redeemed during the 12-month period commencing on September 1 of the years set
forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2002........................................................ 104.938%
2003........................................................ 103.292%
2004........................................................ 101.646%
2005 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to September 1, 2000,
the Issuers may redeem in the aggregate up to one-third of the original
aggregate principal amount of the Notes with the proceeds of one or more Public
Equity Offerings by the Company following which there is a Public Market, at a
redemption price (expressed as a percentage of principal amount thereof) of
109.875% plus accrued and unpaid interest (if any) to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of redemption); provided, however, that at least two-thirds of the
original aggregate principal amount of the Notes must remain outstanding after
each such redemption.
SELECTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
RANKING
The Indebtedness evidenced by the Notes is unsecured Senior Subordinated
Indebtedness of the Issuers. The payment of the principal of, premium (if any)
and interest on the Notes is subordinated in right of payment, as set forth in
the Indenture, to all existing and future Senior Indebtedness of each of the
Issuers, ranks pari passu in right of payment with all future Senior
Subordinated Indebtedness of each of the Issuers and is senior in right of
payment to all existing and future Subordinated Obligations of each of the
Issuers. The Notes are also effectively subordinated to any Secured Indebtedness
of the Company, SFG Capital and all future subsidiaries of the Company to the
extent of the value of the assets securing such Indebtedness. However, payment
from the money or the proceeds of U.S. Government Obligations held in any
defeasance trust described under "-- Defeasance" below is not subordinated to
any Senior Indebtedness or subject to the restrictions described herein.
On the date of issuance of the Exchange Notes, the Company will not have
any subsidiaries other than SFG Capital; however, the Indenture does not
restrict the ability of the Company to create, acquire or capitalize
subsidiaries in the future. Claims of creditors of any such future subsidiary,
including trade creditors, and claims of preferred equityholders (if any) of any
such future subsidiary generally will have priority with respect to the assets
and earnings of any such future subsidiary over the claims of creditors of the
Company, including Holders of the Notes. The Notes, therefore, are effectively
subordinated to creditors (including trade creditors) and preferred
equityholders (if any) of any future subsidiary of the Company.
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Although the Indenture limits the incurrence of Indebtedness and Preferred
Equity Interests of certain future subsidiaries of the Company, such limitation
is subject to a number of significant qualifications. See, however, "-- Certain
Covenants -- Future Note Guarantors" below.
As of December 31, 1997, the Company had outstanding an estimated $197
million aggregate principal amount of Senior Indebtedness (exclusive of unused
commitments), all of which was Secured Indebtedness, no Senior Subordinated
Indebtedness other than the Indebtedness represented by the Notes and no
Indebtedness that is subordinate and junior in right of repayment to the
Indebtedness represented by the Notes, and SFG Capital had no Indebtedness other
than the Indebtedness represented by the Notes and the Bank Indebtedness.
Although the Indenture contains limitations on the amount of additional
Indebtedness which the Issuers may Incur, under certain circumstances the amount
of such Indebtedness could be substantial and, in any case, such Indebtedness
may be Senior Indebtedness. See "-- Certain Covenants -- Limitation on
Indebtedness" below.
Only Indebtedness of the Company or SFG Capital that is Senior Indebtedness
will rank senior to the Notes in accordance with the provisions of the
Indenture. The Notes in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company or SFG Capital. The Issuers have agreed
in the Indenture that each of them will not Incur, directly or indirectly, any
Indebtedness which is subordinate or junior in ranking in any respect to Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness.
Unsecured Indebtedness is not deemed to be subordinate or junior to Secured
Indebtedness merely because it is unsecured.
The Issuers may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"-- Defeasance" below and may not otherwise purchase, redeem or otherwise retire
any Notes (collectively, "pay the Notes") if (i) any Senior Indebtedness is not
paid when due or (ii) any other default on Senior Indebtedness occurs and the
maturity of such Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Senior Indebtedness has been paid in
full. However, the Issuers may pay the Notes without regard to the foregoing if
the Issuers and the Trustee receive written notice approving such payment from
the Representative of the Designated Senior Indebtedness with respect to which
either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of any
default (other than a default described in clause (i) or (ii) of the second
preceding sentence) with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, the Issuers may not pay the
Notes for a period (a "Payment Blockage Period") commencing upon the receipt by
the Trustee (with a copy to the Issuers) of written notice (a "Blockage Notice")
of such default from the Representative of the Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee and the Issuers from the Person or Persons who
gave such Blockage Notice, (ii) by repayment in full of such Designated Senior
Indebtedness or (iii) because the default giving rise to such Blockage Notice is
no longer continuing). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the provisions contained in the
first sentence of this paragraph), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the maturity
of such Designated Senior Indebtedness, the Issuers may resume payments on the
Notes after the end of such Payment Blockage Period. Not more than one Blockage
Notice may be given in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period. However, if any Blockage Notice within such 360-day period is given by
or on behalf of any holders of Designated Senior Indebtedness other than the
Bank Indebtedness, the Representative of the Bank Indebtedness may give another
Blockage Notice within such period. In no event, however, may the total number
of days during which any Payment Blockage Period or Periods is in effect exceed
179 days in the aggregate during any 360 consecutive day period. For purposes of
these provisions, no Default or Event of Default that existed or was continuing
on the date of the commencement of any Payment Blockage Period
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with respect to the Designated Senior Indebtedness initiating such Payment
Blockage Period shall be, or be made, the basis of the commencement of a
subsequent Payment Blockage Period by the Representative of such Designated
Senior Indebtedness, whether or not within a period of 360 consecutive days,
unless such default or Event of Default shall have been cured or waived for a
period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of either of the Issuers to
creditors of the Company or SFG Capital upon a total or partial liquidation or
dissolution or reorganization of or similar proceeding relating to the Company
or SFG Capital or their respective property, the holders of Senior Indebtedness
of the Company or SFG Capital will be entitled to receive payment in full of
such Senior Indebtedness before the Noteholders are entitled to receive any
payment and until such Senior Indebtedness is paid in full, any payment or
distribution to which Noteholders would be entitled but for the subordination
provisions of the Indenture will be made to holders of such Senior Indebtedness
as their interest may appear. If a distribution is made to Noteholders that due
to the subordination provisions of the Indenture should not have been made to
them, such Noteholders are required to hold it in trust for the holders of such
Senior Indebtedness and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Issuers or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representative) of the acceleration. If any
Designated Senior Indebtedness is outstanding, the Issuers may not pay the Notes
until five Business Days after such holders or the Representative of the
Designated Senior Indebtedness receives notice of such acceleration and,
thereafter, may pay the Notes only if the subordination provisions of the
Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Issuers who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Issuers who are not holders of Senior Indebtedness or of Senior Subordinated
Indebtedness (including the Notes) may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the holders of Senior
Subordinated Indebtedness.
NOTE GUARANTEES
If at any time following the issuance of the Notes, a Restricted Subsidiary
(other than SFG Capital) Incurs Indebtedness in excess of $100,000, the Company
will cause such Restricted Subsidiary to execute and deliver to the Trustee a
Note Guarantee pursuant to which such Restricted Subsidiary will Guarantee
payment of the Notes. All such Restricted Subsidiaries (the "Note Guarantors"),
as primary obligors and not merely as sureties, will irrevocably and
unconditionally Guarantee on an unsecured senior subordinated basis the
performance and punctual payment when due, whether at Stated Maturity, by
acceleration or otherwise, of all obligations of the Issuers under the Indenture
and the Notes, whether for payment of principal of or interest on the Notes,
expenses, indemnification or otherwise (all such obligations guaranteed by such
Note Guarantors being herein called the "Guaranteed Obligations") by executing
Note Guarantees. Such Note Guarantors will agree to pay, in addition to the
amount stated above, any and all expenses (including reasonable counsel fees and
expenses) incurred by the Trustee or the Holders in enforcing any rights under
the Note Guarantees. Each Note Guarantee will be limited in amount to an amount
which the Company reasonably believes will not exceed the maximum amount that
can be Guaranteed by the applicable Note Guarantor without rendering the Note
Guarantee, as it relates to such Note Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. See "-- Certain Covenants -- Future
Note Guarantors" below.
Each Note Guarantee will be a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon each Note Guarantor and (c) inure to the benefit of and be
enforceable by the Trustee, the Holders and their successors, transferees and
assigns.
Each Note Guarantee will be released upon the sale of the Equity Interests
or all or substantially all of the assets, of the applicable Note Guarantor if
such sale is made in compliance with the Indenture. SFG Capital and each future
Subsidiary of the Company will also Guarantee the Indebtedness of the Company
Incurred under the terms of the Credit Agreement. Each Note Guarantee will be
released to the extent the
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applicable Note Guarantor is released from its obligation to Guarantee
Indebtedness under the Credit Agreement.
CHANGE OF CONTROL
Upon the occurrence of any of the events listed below, each Holder will
have the right to require the Issuers to repurchase all or any part of such
Holder's Notes at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest (if any) to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of repurchase).
Each of the following constitutes a "Change of Control":
(i) the sale, lease, exchange or transfer, in one transaction or a
series of transactions, of all or substantially all the assets of the
Company and its Restricted Subsidiaries, to any Person other than a
Permitted Holder;
(ii) the adoption of a plan relating to the liquidation or dissolution
of the Company or SFG Capital;
(iii) the Permitted Holders fail to own in the aggregate, directly or
indirectly, at least 50% of each class of Voting Equity Interests in the
Company or, for as long as the Company remains a limited partnership, the
General Partner; or
(iv) the Company fails to own, of record and beneficially, 100% of the
Equity Interests of SFG Capital.
Within 30 days following any Change of Control, the Issuers shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Issuers
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest (if any) to the date
of repurchase (subject to the right of Holders of record on a record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of repurchase); (2) the circumstances and relevant facts and
financial information regarding such Change of Control; (3) the repurchase date
(which shall be no earlier than 30 days nor later than 60 days from the date
such notice is mailed); and (4) the instructions determined by the Issuers,
consistent with this covenant, that a Holder must follow in order to have its
Notes purchased.
The Issuers will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Issuers will comply with the applicable
securities laws and regulations and will not be deemed to have breached their
obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations among
the Issuers and the Initial Purchaser. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Issuers would decide to do so in the future. Subject to the limitations
discussed below, the Issuers could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of Indebtedness outstanding at such time or otherwise
affect the Issuers' capital structure or credit ratings.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company or SFG Capital may contain prohibitions of certain
events which would constitute a Change of Control or require such Senior
Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the Holders of their right to require the Issuers to repurchase the Notes
could cause a default under such Senior Indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Issuers. Finally, the Issuers' ability to pay cash to the Holders upon a
repurchase may be limited by the Issuers' then
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existing financial resources and by agreements with holders of Senior
Indebtedness. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any of its Restricted Subsidiaries to, Incur any Indebtedness; provided,
however, that the Company or any Restricted Subsidiary may Incur Indebtedness if
on the date thereof the Consolidated Coverage Ratio would be greater than
2.00:1.00, if such Indebtedness is Incurred on or prior to September 1, 1999,
and 2.25:1.00 if such Indebtedness is Incurred thereafter. Notwithstanding the
foregoing, the Company will not permit SFG Capital or any other future
Restricted Subsidiary to issue, to any party other than the Company or any
Wholly Owned Subsidiary, any Preferred Equity Interest.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness under the Credit Agreement (as the same may be
amended from time to time without increasing the committed amount
outstanding, except as otherwise permitted by this covenant) in an
aggregate principal amount on the date of Incurrence which, when added to
all other Indebtedness Incurred pursuant to this clause (i) and then
outstanding, shall not exceed $190.0 million less the aggregate amount of
all prepayments of principal applied to reduce the then outstanding
Indebtedness under the Term Loans actually made since the Issue Date;
(ii) Indebtedness in an aggregate principal amount at any time
outstanding not in excess of $60.0 million in respect of revolving credit,
working capital and letter of credit facilities;
(iii) Indebtedness of the Company owing to and held by any Wholly
Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and
held by the Company or any Wholly Owned Subsidiary; provided, however, that
any subsequent issuance or transfer of any Equity Interest or any other
event that results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or a Wholly Owned Subsidiary) will be deemed, in
each case, to constitute the Incurrence of such Indebtedness by the issuer
thereof;
(iv) (A) Indebtedness represented by the Notes and (B) any
Indebtedness (other than the Indebtedness described in clauses (i) through
(iii) above) outstanding on the Issue Date;
(v) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Restricted Subsidiary was acquired by
the Company (other than Indebtedness Incurred as consideration in
connection with, in contemplation of, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was otherwise acquired by the Company);
provided, however, that at the time such Restricted Subsidiary is acquired
by the Company, the Company would have been able to Incur $1.00 of
additional Indebtedness pursuant to paragraph (a) after giving effect to
the Incurrence of such Indebtedness pursuant to this clause (v);
(vi) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by the
Company or any of its Restricted Subsidiaries to customers in the ordinary
course of business, (B) in respect of performance bonds or similar
obligations of the Company or any of its Restricted Subsidiaries in
connection with pledges, deposits or payments made or given in the ordinary
course of business in connection with or to secure statutory, regulatory or
similar obligations, including obligations under milk market orders and (C)
under Currency Agreements and Interest Rate Agreements, in each case
entered into for bona fide hedging purposes of the Company in the ordinary
course of business; provided, however, that, in the case of Currency
Agreements and Interest Rate Agreements, such Currency Agreements and
Interest Rate Agreements do not increase the Indebtedness
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of the Company outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder;
(vii) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to paragraph (a) or any other clause of this paragraph (b)) in an
aggregate principal amount on the date of Incurrence which, when added to
all other Indebtedness Incurred pursuant to this clause (vii) and then
outstanding, will not exceed $30.0 million; provided, however, that the
Indebtedness permitted by this clause (vii) may only be Indebtedness of the
Company and may not be Indebtedness of any Subsidiary of the Company (other
than SFG Capital acting as co-issuer or co-obligor of Indebtedness of the
Company);
(viii) Indebtedness represented by the Note Guarantees and Guarantees
of Indebtedness Incurred pursuant to clause (i), (ii) or (iii) above;
(ix) Purchase Money Mortgages and Capitalized Lease Obligations in an
aggregate principal amount not in excess of $10 million at any time
outstanding;
(x) Acquisition Indebtedness not in excess of $15.0 million at any
time outstanding;
(xi) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligation of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business assets or Restricted
Subsidiary (other than Guarantees of Indebtedness or any other obligations
Incurred by any Person acquiring all or any portion of such business assets
or Restricted Subsidiary for the purpose of financing such acquisition) in
a principal amount not to exceed the gross proceeds actually received by
the Company or any of its Restricted Subsidiaries in connection with such
disposition; provided, however, that the principal amount of any
Indebtedness Incurred pursuant to this clause (xi), when taken together
with all Indebtedness Incurred pursuant to this clause (xi) and then
outstanding, shall not exceed $5.0 million; or
(xii) Any Refinancing Indebtedness incurred in respect of any
Indebtedness incurred pursuant to paragraph (a) or this paragraph (b),
other than clauses (iii), (iv) (A), (vi) and (viii) hereof.
(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations unless such Indebtedness will be
subordinated to the Notes to at least the same extent as such Subordinated
Obligations. The Company may not Incur any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect of any Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. In
addition, the Company may not Incur any Secured Indebtedness which is not Senior
Indebtedness unless contemporaneously therewith effective provision is made to
secure the Notes equally and ratably with such Secured Indebtedness for so long
as such Secured Indebtedness is secured by a Lien.
(d) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that the Company or any Restricted Subsidiary may Incur
pursuant to this covenant shall not be deemed to be exceeded solely as a result
of fluctuations in the exchange rates of currencies. For purposes of determining
the outstanding principal amount of any particular Indebtedness Incurred
pursuant to this covenant, (i) Indebtedness permitted by this covenant need not
be permitted solely by reference to one provision permitting such Indebtedness
but may be permitted in part by one such provision and in part by one or more
other provisions of this covenant permitting such Indebtedness and (ii) in the
event that Indebtedness or any portion thereof meets the criteria of more than
one of the types of Indebtedness described in this covenant, the Company, in its
sole discretion, shall classify such Indebtedness and only be required to
include the amount of such Indebtedness in one of such clauses.
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Limitation on Restricted Payments. (a) The Company will not, and will not
permit any of its Restricted Subsidiaries, directly or indirectly, to make any
Restricted Payment if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment:
(i) a Default will have occurred and be continuing (or would result
therefrom);
(ii) the Company could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under
"-- Limitation on Indebtedness" above; or
(iii) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Governing Board, whose determination will
be conclusive and evidenced by a resolution of the Governing Board)
declared or made subsequent to the Issue Date would exceed the sum of: (A)
50% of the Consolidated Net Income accrued during the periods (such periods
to be treated as one accounting period) (x) from the Issue Date to the end
of the most recent fiscal quarter for which financial statements are
available at the time of such Restricted Payment and (y) with respect to
Consolidated Net Income attributable to SFG and not attributable to Meadow
Gold Dairies, from July 1, 1997 to the Issue Date (or, in case such
Consolidated Net Income for such periods will be a deficit, minus 100% of
such deficit); (B) the aggregate Net Cash Proceeds received by the Company
from the issue or sale of its Equity Interests (other than Disqualified
Interests) subsequent to the Issue Date (other than an issuance or sale to
a Subsidiary of the Company or, except as provided for in clause (D), an
employee participation plan or other trust established by the Company or
any of its Subsidiaries); (C) the amount by which Indebtedness of the
Company or its Restricted Subsidiaries is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary)
subsequent to the Issue Date of any Indebtedness of the Company or its
Restricted Subsidiaries issued after the Issue Date and convertible or
exchangeable for Equity Interests (other than Disqualified Interests) of
the Company (less the amount of any cash or other property distributed by
the Company or any Subsidiary of the Company upon such conversion or
exchange); and (D) the aggregate Net Cash Proceeds received by the Company
from the issue or sale of its Equity Interests (other than Disqualified
Interests) to an employee participation plan or similar trust subsequent to
the Issue Date; provided, however, that if such plan or trust Incurs any
Indebtedness to, or Guaranteed by, the Company or any of its Restricted
Subsidiaries to finance the acquisition of such Equity Interests, such
aggregate amount shall be limited to such Net Cash Proceeds less such
Indebtedness Incurred to or Guaranteed by the Company or any of its
Restricted Subsidiaries and any increase in the Consolidated Net Worth of
the Company resulting from principal repayments made by such plan or trust
with respect to Indebtedness Incurred by it to finance the purchase of such
Equity Interests.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase or redemption of Equity Interests of the Company or
Subordinated Obligations made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Equity Interests of the Company
(other than Disqualified Interests and other than Equity Interests issued
or sold to a Subsidiary of the Company or an employee participation plan or
other trust established by the Company or any of its Subsidiaries);
provided, however, that (A) such purchase or redemption will be excluded
from the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale applied in the manner set forth in this clause
(i) will be excluded from clause (iii)(B) of paragraph (a) above;
(ii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under "--
Limitation on Sales of Assets and Subsidiary Equity Interests" below;
provided, however, that such purchase or redemption will be excluded from
the calculation of the amount of Restricted Payments;
(iii) distributions to the holders of Equity Interests paid within 60
days after the date of declaration thereof if at such date of declaration
such distribution would have complied with this covenant; provided,
however, that such distributions will be included in the calculation of the
amount of Restricted Payments;
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(iv) as long as the Company remains a limited partnership, payments to
the General Partner in the amount equal to the sum of the following: (A)
franchise taxes and other fees required by the General Partner to maintain
its existence as a limited liability company or corporation, as the case
may be, and (B) the operating costs of the General Partner that are
attributable to the governance of the Company in an amount up to $100,000
per fiscal year; provided, however, that such payments will be excluded
from the calculation of the amount of Restricted Payments;
(v) as long as the Company remains a limited partnership, periodic
payments to an Eligible Partner in an aggregate amount not to exceed the
Partnership Tax Amount; provided, however, that such payments will be
excluded from the calculation of the amount of Restricted Payments;
(vi)(A) issuances of Series E 10% Preferred Interests, (B) scheduled
distributions in kind to holders of Preferred Equity Interests, (C)
scheduled cash distributions to the holders of up to $15 million in stated
amount of the Mid-Am Capital 9.5% Preferred Interests; provided that at the
time such distributions are made, and after giving pro forma effect to such
distributions, the Consolidated Coverage Ratio exceeds 2.25 to 1.00, and
(D) scheduled cash distributions to the holders of the remainder of the
stated amount of the Mid-Am Capital 9.5% Preferred Interests; provided that
at the time such distributions are made, and after giving pro forma effect
to such distributions and any distributions to be made pursuant to (C) of
this clause (vi), the Consolidated Coverage Ratio exceeds 2.40 to 1.00;
provided further, that such cash distributions will be included in the
calculation of the amount of Restricted Payments;
(vii) the repurchase of Equity Interests in the Company or its
Subsidiaries from employees, former employees, directors or former
directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including employment
agreements) or plans (or amendments thereto) approved by the Governing
Board under which such individuals purchase or sell or are granted the
option to purchase or sell, Equity Interests in the Company or its
Subsidiaries; provided, however, that the aggregate amount of such
repurchases shall not exceed $1.0 million in any calendar year; provided
further, however, that such repurchases will be excluded from the
calculation of the amount of Restricted Payments;
(viii) any payment up to $1.2 million in the aggregate to purchase the
Flav-O-Rich Facility; provided, however, that such payment will be excluded
from the calculation of the amount of Restricted Payments; or
(ix) any purchase or redemption of Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Subordinated Obligations of the Company; provided,
however, that such purchase or redemption will be excluded from the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company will not, and will not permit any of its Restricted Subsidiaries to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary to
(i) pay dividends or make any other distributions on its Equity Interests or pay
any Indebtedness owed to the Company, (ii) make any loans or advances to the
Company or (iii) transfer any of its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect at or
entered into on the Issue Date, including the Credit Agreement; (2) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary
prior to the date on which such Restricted Subsidiary was acquired by the
Company (other than Indebtedness Incurred as consideration in connection with,
in contemplation of, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Subsidiary of
the Company or was otherwise acquired by the Company) and outstanding on such
date; (3) any encumbrance or restriction with respect to such Restricted
Subsidiary pursuant to an agreement constituting Refinancing Indebtedness of
Indebtedness Incurred pursuant to an agreement referred to in clause (1) of this
covenant or this clause (3) or contained in any
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amendment to an agreement referred to in clause (1) of this covenant or this
clause (3); provided, however, that the encumbrances and restrictions contained
in any such refinancing agreement or amendment taken as a whole are no less
favorable in any material respect to the Noteholders than encumbrances and
restrictions contained in such agreements; (4) in the case of clause (iii), any
encumbrance or restriction (A) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, (B) by virtue of any transfer of, agreement
to transfer, option or right with respect to, or Lien on, any property or assets
of the Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture or (C) contained in security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent such encumbrance or
restrictions restrict the transfer of the property subject to such security
agreements or mortgages; (5) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets of
such Restricted Subsidiary pending the closing of such sale or disposition; and
(6) encumbrances or restrictions arising or existing by reason of applicable
law.
Limitation on Sales of Assets and Subsidiary Equity Interests. (a) The
Company will not, and will not permit any Restricted Subsidiary to, make any
Asset Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value of the Equity
Interests and assets subject to such Asset Disposition, (ii) at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (iii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) first, to the extent the
Company elects (or is required by the terms of any Senior Indebtedness or
Indebtedness (other than Preferred Equity Interests) of a Wholly Owned
Subsidiary), to prepay, repay or purchase Senior Indebtedness or such
Indebtedness (in each case other than Indebtedness owed to the Company or an
Affiliate of the Company) within 180 days after the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (B) second, to the
extent of the balance of Net Available Cash after application in accordance with
clause (A), to the extent the Company or such Restricted Subsidiary elects, to
reinvest in Additional Assets (including by means of an Investment in Additional
Assets by a Restricted Subsidiary with Net Available Cash received by the
Company or another Restricted Subsidiary) within 180 days from the later of such
Asset Disposition or the receipt of such Net Available Cash; (C) third, within
45 days after the later of the application of Net Available Cash in accordance
with clauses (A) and (B) and the date that is 180 days from the date of the
Asset Disposition to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an Offer (as defined
below) to purchase Notes pursuant to and subject to the conditions set forth in
section (b) of this covenant, (D) fourth, to the extent of the balance of such
Net Available Cash after application in accordance with clauses (A), (B) and
(C), to (x) acquire Additional Assets (other than Indebtedness and Equity
Interests) or (y) prepay, repay or purchase Indebtedness of the Company (other
than Indebtedness owed to an Affiliate of the Company and other than
Disqualified Interests of the Company) or Indebtedness of any Restricted
Subsidiary (other than Indebtedness owed to the Company or an Affiliate of the
Company), in each case described in this clause (D) within one year from the
receipt of such Net Available Cash or, if the Company has made an Offer pursuant
to clause (C), six months from the date such Offer is consummated; and (E)
fifth, to the extent of the balance of such Net Available Cash after application
in accordance with clauses (A), (B), (C), and (D), for any legitimate business
purpose; provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A), (C) or (D) above, the Company
or such Restricted Subsidiary will retire such Indebtedness and will cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this covenant, the Company and its Restricted
Subsidiaries will not be required to apply any Net Available Cash in accordance
with this covenant except to the extent that the aggregate Net Available Cash
from all Asset Dispositions that is not applied in accordance with this covenant
exceeds $5.0 million.
For purposes of this covenant the following are deemed to be cash
equivalents: (x) the assumption of Indebtedness of the Company (other than
Disqualified Interests of the Company) or any Restricted
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Subsidiary and the release of the Company or such Restricted Subsidiary from all
liability on such Indebtedness in connection with such Asset Disposition (in
which case the Company will, without further action, be deemed to have applied
such assumed Indebtedness in accordance with clause (A) of the preceding
paragraph) and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a)(iii)(C) of this covenant, the Issuers will be
required to purchase Notes tendered pursuant to an offer by the Issuers for the
Notes (the "Offer") at a purchase price of 100% of their principal amount plus
accrued and unpaid interest (if any) to the date of purchase in accordance with
the procedures (including prorationing in the event of oversubscription) set
forth in the Indenture. If the aggregate purchase price of Notes tendered
pursuant to the Offer is less than the Net Available Cash allotted to the
purchase of the Notes, the Company will apply the remaining Net Available Cash
in accordance with clauses (a)(iii)(D) and (a)(iii)(E) of this covenant. The
Issuers will not be required to make an Offer for Notes pursuant to this
covenant if the Net Available Cash available therefor (after application of the
proceeds as provided in clauses (A) and (B) of this covenant clause (a)(iii)) is
less than $15.0 million for any particular Asset Disposition (which lesser
amount will be carried forward for purposes of determining whether an Offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) The Issuers will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuers will comply
with the applicable securities laws and regulations and will not be deemed to
have breached their obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction (including, the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of the Company
(an "Affiliate Transaction") on terms (i) that are materially less favorable to
the Company or such Restricted Subsidiary, as the case may be, than those that
could be obtained in a comparable transaction with a Person who is not such an
Affiliate and (ii) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $1.0 million, has not been approved by a majority
of the members or directors, as the case may be, of the Governing Board that
have no personal stake in such Affiliate Transaction and are not employed by or
otherwise associated with such Affiliate; provided that if such Affiliate
Transaction involves an amount in excess of $20.0 million, a fairness opinion
must be provided by a nationally recognized appraisal or investment banking
firm; provided further that in the case of arrangements for the purchase or sale
of milk or other dairy products from an Affiliate in the ordinary course of
business such arrangements, purchases and sales will be considered in the
aggregate and no fairness opinion will be required.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"-- Limitation on Restricted Payments" above, (ii) any issuance of securities
(including Equity Interests), or other payments, awards or grants in cash,
securities (including Equity Interests) or otherwise pursuant to, or the funding
of, employment arrangements and participation plans approved by the Governing
Board, (iii) loans or advances to employees in the ordinary course of business
in accordance with past practices of the Company not to exceed $2.0 million in
the aggregate outstanding at any one time, (iv) the payment of reasonable fees
to directors of the Governing Board or directors of the Company's Subsidiaries
who, in either case, are not employees of the Company or its Subsidiaries, (v)
any transaction effected pursuant to an Existing Agreement between the Company
and any Affiliate, (vi) any Permitted Investment, (vii) any transaction between
the Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries
or any transaction contemplated by the Transactions, (viii) indemnification
agreements with, and the payment of fees and indemnities to, directors, officers
and employees of the Company and its Restricted Subsidiaries, in each case in
the ordinary course of business, and (ix) any employment, noncompetition or
confidentiality agreements entered into by the Company or any Restricted
Subsidiary with its employees in the ordinary course of business.
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Limitation on the Sale or Issuance of Equity Interests of Restricted
Subsidiaries. The Company will not sell any Equity Interest in a Restricted
Subsidiary, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell any of its Equity Interests except to the Company
or a Wholly Owned Subsidiary unless the proceeds of any sale of such Equity
Interests will be treated as Net Available Cash from an Asset Disposition and
are applied in accordance with the terms of the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Equity Interests."
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, Incur any Lien on any of its
property or assets (including Equity Interests), whether owned on the original
Issue Date or thereafter acquired, securing any Indebtedness other than Senior
Indebtedness of the Company or a Restricted Subsidiary, unless contemporaneously
therewith (or prior thereto) effective provision is made to secure the Notes or
the Note Guarantee, as the case may be, equally and ratably with (or on a senior
basis to, in the case of Indebtedness expressly subordinated in right of payment
to the Notes or the Note Guarantee, as the case may be) such obligation for so
long as such obligation is so secured. The preceding sentence will not require
the Company or any Subsidiary of the Company to equally and ratably secure the
Notes if such Lien consists of Permitted Liens.
SEC Reports. Prior to the filing of the Exchange Offer Registration
Statement (as defined), the Issuers shall provide within a reasonable time (not
to exceed 45 days following the end of the first three quarters of any fiscal
year and 90 days following the end of such year) to the Trustee, Noteholders and
prospective Noteholders (upon request) quarterly and annual financial statements
prepared in accordance with GAAP (provided that, in the case of such quarterly
financial statements, such financial statements may be prepared in substantial
compliance with Part I of Form 10-Q), together with management's discussion and
analysis of financial condition and results of operations and, in the case of
annual financial statements, a description of any changes in, or disagreements
with, accountants on accounting and financial disclosure, a brief description of
the Company's business, a discussion of any material legal proceedings in which
the Issuers are involved (other than routine legal proceedings incidental to the
conduct of the business) and a discussion of the compensation paid to, and any
material arrangements with, executive officers. Following the filing of the
Exchange Offer Registration Statement, notwithstanding that the Issuers may not
be required to be or remain subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act, the Issuers will file with the SEC and provide the
Trustee and Noteholders within 15 days after they file them with the SEC, copies
of the Company's annual report and the information, documents and other reports
that are specified in Sections 13 and 15(d) of the Exchange Act (commencing with
the quarterly report on Form 10-Q for the quarter ended March 31, 1998). In
addition, following a Public Equity Offering, the Issuers shall furnish to the
Trustee and the Noteholders and prospective Noteholders (upon request), promptly
upon their becoming available, copies of the Company's annual report to partners
or equityholders and any other information provided by the Company to its
equityholders generally. The Issuers also will comply with the other provisions
of Section 314(a) of the TIA.
Future Note Guarantors. The Company will cause each Restricted Subsidiary
(other than SFG Capital) that Incurs Indebtedness in excess of $100,000 to
execute and deliver to the Trustee a Note Guarantee pursuant to which such
Restricted Subsidiary will Guarantee payment of the Notes. Each Note Guarantee
will be limited to an amount which the Company reasonably believes will not
exceed the maximum amount that can be Guaranteed by that Restricted Subsidiary
without rendering the Note Guarantee, as it relates to such Restricted
Subsidiary, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
Limitation on Lines of Business. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business, other than a Related
Business.
Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (a) the Company or such
Restricted Subsidiary would be entitled to (i) Incur Indebtedness in an amount
equal to the Attributable Debt with respect to such Sale/Leaseback Transaction
pursuant to the covenant described under "-- Limitation on Indebtedness" above
and (ii) create a Lien on such property securing such Attributable
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Debt without equally and ratably securing the Notes pursuant to the covenant
described under "-- Limitation on Liens" above, (b) the net cash proceeds
received by the Company or any Restricted Subsidiary in connection with such
Sale/Leaseback Transaction are at least equal to the fair value (as determined
in good faith by the Governing Board) of such property and (c) the transfer of
such property is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described under "-- Limitation on
Sale of Assets and Subsidiary Equity Interests" above.
Limitation on Business Activities of SFG Capital. SFG Capital will not
engage in any trade or business, and will conduct no business activity, other
than the Incurrence of Indebtedness permitted under "-- Limitation on
Indebtedness" and the issuance of Equity Interests to the Company and activities
incidental thereto. Furthermore, SFG Capital will not create, capitalize or
otherwise own or acquire any Subsidiary.
MERGER AND CONSOLIDATION
Neither the Company nor SFG Capital will consolidate with or merge with or
into, or convey, transfer or lease all or substantially all its assets to, any
Person; provided, however, that the Company may consolidate with or merge with
or into, or convey, transfer or lease all or substantially all its assets to,
any Person if (i) the resulting, surviving or transferee Person (the "Successor
Company") will be a corporation, limited liability company or limited
partnership organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia, and the Successor
Company (if not the Company) will expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been Incurred by
the Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default will have occurred and be continuing; (iii) immediately
after giving effect to such transaction, the Successor Company would be able to
Incur an additional $1.00 of Indebtedness under paragraph (a) of the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness" above; (iv)
immediately after giving effect to such transaction, the Successor Company will
have Consolidated Net Worth in an amount which is not less than the Consolidated
Net Worth of the Company immediately prior to such transaction; and (v) the
Company will have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay the
principal of, and interest on, the Notes.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), (a) any
Restricted Subsidiary, other than SFG Capital, may consolidate with, merge into
or transfer all or part of its properties and assets to the Company, and (b) the
Company may merge with an Affiliate of the Company incorporated or organized for
the purpose of incorporating or organizing the Company in another jurisdiction
or to realize tax or other benefits or changing organizational form from a
limited partnership to a corporation or limited liability company.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, (whether or not prohibited by the
provisions described under "-- Ranking" above), continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated Maturity,
upon optional redemption, upon required repurchase, upon declaration or
otherwise, (whether or not such payment is prohibited by the provisions
described under "-- Ranking" above), (iii) the failure by the Issuers to comply
with its obligations under the covenant described under "-- Merger and
Consolidation" above, (iv) the failure by the Issuers to comply for 30 days
after notice with any of its obligations under the covenants described under
"-- Change of Control" or "-- Certain Covenants" above (in each case, other than
a failure to
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purchase Notes), (v) the failure by the Issuers to comply for 60 days after
notice with their other agreements contained in the Securities or the Indenture,
(vi) the failure by the Issuers or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated exceeds
$10.0 million or its foreign currency equivalent and such default shall not have
been cured or such acceleration rescinded within a 10 day period (the "cross
acceleration provision"), (vii) certain events of bankruptcy, insolvency or
reorganization of the Company, SFG Capital or a Significant Subsidiary (the
"bankruptcy provisions"), (viii) the rendering of any judgment or decree for the
payment of money in excess of $10.0 million or its foreign currency equivalent
(to the extent not covered by insurance) against the Company, SFG Capital or a
Significant Subsidiary if (A) an enforcement proceeding thereon is commenced or
(B) such judgment or decree remains outstanding for a period of 60 days after
such judgment becomes final and non-appealable (the "judgment default
provision") or (ix) any Note Guarantee ceases to be in full force and effect
(except as contemplated by the terms thereof) or any Note Guarantor denies or
disaffirms its obligations under the Indenture or any Note Guarantee and such
Default continues for 30 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a Default under clauses (iv) or (v) will not constitute an Event
of Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Issuers of the default and the Issuers do not cure
such default within the time specified in clauses (iv) and (v) hereof after
receipt of such notice.
If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company or SFG Capital) occurs
and is continuing, the Trustee or the Holders of at least 25% in principal
amount of the outstanding Notes by notice to the Issuers may declare the
principal of, and accrued and unpaid interest (if any) on, all the Notes to be
due and payable. Upon such a declaration, such principal and interest will be
due and payable immediately. If an Event of Default relating to certain events
of bankruptcy, insolvency or reorganization of the Company or SFG Capital
occurs, the principal of, and interest on, all the Notes will become immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holders. Under certain circumstances, the Holders of a majority in
principal amount of the outstanding Notes may rescind any such acceleration with
respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
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The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within the earlier of 90 days after it occurs or 30 days after it is known to a
Trust Officer or written notice of it is received by the Trustee. Except in the
case of a Default in the payment of principal of, premium (if any) or interest
on, any Note, the Trustee may withhold notice if and so long as a committee of
its Trust Officers in good faith determines that withholding notice is in the
interests of the Noteholders. In addition, the Issuers are required to deliver
to the Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Issuers also are required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Defaults, their status and what action the Issuers are
taking or propose to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture and the Notes may be amended
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding and any past default or compliance with any provisions of the
Indenture may be waived with the consent of the Holders of a majority in
principal amount of the Notes then outstanding. However, without the consent of
each Holder of an outstanding Note affected, no amendment may, among other
things, (i) reduce the amount of Notes whose Holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption" above, (v) make any Note payable in money other than that stated in
the Note, (vi) make any change to the subordination provisions of the Indenture
that adversely affects the rights of any Holder, (vii) impair the right of any
Holder to receive payment of principal of, and interest on, such Holder's Notes
on or after the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such Holder's Notes, (viii) make any change in
the amendment provisions which require each Holder's consent or in the waiver
provisions or (ix) modify the Note Guarantees in any manner adverse to the
Holders.
Without the consent of any Holder, the Issuers and Trustee may amend the
Indenture or the Notes to cure any ambiguity, omission, defect or inconsistency,
to provide for the assumption by a successor corporation of the obligations of
the Issuers under the Indenture, to provide for uncertificated Notes in addition
to or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add Guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Issuers for the benefit of the Noteholders or to
surrender any right or power conferred upon the Issuers, to make any change that
does not adversely affect the rights of any Holder in any material respect or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the TIA. However, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of Senior Indebtedness then outstanding unless the holders of such
Senior Indebtedness (or any group or Representative thereof authorized to give a
consent) consent to such change.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuers are
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents, and the Issuers may require a Noteholder to pay any
taxes required by law or permitted by the Indenture. The Issuers are not
required to transfer or exchange any Note selected for
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redemption or to transfer or exchange any Note for a period of 15 days prior to
a selection of Notes to be redeemed. The Notes will be issued in registered form
and the registered holder of a Note will be treated as the owner of such Note
for all purposes.
DEFEASANCE
The Issuers at any time may terminate all their obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Issuers at any time may terminate their obligations under the
covenants described under "-- Certain Covenants" above, the operation of the
cross acceleration provision, the bankruptcy provisions with respect to
Subsidiaries of the Company and the judgment default provision described under
"-- Defaults" above and the limitations contained in clauses (iii) and (iv)
under "-- Merger and Consolidation" above ("covenant defeasance"). If the
Issuers exercise their legal defeasance option or their covenant defeasance
option, each Note Guarantor will be released from all of its obligations with
respect to its Note Guarantee.
The Issuers may exercise their legal defeasance option notwithstanding
their prior exercise of their covenant defeasance option. If the Issuers
exercise their legal defeasance option, payment of the Notes may not be
accelerated because of an Event of Default with respect thereto. If the Issuers
exercise their covenant defeasance option, payment of the Notes may not be
accelerated because of an Event of Default specified in clause (iv), (vi), (vii)
with respect only to Significant Subsidiaries, (viii) or (ix) under
"-- Defaults" above or because of the failure of the Company to comply with
clause (iii) or (iv) under "-- Merger and Consolidation" above.
In order to exercise either defeasance option, the Issuers must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance and will be subject to federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable federal income tax law).
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, PARTNERS, EMPLOYEES, INCORPORATORS
AND EQUITYHOLDERS
No director, officer, partner (including any general partner), employee,
incorporator or equityholder of either of the Issuers, as such, shall have any
liability for any obligations of the Issuers under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of Notes, by accepting a Note, waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws, and it is the view of the Commission that
such a waiver is against public policy.
CONCERNING THE TRUSTEE
Chase Bank of Texas, National Association is the Trustee under the
Indenture and has been appointed by the Issuers as Registrar and Paying Agent
with regard to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes are governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
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CERTAIN DEFINITIONS
"Acquisition Indebtedness" means Indebtedness of the Company or a
Restricted Subsidiary incurred in connection with the acquisition of (i) all or
substantially all of the assets or operations of a dairy processing facility or
all or substantially all of the assets or operations of a Person primarily
engaged in the distribution of milk or other dairy related products, (ii) all or
substantially all of the outstanding Equity Interests of a Person engaged
primarily in the distribution or processing of milk or other dairy related
products and (iii) trademarks of milk or other dairy related products.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Equity Interests) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Equity Interests of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Equity
Interests by the Company or another Restricted Subsidiary; or (iii) Equity
Interests constituting a minority interest in any Person that at such time is a
Restricted Subsidiary; provided, however, that any such Restricted Subsidiary
described in clauses (ii) or (iii) above is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Transactions with Affiliates" and "-- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Equity Interests" only, "Affiliate" of the
Company shall also mean any owner of shares representing 10% or more of the
total voting power of the Voting Equity Interests of the General Partner (as
long as the Company remains a limited partnership) or the Company or of rights
or warrants to purchase such Voting Equity Interests (whether or not currently
exercisable) and any Person who would be an Affiliate of any such owner pursuant
to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition of
Equity Interests of a Restricted Subsidiary (other than directors' qualifying
Equity Interests), property or other assets (each referred to for the purposes
of this definition as a "disposition") by the Company or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary, (ii) a disposition of inventory in the ordinary course of business,
(iii) any disposition in the ordinary course of business of obsolete and worn
out equipment or equipment that is no longer used or useful in the conduct of
the business of the Company or any Restricted Subsidiary, (iv) any dispositions
or series of related dispositions for a consideration valued in the good faith
judgment of the Company at less than $1.0 million, (v) transactions permitted
under "-- Merger and Consolidation" above, (vi) for purposes of the provisions
described under "-- Certain Covenants -- Limitation on Sales of Assets and
Subsidiary Equity Interests" only, a disposition subject to the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments", and
(vii) any asset swap or other exchange of a dairy processing facility for
another dairy processing facility with any Person who is not an Affiliate of the
Company, provided that third party appraisals of all material properties to be
exchanged are received by the Company in connection with such exchange and the
terms of such exchange are no less favorable to the Company than those indicated
by such appraisals.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Equity Interest, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the date of determination
to the dates of each successive scheduled principal payment of such Indebtedness
or
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redemption or similar payment with respect to such Preferred Equity Interest
multiplied by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement, the other Senior Credit Documents and any Refinancing
Indebtedness with respect thereto, as amended from time to time, including
principal, premium (if any), interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to
either of the Issuers whether or not a claim for post-filing interest is allowed
in such proceedings), fees, charges, expenses, reimbursement obligations,
guarantees and all other amounts payable thereunder or in respect thereof.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in the states of New York or Texas are authorized or
required by law to close.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending prior to the date of such determination
and as to which financial statements are available to (ii) Consolidated Interest
Expense for such four fiscal quarters; provided, however, that (A) if the
Company or any Restricted Subsidiary has Incurred any Indebtedness since the
beginning of such period that remains outstanding on such date of determination
or if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Indebtedness as if such Indebtedness had been Incurred
on the first day of such period and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of such
period, (B) if since the beginning of such period any Indebtedness of the
Company or any of its Restricted Subsidiaries has been repaid, repurchased,
defeased or otherwise discharged (other than Indebtedness under a revolving
credit or similar arrangement unless such revolving credit Indebtedness has been
permanently repaid and has not been replaced) Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if such
Indebtedness had been repaid, repurchased, defeased or otherwise discharged on
the first day of such period, (C) if since the beginning of such period the
Company or any Restricted Subsidiary shall have made any Asset Disposition, the
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets that are the subject of such Asset
Disposition for such period or increased by an amount equal to the EBITDA (if
negative) directly attributable thereto for such period, and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Equity Interests of any Restricted Subsidiary are sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), and increased by the interest income attributable to the assets which are
the subject of such Asset Disposition for such period, (D) if since the
beginning of such period the Company or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person that becomes a Restricted Subsidiary) or an acquisition of assets,
including any investment in a Restricted Subsidiary or any acquisition of assets
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit of a
business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the
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first day of such period and (E) if since the beginning of such period any
Person (that subsequently became a Restricted Subsidiary or was merged with or
into the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition or any Investment or acquisition
of assets that would have required an adjustment pursuant to clause (C) or (D)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Asset Disposition, Investment
or acquisition of assets occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be given to an acquisition
of assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term as at the
date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries, plus, to the extent
Incurred by the Company and its Restricted Subsidiaries in such period but not
included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations, (ii) amortization of debt discount and debt
issuance cost, (iii) capitalized interest, (iv) noncash interest expense, (v)
commissions, discounts and other fees and charges with respect to letters of
credit and bankers' acceptance financing, (vi) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by the Company or any Restricted Subsidiary, provided that payment of such
amounts by the Company or any Restricted Subsidiary is being made to, or is
sought by, the holders of such Indebtedness pursuant to such Guarantee, (vii)
net costs associated with Hedging Obligations (including amortization of fees),
(viii) Preferred Equity Interest distributions or dividends, other than
payment-in-kind distributions, in respect of all Preferred Equity Interests of
the Company and its Subsidiaries and Disqualified Interests of the Company held
by Persons other than the Company or a Wholly Owned Subsidiary, and (ix) the
cash contributions to any employee participation plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust and less (a) to the extent included in such interest
expense, the amortization of capitalized debt issuance costs related to the
Transactions and (b) interest income.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its Restricted Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (loss) of
any Person if such Person is not a Subsidiary of the Company, except that (A)
subject to the limitations contained in clause (iv) below, the Company's equity
in the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to the Company or a Subsidiary of the Company
as a dividend or other distribution (subject, in the case of a dividend or other
distribution to a Subsidiary of the Company, to the limitations contained in
clause (iii) below) and (B) the Company's equity in a net loss of any such
Person for such period but only to the extent of the aggregate Investment of the
Company and any Restricted Subsidiary in such Person shall be included in
determining such Consolidated Net Income; (ii) any net income (loss) of any
person acquired by the Company or a Restricted Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income (loss) of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary, directly
or indirectly, to the Company, except that (A) subject to the limitations
contained in clause (iv) below, the Company's equity in the net income of any
such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash that could have been
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend (subject, in the case of a dividend
that could have been made to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period, but only to the extent of the Investment
of the Company and its Restricted Subsidiaries in such Person, shall be included
in
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determining such Consolidated Net Income; (iv) any gain or loss realized upon
the sale or other disposition of any asset of the Company or its Restricted
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) that is not
sold or otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Equity Interests of any
Person; (v) any extraordinary gain or loss; (vi) exchange or translation gains
or losses on foreign currencies; and (vii) the cumulative effect of a change in
accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending prior to the taking of any action for the purpose of which the
determination is being made and for which financial statements are available, as
(i) the par or stated amount of all outstanding Equity Interests of the Company
plus (ii) paid-in capital or capital surplus relating to such Equity Interests
plus (iii) any retained earnings or earned surplus less (A) any accumulated
deficit and less (B) any amounts attributable to Disqualified Interests.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied. The term "Consolidated" has a correlative meaning.
"Credit Agreement" means the credit agreement dated as of September 4,
1997, among the Company, Mid-Am, The Chase Manhattan Bank, as administrative
agent, and the lenders party thereto from time to time, as amended, waived or
otherwise modified from time to time (except to the extent that any such
amendment, waiver or other modification thereto would, on the date of such
amendment, waiver or modification, be prohibited by the terms of the Indenture,
unless otherwise agreed to by the Holders of at least a majority in aggregate
principal amount of Notes at the time outstanding), including any such
amendments or modifications (or any other credit agreement or credit agreements)
that replace, refund or refinance, in whole or in part, any of the commitments
or loans thereunder.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof, are committed to lend up to, at least $50.0
million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Interest" means, with respect to any Person, any Equity
Interest which by its terms (or by the terms of any security or other interest
into which it is convertible or for which it is exchangeable or exercisable) or
upon the happening of any event (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise; (ii) is convertible or
exchangeable for Indebtedness or Disqualified Interests (excluding Equity
Interests which are convertible or exchangeable solely at the option of the
Company or a Restricted Subsidiary); or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to 91 days after
the Stated Maturity of the Notes; provided, that only the portion of Equity
Interests which so matures or is mandatorily redeemable, is so convertible or
exchangeable or is so redeemable at the option of the holder thereof prior to
such Stated Maturity shall be deemed to be Disqualified Interests.
"EBITDA" for any period means the Consolidated Net Income for such period
plus, to the extent deducted in calculating such Consolidated Net Income, (i)
income tax expense or Partnership Tax Amount, (ii) Consolidated Interest
Expense; provided that distributions or dividends referred to in clause (viii)
of the definition of Consolidated Interest Expense shall be included only to the
extent, if any, that such distributions or dividends are deducted in calculating
Consolidated Net Income, (iii) depreciation expense, (iv) amortization expense,
and (v) all other non-cash charges (excluding all such charges to the extent
they
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represent future cash disbursements or cash receipts reasonably expected to
materialize prior to the Stated Maturity of the Notes), in each case for such
period. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary of
the Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be paid as a dividend
to the Company by such Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Subsidiary or its equityholders.
"Eligible Partner" means Mr. Pete Schenkel as a holder of direct or
indirect partnership interests in the Company or any taxable successor(s) to all
or a part of his direct or indirect partnership interests in the Company.
"Equity Interest" in any partnership, limited liability company or
corporation means any general, limited, preferred or other interest or evidence
of equity participation in such partnership, any interest in such limited
liability company and any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) equity of such corporation, including any Preferred Equity
Interests, but excluding any debt securities convertible into such equity.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Agreement" means any written agreement to which either of the
Issuers was a party on the Issue Date as in effect on the Issue Date.
"Flav-O-Rich Facility" means the dairy plant located in Canton, Mississippi
which on the Issue Date was subject to a lease by the Company from Flav-O-Rich,
Inc., a Kentucky cooperative association.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP.
"General Partner" means the Partner of the Company that has the power to
direct the management and set the policies of the Company.
"Governing Board" of the Company means (i) the Representative Committee of
the members or other controlling authority of the General Partner, as long as
the Company remains a limited partnership, (ii) the board of directors of the
Company, if the Company has reorganized as, or otherwise changed form into, a
corporation or (iii) the manager or managing members or any controlling
committee of members, if the Company has reorganized as a limited liability
company.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
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"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Equity Interest of a Person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such person at the time it becomes a Restricted Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium or
discount (if any) in respect of indebtedness of such Person for borrowed money;
(ii) the principal of and premium or discount (if any) in respect of obligations
of such Person evidenced by bonds, debentures, notes or other similar
instruments; (iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto) (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i), (ii) and
(iii)) entered into in the ordinary course of business of such Person to the
extent that such letters of credit are not drawn upon); (iv) all obligations of
such Person to pay the deferred and unpaid purchase price of property or
services (except Trade Payables, accrued expenses Incurred in the ordinary
course of business and contingent obligations to pay purchase price or
earnouts), which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services; (v) all Capitalized Lease Obligations and all
Attributable Debt of such Person; (vi) the amount of all obligations of such
Person with respect to the redemption, repayment or other repurchase of
Disqualified Interests or, with respect to any Restricted Subsidiary, any
Preferred Equity Interests to the extent such obligation arises on or before 91
days following the Stated Maturity of the Notes (but excluding, in each case,
any accrued dividends); (vii) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person; provided, however, that the amount of Indebtedness of such Person
shall be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and (ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above as such amount would be reflected on a balance
sheet prepared in accordance with GAAP and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date.
"Initial Purchaser" means Chase Securities Inc.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Equity Interests, Indebtedness or
other similar instruments issued by such Person.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Limited Partner" means any Partner of the Company that generally has
limited liability with respect to the obligations of the Company and does not
have the right to control, through its ownership of limited partnership
interests, the day-to-day operations of the Company.
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"Mid-Am" means Mid-America Dairymen, Inc., a Kansas cooperative marketing
association (now DFA), and its successors following any merger or consolidation
involving Mid-Am.
"Mid-Am Capital 9.5% Preferred Interests" means the $30,000,000 stated
amount of Series D 9.5% preferred limited partner interests in the Company
originally issued by the Company to Mid-Am Capital, L.L.C., a Delaware limited
liability company, on the Issue Date, as amended (except to the extent that any
such amendment thereto would be prohibited by the terms of the Indenture, unless
otherwise agreed to by the Holders of at least a majority in aggregate principal
amount of Notes at the time outstanding).
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all federal, state, provincial, foreign and local taxes required
to be paid or accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or which must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law be repaid out
of the proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to any person owning a beneficial interest in
assets subject to sale or minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition, (iv) appropriate amounts to be
provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition and (v) any portion of the purchase price from an Asset Disposition
placed in escrow (whether as a reserve for adjustment of the purchase price, for
satisfaction of indemnities in respect of such Asset Disposition or otherwise in
connection with such Asset Disposition); provided, however, that upon
termination of any such escrow, Net Available Cash shall be increased by any
portion of funds therein released to the Company or any Restricted Subsidiary.
"Net Cash Proceeds" with respect to any issuance or sale of Equity
Interests, means the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters', initial purchasers' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Note Guarantee" means any Guarantee of the Notes that may from time to
time be executed and delivered by a Restricted Subsidiary pursuant to the terms
of the Indenture. Each such Note Guarantee will have subordination provisions
equivalent to those contained in the Indenture and will be substantially in the
form prescribed in the Indenture.
"Note Guarantor" means any Restricted Subsidiary that has issued a Note
Guarantee.
"Officer" of either Issuer, as the case may be, means the Chief Executive
Officer, the Chief Financial Officer, the Chief Accounting Officer, the
President, any Vice President, the Treasurer or any Assistant Treasurer or the
Secretary or any Assistant Secretary of such Issuer, and in the case of the
Company, the General Partner acting on behalf of the Company.
"Officers' Certificate" of either Issuer, as the case may be, means a
certificate signed by two Officers of such Issuer.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of, or counsel to, the
Issuers or the Trustee.
"Partner" means any Person owning an Equity Interest in a partnership.
"Partnership Tax Amount" means the amount of money directly or indirectly
payable as a distribution with respect to the Eligible Partner's direct or
indirect partnership interests in the Company (including such Eligible Partner's
direct or indirect interests in the General Partner) to enable such Eligible
Partner to pay
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Federal, state and local Income Taxes (including quarterly estimated Income
Taxes) with respect to the Company's net income or any division or segment
thereof allocable to such Eligible Partner. For the purposes of this definition:
(a) "Income Taxes" means all Federal, state and local taxes, fees,
assessments or charges of any kind, imposed on, or determined with
reference to, net income of the Company or any division or segment thereof,
or any allocable portion thereof, including, without limitation, any
self-employment or similar tax imposed with respect to an Eligible
Partner's allocable share of net income or any division or segment thereof,
and "Income Tax" means any one of such Income Taxes.
(b) The Partnership Tax Amount in any applicable fiscal year shall
equal the greater of (1) the product of (i) the sum of (A) the highest
marginal Federal tax rate (taking into account deductions or credits for
state and local taxes) applicable to the Eligible Partner (at either
individual or corporate rates, as applicable) with respect to the Company's
taxable income directly or indirectly allocable to such Eligible Partner
with respect to such applicable fiscal year, (B) the highest state tax rate
(taking into account deductions or credits for local taxes) applicable to
the Eligible Partner (at either individual or corporate rates, as
applicable) with respect to the Company's taxable income directly or
indirectly allocable to such Eligible Partner with respect to such
applicable fiscal year and (C) the highest local tax rate applicable to the
Eligible Partner (at either individual or corporate rates, as applicable)
with respect to the Company's taxable income directly or indirectly
allocable to such Eligible Partner with respect to such applicable fiscal
year, multiplied by (ii) the Company's taxable income directly or
indirectly allocable to such Eligible Partner with respect to such fiscal
year or (2) the product of (i) the sum of (A) the highest Federal
alternative minimum tax rate (taking into account deductions or credits for
state and local taxes) applicable to the Eligible Partner (at either
individual or corporate rates, as applicable) with respect to the Company's
alternative minimum taxable income directly or indirectly allocable to such
Eligible Partner with respect to such applicable fiscal year, (B) the
highest state tax rate (taking into account deductions or credits for local
taxes) applicable to the Eligible Partner (at either individual or
corporate rates, as applicable) with respect to the Company's taxable
income or alternative minimum taxable income, as applicable, directly or
indirectly allocable to such Eligible Partner with respect to such
applicable fiscal year and (C) the highest local tax rate applicable to the
Eligible Partner (at either individual or corporate rates, as applicable)
with respect to the Company's taxable income or alternative minimum taxable
income, as applicable, directly or indirectly allocable to such Eligible
Partner with respect to such applicable fiscal year, multiplied by (ii) the
Company's taxable income or alternative minimum taxable income, as
applicable, directly or indirectly allocable to such Eligible Partner with
respect to such fiscal year. The Partnership Tax Amount for each applicable
fiscal year shall be appropriately adjusted to reflect (i) any tax losses
of the Company arising in any prior fiscal year (assuming that any such
losses are carried forward and used to offset the Company's taxable income
in the applicable fiscal year) and (ii) the Company's payment of any
withholding taxes that would give rise to a credit or other tax benefit to
the Company (or the Eligible Partner).
(c) Payments or distributions in connection with the Partnership Tax
Amount related to payments of estimated Federal Income Tax shall be payable
in quarterly installments with respect to the applicable fiscal year, in
each case no more than five days prior to the Federal estimated tax due
dates applicable to the Eligible Partner. Such quarterly installments shall
be based upon the Company's then good faith estimate of its taxable income
(or alternative minimum taxable income, as applicable) directly or
indirectly allocable to the Eligible Partner (as calculated in the manner
described in paragraph (b) above), subject to appropriate adjustment to
reflect over and under payment of any prior quarterly periods during the
applicable fiscal year, and in each quarter shall be no greater than the
applicable estimated tax payment to be paid by such Eligible Partner to the
applicable Governmental Authority.
(d) Payments or distributions in connection with the Partnership Tax
Amount relating to the filing of extensions of time for filing Income Tax
returns for a fiscal year shall be payable in each case no more than five
days prior to the applicable date on which such payment of Income Tax is
due, shall be based on the Company's then good faith estimate of its
taxable income (or alternative minimum taxable income,
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as applicable) directly or indirectly allocable to the Eligible Partner for
such fiscal year, and shall be no greater than the applicable tax payment
to be paid by such Eligible Partner to the applicable Governmental
Authority.
(e) The aggregate amount of all payments made in connection with the
Partnership Tax Amount during the applicable fiscal year shall be based
upon the Company's taxable income (or alternative minimum taxable income,
as applicable) directly or indirectly allocable to the Eligible Partner
during such applicable fiscal year as shown on the Company's filed Federal
Income Tax return for such fiscal year, or if such return is not filed when
the financial statements referred to in Section 5.01(a) of the Credit
Agreement for such fiscal year are delivered, the Company's then good faith
estimate of the amount of its taxable income (or alternative minimum
taxable income, as applicable), taking into account any separately stated
items, for such fiscal year. In the event that the Company files an amended
Income Tax return (or upon the Company's filing of its original return for
the applicable fiscal year if the Partnership Tax Amount was based upon the
Company's good faith estimate of its taxable income or alternative minimum
taxable income, as applicable, that is inconsistent with its calculation of
its taxable income (or alternative minimum taxable income, as applicable)
for any such fiscal year(s), or in the event that a Governmental Authority
determines that information reflected in any of the Company's Income Tax
returns for such fiscal year is inaccurate or incomplete, then the Company
shall make a proper adjustment (including any penalties, interest or other
charges related to the adjustment or correction of information reflected in
such return(s) or the filing of such return(s)) to the amount payable in
connection with the Partnership Tax Amount for such fiscal year(s).
According to whether such adjustments to the amounts payable in connection
with the Partnership Tax Amount for the applicable year are positive or
negative with respect to the Eligible Partner, the Company shall, as
applicable, either promptly pay to the Eligible Partner as a distribution
as needed to fund payment to a Governmental Authority by such Eligible
Partner, or shall require the Eligible Partner to promptly pay to it, the
amount of any such adjustment (and no further payments in connection with
the Partnership Tax Amount shall be paid until the Eligible Partner has
repaid any such excess to the Company). Payments or distributions to the
Eligible Partner upon the Eligible Partner's filing original Income Tax
returns for a fiscal year shall be payable in each case no more than five
days prior to the applicable date on which the Income Tax payment is due in
connection with such return filing, and shall be no greater than the
applicable tax payment to be paid by such Eligible Partner to the
applicable Governmental Authority.
(f) In the event that the aggregate amount of payments in connection
with the Partnership Tax Amount actually distributed in respect of any
fiscal year exceeds the amounts determined as indicated in paragraph (e)
above for such fiscal year, the Eligible Partner shall promptly repay any
such excess to the Company (and no further payments in connection with the
Partnership Tax Amount shall be paid until the Eligible Partner has repaid
any such excess to the Company).
(g) For all periods from and after the inception of the Company as a
partnership, the amount of the aggregate payments in connection with the
Partnership Tax Amount made with respect to the direct or indirect
partnership interests held by an Eligible Partner for each fiscal year
shall be appropriately adjusted in the current fiscal year or in future
fiscal years, regardless of whether such Eligible Partner has held, or now
or in the future holds, a direct or indirect partnership interest in the
Company (to allow additional payments in connection with the Partnership
Tax Amount for the benefit of such Eligible Partner in the case of tax
increases or in the case of tax decreases by the Eligible Partner paying
any tax decrease to the Company) to reflect any adjustments in Income Tax
liabilities as a result of adjustments made for any reason to items of
income, gain, loss, deduction or credit of the Company, or adjustments made
in the Eligible Partner's allocable shares of such items (regardless of
whether occurring as a result of the Company's filing of an amended return
or as a result of an examination or audit by a Governmental Authority). For
the period up to and including Mr. Schenkel's purchase of Mr. Meyer's
direct or indirect partnership interests in the Company, "Eligible Partner"
shall also include Mr. Meyer as a former holder of a partnership interest
in the Company.
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(h) In the event that, for any reason, all or any portion of the
Partnership Tax Amount cannot be distributed to an Eligible Partner, such
deficiency in payments in connection with the Partnership Tax Amount shall
be distributed to such Eligible Partner in any subsequent fiscal year.
"Permitted Holders" means Mid-Am or any of its Subsidiaries, Schenkel and
any Person acting in the capacity of an underwriter or initial purchaser in
connection with a public or private offering of Equity Interests in the Company.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary; provided, however,
that the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary (other
than SFG Capital); provided, however, that such Person's primary business is a
Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to
the Company or any Restricted Subsidiary, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; provided, however, that such trade terms may include such
concessionary trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances; (v) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans or advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary and not exceeding $2.0 million in the aggregate
outstanding at any one time and (vii) Equity Interests, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments.
"Permitted Liens" means with respect to the Company and its Subsidiaries:
(a) Liens to secure Indebtedness permitted under the provisions
described under clause (b)(i) or (ii) under "Certain
Covenants -- Limitation on Indebtedness";
(b) pledges or deposits made or other Liens granted by the Company and
its Restricted Subsidiaries (1) under workmen's compensation laws,
unemployment insurance laws or similar legislation, (2) in connection with
bids, tenders, contracts (other than for the payment of Indebtedness) or
leases to which the Company or a Restricted Subsidiary is a party, or (3)
to secure public or statutory obligations of the Company or a Restricted
Subsidiary or deposits of cash or United States government bonds to secure
surety or appeal bonds to which the Company or a Restricted Subsidiary is a
party, or deposits as security for contested taxes or import duties or for
the payment of rent, in each case Incurred in the ordinary course of
business;
(c) Liens imposed by law, such as carriers', warehousemen's,
mechanics', employees' and other like Liens, in each case for sums not yet
due or being contested in good faith by appropriate proceedings or other
Liens arising out of judgments, awards, decrees or orders of any court or
other governmental authority against the Company or a Restricted Subsidiary
with respect to which the Company or a Restricted Subsidiary shall then be
proceeding with an appeal or other proceedings for review;
(d) Liens for property taxes not yet due or payable or subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings;
(e) Liens in favor of issuers of surety, performance, judgment, appeal
and other like bonds or letters of credit issued pursuant to the request of
and for the account of the Company or a Restricted Subsidiary in the
ordinary course of its business;
(f) minor survey exceptions, minor encumbrances, easements, or
reservations of, or rights of others for, licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes,
or zoning provisions, carveouts, conditional waivers or other restrictions
as to the use of real properties or minor irregularities of title (and with
respect to leasehold interests, mortgages, obligations, Liens and other
encumbrances Incurred, created, assumed or permitted to exist and arising
by, through or under a
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landlord or owner of the leased property, with or without consent of the
lessee) or Liens incidental to the conduct of the business of the Company
and its Restricted Subsidiaries or to the ownership of its properties which
were not Incurred in connection with Indebtedness and which do not in the
aggregate materially impair the use of such properties in the operation of
the business of the Company and its Restricted Subsidiaries;
(g) Liens existing or provided for under written arrangements existing
on the Issue Date;
(h) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to the Company or a Wholly Owned Subsidiary;
(i) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under the Indenture, secured by a
Lien on the same property securing such Hedging Obligations;
(j) Liens to secure any refinancing, refunding, replacement, renewal,
repayment or extension (or successive refinancings, refundings,
replacements, renewals, repayments or extensions) as a whole, or in part,
of any Indebtedness secured by any Lien referred to in clause (g), (i),
(l), (m) or (n); provided, however, that (x) such new Lien shall be limited
to all or part of the same property that secured the original Lien (plus
improvements on such property) and (y) the Indebtedness secured by such
Lien at such time is not increased to any amount greater than the sum of
(A) the outstanding principal amount or, if greater, committed amount of
the Indebtedness described under clauses (g), (i), (l), (m) and (n) at the
time the original Lien became a Permitted Lien and (B) an amount necessary
to pay any fees and expenses, including premiums, related to such
refinancing, refunding, replacement, renewal, repayment or extension;
(k)(i) Liens or restrictions that have been placed by any developer,
landlord or other third party on property over which the Company or any
Restricted Subsidiary has easement rights or on any real property leased by
the Company and subordination or similar agreements relating thereto and
(ii) any condemnation or eminent domain proceedings affecting any real
property;
(l) Liens on property, assets or Equity Interests of a Person at the
time such Person becomes a Subsidiary of the Company; provided, however,
such Liens are not created, Incurred or assumed by such Person in
connection with, or in contemplation of, such other Person becoming such a
Subsidiary of the Company; provided further, however, that such Liens may
not extend to any other property owned by the Company or any Restricted
Subsidiary;
(m) Liens on property or assets at the time the Company or a
Restricted Subsidiary acquired the property or assets, including any
acquisition by means of a merger or consolidation with or into the Company
or a Restricted Subsidiary; provided, however, that such Liens are not
created in connection with, or in contemplation of, such acquisition;
provided further, however, that the Liens may not extend to any other
property owned by the Company or any Restricted Subsidiary; and
(n) any Lien on Equity Interests or other securities of an
Unrestricted Subsidiary that secures Indebtedness of such Unrestricted
Subsidiary.
"Person" means any individual, corporation, partnership, limited
partnership, limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"Preferred Equity Interests", as applied to the Equity Interests of any
partnership, limited liability company or corporation, means Equity Interests of
any class or classes (however designated) which are preferred as to the payment
of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such partnership, limited liability
company or corporation, over Equity Interests of any other class of such
partnership, limited liability company or corporation.
"principal" of a Note means the principal of the Note plus the premium (if
any) payable on the Note which is due or overdue or is to become due at the
relevant time.
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"Public Equity Offering" means an underwritten primary public offering of
Equity Interests of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering has been
consummated and (ii) at least 15% of the total issued and outstanding Equity
Interests of the Company have been distributed by means of an effective
registration statement under the Securities Act.
"Purchase Money Mortgages" means Indebtedness consisting of the deferred
purchase price of an asset or assets including any conditional sale obligation,
any obligation under any title retention agreement or other purchase money
obligation; provided that (i) such Indebtedness is Incurred within 180 days of
the acquisition of such asset or assets by the Company or its Restricted
Subsidiaries, (ii) the Average Life of such Indebtedness is less than the
anticipated useful life of such asset or assets and (iii) such Indebtedness is
secured by a first priority Lien on such asset or assets.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," and "refinanced" shall have
a correlative meaning), in whole or in part, any Indebtedness existing on the
date of the Indenture or Incurred in compliance with the Indenture (including
Indebtedness of the Company or SFG Capital that refinances Indebtedness of any
Restricted Subsidiary (to the extent permitted in the Indenture) and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that, with respect to any
Refinancing Indebtedness (other than Bank Indebtedness), (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced or 91 days following the Stated Maturity of the
Notes, if shorter; (ii) the Refinancing Indebtedness has an Average Life at the
time such Refinancing Indebtedness is Incurred that is equal to or greater than
the Average Life of the Indebtedness being refinanced and (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being refinanced;
provided further, however, that Refinancing Indebtedness shall not include
Indebtedness of a Restricted Subsidiary (other than SFG Capital) that refinances
Indebtedness of the Company or SFG Capital.
"Related Business" means any business which is the same as or related,
ancillary or complementary to the businesses of the Company on the Issue Date.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Payment" with respect to any Person means (i) the distribution
of any sort in respect of its Equity Interests, including any payment in
connection with any merger or consolidation involving such Person (other than
dividends or distributions payable solely in its Equity Interests (other than
Disqualified Interests) or in options, warrants or other rights to purchase its
Equity Interests, as the case may be, or dividends or distributions payable
solely to such Person and its wholly owned Subsidiaries), (ii) the purchase,
redemption or other acquisition or retirement for value of any Equity Interest
of such Person or any direct or indirect parent of such Person, (iii) the
purchase, repurchase, redemption or other acquisition or retirement for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Subordinated Obligation of such Person (other than the purchase,
repurchase, or other acquisition of a Subordinated Obligation acquired in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity due within one year of the date of the acquisition of such
Subordinated Obligation) or (iv) the making of any Investment (other than a
Permitted Investment) in any Unrestricted Subsidiary or in any Affiliate of such
Person other than a wholly owned Subsidiary of such Person or a Person which
will become a wholly owned Subsidiary of such Person as a result of such
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the
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Company or such Restricted Subsidiary leases it from such Person, other than
leases between the Company and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries.
"Schenkel" means Pete Schenkel and any entity in which Schenkel and the
members of his family (consisting of the persons described in Section 318(a)(1)
of the Code) own more than a 50% interest.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of either of the Issuers
secured by a Lien.
"Senior Credit Documents" means the collective reference to the Credit
Agreement, the notes issued pursuant thereto and the Guarantees thereof, and the
Security Agreements, the Mortgages and the Pledge Agreements (each as defined in
the Credit Agreement).
"Senior Indebtedness" of the Company or SFG Capital means all principal of,
premium (if any), accrued and unpaid interest (if any) (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or SFG Capital whether or not a claim for
post-filing interest is allowed in such proceedings), fees, charges, expenses,
reimbursement obligations, Guarantees and other amounts owing with respect to
all Indebtedness of the Company or SFG Capital, and including all Bank
Indebtedness, and all Refinancing Indebtedness with respect thereto, whether
outstanding on the Issue Date or thereafter Incurred, unless in the instrument
creating or evidencing the same or pursuant to which the same is outstanding it
is expressly provided that such obligations are not superior in right of payment
to the Notes; provided, however, that Senior Indebtedness shall not include (i)
any obligation of the Company to any Subsidiary of the Company, (ii) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including Guarantees thereof or instruments evidencing such
liabilities), (iii) any Indebtedness or obligation of the Company or SFG Capital
which is subordinate or junior in any respect to any other Indebtedness or
obligation of the Company or SFG Capital, as the case may be, including any
Senior Subordinated Indebtedness and any Subordinated Obligations, (iv) any
obligations with respect to any Equity Interest, (v) any Indebtedness Incurred
in violation of the Indenture, or (vi) any liability for federal, foreign,
state, local or other taxes owed or owing by the Company or SFG Capital.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company or SFG Capital that specifically provides that such
Indebtedness is to rank pari passu with the Notes and is not subordinated by its
terms to any Indebtedness or other obligation of the Company or SFG Capital, as
the case may be, which is not Senior Indebtedness.
"Series E 10% Preferred Interests" means the Series E 10% Payment-in-Kind
Preferred Limited Partner Interests of the Company.
"Significant Subsidiary" means any Subsidiary of the Company, other than
SFG Capital, that would be a "Significant Subsidiary" of the Company within the
meaning of Rule 1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer thereof unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company or SFG
Capital (whether outstanding on the Issue Date or thereafter Incurred) that is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of the
Equity Interests entitled (without regard to the occurrence of any contingency)
to vote in the election of directors, representatives, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by (i) such
Person or (ii) one or more
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Subsidiaries of such Person or both; provided, however, that the Company shall
not be deemed to be a Subsidiary of Mid-Am.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and undivided profits
aggregating in excess of $250,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organized (as defined in Rule 436 under the Securities Act), (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than 90 days after the date of acquisition, issued by a
corporation (other than an Affiliate of the Company) organized and in existence
under the laws of the United States of America or any foreign country recognized
by the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Service, a division of The McGraw-Hill Companies, Inc. ("S&P"), (v) investments
in securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by S&P or "A" by Moody's Investors Service, Inc., and
(vi) investments in mutual funds and bank collective investments or trust funds
whose investment guidelines restrict such funds' investments to those satisfying
the provisions of clauses (i) through (v) above.
"Term Loans" means the Tranche A Term Loans and the Tranche B Term Loans
outstanding under the Credit Agreement.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec.
77aaa-77bbbb) as in effect on the date of the Indenture, or such other date as
may be established by the TIA.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Trustee" means the party named as such in the Indenture until a successor
replaces it in accordance with the terms of the Indenture and, thereafter, means
the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters with responsibility for the
administration of the Indenture, and, in the case of any certification required
to be signed by a Trust Officer, such officer who is authorized by the Trustee
from time to time to execute such certificates.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Governing Board in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Governing Board may designate any Subsidiary of the
Company (including any newly acquired or newly formed Subsidiary of the
Company), other than SFG Capital, to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Equity Interest in, or
Indebtedness of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary that is not a Subsidiary to be so designated;
provided, however, that either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under "-- Certain Covenants -- Limitation on Restricted Payments." The
Governing Board may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness under
clause (a) of "-- Certain Covenants -- Limitation of Indebtedness" and (y) no
Default shall have occurred and be continuing. Any such designation by the
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<PAGE> 100
Governing Board shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the authorization of the Governing Board giving effect to such
designation and an Officers' Certificate of the Company certifying that such
designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the option of the issuer thereof.
"Voting Equity Interests" of a partnership, limited liability company or
corporation means all classes of Equity Interests of such partnership, limited
liability company or corporation then outstanding that normally entitle the
holders of such interests to participate in the management or to elect those
participating in the management of such partnership, limited liability company
or corporation.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Equity
Interests of which (other than directors' qualifying Equity Interests) are owned
by the Company or another Wholly Owned Subsidiary.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
under the Internal Revenue Code of 1986, as amended (the "Code"), of the
ownership and disposition of Notes. The summary is based upon the laws,
regulations, rulings and judicial decisions now in effect, all of which are
subject to change (possibly on a retroactive basis). This summary does not
discuss all aspects of federal income taxation that may be relevant to investors
in light of their particular investment circumstances or the consequences to
certain types of holders subject to special treatment under the federal income
tax laws (for example, tax-exempt organizations, dealers in securities,
financial institutions, life insurance companies, foreign taxpayers, persons
holding shares as part of a hedging or conversion transaction or a straddle, or
persons whose functional currency is not the United States dollar). This summary
also does not discuss the consequences to a holder under state, local or foreign
tax laws, which may differ from the corresponding federal income tax laws. The
Issuers have not sought a formal legal opinion from their tax counsel regarding
the material federal income tax consequences under the Code of holding and
disposing of the Notes.
BEFORE DETERMINING WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER,
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSIDERATIONS PERTAINING TO THE
OWNERSHIP AND DISPOSITION OF THE NOTES.
PAYMENTS OF INTEREST
A holder of a Note generally will be required to report as ordinary income
for federal income tax purposes interest received or accrued on the Note in
accordance with the holder's method of tax accounting.
THE EXCHANGE OFFER
The exchange of Notes for Exchange Notes pursuant to the Exchange Offer
should not constitute a taxable exchange. Consequently, (i) a holder should not
recognize taxable gain or loss as a result of exchanging Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer; (ii) the holding period of the
Exchange Notes should include the holding period of the Outstanding Notes
exchanged therefor; and (iii) the adjusted tax basis of the Exchange Notes
immediately after the exchange should be the same as the adjusted tax basis
immediately prior to the exchange of the Outstanding Notes that are exchanged
for such Exchange Notes. The Company intends, to the extent required, to treat
the Exchange Offer for federal income tax purposes in accordance with the
position described in this paragraph.
The Issuers will be required to pay additional cash interest on the
Outstanding Notes if they fail to comply with certain of their obligations under
the Registration Rights Agreement. Although the matter is not free from doubt,
such additional interest should be taxable to a holder as ordinary income at the
time it
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<PAGE> 101
accrues or is received by such holder in accordance with such holder's regular
method of tax accounting. Holders bear the risk that the Internal Revenue
Service may assert an alternative position that would require each holder to
include such additional interest in income as such additional interest accrues
or becomes a fixed obligation of the Issuers (irrespective of such holder's
regular method of tax accounting).
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Notes and to the proceeds of
sale of a Note made to holders other than certain exempt recipients (such as
corporations). A 31% backup withholding tax will apply to such payments if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full interest income. The
amount of any backup withholding from a payment to a holder will be allowed as a
credit against the holder's federal income tax liability.
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The following description of the Registration Rights Agreement is a summary
only, does not purport to be complete and is qualified in its entirety by
reference to all provisions of the Registration Rights Agreement, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
The Issuers and the Initial Purchaser entered into the Registration Rights
Agreement concurrently with the issuance of the Outstanding Notes. Pursuant to
the Registration Rights Agreement, the Issuers agreed to (i) file with the
Commission on or prior to 210 days after the Issue Date a registration statement
on an appropriate form under the Securities Act (the "Exchange Offer
Registration Statement") relating to a registered exchange offer for the
Outstanding Notes under the Securities Act, and (ii) use their reasonable best
efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 270 days after the Issue Date. As soon
as practicable after the effectiveness of the Exchange Offer Registration
Statement, the Issuers agreed to offer to the holders of Transfer Restricted
Securities (as defined) who are not prohibited by any law or policy of the
Commission from participating in the Exchange Offer the opportunity to exchange
their Transfer Restricted Securities for Exchange Notes, identical in all
material respects to the Outstanding Notes (except that the Exchange Notes do
not contain terms with respect to transfer restrictions), that would be
registered under the Securities Act. This Prospectus constitutes a part of the
Exchange Offer Registration Statement and was filed with the Commission for the
purpose of making the Exchange Offer for the Outstanding Notes. The Issuers
agreed to keep the Exchange Offer open for not less than 30 days (or longer, if
required by law) after the date notice of the Exchange Offer is mailed to the
holders of the Outstanding Notes. In the event that a change in law or
applicable interpretations of the staff of the Commission does not permit the
Issuers to effect the Exchange Offer, any applicable law or interpretations of
the staff of the Commission does not permit any holder of Outstanding Notes
(including the Initial Purchaser) to participate in the Exchange Offer, or any
holder of Outstanding Notes (including the Initial Purchaser) participates in
the Exchange Offer and does not receive freely transferable Exchange Notes in
exchange for tendered Outstanding Notes after complying with the terms of the
Exchange Offer, the Issuers will use their reasonable best efforts to file with
the Commission the Shelf Registration Statement to cover resales of Transfer
Restricted Securities by such holders who satisfy certain conditions relating
to, among other things, the provision of information in connection with the
Shelf Registration Statement. For purposes of the foregoing, "Transfer
Restricted Securities" means each Outstanding Note until (i) the date on which
such Outstanding Note has been exchanged for a freely transferable Exchange Note
in the Exchange Offer, (ii) the date on which such Outstanding Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) the date on which such
Outstanding Note is distributed to the public pursuant to Rule 144 under the
Securities Act or may be sold pursuant to Rule 144(k) under the Securities Act.
The Issuers agreed to use their reasonable best efforts to have the
Exchange Offer Registration Statement and, if applicable, a Shelf Registration
Statement declared effective by the Commission as promptly as practicable after
the filing thereof. Under the Registration Rights Agreement, unless the Exchange
Offer
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<PAGE> 102
would not be permitted by a policy of the Commission, the Issuers will commence
the Exchange Offer and will use their reasonable best efforts to consummate the
Exchange Offer as promptly as practicable, but in any event prior to 300 days
after the Issue Date. If applicable, the Issuers will use their best efforts to
keep the Shelf Registration Statement effective for a period of two years after
the Issue Date, subject to certain exceptions, including suspending the
effectiveness thereof for certain valid business reasons. If (i) the applicable
registration statement is not filed with the Commission on or prior to 210 days
after the Issue Date, (ii) the Exchange Offer Registration Statement or the
Shelf Registration Statement, as the case may be, is not declared effective
within 270 days after the Issue Date (or in the case of a Shelf Registration
Statement required to be filed in response to a change in law or the applicable
interpretations of the Commission's staff, if later, within 45 days after
publication of the change in law or interpretation), (iii) the Exchange Offer is
not consummated on or prior to 300 days after the Issue Date or (iv) the Shelf
Registration Statement is filed and declared effective within 270 days after the
Issue Date (or in the case of a Shelf Registration Statement required to be
filed in response to a change in law or the applicable interpretations of
Commission's staff, if later, within 45 days after publication of the change in
law or interpretation), but shall thereafter cease to be effective (at any time
that the Issuers are obligated to maintain the effectiveness thereof) without
being succeeded within 60 days by an additional registration statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Issuers are obligated to pay liquidated damages to
each holder of Transfer Restricted Securities, during the period of one or more
such Registration Defaults, in an amount equal to $0.192 per week per $1,000
principal amount of Transfer Restricted Securities held by such holder until the
applicable registration statement is filed or declared effective, the Exchange
Offer is consummated or the Shelf Registration Statement again becomes
effective, as the case may be. All accrued liquidated damages shall be paid to
holders in the same manner as interest payments on the Outstanding Notes on
semi-annual payment dates which correspond to interest payment dates for the
Outstanding Notes. Following the cure of all Registration Defaults, the accrual
of liquidated damages will cease.
The Registration Rights Agreement also provides that the Issuers (i) shall
make available for a period of 90 days after the consummation of the Exchange
Offer a prospectus meeting the requirements of the Securities Act to any
broker-dealer for use in connection with any resale of any such Exchange Notes
and (ii) shall pay all expenses incident to the Exchange Offer (including the
expenses of one counsel to the holders of the Outstanding Notes) and will
indemnify certain holders of the Outstanding Notes (including any broker-dealer)
against certain liabilities, including liabilities under the Securities Act. A
broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Registration
Rights Agreement (including certain indemnification rights and obligations).
Each holder of the Outstanding Notes that wishes to exchange such
Outstanding Notes for Exchange Notes in the Exchange Offer will be required to
make certain representations, including representations that (i) any Exchange
Notes to be received by it will be acquired in the ordinary course of its
business, (ii) it has no arrangement with any person to participate in the
distribution of the Exchange Notes and (iii) it is not an "affiliate" (as
defined in Rule 405 of the Securities Act), of the Issuers or, if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
If a holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If a holder is a broker-dealer that will receive Exchange Notes
for its own account in exchange for Outstanding Notes that were acquired as a
result of market making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
Holders of the Outstanding Notes will be required to make certain
representations to the Issuers (as described above) in order to participate in
the Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement in order to have their
Outstanding Notes included in the Shelf Registration Statement and benefit from
the provisions regarding liquidated damages set forth in the preceding
paragraphs. A holder who sells Outstanding Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a
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<PAGE> 103
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Outstanding Notes were issued, and the
Exchange Notes initially will be issued, in the form of one or more registered
notes in global form without coupons (each a "Global Note"). Each Global Note
representing the Outstanding Notes was deposited on the Issue Date, and each
Global Note representing the Exchange Notes will be deposited on the closing
date of the Exchange Offer, with, or on behalf of, DTC, and registered in the
name of Cede & Co., as nominee of DTC, or will remain in the custody of the
Trustee pursuant to the FAST Balance Certificate Agreement between DTC and the
Trustee.
DTC has advised the Issuers that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the Federal
Reserve system, (iii) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Holders who are not Participants may
beneficially own securities held by or on behalf of DTC only through
Participants or Indirect Participants.
The Issuers expect that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC has or will credit the accounts of Participants
designated by the Exchange Agent with an interest in the Global Notes and (ii)
ownership of beneficial interests in the Global Notes has or will be shown on,
and the transfer of beneficial ownership therein will be effected only through,
records maintained by DTC (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Notes or to pledge the Notes as collateral
will be limited to such extent.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated securities (the "Certificated Securities"), and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any direction, instruction or
approval to the Trustee thereunder or with respect to any decision about
accepting the Exchange Offer. As a result, the ability of a person having a
beneficial interest in Notes represented by a Global Note to pledge or transfer
such interest to persons or entities that do not participate in DTC's system or
to otherwise take action with respect to such interest, may be affected by the
lack of a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note including exercise of the rights of the holder
with respect to the Exchange Offer. The Issuers understand that under existing
industry practice, in the event the Issuers request any action of holders of
Notes or a holder that is an owner of a beneficial interest in a Global Note
desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take
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<PAGE> 104
such action and the Participant would authorize holders owning through such
Participant to take such action or would otherwise act upon the instruction of
such holders. None of the Issuers or the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Notes by DTC, or for maintaining, supervising or reviewing any records of DTC
relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such notes under the Indenture. Under the terms of
the Indenture, the Issuers and the Trustee may treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payment and for any and all other purposes
whatsoever. Consequently, none of the Issuers or the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of interests in the Global Notes (including principal, premium, if any,
and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of DTC. Payments by the Participants and the Indirect
Participants to the beneficial owners of interests in the Global Note will be
governed by standing instructions and customary practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
CERTIFICATED SECURITIES
If (i) the Issuers notify the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and the Issuers are unable to locate a
qualified successor within 90 days, (ii) the Issuers, at their option, notify
the Trustee in writing that they elect to cause the issuance of Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Notes, Certificated
Securities will be issued to each person that DTC identifies as the beneficial
owner of the Notes represented by the Global Notes. Upon any such issuance, the
Trustee is required to register such Certificated Securities in the name of such
person or persons (or the nominee of any thereof) and cause the same to be
delivered thereto.
None of the Issuers or the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
copy of this Prospectus in connection with any resale of such Exchange Notes.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Outstanding Notes where such Outstanding Notes
were acquired as a result of market-making activities or other trading
activities. The Issuers have agreed that, for a period of 90 days after the
Expiration Date, they will make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any such
resale. In addition, until , all dealers effecting transactions in
the Exchange Notes may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were
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received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 90 days after the Expiration Date the Issuers will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Issuers have agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the Holders of the
Outstanding Notes) other than commissions or concession of any brokers-dealers
and will indemnify the Holders of the Outstanding Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer agrees that,
upon receipt of notice from the Issuers of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requests the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Issuers agree to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Issuers have amended or supplemented the Prospectus to
correct such misstatement or omission and have furnished copies of the amended
or supplemental Prospectus to such broker-dealer. If the Issuers shall give any
such notice to suspend the use of the Prospectus, it shall extend the 90-day
period referred to above by the number of days during the period from and
including the date of the giving of such notice to and including when
broker-dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the Exchange Notes.
LEGAL MATTERS
Certain legal matters will be passed upon for the Issuers by Strasburger &
Price, L.L.P., Dallas, Texas, counsel to the Company.
EXPERTS
The consolidated financial statements of SFG as of December 31, 1996, and
1997 and for each of the three years in the period ended December 31, 1997
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of Meadow Gold Dairies for the period from January
1, 1997 through September 4, 1997 included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Meadow Gold Dairies for each of the years ended
December 31, 1995 and 1996 included in this Prospectus have been so included in
reliance on the report of Deloitte & Touche LLP, independent auditors, as stated
in their report appearing herein and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
Upon completion of the Transactions, Price Waterhouse LLP was appointed,
and replaced Deloitte & Touche LLP, as independent accountants for Meadow Gold
Dairies for the period from January 1, 1997 through September 4, 1997.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SOUTHERN FOODS GROUP, L.P.
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1995, 1996 and 1997....................... F-4
Consolidated Statements of Partners' Equity for the years
ended December 31, 1995, 1996, and 1997................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997....................... F-6
Notes to the Consolidated Financial Statements............ F-7
MEADOW GOLD DAIRY OPERATIONS (A DIVISION OF BORDEN/MEADOW
GOLD DAIRIES HOLDINGS, INC.)
Report of Independent Accountants......................... F-18
Independent Auditors' Report.............................. F-19
Statements of Revenues and Expenses for the years ended
December 31, 1995 and 1996 and for the period from
January 1, 1997 to September 4, 1997................... F-20
Statements of Cash Flows for the years ended December 31,
1995 and 1996 and for the period from January 1, 1997
to September 4, 1997................................... F-21
Notes to Financial Statements............................. F-22
</TABLE>
F-1
<PAGE> 107
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Southern Foods Group, L.P.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of partners' equity and of cash flows
present fairly, in all material respects, the financial position of Southern
Foods Group, L.P. and its subsidiary at December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements 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.
PRICE WATERHOUSE LLP
Dallas, Texas
March 31, 1998
F-2
<PAGE> 108
SOUTHERN FOODS GROUP, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Current assets:
Cash...................................................... $ 1,995 $ 4,747
Accounts receivable, net.................................. 41,508 77,987
Inventories............................................... 9,702 30,548
Prepaid expenses and other assets......................... 1,621 2,947
-------- --------
Total current assets.............................. 54,826 116,229
-------- --------
Property, plant and equipment, at cost:
Land...................................................... 7,971 30,678
Buildings and improvements................................ 14,783 39,931
Machinery and equipment................................... 39,630 114,424
Vehicles.................................................. 2,589 9,351
-------- --------
64,973 194,384
Less: Accumulated depreciation and amortization........... (12,150) (20,321)
-------- --------
52,823 174,063
-------- --------
Goodwill, net............................................... 70,753 238,323
Trademarks, net............................................. -- 104,154
Deferred financing costs, net............................... 1,701 11,714
Other assets................................................ 2,357 1,830
-------- --------
Total assets...................................... $182,460 $646,313
======== ========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 11,184 $ 27,396
Raw milk accrual.......................................... 15,406 25,511
Accrued expenses.......................................... 15,071 45,668
Current portion of long-term debt......................... 5,570 777
-------- --------
Total current liabilities......................... 47,231 99,352
-------- --------
Long-term debt.............................................. 55,972 345,914
Related party notes payable................................. 34,424 --
Other long-term liabilities................................. -- 10,668
Commitments and contingencies (Note 9)
Partners' equity:
Limited partner preferred, stated amount of $238,671...... -- 176,199
Limited partner common.................................... 44,367 13,771
General partner common.................................... 466 409
-------- --------
44,833 190,379
-------- --------
Total liabilities and partners' equity............ $182,460 $646,313
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 109
SOUTHERN FOODS GROUP, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR EACH OF THE YEARS ENDED
DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $475,170 $551,636 $740,983
Cost of sales.............................................. 359,595 425,079 547,182
-------- -------- --------
115,575 126,557 193,801
-------- -------- --------
Selling, distribution and general and administrative
expenses................................................. 89,714 100,192 140,429
Amortization of goodwill and other intangible assets....... 7,635 7,658 11,950
-------- -------- --------
Income from operations..................................... 18,226 18,707 41,422
Interest expense......................................... 9,108 7,640 16,500
Other income, net........................................ (981) (480) (1,174)
-------- -------- --------
Net income................................................. $ 10,099 $ 11,547 $ 26,096
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 110
SOUTHERN FOODS GROUP, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR EACH OF THE YEARS ENDED
DECEMBER 31, 1995, 1996 AND 1997
-----------------------------------------
PREFERRED COMMON
--------- ------------------
LIMITED GENERAL LIMITED
PARTNER PARTNER PARTNER TOTAL
--------- ------- -------- --------
<S> <C> <C> <C> <C>
Partners' equity, January 1, 1995.................... $ -- $ 250 $ 29,661 $ 29,911
Partner contributions.............................. 2,707 2,707
Partner distributions.............................. (377) (377)
Net income................................. 101 9,998 10,099
-------- ----- -------- --------
Partners' equity, December 31, 1995.................. -- 351 41,989 42,340
Partner contributions.............................. 15 15
Partner distributions.............................. (9,069) (9,069)
Net income................................. 115 11,432 11,547
-------- ----- -------- --------
Partners' equity, December 31, 1996.................. -- 466 44,367 44,833
Conversion of common equity to preferred........... 20,275 (20,275) --
Partner contributions.............................. 143,000 62 6,341 149,403
Partner distributions.............................. (251) (29,702) (29,953)
Net income................................. 12,924 132 13,040 26,096
-------- ----- -------- --------
Partners' equity, December 31, 1997.................. $176,199 $ 409 $ 13,771 $190,379
======== ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 111
SOUTHERN FOODS GROUP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR EACH OF THE YEARS ENDED
DECEMBER 31,
---------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 10,099 $ 11,547 $ 26,096
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 4,666 5,652 9,769
Amortization............................................ 8,140 8,165 12,829
Interest added to long-term debt........................ 2,902 3,208 --
Change in assets and liabilities, net of effects of
business acquisitions:
(Increase) decrease in accounts receivable........... (1,971) (3,700) (3,682)
(Increase) decrease in inventories................... (876) (658) (869)
(Increase) decrease in prepaid expenses and other
assets............................................. (189) 96 313
Increase (decrease) in accounts payable and accrued
expenses........................................... 1,136 8,933 (708)
-------- -------- ---------
Net cash provided by operating activities.......... 23,907 33,243 43,748
-------- -------- ---------
Cash flows from investing activities:
Purchase of trademarks.................................. (105,000)
Business acquisitions, net of cash acquired............. (5,998) (8,851)
Additions to property, plant and equipment.............. (5,381) (7,167) (12,123)
(Increase) decrease in other assets..................... (284) 74 894
-------- -------- ---------
Net cash used in investing activities.............. (5,665) (13,091) (125,080)
-------- -------- ---------
Cash flows from financing activities:
Borrowings on long-term debt............................ 6,000 255,000
Repayments on long-term debt............................ (14,619) (16,820) (149,706)
Borrowings on related party notes payable............... 20,490
Repayments on related party notes payable............... (54,914)
Net borrowings (repayments) -- revolving credit
facility............................................. (5,900) 400 4,100
Payment of deferred financing costs..................... (12,141)
Partner contributions -- preferred equity............... 45,000
Partner contributions -- common equity.................. 2,707 15 6,208
Partner distributions -- common equity.................. (377) (9,069) (29,953)
-------- -------- ---------
Net cash provided by (used in) financing
activities...................................... (18,189) (19,474) 84,084
-------- -------- ---------
Net increase in cash...................................... 53 678 2,752
Cash at beginning of period............................... 1,264 1,317 1,995
-------- -------- ---------
Cash at end of period..................................... $ 1,317 $ 1,995 $ 4,747
======== ======== =========
Supplemental information:
Interest paid............................................. $ 6,437 $ 4,901 $ 10,248
======== ======== =========
Noncash investing and financing activities:
Meadow Gold contribution:
Net assets contributed.......................... $ 265,000
Term debt assumed............................... (175,000)
Preferred equity interests issued............... (90,000)
---------
$ --
=========
Barbe's Dairy contribution:
Net assets contributed.......................... $ 8,000
Preferred equity interests issued............... (8,000)
---------
$ --
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 112
SOUTHERN FOODS GROUP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Southern Foods Group, L.P. ("SFG" or the "Partnership") owns 26 facilities
which process and package fluid milk products, cultured products, ice cream
products, fruit juices and drinks and other dairy related products. The majority
of SFG's sales are from fluid milk products, which include fresh packaged milk
and chocolate milk in whole, reduced fat and fat-free varieties, whipping cream,
half-and-half and buttermilk. These products are produced and marketed primarily
under the Schepps, Oak Farms, Meadow Gold, Viva, Foremost, Brown's Velvet,
Barbe's and Flav-O-Rich brand names, as well as various private labels. SFG
produces cultured products, such as sour cream, cottage cheese and yogurt, as
well as ice cream and fruit juices and drinks under its brand names, various
private labels and third-party labels. SFG also distributes cultured products,
fruit juices and drinks, ice cream products and other dairy related products
such as cheese, eggs, butter and non-dairy creamers purchased from
third-parties.
On May 22, 1997, Dairy Farmers of America, Inc., formerly Mid-America
Dairymen, Inc. ("DFA"), entered into a stock purchase and merger agreement with
Borden, Inc. and an affiliate ("Borden") to acquire the dairy operations of
Borden, including Meadow Gold Dairies ("Meadow Gold"), and certain related
trademarks (the "Borden Transaction"). This and other related transactions were
completed on September 4, 1997. Immediately following the acquisition, DFA, a
50% common equity partner in the Partnership, contributed the dairy operations
of Meadow Gold to the Partnership. Details of these and other related
transactions are further described in Note 2.
ACCOUNTING POLICIES
Basis of Accounting
The accompanying consolidated financial statements include the accounts of
the Partnership and its wholly-owned subsidiary, SFG Capital Corporation. SFG
Capital Corporation has no assets, no liabilities, does not conduct any
operations and was formed solely to facilitate the issuance of indebtedness for
the Partnership.
The accompanying consolidated financial statements include certain
reclassifications to previously reported amounts to conform to current year
presentation.
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.
Revenue Recognition
Revenues on product sales are recognized upon delivery to the customer.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
on the first-in, first-out basis.
F-7
<PAGE> 113
SOUTHERN FOODS GROUP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Depreciation is calculated using the straight-line method of depreciation
over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 5-40
Machinery and equipment..................................... 2-15
Vehicles.................................................... 5-7
</TABLE>
Maintenance and repairs are charged to expense as incurred; renewals and
betterments are capitalized and depreciated over the related assets' remaining
useful lives. Leasehold improvements are depreciated over the life of the
related asset or the lease term, whichever is less.
Goodwill
Goodwill related to Meadow Gold, which totals approximately $169 million,
is amortized using the straight-line method over an estimated useful life of 40
years. Other goodwill is amortized primarily over an estimated useful life of 13
years. Accumulated amortization of goodwill was approximately $20 million and
$28 million at December 31, 1996 and 1997, respectively.
Other Intangible Assets
The Borden Trademarks and Meadow Gold Trademarks (see Note 2) are amortized
using the straight-line method over their estimated useful lives of 40 years.
Deferred financing costs are amortized over the term of the related debt issue
using the straight-line method, which approximates the effective interest
method. Amortization of deferred financing costs is included in interest
expense. Accumulated amortization of trademarks and deferred financing costs
were approximately $.8 million and $.5 million at December 31, 1997,
respectively.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset or group of assets may
not be recoverable. The impairment review includes a comparison of future cash
flows expected to be generated by the asset or group of assets with their
associated carrying value. If the carrying value of the asset or group of assets
exceeds expected cash flows (undiscounted and without interest charges), an
impairment loss is recognized to the extent carrying amount exceeds fair value.
Postretirement Benefits
Pension plans covering certain employees are funded sufficiently to at
least meet minimum funding requirements under applicable law. The Partnership
accrues the estimated costs of pension and other retiree benefits during the
employees' active service periods.
Income Taxes
The Partnership is not subject to federal and state income taxes.
Accordingly, no recognition has been given to income taxes in the accompanying
financial statements of the Partnership since the income or loss of the
Partnership is to be included in the tax returns of the individual partners.
The tax attributes of the Partnership's net assets flow directly to each
individual partner. Each partner's tax accounting, which is partially dependent
upon their individual tax position, may differ from the accounting
F-8
<PAGE> 114
SOUTHERN FOODS GROUP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
followed in the financial statements. Accordingly, there could be significant
differences between each individual partner's tax basis and their proportionate
share of the net assets reported in the financial statements. At December 31,
1996 and 1997, the financial accounting basis of the net assets of the
Partnership exceeded its tax basis by approximately $69 million and $267
million, respectively. These differences are related primarily to goodwill,
fixed assets and accrued liabilities.
Fair Value of Financial Instruments
The fair value of the $150 million of senior subordinated notes (See Note
2) was approximately $157 million at December 31, 1997 based on trading in the
PORTAL Market reported by Chase Securities Inc. Management believes the recorded
values of all other financial instruments approximate their current fair values
as such items are current in nature or generally bear variable interest rates
which adjust yield to derive current market value.
2. ACQUISITIONS
On September 4, 1997, DFA acquired Borden/Meadow Gold Dairies Holdings,
Inc., a subsidiary comprising the fluid milk operations of Borden, for $380
million (the "Borden Acquisition.") This acquisition was partially funded
through new senior term debt (the "Senior Bank Facilities") obtained by DFA from
a syndicate of lenders led by The Chase Manhattan Bank. Certain of these assets
and liabilities, consisting of the operations of Meadow Gold, were then
contributed to the Partnership. In conjunction with the Meadow Gold
contribution, the Partnership assumed the Senior Bank Facilities and issued
non-voting, limited partner preferred interests ("Preferred Interests") to DFA
in the stated amount of $90 million. The fair value of the assets contributed to
the Partnership was $265 million, including $169 million of goodwill.
Concurrent with the Borden Acquisition, the Partnership acquired the
license to use certain trademarks owned by Borden (the "Borden Trademarks") for
$55 million and repaid the Partnership's existing bank debt and related party
notes of approximately $92 million. The acquisition of the Borden Trademarks and
the repayment of debt was funded through the issuance of $150 million of senior
subordinated notes (the "Notes") and an equity contribution of $45 million from
Mid-Am Capital, L.L.C. , an affiliate of DFA, for Preferred Interests. The
remaining proceeds, along with proceeds from the Senior Bank Facilities, were
used to purchase the trademarks used by Meadow Gold (the "Meadow Gold
Trademarks") from an affiliate of DFA for $50 million. See Note 6 for a
discussion of the Senior Bank Facilities and the Notes and Note 10 for a
discussion of the Preferred Interests. The results of Meadow Gold are included
in the accompanying financial statements from September 4, 1997, the date of
contribution.
The following unaudited pro forma summary results of operations assume that
the Meadow Gold contribution and the related transactions occurred on January 1
of the indicated period:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $1,044,173 $1,054,335
Net income.................................................. $ 3,005 $ 18,409
</TABLE>
The unaudited pro forma summary results of operations are not necessarily
indicative of results of operations that would have occurred had the
transactions taken place on January 1, 1996 or 1997, or of future results of
operations of the combined businesses.
In March 1997, the Partnership purchased certain assets of Land-O-Pines
Dairy for approximately $4.9 million. The purchase price has been allocated to
the acquired assets based on their estimated fair value.
F-9
<PAGE> 115
SOUTHERN FOODS GROUP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1997, DFA contributed the operations of Barbe's Dairy to the
Partnership. DFA purchased Barbe's Dairy in October 1996 for approximately $8.2
million. The related assets and liabilities were recorded on the Partnership's
books at DFA's historical cost.
In 1996, the Partnership acquired the assets of Pure Milk and Ice Cream,
Inc. for approximately $6 million. The purchase price was allocated among the
assets acquired based on their estimated fair value. The assets acquired are
currently operated as Oak Farms-Waco (Texas).
The results of Land-O-Pines Dairy, Barbe's Dairy, and Oak Farms-Waco are
included in the accompanying financial statements from the date of
contribution/acquisition.
3. ACCOUNTS RECEIVABLE
A summary of accounts receivable is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Trade....................................................... $41,297 $74,768
Other....................................................... 2,757 7,390
------- -------
44,054 82,158
Less allowance for doubtful accounts........................ (2,546) (4,171)
------- -------
$41,508 $77,987
======= =======
</TABLE>
SFG sells to customers primarily in the southern and western United States
and Hawaii. The Partnership sells primarily to retail, food service and
institutional customers. Only one customer, which contributed 12% to sales in
1997, contributed over 10% to SFG's total sales.
4. INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods.............................................. $4,282 $14,776
Packaging and supplies...................................... 2,850 3,389
Raw materials............................................... 1,674 10,563
Truck parts................................................. 896 1,820
------ -------
$9,702 $30,548
====== =======
</TABLE>
5. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued insurance expense................................... $ 4,559 $14,572
Accrued payroll and related benefits........................ 6,820 10,448
Accrued interest expense.................................... 12 5,724
Accrued expenses -- other................................... 3,680 14,924
------- -------
$15,071 $45,668
======= =======
</TABLE>
F-10
<PAGE> 116
SOUTHERN FOODS GROUP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership is insured for liability claims arising from on the job
injuries of its employees in most states with varying levels of step-loss
coverage and high deductible amounts. The Partnership also offers a selection of
health plans which includes health maintenance organization ("HMO") plans as
well as indemnity plans for which the Partnership is responsible for employees'
medical and dental claims, also with stop-loss coverages of varying amounts. The
Partnership maintains partially funded accruals for these claims. The accruals
are comprised of estimates for both claims that have been reported but not yet
paid, and claims that have been incurred but not yet reported.
6. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Term loans.................................................. $49,972 $181,000
Notes....................................................... -- 150,000
Revolving loan.............................................. 10,200 14,300
Other notes................................................. 1,370 1,391
------- --------
$61,542 $346,691
======= ========
</TABLE>
The Senior Bank Facilities discussed in Note 2 were entered into on
September 4, 1997 and consist of term loans of $190 million and a revolving
credit facility of $60 million. The term loans are comprised of a Tranche A loan
of $90 million and a Tranche B loan of $100 million. These loans bear interest
at a margin above either the Alternate Base Rate, as defined in the credit
agreement, or LIBOR rates, at the Partnership's election. For Tranche A loans,
this margin ranges between 0.5% and 1.25% for Alternate Base Rate loans, and
between 1.75% and 2.5% for LIBOR loans, based on earnings levels. For Tranche B
loans, the margin is 1.75% for Alternate Base Rate loans, and 3.0% for LIBOR
loans. These weighted average rates were 8.39% and 8.87% for Tranche A and
Tranche B at December 31, 1997, respectively, and were based on LIBOR rates. The
revolving credit facility also bears interest at a variable rate based on the
same margins as the Tranche A loan (9.75% at December 31, 1997 based on the
Alternate Base Rate). At December 31, 1997, $181 million of term loans were
outstanding, and $14.3 million of revolving loans and $1.8 million of letters of
credit were outstanding under the revolving credit facility. Available
borrowings under the revolving credit facility were $43.9 million at December
31, 1997. The term loans are payable in quarterly principal installments over a
period of seven years for Tranche A and eight and one-half years for Tranche B,
and may be prepaid. The revolving credit facility expires after seven years. The
Partnership pays customary fees under these credit facilities such as commitment
fees, letter of credit fees and administrative fees. The Senior Bank Facilities
are secured by substantially all of the Partnership's assets.
The Partnership entered into an interest rate collar in October 1997 with a
notional amount of $28 million and a LIBOR rate cap of 7.0% and a floor of
5.65%. This agreement expires in October 2000. Any payments made or received
under the collar will be recognized as an adjustment to interest expense.
In January 1998, the Partnership entered into various interest rate swap
agreements. The fixed LIBOR rate under these agreements ranges between 5.565%
and 5.63%. These agreements have an aggregate initial notional amount of $127
million, which declines annually over a five-year period to a final aggregate
notional amount of $23 million, and are cancellable at the counterparty's option
at the end of three or four years, based on the individual agreement.
The Notes bear interest at a rate of 9 7/8% payable in semi-annual
installments beginning March 1998, and mature in September 2007. Except as set
forth below, the Notes are not redeemable at the option of the
F-11
<PAGE> 117
SOUTHERN FOODS GROUP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Partnership prior to September 1, 2002. On and after such date, the Notes will
be redeemable, at the Partnership's option at the following redemption prices,
plus accrued and unpaid interest to the redemption date, if redeemed during the
12-month period commencing on September 1 of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2002........................................................ 104.938%
2003........................................................ 103.292%
2004........................................................ 101.646%
2005 and thereafter......................................... 100.000%
</TABLE>
Also, at any time and from time to time prior to September 1, 2000, the
Partnership may redeem in the aggregate up to one-third of the original
aggregate principal amount of the Notes with the proceeds of one or more public
equity offerings by the Partnership at a redemption price of 109.875% plus
accrued and unpaid interests to the redemption date; provided, however, that at
least two-thirds of the original aggregate principal amount of the Notes must
remain outstanding after each such redemption. Additionally, upon the occurrence
of a change of control, as defined, each Note holder will have the right to
require the Partnership to offer to repurchase such Notes at a price equal to
101% of the principal amount plus accrued and unpaid interest.
Both the Senior Bank Facilities and the Notes are subject to certain
financial and other restrictive covenants. These covenants, among other things,
limit the ability of the Partnership to incur additional indebtedness, dispose
of assets, make distributions, make acquisitions and otherwise restrict certain
business activities. The Partnership is required to comply with certain
financial ratios and tests including interest coverage ratios, leverage ratios
and other requirements.
Future maturities of the Partnership's debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SCHEDULED
DECEMBER 31, DEBT PAYMENTS
------------ --------------
(IN THOUSANDS)
<S> <C>
1998..................................................... $ 777
1999..................................................... 8,308
2000..................................................... 11,306
2001..................................................... 13,500
2002..................................................... 16,000
Thereafter............................................... 296,800
--------
Total............................................. $346,691
========
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Partnership borrowed $26 million from Mid-Am Finance, Inc. in 1994. The
subordinated note bore interest at 10% and was due February 17, 2000. Interest
was payable through the periodic issuance of additional subordinated notes which
were also due February 17, 2000. These loans were repaid in February 1997, at
which time the Partnership borrowed $20 million from Mid-Am Capital. The $20
million note was repaid in September 1997 as discussed in Note 2. At December
31, 1997, there were no borrowings outstanding with related parties.
The Partnership sources principally all of its raw milk from DFA. Amounts
due for raw milk purchases are paid to the Federal Milk Market Administrator and
are reflected on the accompanying balance sheet in the raw milk accrual.
Effective January 1, 1998 the Partnership entered into an agreement with
DFA pursuant to which the Partnership has agreed to source all of its milk from
DFA subject to the Partnership's existing supply
F-12
<PAGE> 118
SOUTHERN FOODS GROUP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreements, all of which except one have expired. Prices charged to the Company
by DFA under the supply arrangement are at competitive market prices. The
agreement is initially for a term of one year and thereafter may be canceled on
12 months' notice.
8. RETIREMENT PLANS
As a result of the addition of the Meadow Gold operations in September,
1997, the Partnership currently has separate retirement plans covering Meadow
Gold employees.
Retirement plans -- excluding Meadow Gold employees
The Partnership has a 401(k) plan in which all employees are eligible to
participate upon completion of six months of service, as defined. The
Partnership matches contributions equal to 50% or more of the participant's
contribution up to 3% of each participant's compensation, and may match
additional contributions on a discretionary basis. Employees vest in the
Partnership's contribution over two to ten years of service for Plan years
beginning before 1989 and two to five years, thereafter. The Partnership also
has a non-qualified contributory plan in which only selected management
personnel are eligible to participate. Under this non-qualified plan, the
Partnership matches 100% of contributions up to 3% of each participant's
compensation. Employees vest in the Partnership's contribution after two years
of service. Contributions to these plans by the Partnership were approximately
$1.6 million for the year ended December 31, 1995, $2.0 million for the year
ended December 31, 1996 and $2.1 million for the year ended December 31, 1997.
Effective October 1, 1996, the Partnership adopted the Supplemental
Executive Retirement Plan ("SERP"). The SERP is available to certain specified
executives of the Partnership and provides annual benefits based on a percentage
of the executives' salaries. Benefits are payable upon retirement at specified
retirement ages, or upon disability or involuntary termination. The pension
liability associated with this plan was approximately $.6 million at December
31, 1996.
Retirement plans -- Meadow Gold employees
Meadow Gold employees are eligible to participate in a 401(k) plan upon
date of hire. The Partnership matches contributions equal to 50% of the
participant's contribution up to 5% of each participant's compensation.
Employees vest in the Partnership's contribution over five years. Employer
contributions to this plan were $.3 million for the period from September 4,
1997 through December 31, 1997.
Most Meadow Gold employees participate in a domestic pension plan where
benefits are based generally on compensation and credited service. For most
hourly employees, benefits under this plan are based on specified amounts per
year of credited service. Plan assets are currently held by Borden's trustee. In
accordance with the terms of the Borden Transaction, Borden's trustee is
required to transfer these assets to the Partnership's trustee by June 30, 1998.
Most employees who are not covered by Meadow Gold sponsored retirement
plans are covered by collectively bargained agreements which are generally
effective for five years. There would be a continuing liability to these pension
trusts if the Partnership ceased all or substantially all participation in any
such trust, and under certain other specified conditions. The Partnership
contributed $.9 million to these trusts during the period from September 4, 1997
to December 31, 1997.
The Partnership provides certain health and life insurance benefits for
eligible Meadow Gold retirees and their dependants. The costs of these benefits
are accrued during the period that employees render service. Supplemental
benefits are provided to participants who are eligible for Medicare. The
postretirement medical benefits are contributory for retirements after 1983; the
postretirement life insurance benefit is noncontributory. The Partnership's
contribution under the health plan is gradually phased out where employees
retiring in the year 2000 will fund 100% of the health benefit.
F-13
<PAGE> 119
SOUTHERN FOODS GROUP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership provides certain postemployment benefits, primarily medical
and life insurance benefits for long-term disabled Meadow Gold employees, to
qualified former or inactive employees.
SUMMARY OF SERP AND MEADOW GOLD DOMESTIC PENSION PLAN
The minimum liability which must be recorded is equal to the excess of the
accumulated benefit obligation over plan assets. For the SERP plan, this results
in additional liability being recorded. In connection with the recording of the
additional liability, corresponding amounts are recorded as an intangible asset.
At December 31, 1997, the Partnership recorded $.6 million of additional
liability and $.6 million of intangible assets.
Pension expense includes the following components (in thousands):
<TABLE>
<CAPTION>
1997
----
<S> <C>
Service cost for benefits earned during the year............ $215
Interest cost on projected benefit obligation............... 461
Actual return on plan assets................................ (381)
Net amortization and deferral............................... 78
----
Net pension costs........................................... $373
====
</TABLE>
The actuarial assumptions used were as follows:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Discount rate............................................... 7.0%
Expected long-term rate of return on assets................. 8.5%
Rate of increase in compensation levels..................... 3.0% - 4.5%
</TABLE>
The funded status of the plans was as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $14,321
=======
Accumulated benefit obligation.............................. $15,459
=======
Projected benefit obligation................................ $17,645
Plan assets at fair value................................... 13,896
-------
Projected benefit obligation over plan assets............... 3,749
Unrecognized net gain....................................... 179
Unrecognized prior service cost............................. (1,368)
Adjustment to recognize minimum liability................... 593
-------
Pension liability recognized as of December 31.............. $ 3,153
=======
</TABLE>
F-14
<PAGE> 120
SOUTHERN FOODS GROUP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF MEADOW GOLD HEALTH AND LIFE RETIREE BENEFITS
The components of net periodic postretirement benefit cost were as follows
(in thousands):
<TABLE>
<CAPTION>
1997
----
<S> <C>
Service cost................................................ $ --
Interest cost............................................... 163
----
Net periodic postretirement benefit cost.................... $163
====
</TABLE>
The Meadow Gold postretirement health care and life insurance plan is not
funded. The amounts recognized on the Partnership's balance sheet for the
obligations relating to the plan were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................... $ 6,769
Fully eligible plan participants............................ 246
Other active plan participants.............................. 30
--------
Accrued postretirement benefit cost recognized in the
balance sheet............................................. $ 7,045
========
</TABLE>
The discount rate used in determining the accumulated benefit obligation
was 7% at December 31, 1997. The per capita cost of covered health care benefits
is assumed to have increased at an annual rate of 9.9% for 1997, which rate was
assumed to decrease gradually to 5% per annum in 2017 and to remain at that
level thereafter. Based on these assumptions, a one percentage point increase in
the assumed health care cost trend rate would increase the annual net periodic
postretirement benefit cost and the accumulated benefit obligation by
approximately $50,000 and $740,000, respectively.
9. COMMITMENTS AND CONTINGENCIES
A summary of future minimum lease payments under noncancelable operating
leases as of December 31, 1997 for buildings, vehicles and equipment is as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
------------ --------------
<S> <C>
1998..................................................... $10,183
1999..................................................... 8,014
2000..................................................... 5,186
2001..................................................... 3,528
2002..................................................... 2,163
</TABLE>
Rental expense of $5 million was incurred for the year ended December 31,
1995, $5.3 million for the year ended December 31, 1996 and $9.4 million for the
year ended December 31, 1997.
On November 6, 1997, a federal judge in Minnesota enjoined the United
States Department of Agriculture ("USDA") from collecting Class I differentials
in most federal market orders, beginning with November raw milk sales. The USDA
has obtained a stay of this ruling pending the outcome of the USDA's appeal to
the U.S. Court of Appeals for the 8th Circuit. Additionally, the USDA has
proposed new rules for the federal milk marketing program which have been
published for public comment. The comment period expires April 30, 1998. The
USDA is also considering, as part of formal rulemaking, a proposal to establish
a temporary price floor for raw milk. In addition, certain states have formed or
are in the process of attempting
F-15
<PAGE> 121
SOUTHERN FOODS GROUP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to form regional milk-price compacts designed to ensure that cheaper milk from
other regions does not undercut local producers' prices, which may result in
higher milk prices than the federally mandated minimum prices. While management
does not believe that these matters should have a material adverse affect on the
Partnership's business, neither the outcome of the court proceedings, the final
form of the federal regulations or the existence or location of any additional
state compacts nor the effect of such matters on the Company can be predicted
with any certainty.
On August 6, 1997, a lawsuit was filed against the Partnership and other
dairy processors in Texas alleging that containers of processed milk sold by the
Partnership and the other dairy processing defendants to grocery stores and
schools were under-filled and did not contain the volume of milk as stated on
the carton based upon certain tests allegedly performed by the USDA. The
plaintiff is asserting a claim for an unspecified amount of damages. The
plaintiff seeks to maintain the case as a class action on behalf of all persons
who purchased retail milk from the defendants in gallon, quart, pint or
half-pint containers in the State of Texas from August 5, 1993 to August 5,
1997. A hearing on whether the case will be maintained as a class is set for
August 17, 1998. The case is not set for trial. This matter is in the early
stages of discovery. The Partnership believes it has meritorious defenses and
intends to vigorously defend the lawsuit. Although the outcome of this matter is
uncertain, management does not believe that the lawsuit will have a material
adverse effect on the Partnership.
The Partnership is party to certain litigation in the normal course of
business. Management does not believe the outcome of any of these proceedings
will materially affect the Partnership's financial position or results of
operations.
10. EQUITY TRANSACTIONS
At December 31, 1996, the Partnership had only common equity interests
outstanding. The general partner interest of 1% was owned by SFG Management
Limited Liability Company ("SFG Management"), which was owned 80% by DFA and 10%
by each of two management owners. The 99% limited partner interest was owned by
an affiliate of DFA.
Certain equity transactions and refinancing of debt occurred during
February 1997 which resulted in partner distributions of $24 million and partner
contributions of $6.2 million. Additionally, as discussed in Note 2, Barbe's
Dairy was contributed to the Partnership in exchange for Preferred Interests
with a cumulative return of 10% on a stated value of $8 million. In connection
with these transactions, $14.5 million of DFA's limited partner common equity
was converted to a Preferred Interest with a cumulative return of 10% on a
stated value of $76.9 million. The conversion was accounted for at book value;
the stated value is an agreed-upon value that represents the liquidation value
of the Preferred Interest. These transactions resulted in SFG Management and the
common equity of the Partnership being owned 50% by DFA and 50% by two
management owners.
As discussed in Note 2, additional Preferred Interests of $135 million were
issued in connection with the Meadow Gold contribution and related transactions
on September 4, 1997. Of the $135 million of Preferred Interests, $90 million
with a cumulative preferred return of 10% was issued to DFA, and Preferred
Interests of $45 million were issued to Mid-Am Capital, of which $15 million
bears a cumulative return of 10% and $30 million bears a cumulative return of
9.5%. Also on September 4, 1997, special distributions were made to the partners
of $1.8 million in cash and $1.8 million of DFA's limited partner common equity
was converted to Preferred Interests. As a result of the September 4, 1997
transactions, both SFG Management and the common equity of the Partnership are
owned 50% each by DFA and one management owner.
Under the terms of SFG's partnership agreement, the Partnership is required
to make distributions to each management owner in an amount equal to such
owner's federal, state and local income tax liability for income attributable to
SFG. The partnership agreement also requires the Partnership to convert an
equivalent
F-16
<PAGE> 122
SOUTHERN FOODS GROUP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount of DFA's common equity to Preferred Interests with a cumulative return of
10%. On September 10, 1997, tax payment distributions were made to the
management owners in accordance with the partnership agreement totaling $4
million, and $4 million of DFA's limited partner common equity was converted to
Preferred Interests.
Preferred returns on Preferred Interests accumulate on a semi-annual basis
and are payable only in-kind, except that amounts may be paid in cash on one
series in the amount of $30 million if certain earnings levels are achieved. The
total stated value of Preferred Interests at December 31, 1997 was $238.7
million, including unpaid preferred returns. All of the Preferred Interests hold
equal rank with respect to liquidation of the Partnership, and have preference
over the common equity interests. Also, the partnership agreement provides the
management owner the right to put his interest in the Partnership to the
Partnership or DFA, and DFA has the right to call 20% of such interest, both
commencing January 1, 2003.
Net income of the Partnership is allocated first to the Preferred Interests
to the extent of preferred returns. Any remaining net income is allocated to the
common equity owners in proportion to their ownership interest. If net income
for a period is less than preferred returns for such period, the deficiency will
be recovered from future net income, if any. Net losses are allocated to the
common equity owners in proportion to their ownership interest.
F-17
<PAGE> 123
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Southern Foods Group, L.P.
We have audited the accompanying statements of revenues and expenses and of
cash flows of Meadow Gold Dairy Operations (the "Meadow Gold Dairies"), a
division of Borden/Meadow Gold Dairies Holdings, Inc. ("Holdings") for the
period from January 1, 1997 to September 4, 1997. These historical statements
are the responsibility of the Meadow Gold Dairies' management. Our
responsibility is to express an opinion on these historical statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the historical statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the historical statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
historical statements. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying historical statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the registration statement on Form S-4 of Southern
Foods Group, L.P. and SFG Capital Corporation) as described in Note 1 and are
not intended to be a complete presentation.
In our opinion, the historical statements referred to above present fairly,
in all material respects, the revenues and expenses described in Note 1 to the
historical statements and the cash flows of the Meadow Gold Dairies for the
period from January 1, 1997 to September 4, 1997, in conformity with generally
accepted accounting principles.
As described in Note 1 to the historical statements, Borden, Inc., the
parent corporation of Holdings, sold Holdings, including the Meadow Gold
Dairies, to Dairy Farmers of America, Inc. on September 4, 1997.
PRICE WATERHOUSE LLP
Dallas, Texas
December 17, 1997
F-18
<PAGE> 124
INDEPENDENT AUDITORS' REPORT
Board of Directors
Borden/Meadow Gold Dairies Holdings, Inc.
Ogden, Utah
We have audited the accompanying statements of revenues and expenses and of
cash flows of Meadow Gold Dairy Operations (the "Meadow Gold Dairies" or
"Dairies"), a division of Borden/Meadow Gold Dairies Holdings, Inc.
("Holdings"), for each of the two years in the period ended December 31, 1996.
These financial statements are the responsibility of the Dairies' management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the revenues and expenses and cash flows of Meadow Gold Dairy
Operations for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared from the separate
records maintained by Meadow Gold Dairies Operations and may not necessarily be
indicative of the conditions that would have existed or the results of
operations if Dairies had been operated as an unaffiliated company. Portions of
certain income and expenses represent allocations made from home office items
applicable to Holdings and Borden, Inc. ("Borden") as a whole.
As described in Note 1 to the financial statements, Borden, the parent
corporation of Holdings, sold Holdings, including Meadow Gold Dairies, to Dairy
Farmers of America, Inc. on September 4, 1997.
DELOITTE & TOUCHE LLP
June 27, 1997
Kansas City, Missouri
F-19
<PAGE> 125
MEADOW GOLD DAIRY OPERATIONS
(A DIVISION OF BORDEN/MEADOW GOLD DAIRIES HOLDINGS, INC.)
STATEMENTS OF REVENUES AND EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD FROM
DECEMBER 31, JANUARY 1, 1997
------------------- THROUGH SEPTEMBER 4,
1995 1996 1997
-------- -------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.............................................. $453,428 $492,537 $313,353
Costs of sales......................................... 346,972 384,629 238,617
-------- -------- --------
106,456 107,908 74,736
Selling, distribution, general and administrative
expenses:
Plant-level expenses................................. 75,092 74,546 53,045
Corporate-level expenses............................. 9,004 10,270 8,605
-------- -------- --------
84,096 84,816 61,650
Amortization of goodwill............................... 1,894 1,894 1,215
-------- -------- --------
Income from operations............................... 20,466 21,198 11,871
-------- -------- --------
Other income (expense):
Interest expense..................................... (75) (56) (22)
Other income, net.................................... 350 79 531
-------- -------- --------
275 23 509
-------- -------- --------
Division income........................................ $ 20,741 $ 21,221 $ 12,380
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 126
MEADOW GOLD DAIRY OPERATIONS
(A DIVISION OF BORDEN/MEADOW GOLD DAIRIES HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED FOR THE PERIOD FROM
DECEMBER 31, JANUARY 1, 1997
-------------------- THROUGH SEPTEMBER 4,
1995 1996 1997
-------- -------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Division income................................... $ 20,741 $ 21,221 $ 12,380
Adjustments to reconcile division income to net
cash provided by operating activities:
Depreciation................................... 8,587 8,963 5,789
Amortization................................... 1,894 1,894 1,215
(Gain) loss on sale or disposal of property,
plant and equipment.......................... 165 470 (159)
Changes in operating assets and liabilities:
Accounts receivable.......................... 1,190 (5,154) 1,479
Inventories.................................. 1,123 (1,110) (826)
Prepaid expenses and other current assets.... 121 (398) (247)
Accounts and drafts payable.................. (4,723) 6,497 (3,721)
Affiliate payables........................... 1,389 (1,950)
Accrued expenses............................. 10,261 156 5,819
Other........................................ 604 142 15
-------- -------- --------
Net cash provided by operating
activities.............................. 39,963 34,070 19,794
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of property, plant and
equipment...................................... 717 322 387
Additions to property, plant and equipment........ (7,718) (20,959) (7,015)
-------- -------- --------
Net cash used in investing activities..... (7,001) (20,637) (6,628)
-------- -------- --------
Cash flows from financing activities:
Repayments on capital lease obligations........... (62) (57) (64)
Distributions, net................................ (30,789) (13,840) (12,948)
-------- -------- --------
Net cash used in financing activities..... (30,851) (13,897) (13,012)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 2,111 (464) 154
Cash and cash equivalents:
Beginning of period............................... 4,013 6,124 5,660
-------- -------- --------
End of period..................................... $ 6,124 $ 5,660 $ 5,814
======== ======== ========
Supplemental information:
Interest paid..................................... $ 75 $ 56 $ 22
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 127
MEADOW GOLD DAIRY OPERATIONS
(A DIVISION OF BORDEN/MEADOW GOLD DAIRIES HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business -- Prior to September 4, 1997, the Meadow Gold Dairy
Operations ("Dairies" or "Meadow Gold Dairies") was a division of Borden/Meadow
Gold Dairies Holdings, Inc. ("Holdings"). Dairies is a processor and distributor
of a wide variety of dairy products in the western United States. Dairies
products fall into three general categories: fluid milk products, cultured
products and ice cream products. Dairies also distributes a variety of fruit
juices and nectars. Most of Dairies' products are sold under brand names such as
Meadow Gold, Mountain High and Viva, as well as under private labels.
On May 22, 1997, Dairy Farmers of America, Inc., formerly Mid-America
Dairymen, Inc. ("DFA"), entered into a stock purchase and merger agreement with
Borden, Inc. and an affiliate ("Borden") to acquire Holdings and certain
trademarks for total consideration of approximately $435 million. This and other
related transactions were completed on September 4, 1997.
Basis of Presentation -- Prior to November 1995, Dairies operated as a
profit center of Borden. Holdings was formed in November 1995 as a
majority-owned subsidiary of Borden and was included in Borden's consolidated
financial statements. Under this structure, Borden incurred various costs in
connection with the operation of Holdings which included corporate controlled
expenses such as general and group insurance and employee benefits and
administrative/departmental overhead such as accounting, legal, tax, credit,
information services and executive management. Such amounts have been allocated
to Holdings in a reasonable manner in order to depict the stand-alone historical
operations of Holdings.
Holdings was composed of two divisions; the Meadow Gold Dairies which
contained seventeen dairy facilities located in Colorado, Hawaii, Idaho, Iowa,
Montana, Nebraska, Oklahoma and Utah and the other division (Borden Dairies)
which contained ten dairy facilities located in Louisiana, New Mexico and Texas.
Holdings' corporate offices were located in Ogden, Utah, and provided
administrative services to both the Meadow Gold Dairies and Borden Dairies
Divisions. Holdings incurred various costs in connection with the operation of
its two divisions including administrative overhead such as accounting, legal,
tax, credit and information services as well as executive management. Such
amounts have been allocated in a reasonable and consistent manner in the
accompanying financial statements in order to depict the historical statements
of revenues and expenses and cash flows of Meadow Gold Dairies on a stand-alone
basis. Such allocations represent management's best estimate of costs that would
have been incurred had Meadow Gold Dairies operated on a stand-alone basis.
Administrative service costs allocated to Meadow Gold Dairies totaled $9,004 and
$10,270 for the years ended December 31, 1995 and 1996, respectively, and $8,605
for the period from January 1, 1997 through September 4, 1997, respectively.
These amounts include allocations of costs from Borden, Inc. to Holdings as
described previously.
The operations of Holdings are included in Borden's consolidated tax
returns. Borden uses the liability method of accounting for deferred income
taxes which reflect the temporary difference between amounts of assets and
liabilities recognized for financial reporting purposes and such amounts
recognized for tax purposes. Borden did not allocate income taxes to Dairies on
a stand-alone basis and the transaction described under Nature of Business above
resulted in Meadow Gold Dairies being owned and operated by a non-taxable
entity. Accordingly, the accompanying statements of revenues and expenses do not
reflect an income tax provision because such information is not considered
meaningful.
The accompanying statements of revenues and expenses consist of the net
sales; direct operating expenses, interest expense and other income; and
allocated expenses of the Meadow Gold Dairies as discussed above.
Use of Estimates -- The preparation of these financial statements requires
management to make estimates and assumptions about reported amounts of revenues
and expenses. Management must also make
F-22
<PAGE> 128
MEADOW GOLD DAIRY OPERATIONS
(A DIVISION OF BORDEN/MEADOW GOLD DAIRIES HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
estimates and judgments about future results of operations related to specific
elements of the business in assessing recoverability of assets and recorded
values of liabilities. Actual results could differ from those estimates.
Revenue Recognition -- Revenues on product sales are recognized upon
delivery to the customer.
Inventories -- Finished goods inventories are valued at the lower of cost
or market. Cost is determined using the average cost and first-in, first-out
methods. Raw materials inventories are stated at actual cost.
Property, Plant and Equipment -- Depreciation is calculated using the
straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.............................. 5-40
Machinery and equipment................................. 2-15
Leasehold improvements.................................. shorter of lease term
or 10 years
Vehicles................................................ 5-10
</TABLE>
Maintenance and repairs are charged to expense as incurred; renewals and
betterments are capitalized.
Impairment of Long-lived Assets -- Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset or group of assets may not be recoverable. The impairment
review includes a comparison of future cash flows expected to be generated by
the asset or group of assets with their associated carrying value. If the
carrying value of the asset or group of assets exceeds expected cash flows
(undiscounted and without interest charges), an impairment loss is recognized to
the extent carrying amounts exceed fair value.
Goodwill -- Goodwill represents the excess of the purchase price over the
fair value of identifiable assets. Goodwill is amortized on a straight-line
basis over a remaining life of twenty-nine years at December 31, 1996.
Advertising and Promotion Expense -- Production costs of future media
advertising are deferred until the advertising commences. All other advertising
and promotion expenses are expensed when incurred. Advertising and promotion
expenses were $10,016 and $10,717 for the years ended December 31, 1995 and
1996, respectively, and $10,756 for the period from January 1, 1997 through
September 4, 1997.
F-23
<PAGE> 129
MEADOW GOLD DAIRY OPERATIONS
(A DIVISION OF BORDEN/MEADOW GOLD DAIRIES HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PENSION AND RETIREMENT SAVINGS PLANS
Most employees of Meadow Gold Dairies participated in a domestic pension
plan sponsored by Borden. For most salaried employees, benefits under this plan
generally were based on compensation and credited service. For most hourly
employees, benefits under this plan were based on specified amounts per year of
credited service.
A portion of Borden's net pension expense was allocated annually to Dairies
(see Note 6). Management does not believe that these allocations are materially
different from amounts that would be calculated historically for Dairies on a
stand-alone basis. The following are the components of Borden's annual net
pension expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
-------- --------
(IN MILLIONS)
<S> <C> <C>
Service cost-benefits earned during the year................ $ 7.5 $ 7.9
Interest cost on the projected benefit obligation........... 31.6 27.6
Return on plan assets....................................... (87.1) (26.9)
Net amortization and deferral............................... 56.2 (1.2)
------ ------
$ 8.2 $ 7.4
====== ======
</TABLE>
The weighted average rates used to determine net periodic pension expense
were as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Discount rate............................................... 8.8% 6.8%
Rate of increase in future compensation levels.............. 5.3% 4.3%
Expected long-term rate of return on plan assets............ 9.8% 7.8%
</TABLE>
Most employees who were not covered by Borden-sponsored plans were covered
by collectively bargained agreements which were generally effective for five
years. Under federal pension law, there would be a continuing liability to these
pension trusts if Borden ceased all or substantially all participation in any
such trust, and under certain other specified conditions. Dairies was charged
$2,933 and $2,635 for 1995 and 1996, respectively, and $1,896 for the period
from January 1, 1997 through September 4, 1997, for payments to pension trusts
on behalf of employees not covered by Borden's plans.
Charges to Dairies for matching contributions under the Borden-sponsored
retirement savings plans were $843 and $817 in 1995 and 1996, respectively, and
$593 for the period from January 1, 1997 through September 4, 1997. Eligible
salaried and hourly non-bargaining employees contributed up to 15% of their pay
(7% for certain longer service salaried employees). Dairies' matching
contribution was 50% of employee contributions up to 5% of their pay during the
periods presented.
3. POSTRETIREMENT AND EMPLOYMENT BENEFIT OBLIGATIONS
Borden provided certain health and life insurance benefits for eligible
domestic retirees and their dependents. The costs of these benefits were accrued
as a form of deferred compensation earned during the period that employees
rendered service.
Participants who were not eligible for Medicare were provided with the same
medical benefits as active employees, while those who were eligible for Medicare
were provided with supplemental benefits. The postretirement medical benefits
were contributory for retirements after 1983; the postretirement life insurance
benefit was noncontributory.
F-24
<PAGE> 130
MEADOW GOLD DAIRY OPERATIONS
(A DIVISION OF BORDEN/MEADOW GOLD DAIRIES HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A portion of Borden's expense for postemployment and postretirement
benefits was allocated annually to Dairies (see Note 6). Management does not
believe that these allocations are materially different from amounts that would
be calculated historically for Dairies on a stand-alone basis. The following are
the components of Borden's annual expense for postretirement benefits:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
-------- --------
(IN MILLIONS)
<S> <C> <C>
Service cost................................................ $ 1.1 $ 0.2
Interest cost............................................... 13.3 11.3
Net amortization and deferral............................... (16.7) (13.7)
------ ------
Net postretirement benefit expense.......................... $ (2.3) $ (2.2)
====== ======
</TABLE>
The discount rates used in determining Borden's accumulated postretirement
benefit obligation were 6.75% and 7.5% at December 31, 1995 and 1996,
respectively.
The assumed health care cost trend rate used in measuring Borden's
accumulated postretirement benefit obligation at December 31, 1996 was 9.5% for
1997, gradually declining to 5.5% in 2004 and thereafter. The comparable
assumptions for the prior year were 9.5% and 4.8%, respectively. A
one-percentage point increase in the health care cost trend rate would increase
the sum of Borden's service and interest costs in 1996 by $1.4 million.
Borden provided certain postemployment benefits, primarily medical and life
insurance benefits for long-term disabled employees, to qualified former or
inactive employees. Such postemployment benefit costs have been allocated to
Dairies' operations on a rational and consistent basis.
4. COMMITMENTS AND CONTINGENCIES
Lease Obligations -- Dairies leases warehouse facilities, production
facilities and vehicles under operating leases.
Total rental expenses for operating leases in 1995 and 1996 were $5,733 and
$5,117, respectively, and $4,510 for the period from January 1, 1997 through
September 4, 1997.
Self-Insurance -- Borden had insurance policies to cover potential losses
and liabilities related to workers' compensation, health and welfare claims,
physical damage to property other than autos, business interruption and
comprehensive general, product and vehicle liability. However, many of these
policies had deductibles of $500 and in some cases higher amounts. Losses were
accrued for the estimated aggregate liability for claims incurred using certain
actuarial assumptions followed in the insurance industry and Dairies'
experience.
Subsequent to December 31, 1996, Holdings obtained outside commercial
workers compensation insurance under substantially the same terms as the
previous Borden policies.
Litigation -- Dairies is subject to various investigations, claims and
legal proceedings covering a wide range of matters in the ordinary course of its
business activities. Each of these matters is subject to various uncertainties
and some of these matters may be resolved unfavorably to Dairies. Dairies has
established accruals for matters that are probable and reasonably estimatable.
Management believes that any liability that may ultimately result from the
resolution of these matters in excess of amounts provided will not have a
material adverse effect on the financial statements of Dairies.
F-25
<PAGE> 131
MEADOW GOLD DAIRY OPERATIONS
(A DIVISION OF BORDEN/MEADOW GOLD DAIRIES HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. MAJOR CUSTOMERS
Revenues from one major customer were $56,601 and $64,565 as of December
31, 1995 and 1996, respectively, and $40,607 for the period from January 1, 1997
through September 4, 1997.
6. RELATED PARTIES
Holdings was engaged in various transactions with Borden and its affiliated
companies in the ordinary course of business. Such transactions included, among
other items, participation in Borden's cash management system and the sharing of
certain general and administrative costs which were allocated to Holdings.
Holdings was operated as a profit center of Borden whereby essentially all
treasury functions including financing for working capital and other cash needs,
were performed by Borden; therefore, allocation of interest expense associated
with this financing was not practical and not included in the accompanying
financial statements.
Borden charged Holdings for domestic pension and postretirement and
postemployment benefits based on allocations provided to its actuary. The
allocations were determined by the actuary from actual employee census data
which was collected annually. Holdings was charged for group and general
insurance expense, which included workers' compensation liability and property
damage insurance, based on actual claims costs. A pro rata share of Borden's
catastrophic insurance coverage premiums was charged for general insurance
claims.
The various expenses allocated by Borden through Holdings to Dairies
included the following for the periods indicated:
<TABLE>
<CAPTION>
FOR THE PERIOD
YEARS ENDED FROM
DECEMBER 31, JANUARY 1, 1997
----------------- THROUGH
1995 1996 SEPTEMBER 4, 1997
------- ------- -----------------
<S> <C> <C> <C>
Group and general insurance....................... $ 9,879 $ 9,349 $4,989
Corporate information systems..................... 2,086 1,711 1,089
Employee benefits, including pension expense...... 576 757 368
Other............................................. 327 1,130 921
------- ------- ------
12,868 12,947 7,367
Allocation of corporate governance from Borden,
Inc............................................. 1,028 937 613
------- ------- ------
$13,896 $13,884 $7,980
======= ======= ======
</TABLE>
These amounts in the accompanying financial statements have been allocated
in a reasonable and consistent manner in order to depict the historical
statements of revenues and expenses and of cash flows of Dairies on a
stand-alone basis and represent management's best estimates of a cost that would
have been incurred had Dairies operated on a stand-alone basis. For
classification purposes in the statements of revenues and expenses, $10,897 and
$10,283 for the years ended December 31, 1995 and 1996, respectively, and $6,724
for the period from January 1, 1997 through September 4, 1997, respectively, of
such expenses were allocated to the plant-level for selling, distribution and
general and administrative expenses; the remaining expenses were allocated to
the corporate-level for selling, distribution and general and administrative
expenses.
F-26
<PAGE> 132
======================================================
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THE PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL
NOR BOTH TOGETHER CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH THE PROSPECTUS RELATES OR
ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR THE LETTER OF TRANSMITTAL OR BOTH TOGETHER NOR
ANY EXCHANGE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREIN OR THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE SUCH DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. iii
Disclosure Regarding Forward-Looking
Statements........................... iii
Prospectus Summary..................... 1
Risk Factors........................... 12
The Exchange Offer..................... 17
The Transactions....................... 26
Use of Proceeds........................ 30
Capitalization......................... 30
Unaudited Pro Forma Combined
Consolidated Statement of Income..... 31
Selected Historical Financial Data..... 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 34
Business............................... 38
Management............................. 51
Certain Relationships and
Transactions......................... 54
Description of the Partnership
Agreement and Operating Agreement.... 56
Description of Preferred Interests..... 60
Description of Senior Bank
Facilities........................... 62
Description of the Notes............... 64
Federal Income Tax Consequences........ 94
Exchange And Registration Rights
Agreement............................ 95
Book-Entry; Delivery and Form.......... 97
Plan of Distribution................... 98
Legal Matters.......................... 99
Independent Accountants................ 99
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
$150,000,000
SOUTHERN FOODS LOGO
SOUTHERN FOODS GROUP, L.P.
SFG CAPITAL CORPORATION
9 7/8% SENIOR SUBORDINATED SERIES A NOTES DUE 2007
PROSPECTUS
, 1998
======================================================
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
SFG Capital. As authorized by Section 145 of the General Corporation Law of
Delaware (the "Delaware Corporation Law"), each director and officer of SFG
Capital may be indemnified by SFG Capital against expenses (including attorney's
fees, judgments, fines and amounts paid in settlement) actually and reasonably
incurred in connection with the defense or settlement of any threatened, pending
or completed legal proceedings in which he is involved by reason of the fact
that he is or was a director or officer of SFG Capital if he acted in good faith
and in a manner that he reasonably believed to be in or not opposed to the best
interests of SFG Capital, and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe that his conduct was
unlawful. In each case, such indemnity shall be to the fullest extent authorized
by the Delaware Corporation Law, as amended, to the extent such amendment
permits SFG Capital to provide broader indemnification rights. If the legal
proceeding, however, is by or in the right of SFG Capital, the director or
officer may not be indemnified in respect of any claim, issue or matter as to
which he shall have been adjudged to be liable for negligence or misconduct in
the performance of his duty to SFG Capital unless a court determines otherwise.
Article Eight of the Certificate of Incorporation of SFG Capital, a copy of
which is filed as Exhibit 3.2 to this Registration Statement, provides that no
Director of SFG Capital shall be personally liable to SFG Capital or its
shareholders for monetary damages for any breach of fiduciary duty as a Director
except for liability: (1) for any breach of duty of loyalty to SFG Capital or
its shareholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) under Section 174 of
the General Corporation Law of the State of Delaware, or (4) for any transaction
from which the Director derived an improper personal benefit. In addition,
Article Seven of the Certificate of Incorporation and Article VI of the By-laws
of SFG Capital, a copy of which is filed as Exhibit 3.5 hereto, require SFG
Capital to indemnify to the fullest extent permitted by law any person or such
person's heirs, distributees, next of kin, successors, appointees, executors,
administrators, legal representatives or assigns who was or is made or
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether criminal, civil, administrative, or investigative,
by reason of the fact that such person is or was a director, officer, employee
or agent of SFG Capital or serves or served at the request of SFG Capital any
other enterprise as a director, officer, employee or agent.
The Company. Section 3.5 of the Second Amended and Restated Agreement of
Limited Partnership, effective on September 3, 1997 (as amended, the
"Partnership Agreement"), states that the Company shall indemnify to the fullest
extent permitted by law SFG Management Limited Liability Company, the General
Partner of the Company, and its officers, managers, employees, members and
agents (individually, an "Indemnified Party," collectively, the "Indemnified
Parties") from and against all costs and expenses, including attorneys' fees,
judgments, fines, settlements and/or liabilities incurred by or imposed upon any
Indemnified Party in connection with, or resulting from, investigating,
preparing or defending any action, suit or proceeding whether civil, criminal,
legislative or otherwise (or any appeal thereof) to which any Indemnified Party
may be made a party or become otherwise involved or with which any Indemnified
Party may be threatened, in each case by reason of, or in connection with, the
Indemnified Party being or having been associated with or otherwise acting for
the Company, or by reason of any action or alleged action, omission or alleged
omission by any Indemnified Party in any such capacity, provided that the
Indemnified Party is not ultimately adjudged to have engaged in gross
negligence, willful misconduct or breach of a material provision of the
Partnership Agreement. Further, the Company must pay the expenses incurred by an
Indemnified Party in investigating, preparing or defending any civil or criminal
action, suit or proceeding, in advance of the final disposition thereof, upon
receipt of an undertaking by the Indemnified Party to repay such payment if
there is a final adjudication or determination that such Indemnified Party is
not entitled to indemnification as provided in the Partnership Agreement.
II-1
<PAGE> 134
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(i) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Limited Partnership for Southern Foods
Group, L.P. ("SFG") dated December 19, 1994
3.2 -- Certificate of Incorporation of SFG Capital Corporation
("SFG Capital") dated July 23, 1997
3.3 -- Certificate of Formation of SFG Management Limited
Liability Company ("SFG Management") dated December 16,
1994
3.4 -- Second Amended and Restated Agreement of Limited
Partnership of SFG dated as of September 3, 1997
3.5 -- First Amendment to Second Amended and Restated Agreement
of Limited Partnership of SFG dated as of March 31, 1998
3.6 -- Bylaws of SFG Capital
3.7 -- Second Amended and Restated Limited Liability Company
Agreement of SFG Management dated as of September 3, 1997
3.8 -- First Amendment to Second Amended and Restated Limited
Liability Company Agreement of SFG Management dated as of
March 31, 1998
4.1 -- Indenture dated as of September 4, 1997, among SFG
Capital, SFG and Texas Commerce Bank, N.A. (now Chase
Bank of Texas, National Association) as Trustee
4.2 -- Specimen Global Note Certificate
4.3 -- Exchange and Registration Rights Agreement dated
September 4, 1997 among SFG, SFG Capital, and Chase
Securities Inc.
5.1* -- Opinion of Strasburger & Price, L.L.P. regarding legality
of securities being issued
10.1 -- Stock Purchase and Merger Agreement, dated as of May 22,
1997, among Mid-America Dairymen, Inc. (now Dairy Farmers
of America, Inc. ("DFA")), Borden/Meadow Gold Dairies
Holdings, Inc. ("Holdings"), BDH Two, Inc. and Borden,
Inc. (the "Stock Purchase and Merger Agreement")
10.2 -- Assignment and Assumption Agreement Relating to Stock
Purchase and Merger Agreement, dated September 4, 1997,
between DFA and SFG
10.3 -- Credit Agreement, dated September 4, 1997, among SFG,
DFA, the Lenders named therein and The Chase Manhattan
Bank, as Administrative Agent
10.4 -- Capital Contribution, Assignment and Assumption
Agreement, dated as of September 4, 1997, between DFA and
SFG
10.5 -- Capital Contribution Agreement, dated as of September 4,
1997, between Mid-Am Capital, L.L.C. and SFG
10.6 -- Sublease Agreement, dated as of September 4, 1997,
between DFA and SFG relating to Master Leasing Agreement
between BLC Corporation and DFA dated August 15, 1997
10.7 -- Trademark License Agreement, dated as of September 4,
1997, among Borden, Inc., BDH Two, Inc. and SFG
10.8 -- Trademark License Agreement (Meadow Gold), dated as of
September 4, 1997, between SFG and Borden Foods
Corporation
10.9 -- Trademark Sublicense Agreement (Eagle), dated as of
September 4, 1997, between SFG and Borden Foods
Corporation
10.10 -- Copyright Assignment, dated as of September 4, 1997, from
Borden, Inc. to SFG
10.11 -- Patent Assignment, dated as of September 4, 1997, from
Borden/Meadow Gold Dairies, Inc. ("BMGD") to SFG
</TABLE>
II-2
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 -- Asset Purchase and Sale Agreement, dated as of September
4, 1997, between Borden/Meadow Gold Dairies Investments,
Inc. ("Investments"), DFA, and SFG
10.13 -- Trademark Assignment dated as of September 4, 1997,
between SFG and Milk Products LLC ("Milk Products")
10.14 -- Milk Products Sublicense Agreement, dated as of September
4, 1997, between SFG and Milk Products
10.15 -- Milk Products Trademark License Agreement, dated as of
September 4, 1997, between SFG and Milk Products
10.16 -- Patent License Agreement, dated as of September 4, 1997,
between SFG and Milk Products
10.17 -- Copyright License Agreement dated as of September 4,
1997, between SFG and Milk Products
10.18 -- License Assignment and Assumption Agreement dated as of
September 4, 1997, between SFG and BMGD
10.19 -- Trademark License Agreement between Flav-O-Rich, Inc. and
SFG dated as of February 28, 1995
10.20 -- Trademark License Agreement effective as of September 1,
1995, between Foremost Farms U.S.A. and SFG
10.21 -- Stipulation and Order among the United States of America,
DFA, SFG and Milk Products dated September 3, 1997 and
Final Order filed September 3, 1997
10.22 -- Agreed Consent Decree and Permanent Injunction among the
State of Texas, DFA, SFG and Milk Products dated
September 3, 1997
10.23 -- Compliance Agreement in Lieu of Debarment between SFG and
the Food and Consumer Service of the United States
Department of Agriculture (the "FCS") executed on January
13, 1995 by the FCS and on December 21, 1994 by SFG
10.24 -- Administrative Agreement between SFG, Inc. and the
Defense Logistics Agency executed on October 24, 1994
10.25 -- Promissory Note payable by Barbe's Dairy, Inc. to Walker
Resources, Inc. in the original principal amount of
$1,250,000 assumed by SFG
10.26 -- $600,000 Real Estate Note dated July 25, 1994, payable by
Southern Foods Group, Inc. to Lloyd Smoot, Jr.
10.27 -- Asset Purchase Agreement between Acadia Dairy, Inc. and
Schepps-Foremost, Inc. dated January 1, 1994
10.28 -- Executive Employment Agreement, dated as of September 4,
1997, between SFG and Pete Schenkel
10.29 -- Executive Employment Agreement, dated as of September 4,
1997, between SFG and Anthony R. Ward
10.30 -- Southern Foods Group, L.P. Supplemental Executive
Retirement Plan effective October 1, 1996
10.31 -- Borden, Inc. Executives Supplemental Pension Plan,
Amended and Restated as of December 9, 1993
</TABLE>
II-3
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.31 -- Borden, Inc. Executives Supplemental Pension Plan,
Amended and Restated as of December 9, 1993
10.32 -- Borden, Inc. Executives Excess Benefits Plan, Amended and
Restated as of January 1, 1988
10.33 -- Borden, Inc. Executive Family Survivor Protection Plan,
Amended as of January 1, 1987
10.34 -- Purchase Agreement dated August 27, 1997, among SFG, SFG
Capital and Chase Securities, Inc.
10.35** -- Milk Supply Agreement dated February 17, 1998, between
DFA and SFG
10.36 -- Lease and Agreement between BF Properties Company and
Beatrice Foods Co. dated as of February 15, 1972
10.37 -- Lease Agreement between LPD Salt Lake Assoc. and Safeway
Stores, Inc. dated as of March 15, 1978
10.38 -- Lease Agreement between SFG and Flav-O-Rich, Inc. dated
February 28, 1995
12.1 -- Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of Price Waterhouse LLP, independent accountants
23.2 -- Consent of Deloitte Touche LLP, independent auditors
23.3* -- Consent of Strasburger & Price, L.L.P., counsel to the
Registrants (included in its opinion to be filed as
exhibit 5.1)
24.1 -- Powers of Attorney (set forth on signature pages)
25.1 -- Form T-1 of Chase Bank of Texas, National Association
27.1 -- Southern Foods Group, L.P. Financial Data Schedule
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* To be filed by amendment.
** Portions of the Milk Supply Agreement have been omitted pursuant to a request
for confidential treatment. The omitted portions will be filed separately
with the Commission.
(ii) Financial Statement Schedules:
IX Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS.
The undersigned Registrants hereby undertake:
(a) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
1) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
2) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in this Registration Statement when it becomes effective; and
II-4
<PAGE> 137
3) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement.
(b) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrants hereby undertake to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Trust
Indenture Act.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-5
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned
Registrant has duly caused this registration statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on this 2nd day of April, 1998.
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, its General Partner
By: /s/ PETE SCHENKEL
--------------------------------
Pete Schenkel
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by or on behalf of the following persons
in the capacities and on the dates indicated. Each person whose signature
appears below hereby authorizes Pete Schenkel and Patrick K. Ford, or either of
them, to file one or more Amendments, including Post-Effective Amendments, to
this Registration Statement, which Amendments may make such changes as Pete
Schenkel and Patrick K. Ford, or either of them, deem appropriate, and each
person whose signature appears below, individually and in each capacity stated
below, hereby appoints Pete Schenkel and Patrick K. Ford, or either of them, as
Attorney-in-Fact to execute in his name and on his behalf any such Amendment to
this Registration Statement:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PETE SCHENKEL President and Chief April 2, 1998
- ----------------------------------------------------- Executive Officer of the
Pete Schenkel Company, and President,
Chief Executive Officer, and
Member of the Representative
Committee of SFG Management
(Principal Executive
Officer)
/s/ PATRICK K. FORD Chief Financial Officer, April 2, 1998
- ----------------------------------------------------- Secretary and Treasurer of
Patrick K. Ford the Company, and Chief
Financial Officer,
Secretary, and Treasurer of
SFG Management (Principal
Financial Officer)
/s/ GARY E. HANMAN Member of the Representative April 2, 1998
- ----------------------------------------------------- Committee of SFG Management
Gary E. Hanman
/s/ GERALD L. BOS Member of the Representative April 2, 1998
- ----------------------------------------------------- Committee of SFG Management
Gerald L. Bos
/s/ JERRY W. FRIE Member of the Representative April 2, 1998
- ----------------------------------------------------- Committee of SFG Management
Jerry W. Frie
</TABLE>
II-6
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned
Registrant has duly caused this registration statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on this 2nd day of April, 1998.
SFG CAPITAL CORPORATION
By: /s/ PETE SCHENKEL
----------------------------------
Pete Schenkel
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by or on behalf of the following persons
in the capacities and on the dates indicated. Each person whose signature
appears below hereby authorizes Pete Schenkel and Patrick K. Ford, or either of
them, to file one or more Amendments, including Post-Effective Amendments, to
this Registration Statement, which Amendments may make such changes as Pete
Schenkel and Patrick K. Ford, or either of them, deem appropriate, and each
person whose signature appears below, individually and in each capacity stated
below, hereby appoints Pete Schenkel and Patrick K. Ford, or either of them, as
Attorney-in-Fact to execute in his name and on his behalf any such Amendment to
this Registration Statement:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ PETE SCHENKEL President, Chief Executive April 2, 1998
- ----------------------------------------------------- Officer and Sole Director of
Pete Schenkel SFG Capital (Principal
Executive Officer)
/s/ PATRICK K. FORD Vice President, Treasurer April 2, 1998
- ----------------------------------------------------- and Secretary of SFG Capital
Patrick K. Ford (Principal Financial
Officer)
</TABLE>
II-7
<PAGE> 140
SCHEDULE IX
SOUTHERN FOODS GROUP, L.P.
VALUATION AND QUALIFYING ACCOUNTS(A)
FOR THE YEARS ENDED DECEMBER 1995, 1996, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE ADDITIONS ADDITIONS
AT CHARGED TO FROM BALANCE
BEGINNING COSTS AND ACQUIRED AT END
CLASSIFICATION OF PERIOD EXPENSES(B) COMPANIES(C) DEDUCTIONS OF PERIOD
-------------- --------- ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1995:
Allowance for doubtful accounts.......... $1,198 1,261 -- (303) $2,156
====== ===== ===== ==== ======
December 31, 1996:
Allowance for doubtful accounts.......... $2,156 493 -- (103) $2,546
====== ===== ===== ==== ======
December 31, 1997:
Allowance for doubtful accounts.......... $2,546 876 1,157 (408) $4,171
====== ===== ===== ==== ======
</TABLE>
- ---------------
(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.
(b) Additions to expense are stated net of recoveries.
(c) Represents additions due to the Meadow Gold Contribution and the Barbe's
contribution.
S-1
<PAGE> 141
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Limited Partnership for Southern Foods
Group, L.P. ("SFG") dated December 19, 1994
3.2 -- Certificate of Incorporation of SFG Capital Corporation
("SFG Capital") dated July 23, 1997
3.3 -- Certificate of Formation of SFG Management Limited
Liability Company ("SFG Management") dated December 16,
1994
3.4 -- Second Amended and Restated Agreement of Limited
Partnership of SFG dated as of September 3, 1997
3.5 -- First Amendment to Second Amended and Restated Agreement
of Limited Partnership of SFG dated as of March 31, 1998
3.6 -- Bylaws of SFG Capital
3.7 -- Second Amended and Restated Limited Liability Company
Agreement of SFG Management dated as of September 3, 1997
3.8 -- First Amendment to Second Amended and Restated Limited
Liability Company Agreement of SFG Management dated as of
March 31, 1998
4.1 -- Indenture dated as of September 4, 1997, among SFG
Capital, SFG and Texas Commerce Bank, N.A. (now Chase
Bank of Texas, National Association) as Trustee
4.2 -- Specimen Global Note Certificate
4.3 -- Exchange and Registration Rights Agreement dated
September 4, 1997 among SFG, SFG Capital, and Chase
Securities Inc.
5.1* -- Opinion of Strasburger & Price, L.L.P. regarding legality
of securities being issued
10.1 -- Stock Purchase and Merger Agreement, dated as of May 22,
1997, among Mid-America Dairymen, Inc. (now Dairy Farmers
of America, Inc. ("DFA")), Borden/Meadow Gold Dairies
Holdings, Inc. ("Holdings"), BDH Two, Inc. and Borden,
Inc. (the "Stock Purchase and Merger Agreement")
10.2 -- Assignment and Assumption Agreement Relating to Stock
Purchase and Merger Agreement, dated September 4, 1997,
between DFA and SFG
10.3 -- Credit Agreement, dated September 4, 1997, among SFG,
DFA, the Lenders named therein and The Chase Manhattan
Bank, as Administrative Agent
10.4 -- Capital Contribution, Assignment and Assumption
Agreement, dated as of September 4, 1997, between DFA and
SFG
10.5 -- Capital Contribution Agreement, dated as of September 4,
1997, between Mid-Am Capital, L.L.C. and SFG
10.6 -- Sublease Agreement, dated as of September 4, 1997,
between DFA and SFG relating to Master Leasing Agreement
between BLC Corporation and DFA dated August 15, 1997
10.7 -- Trademark License Agreement, dated as of September 4,
1997, among Borden, Inc., BDH Two, Inc. and SFG
10.8 -- Trademark License Agreement (Meadow Gold), dated as of
September 4, 1997, between SFG and Borden Foods
Corporation
10.9 -- Trademark Sublicense Agreement (Eagle), dated as of
September 4, 1997, between SFG and Borden Foods
Corporation
10.10 -- Copyright Assignment, dated as of September 4, 1997, from
Borden, Inc. to SFG
10.11 -- Patent Assignment, dated as of September 4, 1997, from
Borden/Meadow Gold Dairies, Inc. ("BMGD") to SFG
</TABLE>
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 -- Asset Purchase and Sale Agreement, dated as of September
4, 1997, between Borden/Meadow Gold Dairies Investments,
Inc. ("Investments"), DFA, and SFG
10.13 -- Trademark Assignment dated as of September 4, 1997,
between SFG and Milk Products LLC ("Milk Products")
10.14 -- Milk Products Sublicense Agreement, dated as of September
4, 1997, between SFG and Milk Products
10.15 -- Milk Products Trademark License Agreement, dated as of
September 4, 1997, between SFG and Milk Products
10.16 -- Patent License Agreement, dated as of September 4, 1997,
between SFG and Milk Products
10.17 -- Copyright License Agreement dated as of September 4,
1997, between SFG and Milk Products
10.18 -- License Assignment and Assumption Agreement dated as of
September 4, 1997, between SFG and BMGD
10.19 -- Trademark License Agreement between Flav-O-Rich, Inc. and
SFG dated as of February 28, 1995
10.20 -- Trademark License Agreement effective as of September 1,
1995, between Foremost Farms U.S.A. and SFG
10.21 -- Stipulation and Order among the United States of America,
DFA, SFG and Milk Products dated September 3, 1997 and
Final Order filed September 3, 1997
10.22 -- Agreed Consent Decree and Permanent Injunction among the
State of Texas, DFA, SFG and Milk Products dated
September 3, 1997
10.23 -- Compliance Agreement in Lieu of Debarment between SFG and
the Food and Consumer Service of the United States
Department of Agriculture (the "FCS") executed on January
13, 1995 by the FCS and on December 21, 1994 by SFG
10.24 -- Administrative Agreement between SFG, Inc. and the
Defense Logistics Agency executed on October 24, 1994
10.25 -- Promissory Note payable by Barbe's Dairy, Inc. to Walker
Resources, Inc. in the original principal amount of
$1,250,000 assumed by SFG
10.26 -- $600,000 Real Estate Note dated July 25, 1994, payable by
Southern Foods Group, Inc. to Lloyd Smoot, Jr.
10.27 -- Asset Purchase Agreement between Acadia Dairy, Inc. and
Schepps-Foremost, Inc. dated January 1, 1994
10.28 -- Executive Employment Agreement, dated as of September 4,
1997, between SFG and Pete Schenkel
10.29 -- Executive Employment Agreement, dated as of September 4,
1997, between SFG and Anthony R. Ward
10.30 -- Southern Foods Group, L.P. Supplemental Executive
Retirement Plan effective October 1, 1996
10.31 -- Borden, Inc. Executives Supplemental Pension Plan,
Amended and Restated as of December 9, 1993
10.32 -- Borden, Inc. Executives Excess Benefits Plan, Amended and
Restated as of January 1, 1988
10.33 -- Borden, Inc. Executive Family Survivor Protection Plan,
Amended as of January 1, 1987
10.34 -- Purchase Agreement dated August 27, 1997, among SFG, SFG
Capital and Chase Securities, Inc.
10.35** -- Milk Supply Agreement dated February 17, 1998, between
DFA and SFG
</TABLE>
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.36 -- Lease and Agreement between BF Properties Company and
Beatrice Foods Co. dated as of February 15, 1972
10.37 -- Lease Agreement between LPD Salt Lake Assoc. and Safeway
Stores, Inc. dated as of March 15, 1978
10.38 -- Lease Agreement between SFG and Flav-O-Rich, Inc. dated
February 28, 1995
12.1 -- Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of Price Waterhouse LLP, independent accountants
23.2 -- Consent of Deloitte Touche LLP, independent auditors
23.3* -- Consent of Strasburger & Price, L.L.P., counsel to the
Registrants (included in its opinion to be filed as
exhibit 5.1)
24.1 -- Powers of Attorney (set forth on signature pages)
25.1 -- Form T-1 of Chase Bank of Texas, National Association
27.1 -- Southern Foods Group, L.P. Financial Data Schedule
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* To be filed by amendment.
** Portions of the Milk Supply Agreement have been omitted pursuant to a request
for confidential treatment. The omitted portions will be filed separately
with the Commission.
<PAGE> 1
EXHIBIT 3.1
State of Delaware
Office of the Secretary of State Page 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF LIMITED
PARTNERSHIP OF "SOUTHERN FOODS GROUP, L.P.", FILED IN THIS OFFICE ON THE
TWENTIETH DAY OF DECEMBER, A.D. 1994, AT 11:30 O'CLOCK A.M.
[GREAT SEAL OF THE STATE OF DELAWARE]
/s/ EDWARD J. FREEL
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
2463482 8100 AUTHENTICATION: 8919228
981056958 DATE: 02-12-98
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 11:30 AM 12/20/1994
944250818 - 2463482
CERTIFICATE OF LIMITED PARTNERSHIP
OF
SOUTHERN FOODS GROUP, L.P.
THE UNDERSIGNED, desiring to form a limited partnership under the laws of
the State of Delaware, does hereby certify as follows:
1. The name of the limited partnership is Southern Foods Group, L.P.
(the "Partnership").
2. The registered office of the Partnership in the State of Delaware is
located at 1209 Orange Street, City of Wilmington, County of New
Castle, 19801. The name of the registered agent at such address is The
Corporation Trust Company.
3. SFG Management Limited Liability Company, a Delaware limited
liability company (the "General Partner"), is the sole general partner
of the Partnership. The business address of the General Partner is
3114 South Haskell, Dallas, Texas 75223.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this 19th day of December, 1994.
SFG MANAGEMENT LIMITED LIABILITY
COMPANY, as sole General Partner
By: /s/ F.T. SCHENKEL
[SEAL] -----------------------------
F.T. Schenkel, President
<PAGE> 1
EXHIBIT 3.2
State of Delaware
Office of the Secretary of State Page 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "SFG CAPITAL CORPORATION", FILED IN THIS OFFICE ON THE
TWENTY-FOURTH DAY OF JULY, A.D. 1997, AT 2:30 O'CLOCK P.M.
[GREAT SEAL OF THE STATE OF DELAWARE]
EDWARD J. FREEL
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
2772269 8100 AUTHENTICATION: 8919230
981056959 DATE: 02-12-98
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
SFG CAPITAL CORPORATION
(Pursuant to Section 102
of the Delaware General Corporation Law)
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: The name of the Corporation is SFG Capital Corporation.
SECOND: The address of its registered office in the State of Delaware is
1209 Orange Street, City of Wilmington, County of New Castle. The name of its
registered agent as such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares which the Corporation is authorized to
issue is 1,000 shares of Common Stock all of which are to have a par value of
one cent ($.01) per share.
<PAGE> 3
FIFTH: The name and mailing address of the sole incorporator are:
Theodore N. Farris
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036-7703
SIXTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation, its directors and its
stockholders, it is further provided that (a) the Board of Directors of the
Corporation is expressly authorized and empowered to adopt, amend or repeal
by-laws subject to the power of the stockholders to amend or repeal by-laws
made by the Board of Directors and (b) elections of directors of the
Corporation need not be by written ballot.
SEVENTH: To the full extent permitted by law, the Corporation shall (a)
indemnify any person or such person's heirs, distributees, next of kin,
successors, appointees, executors, administrators, legal representatives or
assigns who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, domestic or foreign, against expenses, attorney's fees, court
costs, judgments, fines, amounts paid in settlement and other losses actually
and reasonably incurred by such person in connection with such action, suit or
proceeding and (b) advance expenses incurred by an officer or director in
defending such civil or criminal action,
-2-
<PAGE> 4
suit or proceeding to the full extent authorized or permitted by the laws of
the State of Delaware upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately by determined
that he is not entitled to be indemnified by the Corporation as authorized by
Section 145 of the Delaware General Corporation Law.
EIGHTH: A director shall have no personal liability to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that the foregoing provision shall not eliminate
the liability of a director (i) for breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for any transaction from which the director derived an improper personal
benefit or (iv) under Section 174 of the General Corporation Law of the State
of Delaware.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors, officers or others are subject to this
reserved power.
IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of July,
1997.
/s/ THEODORE N. FARRIS
----------------------
Theodore N. Farris
Incorporator
-3-
<PAGE> 1
EXHIBIT 3.3
State of Delaware
Office of the Secretary of State Page 1
-----------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF LIMITED
LIABILITY COMPANY OF "SFG MANAGEMENT LIMITED LIABILITY COMPANY", FILED IN THIS
OFFICE ON THE NINETEENTH DAY OF DECEMBER, A.D. 1994, AT 3 O'CLOCK P.M.
[GREAT SEAL OF THE STATE OF DELAWARE]
/s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8919220
DATE: 02-12-98
<PAGE> 2
CERTIFICATE OF FORMATION
OF
SFG MANAGEMENT LIMITED LIABILITY COMPANY
This Certificate of Formation of SFG Management Limited Liability Company
(the "LLC") is being duly executed and filed by Gerald L. Bos, as an authorized
person, to form a limited liability company under the Delaware Limited
Liability Company Act (6 Del.C. S18-101, et seq).
FIRST: The name of the Limited liability company formed hereby is SFG
Management Limited Liability Company.
SECOND: The address of the registered office of the LLC in the State of
Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801.
THIRD: The name and address of the registered agent for service of process
on the LLC in the State of Delaware is The Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware 19801.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the 16th day of December, 1994.
/s/ GERALD L. BOS
-----------------
Gerald L. Bos,
Authorized Person
<PAGE> 1
EXHIBIT 3.4
EXECUTION COPY
SOUTHERN FOODS GROUP, L.P.
(A Delaware Limited Partnership)
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
Dated as of September 3, 1997
THE LIMITED PARTNER INTERESTS REFERENCED HEREIN HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR PURSUANT TO THE PROVISIONS OF ANY STATE SECURITIES ACT
CERTAIN RESTRICTIONS ON TRANSFERS OF LIMITED
PARTNER INTERESTS ARE SET FORTH HEREIN
<PAGE> 2
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
SOUTHERN FOODS GROUP, L.P.
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I NAME AND OFFICE; PURPOSE; POWERS AND TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Name and Principal Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Registered Office and Registered Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.4 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.5 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.6 Amended and Restated Agreement of Limited Partnership . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II CAPITAL CONTRIBUTIONS; MEMBER CLASSES; LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Common Partner Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2 Initial Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.3 No Further Contributions or Loans Required . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.4 Preferred Limited Partner Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.5 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.6 Nature of Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.7 Optional Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.8 Ownership of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III RIGHTS, POWERS, AND DUTIES OF THE GENERAL PARTNER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.1 Management of Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.2 Authorized Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.3 Restrictions on Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.4 Duties and Liabilities of the General Partner . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.6 Specific Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.7 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV RIGHTS AND STATUS OF LIMITED PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 Liability of the Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE V PROFITS AND LOSSES; DISTRIBUTIONS; TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.1 Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.2 Distributions to Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.3 Definition of "Net Operating Cash Flow" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.4 Distributions of Proceeds of Terminating Capital Transaction . . . . . . . . . . . . . . . . . 20
Section 5.5 Tax Withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.6 Special Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.7 Additional Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.8 Restricted Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VI DISSOLUTION AND WINDING-UP OF THE PARTNERSHIP;DISTRIBUTION OF PROCEEDS . . . . . . . . . . . . . . . . . . 21
Section 6.1 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 6.2 Winding Up and Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII LIMITATIONS ON TRANSFERS OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.1 Limitations on Transfers of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.2 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.3 Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 7.4 Prohibited Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII VOLUNTARY OR INVOLUNTARY TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.1 Third Party Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.2 Option to Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.3 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.4 Release from Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.5 Changed Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.6 Form of Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.7 Option on the Part of Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.8 Substituted Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.9 Rights of Unadmitted Transferees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.10 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.11 Put Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 8.12 Call Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8.13 Limitations on Transfers of Interest Having Adverse Legal Effects . . . . . . . . . . . . . 31
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE IX VOTING RIGHTS OF CLASSES OF PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.1 Voting Rights for Common Partner Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 9.2 Voting Rights for Preferred Limited Partner Interest . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE X FISCAL YEAR; RECORDS; REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 10.1 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 10.2 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 10.3 Annual Statements and Partnership Returns . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.4 Adjustment to Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.5 Tax Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.6 Tax Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.7 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 10.8 Competitively Sensitive Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE XI ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.1 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.2 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.3 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.6 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 12.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 12.8 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 12.9 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 12.10 Execution of Agreement Constitutes Consent . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 12.11 Joinder of Meyer for Limited Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 12.12 Sequence of Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE XIII DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.1 General Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 13.2 Definitions for Provisions Requiring Prior Notice to Amend . . . . . . . . . . . . . . . . 44
</TABLE>
- iii -
<PAGE> 5
Exhibit 1 Partners, Common Partner Interests and Preferred Limited
Partner Interests as of the date of the Second Amended and
Restated Agreement of Limited Partnership
Exhibit 2 Amended and Restated Designation of Series A 10%
Payment-in-Kind Preferred Limited Partner Interests
Exhibit 3 Designation of Series B 10% Payment-in-Kind Preferred
Limited Partner Interests
Exhibit 4 Designation of Series C 10% Payment-in-Kind Preferred
Limited Partner Interests
Exhibit 5 Designation of Series D 9 1/2% Preferred Limited Partner
Interests
Exhibit 6 Designation of Series E 10% Payment-in-Kind Preferred
Limited Partner Interests
Appendix
- iv -
<PAGE> 6
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SOUTHERN FOODS GROUP, L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
(this "Agreement") is made and entered into as of September 3, 1997 to be
effective as of 3:00 p.m. on September 3, 1997 (the "Effective Time"), by and
among SFG Management Limited Liability Company ("SFG LLC"), as the sole general
partner ("General Partner") and each of the Persons identified as "Limited
Partners" on Exhibit 1 attached hereto and incorporated herein by reference,
pursuant to the provisions of the DRULPA.
RECITALS
WHEREAS, SFG LLC and Southern Foods Group, Inc., a Delaware
corporation ("SFG Inc."), entered into that certain Limited Partnership
Agreement (the "Original Limited Partnership Agreement") dated December 20,
1994 to form a Delaware limited partnership under the name Southern Foods
Group, L.P. (the "Original Partnership"), pursuant to which SFG LLC owned a 1%
interest in the Original Partnership as the General Partner and SFG Inc. owned
a 99% interest in the Original Partnership as the Limited Partner; and
WHEREAS, in December 1996, SFG Inc. merged into Difcal Corporation
("Difcal"), and as a result of that merger Difcal became the Limited Partner in
the Original Partnership; and
WHEREAS, by an Amended and Restated Agreement of Limited Partnership
dated January 1, 1997 (the "Amended and Restated Agreement"), (a) Pete Schenkel
("Schenkel") and Allen A. Meyer ("Meyer") became Limited Partners, each holding
a 24.75% Common Partner Interest, and (b) Difcal's Limited Partner interest was
separated into a 49.5% Common Limited Partner Interest and a Series A Preferred
Capital Interest in the stated amount of $76,947,000 (the "Original Series A
Preferred Interests"); and
WHEREAS, pursuant to a First Amendment to the Amended and Restated
Agreement of Limited Partnership of Southern Foods Group, L.P., dated February
7, 1997 (the "Amendment"), Barbe's Dairy, Inc. ("Barbe's") was admitted as a
Preferred Limited Partner, receiving $8,000,000 in stated amount of Series A
Preferred Capital Interests in exchange for the contribution of certain assets
and liabilities owned by Barbe's (the "Barbe's Contribution"); and
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WHEREAS, in February 1997, Barbe's was merged into Difcal, and Difcal
assumed the position of Barbe's as a Preferred Limited Partner in the
Partnership; and
WHEREAS, on February 28, 1997, Difcal merged into Mid-America
Dairymen, Inc. ("Mid-Am") and as a result Mid-Am assumed the position of Difcal
as a Limited Partner; and
WHEREAS, the Partnership is currently owned by Mid-Am (49.5% Common
Limited Partner Interest), Schenkel (24.75% Common Limited Partner Interest)
and Meyer (24.75% Common Limited Partner Interest), as Limited Partners, and by
the General Partner (1% Common General Partner Interest), and Mid-Am holds
Original Series A Preferred Interests in the original stated amount of
$84,947,000; and
WHEREAS, the Partnership desires to make certain distributions to its
Common Partners, including distributions of Series E Preferred Interests, and
to receive certain additional capital contributions, all as further described
herein; and
WHEREAS, Schenkel will purchase all of the Limited Partner Interest of
Meyer in the Partnership (the "Ownership Change"); and
WHEREAS, Mid-Am will contribute certain assets and liabilities
relating to certain of the dairy operations of Borden located in the western
United States that manufacture and sell dairy products primarily under the
Meadow Gold and Viva trademarks (the "Meadow Gold Dairies Contribution") in
exchange for the issuance of Series B Preferred Interests; and
WHEREAS, Mid-Am Capital, LLC ("Mid-Am Capital") will contribute $15
million in exchange for the issuance of Series C Preferred Interests and will
contribute $30 million in exchange for the issuance of Series D Preferred
Interests; and
WHEREAS, as a result of the transactions described above (the
"Partnership Transactions"), which the parties hereto desire to take place on
or after the Effective Time but in the sequence and at the times established by
Section 12.12 of this Agreement, the parties desire to amend and restate in its
entirety the Amended and Restated Agreement and to replace and supersede such
agreement with this Agreement, such amendment and restatement to be effective
as of the Effective Time.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained in this Agreement, the General Partner and the Limited Partners agree
to continue the business of the Original Partnership, without dissolution as a
limited partnership, pursuant to the DRULPA, such continuing limited
partnership hereinafter referred to as the "Partnership", for the purposes and
on the terms and conditions set forth as follows:
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ARTICLE I
NAME AND OFFICE; PURPOSE; POWERS AND TERM
Section 1.1 Name and Principal Office. The Partnership shall be
conducted under the name of Southern Foods Group, L.P. The principal office of
the Partnership initially shall be at 3114 South Haskell, Dallas, Texas 75223.
The General Partner may at any time change the location of such principal
office and shall give due notice of any such change to the Limited Partners.
Section 1.2 Registered Office and Registered Agent. The
registered office of the Partnership shall be the office of the initial
registered agent named in the certificate of limited partnership or such other
office selected by the General Partner from time to time. The registered agent
of the Partnership is the initial registered agent named in the certificate of
limited partnership or such other person selected by the General Partner from
time to time.
Section 1.3 Purpose. The purpose of the Partnership shall be to
engage in any lawful act or activity for which limited partnerships may now or
hereafter be organized under the laws of the State of Delaware.
Section 1.4 Powers. In furtherance of the purpose of the
Partnership as specified in Section 1.3, the Partnership shall have all powers
available to it as a limited partnership under the laws of the State of
Delaware including, without limitation, the power to make and perform all
contracts and engage in all activities and transactions necessary or advisable
to carry out the purpose of the Partnership. The General Partner is authorized
to do all such acts and exercise all such powers in the name of and on behalf
of the Partnership.
Section 1.5 Term. The Partnership commenced as of December 20,
1994, and shall end only as provided in Article VI hereof.
Section 1.6 Amended and Restated Agreement of Limited
Partnership. This Agreement amends, restates, replaces and supersedes the
Amended and Restated Agreement of Limited Partnership in its entirety.
However, as provided in Sections 5.2, 5.6 and 5.7 hereof, the Partners
acknowledge certain obligations to Meyer as a former Partner that arose under
the terms of the Amended and Restated Agreement of Limited Partnership, which
obligations will be paid as provided in Sections 5.2, 5.6 and 5.7.
ARTICLE II
CAPITAL CONTRIBUTIONS; MEMBER CLASSES; LOANS
Section 2.1 Common Partner Interest. "Common Partner Interest"
means any interest in the Partnership other than a Preferred Limited Partner
Interest as that term is defined in Section 2.4 hereto.
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Section 2.2 Initial Capital Contributions.
(a) Prior Initial Capital Contributions. Each of the Partners
(other than Mid-Am Capital) previously made Initial Capital
Contributions. After the occurrence of the Ownership Change,
Schenkel's Capital Account shall be adjusted in accordance
with Section A.3(c) of the Appendix.
(b) Series B Preferred Limited Partner Contribution. Pursuant to
a Capital Contribution Agreement between Mid-Am and the
Partnership (the "Mid-Am Contribution Agreement"), in
accordance with the timing specified in Section 12.12, Mid-Am
shall transfer and assign to the Partnership, as a Series B
Preferred Limited Partner Contribution, the assets and
properties described in, and the Partnership shall assume the
liabilities and obligations to the extent specified in, the
Mid-Am Contribution Agreement. As a result of the Meadow Gold
Dairies Contribution, Mid-Am's Capital Account shall reflect a
Capital Contribution with respect to the Series B Preferred
Interests of Ninety Million Dollars ($90,000,000), which the
Partners agree is the net amount equal to the excess of the
Gross Asset Value of the assets so contributed over the face
amount of the debts assumed, or taken subject to, pursuant to
the Mid-Am Contribution Agreement.
(c) Series C Preferred Limited Partner Contribution. Pursuant to
the Capital Contribution Agreement between Mid-Am Capital and
the Partnership (the "Mid-Am Capital Contribution Agreement"),
in accordance with the timing specified in Section 12.12,
Mid-Am Capital shall contribute Fifteen Million Dollars
($15,000,000) as a Series C Preferred Limited Partner
Contribution. As a result of such Capital Contribution, the
Capital Account of Mid-Am Capital shall reflect a Capital
Contribution with respect to the Series C Preferred Interests
of Fifteen Million Dollars ($15,000,000).
(d) Series D Preferred Limited Partner Contribution. Pursuant to
the Mid-Am Capital Contribution Agreement, in accordance with
the timing specified in Section 12.12, Mid-Am Capital shall
contribute Thirty Million Dollars ($30,000,000) as a Series D
Preferred Limited Partner Contribution. As a result of such
Capital Contribution, the Capital Account of Mid-Am Capital
shall reflect a Capital Contribution with respect to the
Series D Preferred Interests of Thirty Million Dollars
($30,000,000).
(e) Additional Capital Contributions by Common Limited Partners.
In accordance with the timing specified in Section 12.12, each
of Mid-Am and Schenkel shall contribute to the Partnership a
stated amount of Series E Preferred Interests equal to the
amount of Series E Preferred Interests received by Schenkel as
part of the Special Distribution pursuant to Section 5.6.
Each such contribution shall be deemed to cause an increase of
the contributing Partner's Capital Account with respect to its
Common Partner Interest resulting from a Capital Contribution
by such Partner with
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respect to its Common Partner Interest, and a corresponding
decrease in its Capital Account with respect to its Series E
Preferred Interests.
(f) Partners. Upon their execution of this Agreement, and after
consummation of the Partnership Transactions, SFG LLC shall
constitute the sole General Partner, Mid-Am and Schenkel shall
constitute all of the Common Limited Partners, and Mid-Am and
Mid-Am Capital shall constitute all of the Preferred Limited
Partners, and the Common Partner Interests of the General
Partner and the Common Limited Partners (collectively "Common
Partners") and the Preferred Limited Partner Interests of the
Preferred Limited Partners, shall be as set forth on Exhibit 1
attached hereto.
Section 2.3 No Further Contributions or Loans Required. Except
as otherwise specifically provided herein or required by DRULPA, (i) the
liability of a Partner to the Partnership is limited to the amount of such
Partner's Capital Contribution, and (ii) the Capital Contribution of a Partner
represents the only funds or property such Partner is required to furnish to
the Partnership, whether by way of contribution, loan or otherwise. No Partner
shall have any obligation at any time to restore a deficit or negative balance
in the Capital Account of such Partner. Except for additional Capital
Contributions approved by the Common Partners, the General Partner shall not
have the right to make additional Capital Contributions to the Partnership.
Section 2.4 Preferred Limited Partner Interest. "Preferred
Limited Partner Interest" means a Limited Partner Interest designated pursuant
to Sections 2.4(a), (b), (c), (d), (e) or (g).
(a) Series A 10% Payment-in-Kind Preferred Limited Partner
Interests. In connection with the Amended and Restated
Agreement, the Partnership issued the Original Series A
Preferred Interests to the predecessor in interest of Mid-Am.
At the Effective Time the designation with respect to the
Original Series A Preferred Interests shall be amended and
restated, the Original Series A Preferred Interests shall be
renamed "Series A 10% Payment-in-Kind Preferred Limited
Partner Interests" and the Series A Preferred Interests shall
have the designations set forth on Exhibit 2 to this
Agreement.
(b) Series B 10% Payment-in-Kind Preferred Limited Partner
Interests. In accordance with the timing specified in Section
12.12, the Partnership shall issue Series B 10%
Payment-in-Kind Preferred Limited Partner Interests to Mid-Am
in exchange for the Meadow Gold Dairies Contribution. The
Series B Preferred Interests shall have the designations set
forth in Exhibit 3 to this Agreement.
(c) Series C 10% Payment-in-Kind Preferred Limited Partner
Interests. In accordance with the timing specified in Section
12.12, the Partnership shall issue Series C 10%
Payment-in-Kind Preferred Limited Partner Interests to Mid-Am
Capital in exchange for $15,000,000 as set forth in the Mid-Am
Capital Contribution Agreement. The
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Series C Preferred Interests shall have the designations set forth in
Exhibit 4 to this Agreement.
(d) Series D 9 1/2% Preferred Limited Partner Interests. In
accordance with the timing specified in Section 12.12, the
Partnership shall issue Series D 9 1/2% Preferred Limited
Partner Interests to Mid- Am Capital in exchange for
$30,000,000 as set forth in the Mid-Am Capital Contribution
Agreement. The Series D Preferred Interests shall have the
designations set forth in Exhibit 5 to this Agreement.
(e) Series E 10% Payment-in-Kind Preferred Limited Partner
Interests. The Partnership shall be authorized to issue from
time to time Series E 10% Payment-in-Kind Preferred Limited
Partner Interests, which Series E Preferred Interests shall
have the designations set forth on Exhibit 6 to this
Agreement. The Partnership shall issue Series E Preferred
Interests under the circumstances specified in Sections 5.6
and 5.7.
(f) Preferred Return. Each series of Preferred Limited Partner
Interests shall be entitled to a Preferred Return as shall be
set forth in the designation for such series.
(g) Authorized Additional Preferred Limited Partner Interests. The
parties acknowledge that in the future it might be advisable
to issue Additional Preferred Limited Partner Interests. The
parties agree that the Partnership shall be authorized to
issue Additional Preferred Limited Partner Interests from time
to time of one or more series as may be necessary pursuant to
the requirements of this Section 2.4(g).
(i) In connection with the foregoing and without limiting
the generality thereof, the General Partner is hereby
expressly authorized, without the vote or approval of
any Limited Partner, to create, under the provisions
of this Section 2.4(g), one or more series of
Additional Preferred Limited Partner Interests. The
Partners hereby expressly authorize the General
Partner to negotiate and set the following terms,
without the vote of any Limited Partner, and to
execute, swear to, acknowledge, deliver, file and
record whatever documents may be required in
connection with the creation of Additional Preferred
Limited Partner Interests.
(A) The distinctive designation of such series
which shall distinguish it from other series;
(B) The number of Additional Preferred Limited
Partner Interests included in such series,
which number may be increased or decreased
from time to time unless otherwise provided
by the General Partner in creating the
series;
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(C) The rate of return payable on the Additional
Preferred Limited Partner Interests and
whether such return is intended to be a
"guaranteed payment" within the meaning of
Code Section 707(c) or is to be determined by
reference to the Partnership's profits and
losses;
(D) The annual distribution rate (or method of
determining such rate) and/or allocation and
distribution of profits and losses for
Additional Preferred Limited Partner
Interests of such series and the date or
dates upon which such amounts shall be
payable;
(E) Whether the distributions on the Additional
Preferred Limited Partner Interests of such
series shall be cumulative, and, in the case
of Additional Preferred Limited Partner
Interests of any series having such
cumulative rights, the date or dates or
method of determining the date or dates from
which the rate of return or distributions on
the Additional Preferred Limited Partner
Interests of such series shall be cumulative;
(F) The amount or amounts which shall be paid out
of the assets of the Partnership to the
holders of the Additional Preferred Limited
Partner Interests of such series upon
voluntary or involuntary dissolution, winding
up or termination of the Partnership;
(G) The price or prices at which, the period or
periods within which, and the terms and
conditions upon which, the Additional
Preferred Limited Partner Interests of such
series may be redeemed or purchased, in whole
or in part, at the option of the Partnership;
(H) The obligation, if any, of the Partnership to
purchase or redeem Additional Preferred
Limited Partner Interests of such series, and
the price or prices at which, the period or
periods within which, and the terms and
conditions upon which, the Additional
Preferred Limited Partner Interests of such
series shall be redeemed, in whole or in
part, pursuant to such obligation; and
(I) Any other relative rights, powers,
preferences or limitations of the Additional
Preferred Limited Partner Interests of the
series not inconsistent with this Agreement
or with applicable law.
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(ii) The authority of the General Partner to create or
establish Additional Preferred Limited Partner
Interests does not include the authority to create or
establish Additional Preferred Limited Partner
Interests with the following terms unless the
requirements of this subsection are met:
(A) The General Partner is not authorized to
create or establish any Additional Preferred
Limited Partner Interest that permits any
right to vote as a Partner unless required by
this Agreement or the DRULPA, or permits any
right to participate in the management of the
Partnership, unless all Partners holding
Common Partner Interests consent in writing
to the granting to the holders of such
Additional Preferred Limited Partner
Interests of such voting rights or rights to
participate in management.
(B) The General Partner is not authorized to
create or establish any Additional Preferred
Limited Partner Interest that is ranked
above, has priority over, or affects the
rights of, any existing holders of Preferred
Limited Partner Interests or Common Partner
Interests without the prior written approval
of all Partners so affected.
(iii) All terms and conditions of any Additional Preferred
Limited Partner Interests created by the General
Partner pursuant to the provisions of this Section
2.4(g) shall be deemed an amendment and supplement to
and a part of this Agreement.
(iv) Each Person purchasing any newly-issued Additional
Preferred Limited Partner Interests shall sign this
Agreement and shall be admitted to the Partnership as
an additional Preferred Limited Partner on the date
on which the Partnership issues such additional
Preferred Limited Partner Interests to such Person in
exchange for a Capital Contribution. Each Person so
admitted as an additional Preferred Limited Partner
shall be subject to and bound by this Agreement, as
previously amended, as if an original party hereto.
No other action or consent of any Partner shall be
required for the admission of an additional Preferred
Limited Partner pursuant to this subsection, and each
Person who is or shall become a Partner hereby
consents to each and every admission to the
Partnership pursuant to this subsection.
Section 2.5 Indemnity. Notwithstanding any other provision of
this Agreement, each Partner hereby agrees to indemnify and hold harmless the
Partnership and the other Partners from and against any and all losses,
liabilities, claims and expenses, including reasonable attorneys' fees and
costs, arising out of any breach of this Agreement by such indemnifying Partner
for actions or omissions of such indemnifying Partner outside the scope of its
authority as a Partner under the terms of this Agreement. Any provision of
this Agreement to the contrary notwithstanding, the
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Partners agree that the Assumed Indebtedness will be borne by the Common
Partners in proportion to their respective Common Partner Interests in the
Partnership. For the purposes of this Section 2.5, "Assumed Indebtedness"
means any debt or liability assumed by the Partnership pursuant to the Barbe's
Contribution under the First Amendment to the Amended and Restated Agreement.
Each Common Partner hereby agrees, in the event of default in payment of any
Assumed Indebtedness by the Partnership, to indemnify and hold the other Common
Partners harmless from any payments required to be made by the other Common
Partners toward such Assumed Indebtedness which are in excess of such other
Common Partners' proportionate share of such Assumed Indebtedness, whether such
payment is made with respect to a guarantee of the Assumed Indebtedness by such
Common Partners or otherwise. The indemnity required by the preceding sentence
shall be satisfied within a reasonable time after the Assumed Indebtedness
becomes due and payable, but in no event later than the later of (a) the end of
the year in which the indemnifying Common Partner's interest is liquidated, or
(b) ninety (90) days after liquidation of the Partnership.
Section 2.6 Nature of Contributions. All Capital Contributions
shall be non-interest bearing. No Partner shall have the right to withdraw,
reduce, or demand the return of its Capital Contribution except as otherwise
provided in this Agreement. No interest shall be paid with respect to the
Capital Account of any Partner.
Section 2.7 Optional Loans. The Partnership is empowered to
borrow such sums as it considers necessary or appropriate, and in connection
therewith, to pledge the property of the Partnership as security therefor.
Loans may be made to the Partnership by the General Partner, the Limited
Partners, commercial lending institutions and other available sources. Such
loans shall be obtained by the General Partner on such terms and conditions as
the General Partner considers commercially reasonable and appropriate;
provided, however, that the General Partner shall not have the authority to
borrow sums on behalf of the Partnership in any manner or on any basis that
makes the Limited Partners liable for the repayment of such indebtedness
without the prior written agreement and consent of the Limited Partners. The
amount of any loan made to the Partnership by a Partner shall not be considered
as an increase in the amount of the Capital Contributions of such Partner to
the Partnership capital or otherwise a contribution to the Partnership, nor
shall the making of such loan entitle such Partner to an increased share of the
profits of the Partnership or any other distributions made pursuant to the
provisions of this Agreement.
Section 2.8 Ownership of Assets. All assets of the Partnership
shall be owned by the Partnership, subject to the terms and provisions of this
Agreement, and no Partner shall have any individual ownership of such assets.
Except as otherwise provided in this Agreement, and notwithstanding any statute
or principle of law to the contrary, each Partner hereby agrees that it shall
have no right (and hereby waives any right that it might otherwise have had) to
cause any Partnership property to be partitioned and/or distributed in kind.
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ARTICLE III
RIGHTS, POWERS, AND DUTIES OF THE GENERAL PARTNER
Section 3.1 Management of Partnership. The General Partner
shall have exclusive control over the management of the Partnership business.
The Limited Partners shall not participate in, or have any control over, the
Partnership business or any authority or right to act for or bind the
Partnership, except as otherwise required by law.
Section 3.2 Authorized Acts. Subject to all other provisions of
this Agreement, the General Partner is authorized and empowered to carry out
and implement the purpose of the Partnership, as provided in Section 1.3, and
to exercise the powers of the Partnership, as provided in Section 1.4, for, in
the name of, and on behalf of, the Partnership. In connection with the
foregoing, it is understood that the General Partner will act by and through a
Board of Representatives and/or duly authorized employees, agents and officers
pursuant to the terms of the Limited Liability Company Agreement. Except for
reimbursement by the Partnership of all out-of-pocket expenses and costs
incurred by the General Partner to third parties in connection with the
management of the Partnership (including, without limitation, salaries of
employees of the General Partner), the General Partner shall receive no fees or
other compensation for its services rendered to the Partnership.
Section 3.3 Restrictions on Authority. Without the prior written
consent of the Common Limited Partners, the General Partner shall not have the
authority:
(a) to do any act in contravention of this Agreement;
(b) to do any act which would make it impossible to carry out the
purpose of the Partnership, as provided in Section 1.3;
(c) to do any act which would cause a Limited Partner to be
personally liable to a creditor of the Partnership; or
(d) to possess Partnership property or to assign any rights in
specific Partnership property, for other than a Partnership
purpose.
Section 3.4 Duties and Liabilities of the General Partner. The
General Partner acting by and through a Board of Representatives and/or its
officers, agents and employees shall manage the Partnership affairs in
accordance with customary industry practices, the DRULPA and all other legal
requirements and contractual obligations applicable to the Partnership. The
General Partner may also delegate to one or more other Persons its rights and
powers to manage and control the Partnership's affairs, including delegation to
agents and employees who may be designated as officers of the Partnership. The
General Partner shall devote itself to the business of the Partnership to the
extent it may determine necessary for the efficient conduct of such business
and reasonably
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required for the Partnership's welfare and success. The General Partner shall
not be liable, responsible or accountable, in damages or otherwise, to any
other Partner, as such, or to the Partnership for any act or omission performed
or omitted on behalf of the Partnership within the scope of the authority
conferred by this Agreement or by law, except for its own gross negligence,
willful misconduct or breach of a material provision of this Agreement, nor
shall the General Partner be liable, responsible or accountable for the gross
negligence or willful misconduct (including dishonesty or bad faith) of any of
its employees or agents or any employee or agent of the Partnership which the
General Partner has selected with reasonable care.
Section 3.5 Indemnification.
(a) The Partnership shall indemnify to the fullest extent
permitted by law the General Partner and its officers,
managers, employees, members and agents ("Indemnified
Parties") from and against all costs and expenses, including
attorneys' fees, judgments, fines, settlements and/or
liabilities incurred by or imposed upon any Indemnified Party
in connection with, or resulting from, any action, suit or
proceeding whether civil, criminal, legislative or otherwise
(or any appeal thereof) to which any Indemnified Party may be
made a party or become otherwise involved or with which any
Indemnified Party may be threatened, in each case by reason
of, or in connection with, the Indemnified Party being or
having been associated with or otherwise acting for the
Partnership, or by reason of any action or alleged action,
omission or alleged omission by any Indemnified Party in any
such capacity, provided that the Indemnified Party is not
ultimately adjudged to have engaged in gross negligence,
willful misconduct or breach of a material provision of this
Agreement.
(b) The Partnership shall pay the expenses incurred by an
Indemnified Party in investigating, preparing or defending any
civil or criminal action, suit or proceeding, in advance of
the final disposition thereof, upon receipt of an undertaking
by the Indemnified Party to repay such payment if there is a
final adjudication or determination that he is not entitled to
indemnification as provided herein. It shall not be required
that the Partnership determine the ability of the Indemnified
Party to repay such expenses prior to making such payments in
the event the Indemnified Party is later determined to be not
entitled to indemnification.
(c) The Partnership shall make all indemnification provided for
pursuant to this Section 3.5 solely out of Partnership Assets,
and only to the extent of such assets. The Limited Partners
shall not have any personal liability for any indemnification
required or permitted pursuant to this Section 3.5. None of
the provisions of this Section 3.5 shall be deemed to create
or grant any rights in favor of Indemnified Parties which
cannot be discharged out of Partnership Assets or in favor of
anyone other than Indemnified Parties; this provision excludes
among other things, any right of subrogation in favor of any
insurer or surety. Subject to the above restrictions, the
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rights of indemnification granted hereunder shall survive the
termination, dissolution and winding up of the Partnership.
Section 3.6 Specific Transactions. The Partnership, and the
General Partner on behalf of the Partnership, may enter into, execute, deliver
and perform any and all documents relating to the transactions contemplated in
the Offering Memorandum of the Partnership and SFG Capital Corporation,
regarding the 9 7/8% Senior Subordinated Notes due 2007, and the Credit
Agreement, and all documents relating thereto, without any further act, vote or
approval of any other Partner notwithstanding any other provision of this
Agreement, the DRULPA or other applicable law, rule or regulation. The General
Partner is hereby authorized to enter into the documents described in the
preceding sentence on behalf of the Partnership, but such authorization shall
not be deemed a restriction on the power of the General Partner to enter into
other agreements or documents on behalf of the Partnership.
Section 3.7 Merger. The Partnership may merge with, or
consolidate into, another Delaware limited partnership or other business entity
(as defined in Section 17-211(a) of the DRULPA) or convert to another form of
business entity upon the unanimous approval of the Common Partners. In
accordance with Section 17-211 of the DRULPA (including Section 17-211(g)),
notwithstanding anything to the contrary contained in this Agreement, an
agreement of merger or consolidation approved by the unanimous consent of the
Common Partners may (a) effect any amendment to this Agreement or (b) effect
the adoption of a new partnership agreement for the Partnership if it is the
surviving or resulting limited partnership of the merger or consolidation. Any
amendment to this Agreement or adoption of a new partnership agreement made
pursuant to the foregoing sentence shall be effective at the effective time or
date of the merger or consolidation. The provisions of this Section 3.7 shall
not be construed to limit the accomplishment of a merger or of any of the
matters referred to herein by any other means otherwise permitted by law.
ARTICLE IV
RIGHTS AND STATUS OF LIMITED PARTNERS
Section 4.1 General. The Limited Partners have the rights and
the status of a limited partner as specified in the DRULPA except as otherwise
provided in this Agreement. The Limited Partners may not take part in the
management or control of the Partnership business or sign for or bind the
Partnership, such power being vested exclusively in the General Partner.
Section 4.2 Liability of the Limited Partners. Subject to the
provisions of the DRULPA and except as otherwise provided in this Agreement,
the Limited Partners, in their capacity as such, shall not be liable for any
debts, liabilities, contracts or obligations of the Partnership in excess of
the amount of their respective Capital Contributions. The Limited Partners, in
their capacity as such, shall not be liable for any debts, liabilities,
contracts or obligations of any other Partner.
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ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS; TAX MATTERS
Section 5.1 Allocations. The profits of the Partnership and any
losses shall be allocated among the Partners in accordance with the provisions
of the Appendix to this Agreement.
Section 5.2 Distributions to Partners. Except as otherwise
required by this Article V and Section 6.2, all distributions of any nature
whatsoever, including, without limitation, partial returns of capital, profit
distributions, refinancing proceeds and liquidating distributions, shall be
made solely to the Partners as follows:
(a) Net Operating Cash Flow (as defined in Section 5.3) in an
amount equal to the Partnership Tax Amount shall be
distributed to the Eligible Partners in accordance with the
provisions of this Section 5.2. In addition, subject to the
limitations provided in Section 5.2(a)(ii), Net Operating Cash
Flow shall be distributed to the Preferred Limited Partners
entitled to receive cash distributions of Preferred Returns
within sixty (60) days after the end of each semi-annual
period of each fiscal year in accordance with Section
5.2(a)(ii). The General Partner, in its discretion, may
authorize the distribution of any additional amounts of Net
Operating Cash Flow to the Common Partners or to the Preferred
Limited Partners as provided in Section 5.2(a)(iii).
Notwithstanding the foregoing, except for distributions made
in accordance with Section 5.2(a)(i), no distribution of the
Net Operating Cash Flow of the Partnership shall be made if
and to the extent that, after the distribution is made, the
liabilities of the Partnership, excluding the Partnership's
liability to the Partners for their Capital Contributions,
shall exceed the fair market value of the assets of the
Partnership. Subject to Section 6.2 below, Net Operating Cash
Flow required or authorized to be distributed shall be
distributed among the Partners in the following order of
priority:
(i) First, Net Operating Cash Flow for each calendar year
or other taxable period shall be distributed among
the Eligible Partners until each of the Eligible
Partners has received the Partnership Tax Amount:
(A) "Partnership Tax Amount" means the amount of
money directly or indirectly payable as a
distribution with respect to the Eligible
Partner's direct or indirect partnership
interests in the Partnership (including such
Eligible Partner's direct or indirect
interests in the General Partner) to enable
such Eligible Partner to pay Federal, state
and local Income Taxes (including quarterly
estimated Income Taxes) with respect to the
Partnership's net income or any division or
segment thereof allocable to such Eligible
Partner. For the purpose of this definition:
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<PAGE> 19
(1) "Eligible Partner" means Schenkel as
a holder of a direct or indirect
partnership interest in the
Partnership or any taxable
successor(s) to all or part of his
direct or indirect partnership
interest in the Partnership. For
the period up to and including Mr.
Schenkel's purchase of Meyer's
direct or indirect partnership
interests in the Partnership,
"Eligible Partner" also includes
Meyer as a former holder of a
partnership interest in the
Partnership.
(2) "Income Taxes" means all Federal,
state and local taxes, fees,
assessments or charges of any kind,
imposed on, or determined with
reference to, net income of the
Partnership or any division or
segment thereof, or any allocable
portion thereof, including without
limitation any self-employment or
similar tax imposed with respect to
an Eligible Partner's allocable
share of net income or any division
or segment thereof, and "Income Tax"
means any one of such Income Taxes.
(3) "Governmental Authority" means the
government of the United States of
America, any other nation, or any
political subdivision thereof,
whether state or local, and any
agency, authority, instrumentality,
regulatory body, court, central bank
or other entity exercising
executive, legislative, judicial,
taxing, regulatory or administrative
powers or functions of or pertaining
to government.
(4) The Partnership Tax Amount in any
applicable fiscal year shall equal
the greater of (1) the product of
(i) the sum of (A) the highest
marginal federal tax rate (taking
into account deductions or credits
for state and local taxes)
applicable to the Eligible Partner
(at either individual or corporate
rates, as applicable) with respect
to the Partnership's taxable income
directly or indirectly allocable to
such Eligible Partner with respect
to such applicable fiscal year, (B)
the highest state tax rate (taking
into account deductions or credits
for local taxes) applicable to the
Eligible Partner (at either
individual or corporate rates, as
applicable) with respect to the
Partnership's taxable income
directly or indirectly allocable to
such Eligible Partner with respect
to such applicable fiscal year and
(C) the highest local tax rate
applicable to the Eligible Partner
(at either individual or corporate
rates, as applicable) with respect
to the Partnership's taxable income,
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<PAGE> 20
directly or indirectly allocable to
such Eligible Partner with respect
to such applicable fiscal year,
multiplied by (ii) the Partnership's
taxable income directly or
indirectly allocable to such
Eligible Partner with respect to
such fiscal year or (2) the product
of (i) the sum of (A) the highest
Federal alternative minimum tax rate
(taking into account deductions or
credits for state and local taxes)
applicable to the Eligible Partner
(at either individual or corporate
rates, as applicable) with respect
to the Partnership's alternative
minimum taxable income directly or
indirectly allocable to such
Eligible Partner with respect to
such applicable fiscal year, (B) the
highest state tax rate (taking into
account deductions or credits for
local taxes) applicable to the
Eligible Partner (at either
individual or corporate rates, as
applicable) with respect to the
Partnership's taxable income or
alternative minimum taxable income,
as applicable, directly or
indirectly allocable to such
Eligible Partner with respect to
such applicable fiscal year and (C)
the highest local tax rate
applicable to the Eligible Partner
(at either individual or corporate
rates, as applicable) with respect
to the Partnership's taxable income
or alternative minimum taxable
income, as applicable, directly or
indirectly allocable to such
Eligible Partner with respect to
such applicable fiscal year,
multiplied by (ii) the Partnership's
taxable income or alternative
minimum taxable income, as
applicable, directly or indirectly
allocable to such Eligible Partner
with respect to such fiscal year.
The Partnership Tax Amount for each
applicable fiscal year shall be
appropriately adjusted to reflect
(i) any tax losses of the
Partnership arising in any prior
fiscal year (assuming that any such
losses are carried forward and used
to offset the Partnership's taxable
income in the applicable fiscal
year) and (ii) the Partnership's
payment of any withholding taxes
that would give rise to a credit or
other tax benefit to the Partnership
(or the Eligible Partner).
(5) Payments or distributions in
connection with the Partnership Tax
Amount related to payments of
estimated Federal Income Tax shall
be payable in quarterly installments
with respect to the applicable
fiscal year, in each case no more
than five days prior to the Federal
estimated tax due dates applicable
to the Eligible Partner. Such
quarterly installments shall be
based upon the Partnership's then
good faith estimate of its taxable
income (or alternative minimum
taxable income, as
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<PAGE> 21
applicable) directly or indirectly
allocable to the Eligible Partner
(as calculated in the manner
described in paragraph (4) above),
subject to appropriate adjustment to
reflect over and under payment of
any prior quarterly periods during
the applicable fiscal year, and in
each quarter shall be no greater
than the applicable estimated tax
payment to be paid by such Eligible
Partner to the applicable
Governmental Authority.
(6) Payments or distributions in
connection with the Partnership Tax
Amount related to the filing of
extensions of time for filing Income
Tax returns for a fiscal year shall
be payable in each case no more than
five days prior to the applicable
date on which such payment of Income
Tax is due, shall be based on the
Partnership's then good faith
estimate of its taxable income (or
alternative minimum taxable income,
as applicable) directly or
indirectly allocable to the Eligible
Partner for such fiscal year, and
shall be no greater than the
applicable tax payment to be paid by
such Eligible Partner to the
applicable Governmental Authority.
(7) The aggregate amount of all payments
made in connection with the
Partnership Tax Amount with respect
to the applicable fiscal year shall
be based upon the Partnership's
taxable income (or alternative
minimum taxable income, as
applicable) directly or indirectly
allocable to the Eligible Partner
with respect to such applicable
fiscal year as shown on the
Partnership's filed Federal Income
Tax return for such fiscal year, or
if such Federal Income Tax Return
has not been filed when a payment is
due in connection with the
Partnership Tax Amount for a fiscal
year, the Partnership's good faith
estimate of the amount of its
taxable income (or alternative
minimum taxable income, as
applicable), taking into account any
separately stated items, for such
fiscal year. In the event that the
Partnership files an amended Income
Tax return (or upon the
Partnership's filing of its original
return for the applicable fiscal
year if the Partnership Tax Amount
was based upon the Partnership's
good faith estimate of its taxable
income or alternative minimum
taxable income, as applicable, that
is inconsistent with its calculation
of its taxable income (or
alternative minimum taxable income,
as applicable) for any such fiscal
year(s), or in the event that a
Governmental Authority determines
that information reflected in any of
the Partnership's Income Tax returns
for such fiscal
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<PAGE> 22
year is inaccurate or incomplete,
then the Partnership shall make a
proper adjustment (including any
penalties, interest or other charges
related to the adjustment or
correction of information reflected
in such return(s) or the filing of
such return(s)) to the amount
payable in connection with the
Partnership Tax Amount for such
fiscal year(s). According to whether
such adjustments to the amounts
payable in connection with the
Partnership Tax Amount for the
applicable year are positive or
negative with respect to the
Eligible Partner, the Partnership
shall, as applicable, either
promptly pay to the Eligible Partner
as a distribution as needed to fund
payment of such adjustment to such
Partnership Tax Amount to a
Governmental Authority by such
Eligible Partner, or shall require
the Eligible Partner to promptly pay
to it, the amount of any such
adjustment (and no further payments
in connection with the Partnership
Tax Amount shall be paid until the
Eligible Partner has repaid any such
excess to the Partnership). Payments
or distributions to the Eligible
Partner upon the Eligible Partner
filing original Income Tax returns
for a fiscal year shall be payable
in each case no more than five days
prior to the applicable date on
which the Income Tax payment is due
in connection with such return
filing, and shall be no greater than
the applicable tax payment to be
paid by such Eligible Partner to the
applicable Governmental Authority.
(8) In the event that the aggregate
amount of payments in connection
with the Partnership Tax Amount
actually distributed in respect of
any fiscal year exceeds the amounts
determined as indicated in paragraph
(4) above for such fiscal year, the
Eligible Partner shall promptly
repay any such excess to the
Partnership (and no further payments
in connection with the Partnership
Tax Amount shall be paid until the
Eligible Partner has repaid any such
excess to the Partnership).
(9) For all periods from and after the
inception of the Partnership, the
amount of the aggregate
distributions in connection with the
Partnership Tax Amount made with
respect to the direct or indirect
partnership interests held by an
Eligible Partner for each fiscal
year shall be appropriately adjusted
in the current fiscal year or in
future fiscal years, regardless of
whether such Eligible Partner has
held, or now or in the future holds a
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<PAGE> 23
direct or indirect partnership
interest in the Partnership by making
additional mandatory distributions
for the benefit of such Eligible
Partner in the case of tax increases
or in the case of tax decreases by
the Eligible Partner paying any tax
decrease to the Partnership) to
reflect any adjustments in Income Tax
as a result of adjustments made for
any reason to items of income, gain,
loss, deduction or credit of the
Partnership, or adjustments made in
the Eligible Partner's allocable
shares of such items (regardless of
whether occurring as a result of the
Partnership's filing of an amended
return or as a result of an
examination or audit by a
Governmental Authority).
(B) In the event that, for any reason, all or any
portion of the Partnership Tax Amount cannot
be distributed to an Eligible Partner, such
deficiency in payments in connection with the
Partnership Tax Amount shall be distributed
as soon thereafter as Net Operating Cash Flow
is available.
(C) In the event that an Entity taxable as a
corporation shall become an Eligible Partner
or a Flow-Through Owner, the amount and
timing of the distributions under this
Section 5.2(a)(i) with respect to such
Eligible Partner or Flow-Through Owner shall
be appropriately adjusted to reflect its
status as a corporation subject to income
tax.
(D) In the event that a self-employment tax or
similar tax is imposed on an Eligible Partner
or any of its Flow-Through Owner(s) based in
whole or in part on such Eligible Partner's
allocable share of Partnership net income,
such tax constitutes an Income Tax and the
tax rate applicable to such self-employment
or similar tax (taking into account the
deductibility, if any, of such
self-employment or similar tax) shall be
added to, and treated as such constituent
part of, the Income Tax rate (and, if
applicable, the alternative minimum tax rate)
of the applicable taxing jurisdiction.
(E) The intent of this Section 5.2(a)(i) is that
each Eligible Partner shall receive such
distributions as necessary to fully reimburse
such Eligible Partner or its Flow- Through
Owner(s) for all Income Taxes, together with
any interest and any penalties, additions to
tax or additional amounts with respect
thereto, incurred as a result of such
Eligible Partner or its Flow-Through Owner(s)
being required to report, and pay Income Tax
with respect to, his, her or its allocable
share of the items of income, gain, loss,
deduction and credit of the
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<PAGE> 24
Partnership, regardless of whether such
Income Taxes result from paying estimated
Income Taxes, or from paying Income Taxes as
a result of filing income tax returns or
other reports or amending such returns or
reports, or whether such Income Taxes are
incurred pursuant to examinations or audits
of such returns or reports by any tax
authority. The provisions of this Section
5.2(a)(i) shall be interpreted consistent
with the foregoing stated intent.
"Flow-Through Owner" means the direct or
indirect owner of an interest in an Eligible
Partner that is taxable on such Partner's
share of the various items of taxable income
or loss or alternative minimum taxable income
or loss of the Partnership by reason of
owning a direct or indirect interest in the
Partnership through one or more S
corporations or Entities taxed as
partnerships for federal income purposes.
(ii) Next, unless limited by the terms of any outstanding
financing arrangements set forth in any agreement or
agreements to which the Partnership is a party, Net
Operating Cash Flow shall be distributed among the
Preferred Limited Partners until each has received a
distribution with respect to Preferred Returns equal
to the excess, if any, of (i) the aggregate amount of
Net Income allocated to such Preferred Limited
Partner under Section A.4.1(a)(i) of the Appendix
from the inception of the Partnership, over (ii) the
sum of all prior distributions of Preferred Returns
to such Preferred Limited Partner pursuant to this
Section 5.2(a) and Section 6.2(c)(ii)(A) (such
excess, the "Undistributed Preferred Return of the
Partner"). All cash distributions pursuant to this
Section 5.2(a)(ii) shall be distributed among the
Preferred Limited Partners based on the proportion
that the Undistributed Preferred Return due each
Preferred Limited Partner bears to the aggregate
Undistributed Preferred Return due all Preferred
Limited Partners; provided, however, that, in
determining such proportions, there shall be excluded
from the Undistributed Preferred Return due each
Preferred Limited Partner and from the Undistributed
Preferred Return due all Preferred Limited Partners
all Undistributed Preferred Return due on all series
of Preferred Limited Partner Interests on which cash
distributions are not then allowed pursuant to either
(i) the terms and conditions applicable to such
series of Preferred Limited Partner Interest or (ii)
the terms of any outstanding financing arrangements
set forth in any agreement or agreements to which the
Partnership is a party.
(iii) In the sole discretion of the General Partner, the
balance, if any, of Net Operating Cash Flow may be
distributed to (A) the Common Partners in proportion
to their respective Common Partner Interests as shown
on Exhibit 1 or (B) the Preferred Limited Partners to
reduce the Unreturned Preferred Limited Partner
Balances of holders of Preferred Limited Partner
Interests,
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<PAGE> 25
provided that no such distributions shall be
permitted if distributions are not allowed pursuant
to the terms of any outstanding financing
arrangements set forth in any agreement or agreements
to which the Partnership is a party. Any
distribution made pursuant to this Section
5.2(a)(iii) to Preferred Limited Partners shall be
distributed to the Preferred Limited Partners in
proportion to their respective Unreturned Preferred
Limited Partner Balances for all series of
outstanding Preferred Limited Partner Interests with
respect to which distributions under this Section
5.2(a)(iii) are permitted at the time of such
distribution.
Provided, however, except in the case of distributions under Section
5.2(a)(i), no distribution of Net Operating Cash Flow shall be made if
such distribution would reduce a Partner's Capital Account below zero.
(b) The Partnership shall make the distributions described in
Sections 5.6 and 5.7 under the circumstances described
therein.
Section 5.3 Definition of "Net Operating Cash Flow". "Net
Operating Cash Flow" shall be determined in the discretion of the General
Partner, but generally shall mean the gross cash proceeds from Partnership
operations less the portion thereof required to pay Partnership expenses less
any reserves established by the General Partner for direct operating expenses,
taxes, maintenance, insurance, capital expenditures, repairs and other items
deemed reasonable and necessary for the Partnership's business operations. In
addition, Net Operating Cash Flow shall include any net cash proceeds received
from the sale, financing or refinancing of Partnership assets, other than a
Terminating Capital Transaction.
Section 5.4 Distributions of Proceeds of Terminating Capital
Transaction. Subject to Section 6.2, the proceeds of any Terminating Capital
Transaction shall be distributed in the following order of priority:
(a) To the payment of the expenses of the Terminating Capital
Transaction including, without limitation, brokerage
commissions, legal fees, accounting fees and closing costs.
(b) To the payment of debts, return of Capital Accounts and
distribution to Partners according to the priorities defined
by Article VI hereof.
Section 5.5 Tax Withholdings. To the extent the Partnership is
required by federal, state or local law or any tax treaty to withhold or to
make tax payments on behalf of or with respect to any Partner, the General
Partner shall withhold such amounts and make such tax payments as so required.
The amount of such payments shall constitute an advance by the Partnership to
such Partner and shall be repaid to the Partnership by reducing the amount of
the current or next succeeding distribution or distributions which would
otherwise have been made to such Partner or,
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<PAGE> 26
if such distributions are not sufficient for that purpose, by so reducing the
proceeds of liquidation otherwise payable to such Partner or, if such proceeds
are insufficient, such Partner shall pay to the Partnership the amount of such
insufficiency.
Section 5.6 Special Distributions. In accordance with the timing
specified in Section 12.12, the Common Partners shall receive the following
special distributions (the "Special Distributions"). Meyer and Schenkel shall
receive special cash distributions with respect to their respective Common
Partner Interests as follows: Meyer in the amount of One Million One Hundred
Thousand Dollars ($1,100,000) and Schenkel in the amount of Seven Hundred
Thousand Dollars ($700,000). In addition, subject to the provisions of Section
2.2(e), Schenkel shall receive Four Hundred Thousand Dollars ($400,000) in
stated amount of Series E Preferred Interests and Mid-Am shall receive a
distribution of Two Million Two Hundred Thousand Dollars ($2,200,000) in stated
amount of Series E Preferred Interests.
Section 5.7 Additional Distributions. In the case of cash
distributions made pursuant to Section 5.2(a)(i) hereof for Required
Distribution Amounts, in the event that any Common Partner does not receive a
cash distribution that would be proportionate to such distribution, in
accordance with the relative Common Partner Interests held by all Common
Partners, such Common Partner shall nevertheless be deemed, at the time of such
distribution under Section 5.2(a)(i), to have received its proportionate
distribution in cash in accordance with the proportion that such Common
Partner's Common Partner Interest bears to all Common Partner Interests and to
have immediately contributed such deemed cash distribution to the Partnership
as a Series E Preferred Limited Partner Contribution to acquire an equal stated
amount of Series E Preferred Interests. Further, pursuant to Section
5.2(a)(i), the Partnership shall make Required Distributions to Meyer and
Schenkel in mid-September 1997, of approximately Two Million Dollars
($2,000,000) each in cash in respect of certain tax liabilities, and to Mid-Am,
pursuant to this Section 5.7, a corresponding distribution in kind of
approximately Four Million Dollars ($4,000,000) in stated amount of Series E
Preferred Interests; provided, however, that payment of such amounts shall not
preclude any Common Limited Partner (including Meyer) from receiving any other
amount which may be due to them with respect to such tax liabilities under
Section 5.2(a)(i) or this Section 5.7.
Section 5.8 Restricted Distributions. Notwithstanding any
provision to the contrary contained in this Agreement, the Partnership, and the
General Partner on behalf of the Partnership, shall not make a distribution to
any Partner on account of its interest in the Partnership if such distribution
would violate Section 17-607 of the DRULPA or other applicable law.
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<PAGE> 27
ARTICLE VI
DISSOLUTION AND WINDING-UP OF THE PARTNERSHIP;
DISTRIBUTION OF PROCEEDS
Section 6.1 Dissolution.
(a) The Partnership shall be dissolved and its affairs shall be
wound up upon the first to occur of any of the following:
(i) December 31, 2050;
(ii) The sale of all or substantially all of the assets of
the Partnership;
(iii) The written consent of all Partners;
(iv) The withdrawal or bankruptcy of the General Partner
or assignment by the General Partner of its entire
interest in the Partnership or the occurrence of any
other event that results in the General Partner
ceasing to be a general partner of the Partnership
under the DRULPA, provided, the Partnership shall not
be dissolved and required to be wound up in
connection with any of the events specified in this
clause (iv) if (A) at the time of the occurrence of
such event there is a least one remaining general
partner of the Partnership who is hereby authorized
to and does carry on the business of the Partnership,
or (B) within ninety (90) days after the occurrence
of such event, all remaining Common Partners agree in
writing to continue the business of the Partnership
and to the appointment effective as of the date of
such event, if required, of one or more additional
general partners of the Partnership; or
(v) The entry of a decree of judicial dissolution under
Section 17-802 of the DRULPA.
(b) The Mid-Am Parties will not seek the dissolution, winding up
or liquidation of the Partnership (including by removal of the
General Partner) except where the General Partner has been:
(i) declared bankrupt, insolvent, or placed in
receivership;
(ii) indicted for or convicted of a felony; or
(iii) held by a court or arbitrator to have committed fraud
against the Mid-Am Parties or the Partnership;
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<PAGE> 28
provided, however, the Mid-Am Parties may seek the dissolution,
winding up or liquidation of the Partnership pursuant to Section
6.1(a)(v) or the removal of the General Partner where they have
persuaded an Independent Decisionmaker, acting independently and using
his or her own business judgment, that such dissolution, winding up or
liquidation of the Partnership or the removal of the General Partner
is necessary to minimize the long- term financial losses to the
Partnership. Except as set forth in the preceding sentence, the
Mid-Am Parties hereby expressly waive to the fullest extent permitted
by the DRULPA any right which they may otherwise have to obtain the
entry of a decree of judicial dissolution under Section 17-802 of the
DRULPA with respect to the Partnership.
Section 6.2 Winding Up and Liquidation. Upon dissolution of the
Partnership, it shall be wound up and liquidated as quickly as circumstances
will allow. The assets of the Partnership shall be applied in the following
order and priority:
(a) To pay or provide for all amounts owing by the Partnership to
creditors other than Partners in the order of priority as
provided by law, and for expenses of winding up.
(b) To pay or provide for all amounts owing by the Partnership to
Partners other than for capital and profits.
(c) To make distributions to the Partners in respect of capital
and for profits, as follows:
(i) The Partners' Capital Accounts shall be adjusted as
if the assets of the Partnership were sold for fair
market value and the gain or loss therefrom allocated
to the Partners according to the Appendix. Fair
market value shall be determined by unanimous
agreement among the Partners, or failing unanimous
agreement, determined as follows: the General
Partner and the Common Limited Partners (acting as
one Common Limited Partner) shall each name an
appraiser of independent standing. The two
appraisers shall establish the fair market value of
the assets by mutual agreement but, if they do not
reach such agreement within 30 days after the
appointment of the later of them, they shall name a
third appraiser and, in such event, the average of
the two closest appraisals shall be the final
determination of the fair market value of the assets.
(ii) Thereafter distributions shall be made to the
Partners in respect of capital and for profits in the
following order and priority:
(A) Distributions shall be made to the Preferred
Limited Partners in an amount equal to the
aggregate Undistributed Preferred Returns of
all Preferred Limited Partners; provided,
however, that no distribution shall be made
pursuant to this Section 6.2 that creates or
increases a Capital Account deficit for any
Partner who is not a General Partner
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<PAGE> 29
which exceeds such Partner's obligation,
deemed or actual, to restore such deficit,
determined as follows: Distributions shall
first be determined tentatively pursuant to
this Section 6.2 without regard to the
Partners' Capital Accounts, and then the
allocation provisions of the Appendix shall
be applied tentatively as if such tentative
distributions had been made. If any Partner
who is not a General Partner shall thereby
have a deficit Capital Account which exceeds
his deemed or actual obligation to restore
such deficit, the actual distribution to such
Partner pursuant to this Section 6.2 shall be
equal to the tentative distribution to such
Partner less the amount of the excess to such
Partner. Each distribution made pursuant to
this Section 6.2(c)(ii)(A) shall be
distributed to the Preferred Limited Partners
in proportion to their respective
Undistributed Preferred Returns at the time
of such distribution. Solely for purposes of
this Section 6.2(c)(ii), Undistributed
Preferred Returns shall be determined by
excluding from the calculation of
distributions of Preferred Returns made
pursuant to Section 5.2(a) and this Section
6.2(c)(ii)(A) the stated amounts of Preferred
Limited Partner Interests issued in payment
of Preferred Returns.
(B) Distributions shall be made to the Preferred
Limited Partners in an amount equal to the
aggregate Unreturned Preferred Limited
Partner Balances of all Preferred Limited
Partners. Each distribution made pursuant to
this Section 6.2(c)(ii)(B) shall be
distributed to the Preferred Limited Partners
in proportion to their respective Unreturned
Preferred Limited Partner Balances.
(C) Each Partner shall be paid an amount equal to
the amount of each Partner's Capital Account.
Distributions may be made in cash or in kind.
(D) Any remaining assets shall be distributed to
the Common Partners in cash or in kind pro
rata according to their respective Common
Partner Interests.
Upon the completion of the liquidation of the Partnership and the
distribution of all Partnership funds, the General Partner or whoever
is instead appointed by the Common Limited Partners shall be
authorized to execute and record all documents required to effectuate
the dissolution and termination of the Partnership.
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<PAGE> 30
ARTICLE VII
LIMITATIONS ON TRANSFERS OF INTERESTS
Section 7.1 Limitations on Transfers of Interests. While this
Agreement is in force, no Partner may directly or indirectly transfer all or
any part of such Partner's interest in the Partnership, whether now owned or
hereafter acquired, without first complying with the terms and conditions of
this Agreement. Any attempted transfer in contravention of this Agreement
shall be null and void.
Section 7.2 Transfers. For purposes of this Agreement, a
transfer shall mean any direct or indirect act, whether voluntary, involuntary,
or by operation of law, which causes a disposition or encumbrance of all or any
part of a Partner's interest, including, but not limited to, a sale,
foreclosure, assignment, gift, exchange, pledge, hypothecation, bequest or
attachment.
Section 7.3 Exceptions. Notwithstanding the foregoing
restrictions on transfers of interests, a Partner may at any time transfer all
or part of such Partner's interest in the Partnership (referred to as
"Permitted Transfers") to a third party provided that the provisions of Article
VIII have been complied with. In addition:
(a) Schenkel shall have the right to transfer his Common Partner
Interest, without complying with Sections 8.1 through 8.7
hereof, into an Entity in which Schenkel and the members of
his family, consisting of the persons described in Section
318(a)(1) of the Code, own more than a fifty percent (50%)
interest ("Family Controlled Entity"). Upon the transfer by
Schenkel of such Partner's Common Partner Interest to a Family
Controlled Entity, such Family Controlled Entity shall become
a Substituted Partner pursuant to the terms and conditions of
Section 8.8 hereto without requiring the unanimous written
consent of the Common Partners so long as the other conditions
to becoming a Substituted Partner contained in Section 8.8(b)
have been satisfied by such Family Controlled Entity.
(b) Mid-Am shall have the right to transfer its Common Partner
Interest and Preferred Limited Partner Interests to any
successor of Mid-Am by merger or consolidation without the
necessity of complying with Sections 8.1 through 8.7 hereof.
Upon the transfer by Mid-Am of such Partner's Common Partner
Interest and/or Preferred Limited Partner Interests to a
successor, such successor shall become a Substituted Partner
pursuant to the terms and conditions of Section 8.8 hereof
without requiring the unanimous written consent of the Common
Partners so long as the other conditions to becoming a
Substituted Partner contained in Section 8.8(b) have been
satisfied by such successor.
(c) Mid-Am Capital shall have the right to transfer its Preferred
Limited Partner Interests to any successor of Mid-Am Capital
by merger or consolidation without the necessity of complying
with Sections 8.1 through 8.7 hereof. Upon the transfer by
Mid-Am
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<PAGE> 31
Capital of such partner's Preferred Limited Partner Interests
to a successor, such successor shall become a Substituted
Partner pursuant to the terms and conditions of Section 8.8
hereof without requiring the unanimous written consent of the
Common Partners so long as the other conditions to becoming a
Substituted Partner contained in Section 8.8(b) have been
satisfied by such successor.
(d) The General Partner and Schenkel may pledge and hypothecate
such Partners' interest in the Partnership pursuant to the
terms of that certain Credit Agreement dated as of September
4, 1997, among the Partnership, Mid-Am, the lenders that are
parties thereto (the "Lenders") and The Chase Manhattan Bank,
as administrative agent (as amended from time to time, the
"Credit Agreement") and related Loan Documents (as defined in
the Credit Agreement). In addition, in the event the Lenders
under the Credit Agreement shall foreclose upon or sell such
Partners' interests in the Partnership, the Partners, by
execution of this Agreement, hereby waive the restrictions on
transfer contained in this Article VII and agree that any such
subsequent holder of the interests of the Partners shall
become a Substituted Partner, pursuant to the terms and
conditions of Section 8.8 hereof without requiring the
unanimous written consent of the Common Partners so long as
the other conditions to becoming a Substituted Partner
contained in Section 8.8(b) have been satisfied by such
holder. In the event such Lenders shall foreclose upon or
sell the General Partner's interest in the Partnership, and
the subsequent holder of such interest becomes a Substituted
Partner, the admission of such Person shall be deemed to occur
immediately prior to the transfer and such Person shall
continue the business of the Partnership without dissolution.
Section 7.4 Prohibited Transfers.
(a) Notwithstanding anything to the contrary contained in this
Agreement, unless all of the Common Partners shall consent, no
Partner shall sell, pledge, transfer or assign any portion of
its interest in the Partnership if such sale, pledge, transfer
or assignment:
(i) When added to the total of all other sales, transfers
or assignments of interests in the Partnership within
the preceding twelve (12) months, would result in the
Partnership being considered to have terminated
within the meaning of Code Section 708; or
(ii) Would otherwise cause the Partnership to lose its
status as a partnership for federal income tax
purposes.
(b) Notwithstanding anything to the contrary contained in this
Agreement, neither the Mid-Am Parties shall purchase or accept
a transfer of, nor shall the Partnership repurchase or redeem,
all or any part of the Common Partner Interests, if such
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purchase, transfer, repurchase or redemption would cause the
Mid-Am Parties to own a percentage of voting Common Partner
Interests that is more than 50% of the total Common Partner
Interests in existence at the time of proposed transfer or
purchase.
ARTICLE VIII
VOLUNTARY OR INVOLUNTARY TRANSFER
Section 8.1 Third Party Offers. In the event a Partner receives
a bona fide offer from a third party to purchase such Partner's interest in the
Partnership (a "Third Party Offer"), such Partner (the "Selling Partner") shall
give written notice (the "Third Party Offer Notice") to the Common Partners
identifying the third party and the purchase price, terms and conditions of the
Third Party Offer. For purposes of this Agreement the term "bona fide offer"
shall mean a legally enforceable offer from a Person financially capable of
carrying out its terms, accompanied by a certified or cashier's check for at
least ten percent (10%) of the purchase price.
Section 8.2 Option to Purchase. For ninety (90) days after the
receipt of the Third Party Offer Notice, the Common Partners shall determine
whether or not they desire to purchase the interest which is the subject of the
Third Party Offer (the "Offered Interest"), for the purchase price, and on the
same terms and conditions provided for in the Third Party Offer Notice. If
some or all of the Common Partners elect to purchase the Offered Interest, the
purchasing Common Partners may divide the Offered Interest in any manner upon
which they all agree. In the absence of unanimous agreement, the Offered
Interest shall be divided among the purchasing Common Partners in proportion to
their percentage Common Partner Interests.
Section 8.3 Purchase Price. The purchase of the Offered Interest
shall be on the same terms and conditions set forth in the Third Party Offer
Notice.
Section 8.4 Release from Restriction. If a Partner offers to
sell its interest in the Partnership in connection with a Third Party Offer and
the Common Partners do not elect to purchase such interest, then the Partner
may sell its interest to the bona fide third party who made the Third Party
Offer at a price equal to or greater than the price originally offered to the
Common Partners, provided it is upon the exact terms and conditions originally
contained in the Third Party Offer Notice (except for increases in payments
required to accommodate a greater price), and provided further that such sale
is completed within sixty (60) days after the offer to the Common Partners has
been rejected by all of the Common Partners or expires, whichever first occurs.
Section 8.5 Changed Offer. If a Partner thereafter desires to
sell its interest in the Partnership at a price which is less than the price
originally offered to the Common Partners, or upon different terms or
conditions than those which were contained in the original Third Party Offer
Notice, or at a time which is more than sixty (60) days after the rejection or
expiration of the offer to the Common Partners, such Partner must first reoffer
its interest which is the subject of the Third
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Party Offer to the Common Partners at the price and upon the terms and
conditions which such Partner was willing to accept from the bona fide third
party. The new offer shall be made to the Common Partners in the same manner
and in accordance with the same procedures as provided for in this Article
VIII.
Section 8.6 Form of Offer. Notices of offers and acceptances
shall be made pursuant to the terms and conditions of Section 12.7.
Section 8.7 Option on the Part of Partnership. Upon the
unanimous vote of the Common Partners, other than the Selling Partner, the
Partnership itself may elect to acquire the interest of a Selling Partner
pursuant to the provisions of Sections 8.2 and 8.3, and in such event the
Partnership and not the Common Partners shall acquire the interest of the
Selling Partner.
Section 8.8 Substituted Partner. Any assignee or transferee who
is not now a Partner shall become a Partner only if (a) all of the Common
Partners, other than the Selling Partner, unanimously consent in writing to the
admission of the assignee or transferee as a Partner, (b) such assignee or
transferee agrees: (1) to become a Partner, (2) to execute and acknowledge such
documents and instruments of conveyance in form and substance as may be
necessary in the opinion of counsel to the Partnership to effect such transfer
and to confirm the agreement of the transferee, (3) to be bound by all of the
terms and conditions of this Agreement, as it may be amended from time to time,
and (4) to pay all reasonable expenses connected with such assignee's or
transferee's admission, including reasonable attorneys' fees required for the
preparation of such instruments to effect such admission to the Partnership,
and (c) the provisions of the preceding sections of this Article have been
satisfied. Any transfer or purported transfer of any Partner's Interest shall
be null and void unless made strictly in compliance with the provisions of this
Article. In the event the General Partner transfers its entire interest in the
Partnership and the transferee becomes a Substituted Partner, the admission of
such Person shall be deemed to occur immediately prior to the transfer and such
Person shall continue the business of the Partnership without dissolution. The
transferee of any Partner interest shall be subject to all terms, conditions,
restrictions and obligations of this Agreement. Notwithstanding anything
contained herein to the contrary, any Person who receives a Partner Interest in
a transfer permitted by Section 7.3 shall become a Substituted Partner without
the necessity of satisfying the conditions contained in Section 8.8(a) and (c).
Section 8.9 Rights of Unadmitted Transferees. If the assignee or
transferee of an interest in the Partnership does not become a Substituted
Partner, such assignee or transferee shall only be entitled to the share of
profits, Preferred Return or other compensation by way of income or return of
contributions to which the Partner whose interest is being transferred would
have been entitled to pursuant to this Agreement. The unadmitted Partner shall
have no right to participate in the business or management of the Partnership,
shall have no right to become a Partner, shall, to the extent permitted by
applicable law, have no right to any information or accounting as to the
affairs of the Partnership, shall not be entitled to inspect the books or
records of the Partnership and shall not have any of the rights of a Partner
under the DRULPA or this Agreement.
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Section 8.10 Closing.
(a) Time and Place of Closing. The closing of any purchase and
sale of an interest to be sold pursuant to the provisions of
this Article VIII shall be held at the time and place and in
such manner mutually agreeable to the parties to the purchase.
In the absence of agreement, the closing shall be held at the
principal office of the Partnership sixty (60) days after the
expiration of the last option to purchase under the provisions
of this Article VIII.
(b) Conditions to Closing. The closing of any purchase and sale
of a Partner's interest hereunder is expressly conditioned
upon compliance with all applicable terms and provisions of
this Agreement, including without limitation those specified
in Sections 7.1 and 8.8.
Section 8.11 Put Right.
(a) Put Option. At any time on or after January 1, 2003, Schenkel
or a Family Controlled Entity may elect to dispose of all of
his or its Common Partner Interest (the "Put Interest") at the
Put Price (as defined in subparagraph (c) below) by providing
written notice ( a "Put Notice") to the Partnership and Mid-Am
of such election (the "Put Option"). The Partnership shall
have until the 30th day following the date the Put Notice is
deemed to be delivered within which to notify Schenkel or a
Family Controlled Entity of the election of the Partnership
to purchase the Put Interest at the Put Price. In the event
that the Partnership does not elect to purchase the Put
Interest, then Mid-Am must purchase the Put Interest at the
Put Price. Notwithstanding anything in this Section 8.11(a)
to the contrary, if at any time after the date hereof,
Schenkel should die or become Disabled, Schenkel or the
personal representative of the estate of Schenkel, or if no
personal representative is appointed or no administration is
necessary, then the heirs at law of Schenkel (the "Successor
in Interest") or the Family Controlled Entity that owns the
Common Partner Interest of Schenkel shall provide a Put Notice
to the Partnership and Mid-Am within sixty (60) days of
Schenkel's death or Disability. The Partnership shall have
until the 30th day following the date such Put Notice is
deemed to be delivered within which to notify the Successor in
Interest or the Family Controlled Entity, as applicable, of
the election of the Partnership to purchase the Put Interest
of Schenkel at the Put Price. In the event that the
Partnership does not elect to purchase the Put Interest, then,
subject to the limitations contained in Section 7.4(b), Mid-Am
must purchase the Put Interest at the Put Price. The
provisions of the three immediately-preceding sentences of
this Section 8.11(a) shall apply only in the event of the
death or Disability of Schenkel.
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(b) Put Closing. The closing of the purchase of the Put Interest
(the "Put Closing") shall take place at the offices of the
Partnership on a date not more than sixty (60) days after the
date on which the Put Notice is deemed to have been received
by the Partnership and Mid-Am, or at such other time and place
as Schenkel, the Successor in Interest, the Family Controlled
Entity, the Partnership or Mid-Am, as applicable, may agree
upon (the "Put Closing Date").
(c) Put Price. The price (the "Put Price") that Schenkel, the
Successor in Interest or the Family Controlled Entity shall
receive upon exercise of the Put Option provided for in
Section 8.11(a) shall be calculated as of the date on which
the Put Notice is given (the "Calculation Date") and shall be
the greater of (i) the sum of Six Million Eight Hundred
Thousand Dollars ($6,800,000) if the Put Notice date is on or
before September 4, 2002, and the sum of Ten Million Dollars
($10,000,000) thereafter or (ii) the Formula Put Price, as
hereinafter defined. For purposes of this Agreement, "Formula
Put Price" shall mean a sum equal to the amount obtained by
(A) multiplying six (6) times the average of the Partnership's
EBITDA for the three (3) most recently completed fiscal years
of the Partnership preceding the Calculation Date; (B)
subtracting from the result obtained after completing the
calculation provided for in subparagraph (A) the aggregate on
the Calculation Date of all of the Partnership's interest
bearing debt, all Unreturned Preferred Limited Partner
Balances and all Undistributed Preferred Returns; and (C)
multiplying the result obtained after completing the
calculation provided for in subparagraph (B) by a percentage
determined by dividing the amount of Common Partner Interests
held by Schenkel, the Successor in Interest or the Family
Controlled Entity on the Calculation Date by the total of all
outstanding Common Partner Interests on the Calculation Date.
For purposes of this Agreement, "EBITDA" means for each fiscal
year of the Partnership the sum of the following (all
determined from the audited financial statements of the
Partnership and in accordance with generally accepted
accounting principles consistently applied): (I) the
consolidated net income of the Partnership and its direct
subsidiaries, plus (II) all interest expense of the
Partnership and such subsidiaries, plus (III) all United
States Federal, state, local and foreign income taxes of the
Partnership and such subsidiaries, plus (IV) all depreciation
and amortization of assets (including goodwill and other
intangible assets of the Partnership and such subsidiaries),
in each case of items (II), (III) and (IV) above, to the
extent deducted in determining the consolidated net income of
the Partnership and such subsidiaries for the fiscal year in
question. In other words, the Formula Put Price shall be
determined in accordance with the following formula:
Formula Put Price = [(6 x EBITDA Amount) - D] x PI where
D = Aggregate amount on the Calculation
Date of all of the Partnership's
interest bearing debt, Unreturned
Preferred
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Limited Partner Balances, and
Undistributed Preferred Returns
EBITDA Amount = Average EBITDA of
the Partnership for the three
(3) most recently completed
fiscal years of the
Partnership
PI = The percentage determined by
dividing the amount of Common
Partner Interests held by Schenkel,
the Successor in Interest or the
Family Controlled Entity on the
Calculation Date by the total of all
outstanding Common Partner Interests
on the Calculation Date
(d) Method of Payment. The Put Price shall be payable in cash
unless the parties, with the requisite consent of any secured
lenders of the Partnership, agree otherwise.
(e) Deemed Put Right Exercise for Interest in SFG LLC. Any
exercise of the Put Option contained in this Section 8.11 by
Schenkel, the Successor in Interest or the Family Controlled
Entity shall also be deemed to be an exercise of any Put
Option of such person or entity for his or its ownership
interest in SFG LLC pursuant to the Limited Liability Company
Agreement.
Section 8.12 Call Right.
(a) Call Option. At any time on or after January 1, 2003, the
Partnership and Mid-Am shall each have the right, subject to
the limitations contained in Section 7.4(b), in accordance
with the terms hereof, by notice (the "Call Notice") to
Schenkel or, if applicable, to the Family Controlled Entity
that own Schenkel's Common Partner Interest, to elect to
purchase an amount of Common Partner Interest that is equal to
or less than twenty percent (20%) of the total Common Partner
Interest owned in the aggregate by Schenkel and any Family
Controlled Entity that own Schenkel's Common Partner Interest
(the "Call Option"). If Schenkel's or a Family Controlled
Entity's Common Partner Interest in the Partnership has been
transferred to a third party pursuant to this Article VIII,
the Partnership or Mid-Am shall not have the right, pursuant
to this Section 8.12, to acquire the third party's Common
Partner Interest, even if that third party is a substituted
Common Limited Partner pursuant to Section 8.8.
(b) Call Option in Event of Death or Disability of Schenkel. In
the event of the death or Disability of Schenkel and should
Schenkel, the Successor in Interest or the Family Controlled
Entity fail to provide the Put Notice to the Partnership and
Mid-Am as described in Section 8.11(a), then the Partnership
or Mid-Am shall have the right to call the Put Interest by
notice (the "Call Notice Upon Death or Disability") to
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Schenkel, the Successor in Interest or the Family Controlled
Entity within ninety (90) days of Schenkel's death or
Disability (the "Call Option Upon Death or Disability").
(c) Call Closing. The closing pursuant to this Section 8.12,
whether pursuant to a Call Notice or a Call Notice Upon Death
or Disability, shall take place (i) at the offices of the
Partnership on a date (the "Call Closing Date") not more than
sixty (60) days after the date on which Schenkel or the Family
Controlled Entity received the Call Notice or not more than
thirty (30) days after the date on which Schenkel, the
Successor in Interest or the Family Controlled Entity received
the Call Notice Upon Death or Disability, or (ii) at such
other time and place as Schenkel, the Successor in Interest,
the Family Controlled Entity, the Partnership, or Mid-Am, as
applicable, may agree upon.
(d) Call Price. The price (the "Call Price") that Schenkel, the
Successor in Interest or the Family Controlled Entity shall
receive upon exercise of the Call Option or the Call Option
Upon Death or Disability set forth herein shall be determined
in the same manner for determining the Put Price as provided
for in Section 8.11(c); provided, however, that the Call Price
(i) to be paid upon the exercise of the Call Option shall be
determined by multiplying the Call Price as determined
pursuant to Section 8.11(c) by the percentage interest which
the Partnership or Mid-Am has elected to purchase (up to 20%)
of the Common Partner Interest owned in the aggregate by
Schenkel and any Family Controlled Entity that own Schenkel's
Common Partner Interest and (ii) to be paid upon the exercise
of the Call Option Upon Death shall be equal to the Put Price.
(e) Method of Payment. The Call Price payable pursuant to this
Section 8.12 shall be payable in cash on the Call Closing Date
unless the parties, with the requisite consent of any secured
lenders of the Partnership, agree otherwise.
(f) Deemed Call Option Exercise for Interest in SFG LLC. Any
exercise of the Call Option contained in this Section 8.12 by
the Partnership or Mid-Am shall also be deemed to be an
exercise of any Call Option granted to the Partnership or
Mid-Am pursuant to the Limited Liability Company Agreement for
the same person's or entity's interest in SFG LLC.
Section 8.13 Limitations on Transfers of Interest Having Adverse
Legal Effects. Notwithstanding any other provision of this Article VIII, the
Partners may not make any type of transfer of any part or all of their interest
in the Partnership if, in the opinion of counsel for the Partnership, such
transfer would result in a violation of applicable law, or would jeopardize the
status of the Partnership as a partnership for federal income tax purposes.
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ARTICLE IX
VOTING RIGHTS OF CLASSES OF PARTNERS
Section 9.1 Voting Rights for Common Partner Interests. A Common
Partner Interest, as defined pursuant to Section 2.1 hereto, held by the
General Partner entitles the holder of such interest to vote as a General
Partner on all matters specifically allowed to be voted on by the General
Partner pursuant to the terms of this Agreement and/or the DRULPA. A Common
Partner Interest held by a Common Limited Partner entitles the holder of such
interest to vote as a Limited Partner on all matters specifically required to
be voted on by Limited Partners pursuant to the terms of this Agreement and/or
the DRULPA.
Section 9.2 Voting Rights for Preferred Limited Partner
Interests. A Preferred Limited Partner Interest, as defined pursuant to
Section 2.4 hereto, does not entitle the holder of such interest to vote as a
Partner on any Partnership matter unless specifically authorized by this
Agreement or as required by the DRULPA.
ARTICLE X
FISCAL YEAR; RECORDS; REPORTS
Section 10.1 Fiscal Year. "Fiscal Year", as used in this
Agreement, means the fiscal year of the Partnership, which shall be the period
ending on December 31 of each year.
Section 10.2 Records. The General Partner shall maintain on
behalf of the Partnership all of the following items at the Partnership's
principal office:
(a) A current list of the full name and last known business or
residence address of each Partner together with records
regarding the Capital Contribution or Contributions and the
share in profits and losses of each Partner;
(b) A copy of the certificate of limited partnership of the
Partnership and all certificates of amendment thereto,
together with executed copies of any powers of attorney
pursuant to which any certificate has been executed;
(c) Copies of the Partnership's federal, state and local income
tax or information returns and reports, if any, for the six
most recent taxable years;
(d) Copies of the original Agreement of Limited Partnership, the
Amended and Restated Agreement, this Agreement and all
amendments hereafter;
(e) Financial statements of the Partnership for the six most
recent Fiscal Years; and
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(f) The Partnership's books and records for at least the current
and past three Fiscal Years.
Subject to Section 10.8, the Limited Partners shall have the right to
inspect and examine the Partnership's books and records at reasonable
times for any purpose reasonably related to such Limited Partner's
interest in the Partnership. The books of the Partnership shall be
closed and balanced at the end of each Fiscal Year.
Section 10.3 Annual Statements and Partnership Returns. The
General Partner shall cause to be prepared annual financial statements of the
Partnership's activities including at least an income statement and balance
sheet. Such annual statements shall be transmitted to the Limited Partners
within sixty (60) days of the close of the Fiscal Year of the Partnership. The
General Partner shall cause to be prepared and file all relevant federal, state
and local income tax returns and information statements. The General Partner
shall furnish to each Partner the Partner's Schedule K-1 within sixty (60) days
after the end of each Fiscal Year.
Section 10.4 Adjustment to Basis. In the event of a transfer of
all or part of a Partner's interest in the Partnership by sale or exchange, or
upon the death or dissolution of a Partner, or upon distribution by the
Partnership to a Partner of property of the Partnership, the General Partner,
at the request of any remaining Common Partner, shall cause the Partnership to
elect, pursuant to the provisions of Section 754 of the Code, to adjust the
basis of the property of the Partnership according to Sections 734 or 743 of
the Code. All other elections required or permitted to be made by the
Partnership under the Code shall be made by the General Partner in such manner
as will be most advantageous to the Partners. Each of the Partners will, upon
request, supply the information necessary to properly give effect to such
elections.
Section 10.5 Tax Audits. The General Partner will be treated as
the tax matters partner of the Partnership pursuant to Section 6231(a)(7) of
the Code. Subject to Treasury Regulations adopted under the Code, the General
Partner shall, without the necessity of consent of the Limited Partners, have
discretion in its capacity as tax matters partner to make such decisions and
take such actions, including the institution of legal proceedings and the
determination of the legal forum, as it deems appropriate in such capacity.
Section 10.6 Tax Classification. The Partners hereby intend that
the Partnership be taxed and classified as a partnership for federal and state
income tax purposes. The Partners shall take all steps, and do all acts and
things, including the filing of elections or tax returns with a federal, local,
municipal, state or other governmental body as are or may be reasonably
necessary or appropriate to ensure the Partnership is taxed and classified as a
partnership for federal and state income tax purposes. Unless otherwise
provided in this Agreement, no Partner shall take any action to change the
classification of the Partnership as a partnership for federal and/or state
income tax purposes without the unanimous written consent of all Partners.
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Section 10.7 Confidentiality. Notwithstanding any other provision
of this Agreement, the General Partner may, to the maximum extent permitted by
applicable law, keep confidential from the Limited Partners any information the
disclosure of which the General Partner reasonably believes is not in the best
interest of the Partnership or is adverse to the interest of the Partnership or
which the Partnership or the General Partner is required by law or by an
agreement with any Person to keep confidential.
Section 10.8 Competitively Sensitive Information. The Partners
acknowledge that the General Partner, the Partnership and its Partners will
possess certain non-Public, Competitively Sensitive Information which the
parties reasonably believe in good faith is not in the best interest of the
Partnership and the Partners to disclose to or among Partners or could damage
the Partnership, the Partners or their respective businesses if such
information is not kept confidential. The Partners hereby agree to the
following, which the Partners agree are (x) reasonable standards under the
DRULPA for disclosure of non-Public, Competitively Sensitive Information and
(y) will materially benefit the Partnership and the Partners:
(a) Non-Disclosure of Competitively Sensitive Information. The
General Partner and the Mid-Am Parties shall not, directly or
indirectly, discuss with or provide, disclose, or otherwise
make available to each other any non-Public, Competitively
Sensitive Information relating to Pasteurized Packaged Milk,
and the Mid-Am Parties shall have no right to inspect or copy
non-Public, Competitively Sensitive Information from the
books, records, reports, and accounts of the General Partner
or the Partnership relating to any of the foregoing.
(b) The Mid-Am Parties Right to Information. Notwithstanding
anything contained in Section 10.8(a) above, upon reasonable
notice, the Mid-Am Parties shall be entitled to request,
obtain, and retain copies of:
(i) on a quarterly basis, a true and full explanation
from the General Partner regarding material changes
to the general state of business and financial
condition of the Partnership; so long as such
explanation does not include non-Public,
Competitively Sensitive Information related to
Pasteurized Packaged Milk with respect to the
Partnership;
(ii) promptly after they become available, copies of the
Partnership's federal, state, and local income tax
returns or information statements for each year;
(iii) a list showing the names, addresses, and percentage
ownership interests of each owner of the Partnership;
(iv) monthly financial statements (prepared based on
generally accepted accounting principles), including
a balance sheet, a statement of profits and losses, a
statement of cash flow and any other information
regarding the
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general status or condition of the Mid-Am Parties'
interests in the Partnership;
(v) financial statements and other information as
required by the Mid-Am Parties' creditors (other than
any entity affiliated through ownership with any
Mid-Am Party) for the sole purpose of permitting such
creditors to monitor the Mid-Am Parties' overall
financial condition and/or to enforce any rights they
may have with regards to their credit arrangements
with the Mid-Am Parties; and
(vi) minutes of those portions of meetings of the
Representative Committee of the General Partner at
which the Mid-Am Parties were, or would be permitted
to be, in attendance.
(c) Audit Rights. Unless the Representative Committee of the
General Partner shall determine to the contrary, an
independent public accounting firm, which may be the
accounting firm that prepares audited financial statements for
a Partner, shall prepare audited financial statements for the
Partnership. In the event the Representative Committee of the
General Partner does not require audited financial statements
for the Partnership, upon prior written notice to the General
Partner, for so long as the Mid-Am Parties own an interest in
the Partnership and in the Mid-Am Parties' sole discretion,
the Mid- Am Parties may have conducted by an accounting firm
acting on the Mid-Am Parties' behalf, at the Partnership's
expense, one audit of the financial accounts and records of
the Partnership per calendar year; provided, however, that the
Mid-Am Parties may, for so long as the Mid-Am Parties own an
interest in the Partnership and in the Mid-Am Parties' sole
discretion, cause additional audits to be so conducted in any
given calendar year at its own expense; and further provided,
however, that any such accounting firm performing such audit
shall not provide to the Mid-Am Parties, and the Mid-Am
Parties shall not seek, any Competitively Sensitive
Information with respect to the business and operations of the
Partnership or the industry in which the Partnership operates
that is discovered or otherwise derived in the course of
conducting the audit of the financial accounts and records of
the Partnership.
ARTICLE XI
ARBITRATION
The Partners agree to submit all controversies, claims and matters of
difference to arbitration in Dallas, Texas according to the rules and practices
of the American Arbitration Association from time to time in force. This
submission and agreement to arbitrate shall be specifically enforceable.
Arbitration may proceed in the absence of one party if notice of the proceeding
has been given to such party. The parties agree to abide by all awards
rendered in such proceedings. Such awards
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shall be final and binding on all parties to the extent and in the manner
provided by the state rules of civil procedure. All awards may be filed with
the clerk of one or more courts, state or federal, having jurisdiction over the
party against whom such award is rendered or such party's property, as a basis
of judgment and of the issuance of execution for its collection. No party
shall be considered in default hereunder during the pendency of arbitration
proceedings relating to such default.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Counterparts. This Agreement may be executed by the
Partners in various counterparts, all of which shall constitute but one and the
same agreement among the Partners, and shall be binding upon the respective
Partners.
Section 12.2 Further Assurances. The Partners will execute,
acknowledge, and deliver such further instruments and do such further acts and
things as may be required to carry out the intent and purpose of this
Agreement.
Section 12.3 Captions. Captions contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit, extend,
or describe the scope of intent of this Agreement or of any of its provisions.
Section 12.4 Binding Effect. Except to the extent required under
the DRULPA and except for fees, rights to reimbursement and indemnity, and
other compensation, none of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditor, as such, of the Partnership. The
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the successors and permitted assigns, if any, of the respective
Partners, except as otherwise provided in this Agreement, except the Provisions
Requiring Prior Notice to Amend shall not apply to any successor or permitted
assigns of the Mid-Am Parties so long as the successor or permitted assignee
is not a Mid-Am Party or an affiliate of a Mid-Am Party.
Section 12.5 Severability. If one or more of the provisions of
this Agreement or any application of any such provision shall be invalid,
illegal, or unenforceable in any respect, the validity, legality, and
enforceability of any other provisions contained in this Agreement, and any
other application of any such provision having any such invalid, illegal, or
unenforceable application, shall not in any way be affected or impaired because
of such invalidity, illegality, or unenforceability, and such other provisions
shall be interpreted as being consistent with each other and with the omission
of such invalid, illegal, or unenforceable provision or application to the
extent possible.
Section 12.6 Integration. This Agreement constitutes the entire
agreement among the parties pertaining to the subject matter of this Agreement
and supersedes all prior and
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contemporaneous agreements and understandings of the parties in connection with
this Agreement. No prior, contemporaneous, or future covenant, representation
or condition not expressed in this Agreement or in an amendment to this
Agreement in accordance with Section 12.9 shall affect or be effective to
interpret, change or restrict the express provisions of this Agreement.
Section 12.7 Notices. Except as otherwise specifically provided
in this Agreement, all notices or communications required or permitted
hereunder shall be in writing and shall be deemed to be delivered when (1)
hand- delivered, (2) when deposited in the United States mail, postage prepaid,
registered or certified U.S. mail, return receipt requested, or with a
reputable overnight delivery service, and addressed, in each such case, to the
address set forth in this Agreement for such Partner or Partnership or the
addresses as changed pursuant to the requirements of this Section, or (3) if
telexed or telecopied, to the telex or telecopier number given to the General
Partner by written notice by such Partner or Partnership or to such other
number as such Partner or Partnership may have subsequently provided in writing
pursuant to this Section.
Section 12.8 References. All references in this Agreement to any
numbered Articles or Sections are, unless otherwise indicated, references to
the Articles or Sections, as the case may be, of this Agreement which are so
numbered, as such may be amended. All references to numbered Exhibits are
references to the Exhibits so numbered which are appended to this Agreement, as
such Exhibits may be amended from time to time. Such references to Exhibits
are to be construed as incorporating by reference the contents of each Exhibit
to which such reference is made, as though such contents were set out in full
at the place in this Agreement where such reference is made.
Section 12.9 Amendments.
(a) Subject to Section 9.2, this Agreement may be amended only
with the unanimous written consent of the Common Partners.
(b) The Provisions Requiring Prior Notice to Amend shall not be
modified without 60 days prior written notice to the DOJ,
unless the DOJ shall consent to a shorter period. The
Provisions Requiring Prior Notice to Amend shall terminate if
the Mid-Am Parties shall cease to have any financial interest
in the General Partner or the Partnership.
Section 12.10 Execution of Agreement Constitutes Consent. By
executing this Agreement, Mid-Am consents to the transfer of the Partnership
Interests previously owned by Meyer to Schenkel and waives any rights it may
have under Article VIII to purchase such interest. Mid-Am also consents to the
amendment and restatement of the designation with respect to the Original
Series A Preferred Interests contained in the Exhibit 2 to this Agreement.
Each of Schenkel and Mid-Am agree that Mid-Am Capital shall be admitted as an
additional Partner, and Mid-Am, as the holder of the Series A Preferred
Interests, consents to the issuance of the Series B, C, D and E Preferred
Interests described in this Agreement.
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<PAGE> 44
Section 12.11 Joinder of Meyer for Limited Purposes. Subject to
the rights granted to Meyer pursuant to Sections 5.2, 5.6 and 5.7 of this
Agreement, Meyer joins in the execution of this Agreement for the limited
purpose of acknowledging that, as of the effective time of the Ownership
Change, Meyer not longer has a Partnership Interest in the Partnership.
Section 12.12 Sequence of Events. The Partnership and the Partners
intend that the Partnership Transactions shall occur on or after the Effective
Time of this Agreement in the following order and at the following times:
(a) This Agreement shall become effective, including the amendment
and restatement of the Original Series A Preferred Interests
designation and the designation of the new Series B, C, D, and
E Preferred Interests, at the Effective Time;
(b) The Special Distributions described in Section 5.6 shall be
made to Schenkel, Meyer and Mid-Am at any time after the
Effective Time but before the Ownership Change;
(c) The Ownership Change shall occur at any time after the Special
Distributions are made but before the Meadow Gold Dairies
Contribution is made;
(d) Schenkel and Mid-Am shall contribute certain Series E
Preferred Interests in exchange for Common Limited Partner
Interests as set forth in Section 2.2(e) at any time after the
Ownership Change shall have occurred, but before the Meadow
Gold Dairies Contribution is made;
(e) Mid-Am shall make the Meadow Gold Dairies Contribution in
exchange for the issuance of the Series B Preferred Interests
at any time after the recontribution of the Common Limited
Partner Interests as set forth in 12.12 (d) above; and
(f) Mid-Am Capital shall contribute $45 million in exchange for
the Series C Preferred Interests and the Series D Preferred
Interests at any time after the Ownership Change.
ARTICLE XIII
DEFINED TERMS
Section 13.1 General Definitions. Capitalized terms that are used
in this Agreement and are defined in the Appendix shall have the meanings set
forth for such terms in the Appendix. Terms that are defined in Section 13.2
shall have the meanings set forth in such terms in Section 13.2. The following
terms, when used in this Agreement, have the following meanings, unless
otherwise expressly indicated:
"Additional Preferred Limited Partner Interest" means the interests in
the Partnership described in Section 2.4(g) hereto.
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<PAGE> 45
"Affiliate" means any Person directly or indirectly controlling,
controlled by, or under common control with the Person in question; if
the Person in question is a corporation, any executive officer or
director of the Person in question or of any corporation directly or
indirectly controlling the Person in question. As used in this
definition of "Affiliate, " the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction
of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
"Agreement" means this Second Amended and Restated Agreement of
Limited Partnership of the Partnership, with the Appendix and Exhibits
which are appended to and referred to in this Agreement, as such
Agreement, Appendix and Exhibits may be amended at any time and from
time to time.
"Amended and Restated Agreement" means the Amended and Restated
Agreement of Limited Partnership of the Partnership dated January 1,
1997, as amended.
"Amendment" means the First Amendment dated February 7, 1997 to the
Amended and Restated Agreement of Limited Partnership of the
Partnership dated January 1, 1997, as amended.
"Assumed Indebtedness" shall have the meaning set forth in Section
2.5.
"Barbe's" means Barbe's Dairy, Inc.
"Barbe's Contribution" shall have the meaning set forth in the
Recitals.
"Board of Representatives" means the Board of Representatives created
pursuant to the terms of the Limited Liability Company Agreement.
"Calculation Date" shall have the meaning set forth in Section
8.11(c).
"Call Closing Date" shall have the meaning set forth in Section
8.12(c).
"Call Notice" shall have the meaning set forth in Section 8.12(a).
"Call Notice Upon Death or Disability" shall have the meaning set
forth in Section 8.12(b).
"Call Option" shall have the meaning set forth in Section 8.12(a).
"Call Option Upon Death or Disability" shall have the meaning set
forth in Section 8.12(b).
"Call Price" shall have the meaning set forth in Section 8.12(d).
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<PAGE> 46
"Capital Account" shall have the meaning set forth in Section A.3 of
the Appendix hereto.
"Capital Contribution" means, for each Partner, the sum of (a) such
Partner's Initial Capital Contribution, plus (b) such Partner's
Contribution to Capital, plus (c) such Partner's Preferred Limited
Partner Contributions, plus (d) such Partner's Additional Preferred
Limited Partner Contributions. "Initial Capital Contribution" and
"Contribution to Capital" means, for each Partner, the sum of cash and
the fair market value of property contributed by a Partner pursuant to
this Agreement, the Amended and Restated Agreement, the Original
Limited Partnership Agreement or any other agreement to obtain the
interest of such Partner in the Partnership. "Preferred Limited
Partner Contributions" means, for each Partner, the sum of cash and
the fair market value of property (as determined by agreement of the
Partners as of the date of contribution), if any, that is contributed
(or under Sections 5.6 or 5.7 is deemed to be contributed) to the
Partnership by such Partner for a Preferred Limited Partner Interest
pursuant to Section 2.4 hereof, and, when used with reference to a
particular series of Preferred Limited Partner Interest, means a
Preferred Limited Partner Contribution for such series, pursuant to
this Agreement, the Amended and Restated Agreement, the Original
Limited Partnership Agreement or any other agreement to obtain the
interest of such Partner in the Partnership. For example, "Series B
Preferred Limited Partner Contribution" means a Preferred Limited
Partner Contribution made to the Partnership for a Series B Preferred
Limited Partner Interest. The stated amount of Preferred Limited
Partner Interests issued in payment of Preferred Return shall not
constitute a Capital Contribution.
"Code" means the United States Internal Revenue Code of 1986, as
amended (or any successor thereto).
"Common Partner Interest" means the interest in the Partnership
defined in Sections 2.1 and 2.2 hereto.
"Common Partners" means the General Partner and all Common Limited
Partners.
"Common Limited Partners" means Pete Schenkel and Mid-America
Dairymen, Inc. individually, or collectively, as the context requires,
to the extent each owns a Common Partner Interest in the Partnership,
and any parties subsequently admitted to the Partnership as Common
Limited Partners pursuant to the provisions of this Agreement.
"Credit Agreement" shall have the meaning set forth in Section 7.3(d).
"Difcal" means Difcal Corporation.
"Disability" means the inability of Schenkel because of any physical
or emotional illness to perform his duties as the President and Chief
Executive Officer of the Partnership or the General Partner for more
than 30 hours per week.
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<PAGE> 47
"DRULPA" means the Delaware Revised Uniform Limited Partnership Act,
as amended from time to time.
"EBITDA" shall have the meaning set forth in Section 8.11(c).
"Eligible Partners" shall have the meaning set forth in Section
5.2(a)(i)(F).
"Effective Time" shall have the meaning set forth in the first
paragraph of this Agreement.
"Entity" means any business corporation, partnership, limited
liability company, unincorporated association, firm, organization,
sole proprietorship or any other business entity having one or more
leaders or managerial figures.
"Family Controlled Entity" has the meaning set forth in Section 7.3.
"Fiscal Year" has the meaning set forth in Section 10.1.
"Flow-Through Owner" shall have the meaning set forth in Section
5.2(a)(i)(F).
"Formula Put Price" shall have the meaning set forth in Section
8.11(c).
"General Partner" means SFG LLC, in its capacity as a general partner
of the Partnership.
"Income Taxes" shall have the meaning set forth in Section
5.2(a)(i)(F).
"Indemnified Parties" shall have the meaning set forth in Section
3.5(a).
"Lenders" shall have the meaning set forth in Section 7.3(d).
"Limited Liability Company Agreement" means the Second Amended and
Restated Limited Liability Company Agreement dated of even date
herewith of SFG LLC, as amended from time to time.
"Limited Partner" means any partner other than a General Partner, in
its capacity as a limited partner of the Partnership.
"Meadow Gold Dairies Contribution" shall have the meaning set forth in
the Recitals.
"Meyer" means Allen A. Meyer.
"Mid-Am" means Mid-America Dairymen, Inc., a Kansas cooperative
association.
"Mid-Am Capital" means Mid-Am Capital, L.L.C.
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<PAGE> 48
"Mid-Am Capital Contribution Agreement" shall have the meaning set
forth in Section 2.2(b).
"Mid-Am Contribution Agreement" shall have the meaning set forth in
Section 2.2(c).
"Net Operating Cash Flow" shall have the meaning set forth in Section
5.3.
"Offered Interest" shall have the meaning set forth in Section 8.2.
"Original Limited Partnership Agreement" means that certain Limited
Partnership Agreement of the Partnership dated December 20, 1994,
executed by SFG LLC and SFG, Inc.
"Original Partnership" means Southern Foods Group, L.P., a Delaware
limited partnership.
"Original Series A Preferred Interests" shall have the meaning set
forth in the Recitals.
"Ownership Change" shall have the meaning set forth in the Recitals.
"Partners" means the General Partner and the Limited Partners
individually or collectively, as the context requires.
"Partnership" means Southern Foods Group, L.P., a Delaware limited
partnership.
"Partnership Assets" means all assets and property of the Partnership
of any and every kind.
"Partnership Transactions" shall have the meaning set forth in the
Recitals.
"Partnership Interest" means the interest of a Partner in the
Partnership.
"Permitted Transfers" shall have the meaning set forth in Section 7.3.
"Person" shall have the meaning given to that term in the DRULPA.
"Preferred Return" means the return designated for each series of
Preferred Limited Partner Interests established pursuant to Section
2.4 of this Agreement.
"Preferred Limited Partner" means a Limited Partner to the extent that
such Partner holds a Preferred Limited Partner Interest.
"Preferred Limited Partner Interest" means the classes of Preferred
Partnership Interests defined pursuant to Section 2.4 hereto.
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<PAGE> 49
"Put Closing" shall have the meaning set forth in Section 8.11(b).
"Put Closing Date" shall have the meaning set forth in Section
8.11(b).
"Put Interest" shall have the meaning set forth in Section 8.11(a).
"Put Notice" shall have the meaning set forth in Section 8.11(a).
"Put Option" shall have the meaning set forth in Section 8.11(a).
"Put Price" shall have the meaning set forth in Section 8.11(c).
"Required Distribution Amount" shall have the meaning set forth in
Section 5.2(a)(i).
"Schenkel" means Pete Schenkel.
"Selling Partner" means a Partner who sells its interest in the
Partnership pursuant to the terms of Article VIII.
"Series A Preferred Interests" shall mean the series of Preferred
Interests designated in Section 2.4(a).
"Series B Preferred Interests" shall mean the series of Preferred
Interests designated in Section 2.4(b).
"Series C Preferred Interests" shall mean the series of Preferred
Interests designated in Section 2.4(c).
"Series D Preferred Interests" shall mean the series of Preferred
Interests designated in Section 2.4(d).
"Series E Preferred Interests" shall mean the series of Preferred
Interests designated in Section 2.4(e).
"SFG, Inc." means Southern Foods Group, Inc., a Delaware corporation.
"SFG LLC" means SFG Management Limited Liability Company, a Delaware
limited liability company.
"Special Distributions" shall have the meaning set forth in Section
5.6.
"Substituted Partner" means any transferee or assignee of a Partner's
Partnership Interest who is then admitted to the Partnership as a
Partner pursuant to Section 8.8.
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<PAGE> 50
"Successor in Interest" shall have the meaning set forth in Section
8.11(a).
"Terminating Capital Transaction" means a sale or other permanent
disposition (including casualty or condemnation) of all or
substantially all of the assets of the Partnership, or a dissolution
of the Partnership, or both.
"Third Party Offer" shall have the meaning set forth in Section 8.1.
"Third Party Offer Notice" shall have the meaning set forth in Section
8.1.
"Total Capital Contributions" means the total of the Capital
Contributions of all Partners.
"Total Taxable Income" shall have the meaning set forth in Section
5.2(a)(i).
"Undistributed Preferred Return" shall have the meaning set forth in
Section 5.2(a)(ii).
"Unreturned Preferred Limited Partner Balance" means the aggregate
amount of all Preferred Limited Partner Contributions by a Partner,
less distributions to such Partner with respect to such Preferred
Limited Partner Interests which are not distributions of Preferred
Return.
Section 13.2 Definitions for Provisions Requiring Prior Notice to
Amend. The following terms used in the Provisions Requiring Prior Notice to
Amend (as defined below) shall have the following meanings:
"Competitively Sensitive Information" means information that is not
Public and could be used by a competitor or supplier to make
production, pricing or marketing decisions, including but not limited
to information relating to costs, capacity, distribution, marketing,
supply, market territories, customer relationships, the terms of
dealing with any particular customer (including the identity of
individual customers and the quantity sold to any particular
customer), and current and future prices, including discounts,
slotting allowances, bids, or price lists. Information is
presumptively not "Competitively Sensitive" if the information is
aggregated on an entity-wide basis so long as the entity operates more
than three (3) dairy processing plants or if the information is based
on data that is more than six (6) months old. Information that would
not be considered "Competitively Sensitive" includes, but is not
limited to, aggregate entity-wide financial information (including
monthly profit and loss statements, balance sheets, and statements of
cash flow), aggregate customer information, and aggregate price
information (including information on price trends).
"DOJ" means the United States Department of Justice.
"Independent Decisionmaker" means an individual, not an officer,
director, employee, or agent of the Mid-Am Parties or the General
Partner, the Partnership or any Partner, and who
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<PAGE> 51
is otherwise independent from the Mid-Am Parties, experienced in
accounting and financial matters, that is designated by the Board of
Representatives of the General Partner to perform the assigned
functions set forth in the Provisions Requiring Prior Notice to Amend.
"Mid-Am Parties" shall mean Mid-America Dairymen, Inc., its members,
directors, officers, employees, subsidiaries, Affiliates (other than
the Partnership, the General Partner and Schenkel and any other Person
affiliated with Mid-Am only as a result of their relationship with the
Partnership, the General Partner or Schenkel) and successors, and, so
long as it is owned in whole or in part by Mid-American Dairymen,
Inc., Mid- Am Capital, L.L.C., its subsidiaries, directors, officers,
and/or employees; provided, however, that with respect to matters that
relate to actions by the Partners, such term shall mean only those
Mid-Am Parties that are Partners.
"Packaged Pasteurized Milk" means pasteurized milk in final package
form for beverage use as currently defined in 21 C.F.R. Section
131.110(a).
"Provisions Requiring Prior Notice to Amend" means the provisions of
Sections 6.1(b), 7.4(b), 10.8, 12.9(b) and 13.2.
"Public" information is information that has been quoted in a
publication other than one authored by the General Partner, if it has
been disclosed to the public (other than a customer or supplier of the
Partnership by the General Partner) prior to disclosure to the Mid-Am
Parties, or is disclosed to the public (other than a customer or
supplier of the Partnership by the General Partner) at the same time
it is disclosed to the Mid-Am Parties.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of this 3rd day of September, 1997, to be effective as of the Effective Time.
GENERAL PARTNER:
SFG MANAGEMENT LIMITED LIABILITY
COMPANY
By:/s/ PETE SCHENKEL
------------------------------
Its:
-------------------------
COMMON LIMITED PARTNERS:
By:/s/ PETE SCHENKEL
------------------------------
Pete Schenkel
MID-AMERICA DAIRYMEN, INC.
By: /s/ GERALD L. BOS
------------------------------
Its: Vice President
-------------------------
<PAGE> 53
PREFERRED LIMITED PARTNERS:
MID-AMERICA DAIRYMEN, INC.
By: /s/ GERALD L. BOS
------------------------------
Its: Vice President
-------------------------
MID-AM CAPITAL, L.L.C
By: /s/ GERALD L. BOS
------------------------------
Its:
-------------------------
Joining for the limited purpose specified in
Section 12.11 of the Agreement
/s/ ALLEN A. MEYER
- ------------------------------
ALLEN A. MEYER
- 48 -
<PAGE> 54
EXHIBIT 1
PARTNERS, COMMON PARTNER INTERESTS AND
PREFERRED LIMITED PARTNER INTERESTS
AS OF THE DATE OF THE SECOND AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
SOUTHERN FOODS GROUP, L.P.
<TABLE>
<CAPTION>
Common
Partner
Name and Addresses of: Interests
- ----------------------- ---------
<S> <C>
General Partner
---------------
SFG Management Limited Liability Company
3114 South Haskell 1%
Dallas, Texas 75223
Common Limited Partners
-----------------------
Pete Schenkel
3114 South Haskell 49.50%
Dallas, Texas 75223
Mid-America Dairymen, Inc.
3253 East Chestnut Expressway 49.50%
Springfield, MO 65802
Stated Amount of
Preferred Limited
Preferred Limited Partners Partner Interests
-------------------------- -----------------
Mid-America Dairymen, Inc. Series A - $84,947,000(1)
3253 East Chestnut Expressway Series B - $90,000,000
Springfield, MO 65802 Series E - $ 1,800,000(2)
Mid-Am Capital, L.L.C. Series C - $15,000,000
3253 East Chestnut Expressway Series D - $30,000,000
Springfield, MO 65802
</TABLE>
__________________________________
(1) Plus the amount of all Undistributed Preferred Returns
on such Preferred Limited Partner Interests as of June 30,
1997.
(2 ) Does not include the Series E Preferred Interests
distributed to Mid-Am and Schenkel and recontributed by them
to the Partnership pursuant to Section 2.2(e).
EXHIBIT 1 - Solo Page
<PAGE> 55
EXHIBIT 2
AMENDED AND RESTATED DESIGNATION OF
SERIES A 10% PAYMENT-IN-KIND PREFERRED LIMITED PARTNER INTERESTS
This Exhibit 2 constitutes an amendment and a restatement of a
designation of a series of Preferred Interests pursuant to Section 2.4 of the
Second Amended and Restated Agreement of Limited Partnership (the "Agreement").
This designation amends and restates the designation established in Appendix A
to the Amended and Restated Agreement for the issuance of Series A Preferred
Capital Interests of the Partnership on the terms set forth below. The defined
terms used but not defined in this Exhibit 2 shall have the meaning ascribed
thereto in the Agreement.
1. Designation. Effective January 1, 1997, the Partnership
designates and authorizes the issuance of Series A 10% Payment-in-Kind
Preferred Limited Partner Interests ("Series A Preferred Interests") previously
entitled the "Series A Preferred Capital Interests". Series A Preferred
Interests may not be issued by the Partnership in excess of an original stated
amount of $84,947,000, plus the amount of all Undistributed Preferred Returns
as of June 30, 1997, except that an unlimited stated amount of Series A
Preferred Interests may be issued by the Partnership in payment of Preferred
Returns in accordance with Section 4.
2. Ranking. So long as Series A Preferred Interests are
outstanding the Partnership will not issue any securities or interests ranking,
as to participation in the profits or assets of the Partnership, senior to the
Series A Preferred Interests other than in accordance with the Agreement and
with the unanimous written consent of all holders of Series A Preferred
Interests. The issuance of securities or interests ranking senior to the
Series A Preferred Interests shall be deemed to adversely affect the rights of
the Series A Preferred Interests under the Agreement. The Series A Preferred
Interests shall rank pari passu with the Series B, C, D and E Preferred
Interests and any other series that ranks pari passu with the Series A
Preferred Interests; provided, however, the Preferred Return on the Series D
Preferred Interests may, under certain conditions, be paid in cash.
3. Allocation of Net Profits. The Series A Preferred Interests
shall be entitled to receive an allocation of Net Profits, for purposes of
Section A.4.1(b) of the Appendix, equal to a preferred return (the "Preferred
Return") on the Series A Preferred Interests in an amount equal to the lesser
of (i) Allocated Net Profits, as hereinafter defined, or (ii) ten percent (10%)
per annum determined on the basis of a year of 365 or 366 days, as the case may
be, for the actual number of days occurring in the period for which the
Preferred Return is being determined, of the average daily balance of the
Unreturned Preferred Limited Partner Balance outstanding, if any, from time to
time during the period to which the Preferred Return relates, commencing on the
date on which the Series A Preferred Limited Partner Contribution was made by
the contributing Preferred Limited Partner. The Preferred Return shall be
calculated for each six month period as of June 30 and December 31. The
Preferred Return shall be treated as a priority return to the holders of the
Series A Preferred Interests and shall not constitute a guaranteed payment
under Section 707(c) of the Code. "Allocated Net Profits" means Net Profits as
allocated under Section A.4.1(a)(i) of the Appendix to the Series A Preferred
Interests held by a Preferred Limited Partner.
EXHIBIT 2 - Page 1
<PAGE> 56
4. Payment of Preferred Return. Except as provided in Sections 6
and 9, the Partnership shall not pay the Preferred Return on Series A Preferred
Interests in cash, but such Preferred Return shall be paid by the issuance of
additional Series A Preferred Interests in a stated amount equal to the
Preferred Return for the semi-annual period. Such Preferred Return shall be
paid each June 30 and December 31. The Series A Preferred Interests issued in
payment of the Preferred Return shall be entitled to receive a Preferred Return
from the date of their issuance. Solely for purposes of determining such
Preferred Return, the stated amount of any Series A Preferred Interests
previously issued in payment of Preferred Return shall be considered as a
Series A Preferred Limited Partner Contribution made at the time such Series A
Preferred Interests were issued in payment of Preferred Return.
5. Subordination. The Series A Preferred Interests shall be
subordinated in right of payment to all indebtedness of the Partnership.
6. Payment Only Upon Dissolution. Except for the Optional
Redemption provided for in Section 9, the Series A Preferred Interests,
together with all accrued but unissued Preferred Returns, are payable in cash
only upon dissolution of the Partnership.
7. Preference on Liquidation. Upon dissolution of the
Partnership, the Series A Preferred Interests shall have the priority
established in Section 6.2 of the Agreement and shall be pari passu with the
Series B, C, D and E Preferred Interests and any other series that ranks pari
passu with the Series A Preferred Interests.
8. Voting Rights. No holder of Series A Preferred Interests
shall have voting rights or any right to participate in the management of the
Partnership by reason of holding Series A Preferred Interests.
9. Optional Redemption. Subject to the terms and provisions of
any financing arrangements set forth in any agreement to which the Partnership
is a party, the Series A Preferred Interests are redeemable in cash, at the
option of the Partnership, in whole or in part from time to time, at the Call
Price (as defined below).
(a) Redemption Price. The redemption price for
the Series A Preferred Interests (the "Call Price") shall be
the stated amount of the Series A Preferred Interests plus all
accrued but unissued Preferred Returns.
(b) Redemption Procedure.
(i) Notice of any redemption pursuant to
this Section 9 (a "Call Notice") of Series A Preferred
Interests will be given by the Partnership by mail to each
record holder to be redeemed not fewer than 30 nor more than
60 days prior to the date fixed for redemption thereof. For
purposes of the calculation of the date of redemption and the
dates on which the Call Notice is given, a Call Notice shall
be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, to such holders of
Series A Preferred Interests. Each Call Notice shall be
EXHIBIT 2 - Page 2
<PAGE> 57
addressed to such holders of Series A Preferred Interests at
the address of the holder appearing in the books and records
of the Partnership. No defect in the Call Notice or in the
mailing thereof or publication of its contents shall affect
the validity of the redemption proceedings.
(ii) In the event that fewer than all the
outstanding Series A Preferred Interests are to be redeemed,
the Series A Preferred Interests to be redeemed will be
selected at the Partnership's discretion.
(iii) If the Partnership gives a Call
Notice in respect of Series A Preferred Interests, then upon
the date fixed for redemption of the Series A Preferred
Interests, all rights of the holders of the Series A Preferred
Interests so called for redemption will cease, except the
right of the holders of such securities to receive the Call
Price. In the event that any date fixed for redemption of
Series A Preferred Interests is not a business day, then
payment of the Call Price payable on such date will be made on
the next succeeding day which is a business day (and without
any interest or other payment in respect of any such delay),
except that, if such business day falls in the next calendar
year, such payment will be made on the immediately preceding
business day.
10. Effective Date and Transition. The amendment and restatement
of the designation of the Original Series A Preferred Interests shall be
effective as of 3:00 p.m. on September 3, 1997 (the "Effective Time"). With
respect to any Undistributed Preferred Return due with respect to the Series A
Preferred Interests, on or before June 30, 1997, such Undistributed Preferred
Return shall be paid in accordance with the amended and restated terms set
forth herein, and with respect to any Preferred Return due with respect to the
Series A Preferred Interests on or after June 30, 1997, such Preferred Return
shall be calculated and paid in accordance with the amended and restated terms
set forth herein, in each case by issuing additional Series A Preferred
Interests in a stated amount equal to the amount of such Preferred Return not
previously paid in cash.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
EXHIBIT 2 - Page 3
<PAGE> 58
EXHIBIT 3
DESIGNATION OF
SERIES B 10% PAYMENT-IN-KIND PREFERRED LIMITED PARTNER INTERESTS
This Exhibit 3 constitutes a designation in accordance with Section
2.4 of the Second Amended and Restated Agreement of Limited Partnership (the
"Agreement"). This designation authorizes the issuance of Series B 10%
Payment- in-Kind Preferred Limited Partner Interests of the Partnership under
the terms set forth below. The defined terms used but not defined in this
Exhibit 3 shall have the meaning ascribed thereto in the Agreement.
1. Designation. The Partnership hereby designates and authorizes
the issuance of Series B 10% Payment-In- Kind Preferred Limited Partner
Interests ("Series B Preferred Interests"). Series B Preferred Interests may
not be issued by the Partnership in excess of an original stated amount of
$90,000,000, except that an unlimited stated amount of Series B Preferred
Interests may be issued by the Partnership in payment of Preferred Returns in
accordance with Section 4.
2. Ranking. So long as Series B Preferred Interests are
outstanding the Partnership will not issue any securities or interests ranking,
as to participation in the profits or assets of the Partnership, senior to the
Series B Preferred Interests other than in accordance with the Agreement and
with the unanimous written consent of all holders of Series B Preferred
Interests. The issuance of securities or interests ranking senior to the
Series B Preferred Interests shall be deemed to adversely affect the rights of
the Series B Preferred Interests under the Agreement. The Series B Preferred
Interests shall rank pari passu with the Series A, C, D and E Preferred
Interests and any other series that ranks pari passu with the Series B
Preferred Interests; provided, however, the Preferred Return on the Series D
Preferred Interests may, under certain conditions, be paid in cash prior to
dissolution of the Partnership.
3. Allocation of Net Profits. The Series B Preferred Interests
shall be entitled to receive an allocation of Net Profits, for purposes of
Section A.4.1(b) of the Appendix, equal to a preferred return (the "Preferred
Return") on the Series B Preferred Interests in an amount equal to the lesser
of (i) Allocated Net Profits, as hereinafter defined, or (ii) ten percent (10%)
per annum determined on the basis of a year of 365 or 366 days, as the case may
be, for the actual number of days occurring in the period for which the
Preferred Return is being determined, of the average daily balance the
Unreturned Preferred Limited Partner Balance outstanding, if any, from time to
time during the period to which the Preferred Return relates, commencing on the
date on which the Series B Preferred Limited Partner Contribution is made by
the contributing Preferred Limited Partner. The Preferred Return shall be
calculated for each six month period as of June 30 and December 31. The
Preferred Return shall be treated as a priority return to the holders of the
Series B Preferred Interests and shall not constitute a guaranteed payment
under Section 707(c) of the Code. "Allocated Net Profits" means Net Profits as
allocated under Section A.4.1(a)(i) of the Appendix to the Series B Preferred
Interests held by a Preferred Limited Partner.
EXHIBIT 3 - Page 1
<PAGE> 59
4. Payment of Preferred Return. Except as provided in Sections 6
and 9, the Partnership shall not pay the Preferred Return on Series B Preferred
Interests in cash, but such Preferred Return shall be paid in additional Series
B Preferred Interests in a stated amount equal to the Preferred Return for the
semi-annual period. Such Preferred Return shall be paid each June 30 and
December 31. The Series B Preferred Interests issued in payment of the
Preferred Return shall be entitled to receive a Preferred Return from the date
of their issuance. Solely for purposes of determining such Preferred Return,
the stated amount of any Series B Preferred Interests previously issued in
payment of Preferred Return shall be considered as a Series B Preferred Limited
Partner Contribution made at the time such Series B Preferred Interests were
issued in payment of Preferred Return.
5. Subordination. The Series B Preferred Interests shall be
subordinated in right of payment to all indebtedness of the Partnership.
6. Payment Only Upon Dissolution. Except for the Optional
Redemption provided for in Section 9, the Series B Preferred Interests,
together with all accrued but unissued Preferred Returns, are payable in cash
only upon dissolution of the Partnership.
7. Preference on Liquidation. Upon dissolution of the
Partnership, the Series B Preferred Interests shall have the priority
established in Section 6.2 of the Agreement and shall be pari passu with the
Series A, C, D and E Preferred Interests and any other series that ranks pari
passu with the Series B Preferred Interests.
8. Voting Rights. No holder of Series B Preferred Interests
shall have voting rights or any right to participate in the management of the
Partnership by reason of holding Series B Preferred Interests.
9. Optional Redemption. Subject to the terms and provisions of
any financing arrangements set forth in any agreement to which the Partnership
is a party, the Series B Preferred Interests are redeemable in cash, at the
option of the Partnership, in whole or in part from time to time, at the Call
Price (as defined below).
(a) Redemption Price. The redemption price for
the Series B Preferred Interests (the "Call Price") shall be
the stated amount of the Series B Preferred Interests plus all
accrued but unissued Preferred Returns.
(b) Redemption Procedure.
(i) Notice of any redemption pursuant to
this Section 9 (a "Call Notice") of Series B Preferred
Interests will be given by the Partnership by mail to each
record holder to be redeemed not fewer than 30 nor more than
60 days prior to the date fixed for redemption thereof. For
purposes of the calculation of the date of redemption and the
dates on which the Call Notice is given, a Call Notice shall
be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, to such holders of
Series B Preferred Interests. Each Call Notice shall be
EXHIBIT 3 - Page 2
<PAGE> 60
addressed to such holders of Series B Preferred Interests at
the address of the holder appearing in the books and records
of the Partnership. No defect in the Call Notice or in the
mailing thereof or publication of its contents shall affect
the validity of the redemption proceedings.
(ii) In the event that fewer than all the
outstanding Series B Preferred Interests are to be redeemed,
the Series B Preferred Interests to be redeemed will be
selected at the Partnership's discretion.
(iii) If the Partnership gives a Call
Notice in respect of Series B Preferred Interests, then upon
the date fixed for redemption of the Series B Preferred
Interests, all rights of the holders of the Series B Preferred
Interests so called for redemption will cease, except the
right of the holders of such securities to receive the Call
Price. In the event that any date fixed for redemption of
Series B Preferred Interests is not a business day, then
payment of the Call Price payable on such date will be made on
the next succeeding day which is a business day (and without
any interest or other payment in respect of any such delay),
except that, if such business day falls in the next calendar
year, such payment will be made on the immediately preceding
business day.
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EXHIBIT 3 - Page 3
<PAGE> 61
EXHIBIT 4
DESIGNATION OF
SERIES C 10% PAYMENT-IN-KIND PREFERRED LIMITED PARTNER INTERESTS
This Exhibit 4 constitutes a designation in accordance with Section
2.4 of the Second Amended and Restated Agreement of Limited Partnership (the
"Agreement"). This designation authorizes the issuance of Series C 10%
Preferred Limited Partner Interests of the Partnership under the terms set
forth below. The defined terms used but not defined in this Exhibit 4 shall
have the meaning ascribed thereto in the Agreement.
1. Designation. The Partnership hereby designates and authorizes
the issuance of Series C 10% Payment-in- Kind Preferred Limited Partner
Interests ("Series C Preferred Interests"). Series C Preferred Interests may
not be issued by the Partnership in excess of an original stated amount of
$15,000,000 except that an unlimited stated amount of Series C Preferred
Interests may be issued by the Partnership in payment of Preferred Returns in
accordance with Section 4.
2. Ranking. So long as Series C Preferred Interests are
outstanding the Partnership will not issue any securities or interests ranking,
as to participation in the profits or assets of the Partnership, senior to the
Series C Preferred Interests other than in accordance with the Agreement and
with the unanimous written consent of all holders of Series C Preferred
Interests. The issuance of securities or interests ranking senior to the
Series C Preferred Interests shall be deemed to adversely affect the rights of
the Series C Preferred Interests under the Agreement. The Series C shall rank
pari passu with all Series A, B, D and E Preferred Interests and any other
series that ranks pari passu with the Series C Preferred Interests; provided,
however, the Preferred Return on the Series D Preferred Interests may, under
certain conditions, be paid in cash prior to dissolution of the Partnership.
3. Allocation of Net Profits. The Series C Preferred Interests
shall be entitled to receive an allocation of Net Profits, for purposes of
Section A.4.1(b) of the Appendix, equal to a preferred return (the "Preferred
Return") on the Series C Preferred Interests in an amount equal to the lesser
of (i) Allocated Net Profits, as hereinafter defined, or (ii) ten percent (10%)
per annum determined on the basis of a year of 365 or 366 days, as the case may
be, for the actual number of days occurring in the period for which the
Preferred Return is being determined, of the average daily balance of the
Unreturned Preferred Limited Partner Balance outstanding, if any, from time to
time during the period to which the Preferred Return relates, commencing on the
date on which the Series C Preferred Limited Partner Contribution is made by
the contributing Preferred Limited Partner. The Preferred Return shall be
calculated for each six month period as of June 30 and December 31. The
Preferred Return shall be treated as a priority return to the holders of Series
C Preferred Interests and shall not constitute a guaranteed payment under
Section 707(c) of the Code. "Allocated Net Profits" means Net Profits as
allocated under Section A.4.1(a)(i) of the Appendix to the Series C Preferred
Interests held by a Preferred Limited Partner.
EXHIBIT 4 - Page 1
<PAGE> 62
4. Payment of Preferred Return. Except as provided in Sections 6
and 9, the Partnership shall not pay the Preferred Return on Series C Preferred
Interests in cash, but such Preferred Return shall be paid in additional Series
C Preferred Interests in a stated amount equal to the Preferred Return for the
semi-annual period. Such Preferred Return shall be paid each June 30 and
December 31. The Series C Preferred Interests issued in payment of the
Preferred Return shall be entitled to receive a Preferred Return from the date
of their issuance. Solely for purposes of determining such Preferred Return,
the stated amount of any Series C Preferred Interests previously issued in
payment of Preferred Return shall be considered as a Series C Preferred Limited
Partner Contribution made at the time such Series C Preferred Interests were
issued in payment of Preferred Return.
5. Subordination. The Series C Preferred Interests shall be
subordinated in right of payment to all indebtedness of the Partnership.
6. Payment Only Upon Dissolution. Except for the Optional
Redemption provided for in Section 9, the Series C Preferred Interests,
together with all accrued but unissued Preferred Returns, are payable in cash
only upon dissolution of the Partnership.
7. Preference on Liquidation. Upon dissolution of the
Partnership, the Series C Preferred Interests shall have the priority
established in Section 6.2 of the Agreement and shall be pari passu with the
Series A, B, D and E Preferred Interests and any other series that ranks pari
passu with the Series C Preferred Interests.
8. Voting Rights. No holder of Series C Preferred Interests
shall have voting rights or any right to participate in the management of the
Partnership by reason of holding Series C Preferred Interests.
9. Optional Redemption. Subject to the terms and provisions of
any financing arrangements set forth in any agreement to which the Partnership
is a party, the Series C Preferred Interests are redeemable in cash, at the
option of the Partnership, in whole or in part from time to time, at the Call
Price (as defined below).
(a) Redemption Price. The redemption price for
the Series C Preferred Interests (the "Call Price") shall be
the stated amount of the Series C Preferred Interests plus all
accrued but unissued Preferred Returns.
(b) Redemption Procedure.
(i) Notice of any redemption pursuant to
this Section 9 (a "Call Notice") of Series C Preferred
Interests will be given by the Partnership by mail to each
record holder to be redeemed not fewer than 30 nor more than
60 days prior to the date fixed for redemption thereof. For
purposes of the calculation of the date of redemption and the
dates on which the Call Notice is given, a Call Notice shall
be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, to such holders of
Series C Preferred Interests. Each Call Notice shall be
EXHIBIT 4 - Page 2
<PAGE> 63
addressed to such holders of Series C Preferred Interests at
the address of the holder appearing in the books and records
of the Partnership. No defect in the Call Notice or in the
mailing thereof or publication of its contents shall affect
the validity of the redemption proceedings.
(ii) In the event that fewer than all the
outstanding Series C Preferred Interests are to be redeemed,
the Series C Preferred Interests to be redeemed will be
selected at the Partnership's discretion.
(iii) If the Partnership gives a Call
Notice in respect of Series C Preferred Interests, then upon
the date fixed for redemption of the Series C Preferred
Interests, all rights of the holders of the Series C Preferred
Interests so called for redemption will cease, except the
right of the holders of such securities to receive the Call
Price. In the event that any date fixed for redemption of
Series C Preferred Interests is not a business day, then
payment of the Call Price payable on such date will be made on
the next succeeding day which is a business day (and without
any interest or other payment in respect of any such delay),
except that, if such business day falls in the next calendar
year, such payment will be made on the immediately preceding
business day.
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EXHIBIT 4 - Page 3
<PAGE> 64
EXHIBIT 5
DESIGNATION OF SERIES D 9 1/2% PREFERRED LIMITED PARTNER INTERESTS
This Exhibit 5 constitutes a designation in accordance with Section
2.4 of the Second Amended and Restated Agreement of Limited Partnership (the
"Agreement"). This designation authorizes the issuance of Series D 9 1/2%
Preferred Limited Partner Interests of the Partnership under the terms set
forth below. The defined terms used but not defined in this Exhibit 5 shall
have the meaning ascribed thereto in the Agreement.
1. Designation. The Partnership hereby designates and authorizes
the issuance of Series D 9 1/2% Preferred Limited Partner Interests ("Series D
Preferred Interests"). Series D Preferred Interests may not be issued by the
Partnership in excess of an original stated amount of $30,000,000 except that
an unlimited stated amount of Series D Preferred Interests may be issued by the
Partnership in payment of Preferred Returns in accordance with Section 4.
2. Ranking. So long as Series D Preferred Interests are
outstanding the Partnership will not issue any securities or interests ranking,
as to participation in the profits or assets of the Partnership, senior to the
Series D Preferred Interests other than in accordance with the Agreement and
with the unanimous written consent of all holders of Series D Preferred
Interests. The issuance of securities or interests ranking senior to the
Series D Preferred Interests shall be deemed to adversely affect the rights of
the Series D Preferred Interests under the Agreement. The Series D Preferred
Interests shall rank pari passu with the Series A, B, C and E Preferred
Interests and any other series that ranks pari passu with the Series D
Preferred Interests.
3. Allocation of Net Profits. The Series D Preferred Interests
shall be entitled to receive an allocation of Net Profits, for purposes of
Section A.4.1(b) of the Appendix, equal to a preferred return (the "Preferred
Return") on the Series D Preferred Interests in an amount equal to the lesser
of (i) Allocated Net Profits, as hereinafter defined, or (ii) nine and one-half
percent (9 1/2%) per annum determined on the basis of a year of 365 or 366
days, as the case may be, for the actual number of days occurring in the period
for which the Preferred Return is being determined, of the average daily
balance of Unreturned Preferred Limited Partner Balance outstanding, if any,
from time to time during the period to which the Preferred Return relates
commencing on the date on which the Series D Preferred Limited Partner
Contribution is made by the contributing Preferred Limited Partner. The
Preferred Return shall be calculated for each six month period as of June 30
and December 31. The Preferred Return shall be treated as a priority return to
the holders of Series D Preferred Interests and shall not constitute a
guaranteed payment under Section 707(c) of the Code. "Allocated Net Profits"
means Net Profits as allocated under Section A.4.1(a)(i) of the Appendix to the
Series D Preferred Interests held by a Preferred Limited Partner.
4. Payment of Preferred Return. The Preferred Return for the
Series D Preferred Interests shall be paid in cash on each June 30 and December
31, unless, at the time of such distribution, cash distributions are not
permitted pursuant to the terms of any agreement to which the Partnership is a
party. If payment of the Preferred Return in cash is so prohibited, the
Partnership
EXHIBIT 5 - Page 1
<PAGE> 65
shall pay the Preferred Return in additional Series D Preferred Interests in a
stated amount equal to the accrued but unpaid Preferred Return for the
semi-annual payment. The Series D Preferred Interests issued in payment of the
Preferred Return shall be entitled to receive a Preferred Return from the date
of their issuance. Solely for purposes of determining such Preferred Return,
the stated amount of any Series D Preferred Interests previously issued in
payment of Preferred Return shall be considered as a Series D Preferred Limited
Partner Contribution made at the time such Series D Preferred Interests were
issued in payment of Preferred Return.
5. Subordination. The Series D Preferred Interests shall be
subordinated in right of payment to all indebtedness of the Partnership.
6. Payment Only Upon Dissolution. Except as provided in Sections
4 and 9, the Series D Preferred Interests, together with all Preferred Returns
not previously paid in cash or Series D Preferred Interests, are payable in
cash only upon dissolution of the Partnership.
7. Preference on Liquidation. Upon dissolution of the
Partnership, the Series D Preferred Interests shall have the priority
established in Section 6.2 of the Agreement and shall be pari passu with the
Series A, B, C and E Preferred Interests and any other series that ranks pari
passu with the Series D Preferred Interests.
8. Voting Rights. No holder of Series D Preferred Interests
shall have voting rights or any right to participate in the management of the
Company by reason of holding Series D Preferred Interests.
9. Optional Redemption. Subject to the terms and provisions of
any financing arrangements set forth in any agreement to which the Partnership
is a party, the Series D Preferred Interests are redeemable in cash, at the
option of the Partnership, in whole or in part from time to time, at the Call
Price (as defined below).
(a) Redemption Price. The redemption price for
the Series D Preferred Interests (the "Call Price") shall be
the stated amount of the Series D Preferred Interests plus
accrued and unpaid or unissued Preferred Returns.
(b) Redemption Procedure.
(i) Notice of any redemption pursuant to
this Section 9 (a "Call Notice") of Series D Preferred
Interests will be given by the Partnership by mail to each
record holder to be redeemed not fewer than 30 nor more than
60 days prior to the date fixed for redemption thereof. For
purposes of the calculation of the date of redemption and the
dates on which the Call Notice is given, a Call Notice shall
be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, to such holders of
Series D Preferred Interests. Each Call Notice shall be
addressed to such holders of Series D Preferred Interests at
the address of the holder appearing in the books and records
of the Partnership. No defect in the Call Notice
EXHIBIT 5 - Page 2
<PAGE> 66
or in the mailing thereof or publication of its contents shall
affect the validity of the redemption proceedings.
(ii) In the event that fewer than all the
outstanding Series D Preferred Interests are to be redeemed,
the Series D Preferred Interests to be redeemed will be
selected at the Partnership's discretion.
(iii) If the Partnership gives a Call
Notice in respect of Series D Preferred Interests, then upon
the date fixed for redemption of the Series D Preferred
Interests, all rights of the holders of the Series D Preferred
Interests so called for redemption will cease, except the
right of the holders of such securities to receive the Call
Price. In the event that any date fixed for redemption of
Series D Preferred Interests is not a business day, then
payment of the Call Price payable on such date will be made on
the next succeeding day which is a business day (and without
any interest or other payment in respect of any such delay),
except that, if such business day falls in the next calendar
year, such payment will be made on the immediately preceding
business day.
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EXHIBIT 5 - Page 3
<PAGE> 67
EXHIBIT 6
DESIGNATION OF
SERIES E 10% PAYMENT-IN-KIND PREFERRED LIMITED PARTNER INTERESTS
This Exhibit 6 constitutes a designation in accordance with Section
2.4 of the Second Amended and Restated Agreement of Limited Partnership (the
"Agreement"). This designation authorizes the issuance of Series E 10%
Payment- in-Kind Preferred Limited Partner Interests of the Partnership under
the terms set forth below. The defined terms used but not defined in this
Exhibit 6 shall have the meaning ascribed thereto in the Agreement.
1. Designation. The Partnership hereby designates and authorizes
the issuance of an unlimited amount of Series E 10% Payment-in-Kind Preferred
Limited Partner Interests ("Series E Preferred Interests").
2. Ranking. So long as Series E Preferred Interests are
outstanding the Partnership will not issue any securities or interests ranking,
as to participation in the profits or assets of the Partnership, senior to the
Series E Preferred Interests other than in accordance with the Agreement and
with the unanimous written consent of all holders of Series E Preferred
Interests. The issuance of securities or interests ranking senior to the
Series E Preferred Interests shall be deemed to adversely affect the rights of
the Series E Preferred Interests under the Agreement. The Series E Preferred
Interests shall rank pari passu with the Series A, B, C, and D Preferred
Interests and with any other series that ranks pari passu with the Series E
Preferred Interests; provided, however, the Preferred Return on the Series D
Preferred Interests may, under certain conditions, be paid in cash prior to
dissolution of the Partnership.
3. Allocation of Net Profits. The Series E Preferred Interests
shall be entitled to receive an allocation of Net Profits, for purposes of
Section A.4.1(b) of the Appendix, equal to a preferred return (the "Preferred
Return") on the Series E Preferred Interests in an amount equal to the lesser
of (i) Allocated Net Profits, as hereinafter defined, or (ii) ten percent (10%)
per annum determined on the basis of a year of 365 or 366 days, as the case may
be, for the actual number of days occurring in the period for which the
Preferred Return is being determined, of the average daily balance of the
Unreturned Preferred Limited Partner Balance outstanding, if any, from time to
time during the period to which the Preferred Return relates for the portion of
the calendar year for which such calculation is being made), commencing on the
date such interests are issued by the Partnership or the date on which any
Series E Preferred Limited Partner Contribution is made by the contributing
Preferred Limited Partner. The Preferred Return shall be calculated for each
six month period as of June 30 and December 31. The Preferred Return shall be
treated as a priority return to the holders of Series E Preferred Interests and
shall not constitute a guaranteed payment under Section 707(c) of the Code.
"Allocated Net Profits" means Net Profits as allocated under Section
A.4.1(a)(i) of the Appendix to the Series E Preferred Interests held by a
Preferred Limited Partner.
4. Payment of Preferred Return. Except as provided in Sections 6
and 9, the Partnership shall not pay the Preferred Return on Series E Preferred
Interests in cash, but such Preferred Return
EXHIBIT 6 - Page 1
<PAGE> 68
shall be paid in additional Series E Preferred Interests in a stated amount
equal to the Preferred Return for the semi- annual period. Such Preferred
Return shall be paid each June 30 and December 31. The Series E Preferred
Interests issued in payment of the Preferred Return shall be entitled to
receive a Preferred Return from the date of their issuance. Solely for
purposes of determining such Preferred Return, the stated amount of any Series
E Preferred Interests previously issued in payment of Preferred Return shall be
considered as a Series E Preferred Limited Partner Contribution made at the
time such Series E Preferred Interests were issued in payment of Preferred
Return.
5. Subordination. The Series E Preferred Interests shall be
subordinated in right of payment to all indebtedness of the Partnership.
6. Payment Only Upon Dissolution. Except for the Optional
Redemption provided for in Section 9, the Series E Preferred Interests,
together with all accrued but unissued Preferred Returns, are payable in cash
only upon dissolution of the Partnership.
7. Preference on Liquidation. Upon dissolution of the
Partnership, the Series E Preferred Interests shall have the priority
established in Section 6.2 of the Agreement and shall be pari passu with the
Series A, B, C and D Preferred Interests and any other series that ranks pari
passu with the Series E Preferred Interests.
8. Voting Rights. No holder of Series E Preferred Interests
shall have voting rights or any right to participate in the management of the
Partnership by reason of holding Series E Preferred Interests.
9. Optional Redemption. Subject to the terms and provisions of
any financing arrangements set forth in any agreement to which the Partnership
is a party, the Series E Preferred Interests are redeemable in cash, at the
option of the Partnership, in whole or in part from time to time, at the Call
Price (as defined below).
(a) Redemption Price. The redemption price for
the Series E Preferred Interests (the "Call Price") shall be
the stated amount of the Series E Preferred Interests plus
accrued but unissued Preferred Returns.
(b) Redemption Procedure.
(i) Notice of any redemption pursuant to
this Section 9 (a "Call Notice") of Series E Preferred
Interests will be given by the Partnership by mail to each
record holder to be redeemed not fewer than 30 nor more than
60 days prior to the date fixed for redemption thereof. For
purposes of the calculation of the date of redemption and the
dates on which the Call Notice is given, a Call Notice shall
be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, to such holders of
Series E Preferred Interests. Each Call Notice shall be
addressed to such holders of Series E Preferred Interests at
the address of the holder appearing in the books and records
of the Partnership. No defect in the Call Notice
EXHIBIT 6 - Page 2
<PAGE> 69
or in the mailing thereof or publication of its contents shall
affect the validity of the redemption proceedings.
(ii) In the event that fewer than all the
outstanding Series E Preferred Interests are to be redeemed,
the Series E Preferred Interests to be redeemed will be
selected at the Partnership's discretion.
(iii) If the Partnership gives a Call
Notice in respect of Series E Preferred Interests, then upon
the date fixed for redemption of the Series E Preferred
Interests, all rights of the holders of the Series E Preferred
Interests so called for redemption will cease, except the
right of the holders of such securities to receive the Call
Price. In the event that any date fixed for redemption of
Series E Preferred Interests is not a business day, then
payment of the Call Price payable on such date will be made on
the next succeeding day which is a business day (and without
any interest or other payment in respect of any such delay),
except that, if such business day falls in the next calendar
year, such payment will be made on the immediately preceding
business day.
10. Additional Issuance of Series E Preferred Interests
Authorized. The Partnership shall be authorized to issue additional Series E
Preferred Interests under the circumstances specified in Sections 5.6 and 5.7
of the Agreement. The Partnership shall also issue additional Series E
Preferred Interests to Mid-Am if it shall pay to Borden any additional amounts
relating to employee benefit plans in connection with the transactions
contemplated by that certain Stock Purchase and Merger Agreement among Mid-Am,
Borden, Inc., BDH Two, Inc. and Borden/Meadow Gold Dairies Holdings, Inc.,
dated May 22, 1997. In that event, additional Series E Preferred Interests in
a stated amount of the amount paid to Borden shall be issued to Mid-Am as of
the date of the payment to Borden.
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EXHIBIT 6 - Page 3
<PAGE> 70
APPENDIX
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
SOUTHERN FOODS GROUP, L.P.
DATED AS OF SEPTEMBER 3, 1997
A.1 Introduction.
This Appendix sets forth principles under which items of income, gain,
loss, deduction and credit shall be allocated among the Partners. This
Appendix also provides for the determination and maintenance of Capital
Accounts, generally in accordance with Treasury Regulations promulgated under
Section 704(b) of the Code, for purposes of determining such allocations.
A.2 Definitions.
For purposes of this Appendix, the following terms have the meanings
set forth below. If a capitalized term is used herein but not defined in this
Section A.2, it shall have the meaning ascribed thereto in the Agreement,
unless the context otherwise indicates.
"Adjusted Capital Account Balance" means, with respect to any Partner,
the balance, if any, in such Partner's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts which such
Partner is obligated to restore pursuant to any provision of the
Agreement (including this Appendix) or is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in
Treasury Regulations Sections 1.704- 1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Balance is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:
APPENDIX - Page 1
<PAGE> 71
(i) Credit to such Capital Account any amounts
which such Partner is obligated to restore pursuant to any
provision of the Agreement (including this Appendix) or is
deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulations Sections 1.704-2(g)(1) and
1.704- 2(i)(5); and
(ii) Debit to such Capital Account the items described in
Treasury Regulations Sections 1.704- 1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Capital Account" shall have the meaning set forth in Section A.3
hereof. In the event a Partner shall have more than one kind of Partnership
Interest, the General Partner shall be empowered to establish such subdivisions
of such Partner's Capital Account as are appropriate to reflect such Partner's
various interests in the Partnership.
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such beginning adjusted tax basis; provided, however, that if the
adjusted basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
General Partner.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset
contributed by a Partner to the Partnership shall be the gross fair
market value of such asset, as determined by the contributing Partner
and the General Partner, provided that the initial Gross Asset Values
of the assets contributed to the Partnership pursuant to Exhibit 1 of
the Agreement shall be as set forth in such Exhibit 1 or as otherwise
agreed in writing between the contributing Partner and the
Partnership, and provided further that, if the contributing Partner is
a General Partner, the determination of the fair market value of any
other contributed asset shall require the consent of a majority of the
Common Limited Partners;
(ii) The Gross Asset Values of all Partnership assets
shall be adjusted to equal their respective gross fair market values,
as determined by the General Partner, as of the following times: (a)
the acquisition of an additional interest in the Partnership by any
new or existing Partner in exchange for more than a de minimis Capital
Contribution; (b) the distribution by the Partnership to a Partner of
more than a de minimis amount of property as consideration for an
interest in the Partnership; and (c) the liquidation of the
Partnership
APPENDIX - Page 2
<PAGE> 72
within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to
clauses (a) and (b) above shall be made only if the General Partner
reasonably determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the Partners
in the Partnership;
(iii) The Gross Asset Value of any Partnership asset
distributed to any Partner shall be adjusted to equal the gross fair
market value of such asset on the date of distribution as determined
by the distributee and the General Partner, provided that, if the
distributee is a General Partner, the determination of the fair market
value of the distributed asset shall require the consent of a majority
of the Common Limited Partners; and
(iv) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Treasury
Regulations Section 1.704-1(b)(2)(v)(m), subparagraph (vi) of the A.2
definition of Net Profits and Net Loss and Section A.4.2(f) hereof;
provided, however, that Gross Asset Values shall not be adjusted
pursuant to this definition to the extent the General Partner
determines that an adjustment pursuant to subparagraph (ii) of this
definition is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to
this definition.
If the Gross Asset Value of an asset has been determined or adjusted pursuant
to subparagraphs (i), (ii) or (iv) of this definition, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Net Profits and Net Loss.
"Net Profits" and "Net Loss" means, for each Fiscal Year or other
period, an amount equal to the Partnership's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing
Net Profits or Net Loss shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(b), and not otherwise taken into account in
computing Net Profits or Net Loss, shall be subtracted from such
taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to subparagraphs (ii) or (iii) of the
Section A.2 definition of Gross Asset Value, the amount of such
adjustment shall be taken into account as gain or loss from
disposition of the asset for purposes of computing Net Profits and Net
Loss;
APPENDIX - Page 3
<PAGE> 73
(iv) Gain or loss resulting from any disposition of
Partnership property with respect to which gain or loss is recognized
for federal income tax purposes shall be computed by reference to the
Gross Asset Value of the property disposed of (unreduced by any
liabilities attributable thereto), notwithstanding that the adjusted
tax basis of such property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such Fiscal Year or other period, computed in accordance with the
Section A.2 definition of Depreciation;
(vi) To the extent an adjustment to the adjusted tax basis
of any Partnership asset pursuant to Code Section 734(b) or Code
Section 743(b) is required pursuant to Treasury Regulations Section
1.704- 1(b)(2)(iv)(m)(4) to be taken into account in determining
Capital Accounts as a result of a distribution other than in
liquidation of a Partner's Interest, the amount of such adjustment
shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases the basis of
the asset) from the disposition of the asset and shall be taken into
account for purposes of computing Net Profits or Net Losses;
(vii) Notwithstanding any other provisions of this
definition, any items which are specially allocated pursuant to
Sections A.4.2, A.4.3 and A.4.4 hereof shall not be taken into account
in computing Net Profits or Net Loss; and
(vii) Any Terminating Capital Gain and any Terminating
Capital Loss, as applicable, shall be excluded from the calculation of
Net Profits and Net Loss.
The amounts of the items of Partnership income, gain, loss or deduction
available to be specially allocated pursuant to Sections A.4.2 and A.4.3 hereof
shall be determined by applying rules analogous to those set forth in
subparagraphs (i) through (iv) of this definition.
"Nonrecourse Deductions" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(1) and shall be determined according to the
provisions of Treasury Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulations Section 1.704-2(i)(2) and shall be determined in
accordance with Treasury Regulations Section 1.704-2(i)(3).
APPENDIX - Page 4
<PAGE> 74
"Partner Nonrecourse Deductions" has the meaning set forth in Treasury
Regulations Section 1.704-2(i)(1) and shall be determined in accordance with
Treasury Regulations Section 1.704-2(i)(2).
"Partnership Minimum Gain" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(2) and shall be determined in accordance with
Treasury Regulations Section 1.704-2(d).
"Terminating Capital Gain" and "Terminating Capital Loss",
respectively, means net gain or net loss, as applicable, to be allocated among
the Partners as a result of the occurrence of a Terminating Capital
Transaction, determined with the adjustments otherwise applicable in
determining Net Profits and Net Loss attributable to the dispositions of
Partnership property, provided that the calculation of such net gain or net
loss shall include without limitation the difference between the fair market
value and basis of assets to be allocated to the Capital Accounts pursuant to
Section 6.2(c)(i) of the Agreement.
A.3 Capital Accounts. The Partnership shall determine and maintain
Capital Accounts. "Capital Account" shall mean an account of each Partner
determined and maintained throughout the full term of the Partnership in
accordance with the capital accounting rules of Treasury Regulations Section
1.704-1(b)(2)(iv). Without limiting the generality of the foregoing, the
following rules shall apply:
(a) The Capital Account of each Partner shall be credited
with (i) an amount equal to such Partner's Capital Contributions and the fair
market value of property contributed (if permitted hereunder) to the
Partnership by such Partner (net of liabilities that the Partnership is
considered to assume or to which it is considered to take subject to Code
Section 752), (ii) such Partner's share of the Partnership's Net Profits
together with items of income or gain specially allocated to such Partner
pursuant to Sections A.4.2, A.4.3 and A.4.4, and (iii) the amount of any
Partnership liabilities assumed by such Partner or which are secured by
property distributed to such Partner.
(b) The Capital Account of each Partner shall be debited
by (i) the amount of cash and the fair market value of property distributed to
such Partner (net of liabilities assumed by such Partner and liabilities to
which such distributed property is subject), (ii) such Partner's share of the
Partnership's Net Loss together with items of loss or deduction specially
allocated to such Partner pursuant to Sections A.4.2, A.4.3 and A.4.4, and
(iii) the amount of any liabilities of such Partner assumed by the Partnership
or which are secured by any property contributed by such Partner to the
Partnership.
(c) Upon the transfer by a Partner of all or part of an
interest in the Partnership in accordance with the terms of the Agreement, the
Capital Account of the transferor that is attributable to the transferred
interest shall carry over to the transferee and the Capital Accounts of the
Partners shall be adjusted to the extent provided in Treasury Regulations
Section 1.704-1(b)(2)(iv)(m).
(d) In determining the amount of any liability for
purposes of Sections A.3(a) and A.3(b), Code Section 752(c) and any other
applicable provisions of the Code and the Treasury Regulations will be taken
into account.
APPENDIX - Page 5
<PAGE> 75
(e) In the event that the Partnership distributes
property (other than money) to the Partners, the Capital Account balances of
the Partners shall be adjusted, in accordance with Treasury Regulations Section
1.704- 1(b)(2)(iv)(e), to reflect the manner in which any unrealized income,
gain, loss and deduction inherent in such property (that has not been reflected
in the Capital Accounts previously) would be allocated among the Partners if
such property were sold at its fair market value (which value in no event shall
be less than the amount of any nonrecourse indebtedness to which such property
is subject).
(f) Except as otherwise required by Treasury Regulations
Section 1.704-1(b)(2)(iv), adjustment to such Capital Accounts in respect of
Partnership income, gain, loss, deduction, and Code Section 705(a)(2)(B)
expenditures (or items thereof) shall be made with reference to the federal
income tax treatment of such items (and, in the case of book items, with
reference to the federal income tax treatment of the corresponding tax items)
at the Partnership level, without regard to any requisite or elective tax
treatment of such items at the Partner level.
(g) In the event the General Partner shall determine that
it is prudent to modify the manner in which the Capital Accounts, or any debits
or credits thereto (including, without limitation, debits or credits relating
to liabilities which are secured by contributions or distributed property or
which are assumed by the Partnership, General Partner, or Common Limited
Partners), are computed in order to comply with such Treasury Regulations, the
General Partner may make such modification, provided that it is not likely to
have a material effect on the amounts distributed to any Partner pursuant to
Article VI of the Agreement upon the dissolution of the Partnership. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Treasury Regulations
Section 1.704-1(b)(2)(iv)(g), and (ii) make any appropriate modifications in
the event unanticipated events (for example, the acquisition by the Partnership
of oil or gas properties) might otherwise cause this Agreement not to comply
with Treasury Regulations Section 1.704-1(b).
A.4 Allocations of Net Profits and Net Loss.
A.4.1 In General.
(a) Net Profits. After giving effect to the special
allocations set forth in Sections A.4.2, A.4.3 and A.4.4 hereof, Net Profits
for any Fiscal Year shall be allocated to the Partners as follows:
(i) First, Net Profits shall be allocated ratably
to the Preferred Limited Partners until the cumulative Net
Profits allocated to the Preferred Limited Partners equals the
cumulative Preferred Return (as defined in Section A.4.1(b)
hereof) distributable to such Partners for all prior and
current periods. The Net Profits allocated under this Section
A.4.1(a)(i) shall be allocated among each of the Preferred
Limited Partners whose cumulative Preferred Return exceeds the
cumulative Net Profits previously allocated to such Partner
(such excess, the "Unallocated Preferred Return") according to
the ratio that each such Partner's
APPENDIX - Page 6
<PAGE> 76
Unallocated Preferred Return bears to the total of the
Unallocated Preferred Return of all Preferred Limited
Partners. In the case of a Preferred Limited Partner that
holds more than one series of Preferred Interests issued by
the Partnership, the Net Profits allocated to such Partner
under this Section A.4.1(a)(i) shall be further allocated
among each of such Partner's separate series of Preferred
Interests for which the cumulative Preferred Return for such
Partner exceeds the cumulative Net Profits previously
allocated to such series for such Partner (such excess, the
"Unallocated Series Preferred Return") according to the ratio
that the Unallocated Series Preferred Return of each series of
Preferred Interest held by such Partner bears to the total of
the Unallocated Series Preferred Return for all series of
Preferred Interests held by such Partner.
(ii) Next, to the extent that allocable Net
Profits exceed the Net Profits previously allocated for the
period under Section A.4.1(a)(i) hereof, Net Profits shall be
allocated ratably to eliminate any deficit balance in any
Partner's Adjusted Capital Account Balance, subject to the
provisions of Section A.4.1. The Net Profits allocated under
this Section A.4.1(a)(ii) shall be allocated among the
Partners with negative Adjusted Capital Account Balances
according to the ratio that each such negative Adjusted
Capital Account Balance bears to the total of the negative
Adjusted Capital Account Balances of all Partners.
(iii) Next, to the extent that allocable Net
Profits exceed the Net Profits previously allocated for the
period under Sections A.4.1(a)(i) and A.4.1(a)(ii) hereof, in
the event that Net Losses have been allocated in prior Fiscal
Years among the Common Partners in respect of their Common
Partner Interests in amounts that were not in proportion to
their respective Common Partner Interests, Net Profits shall
be allocated among the Common Partners insofar as possible to
cause their respective Capital Accounts related to their
Common Partner Interests to be in proportion to their Common
Partner Interests.
(iv) The balance, if any, of Net Profits shall be
allocated to the Common Partners pro rata in accordance with
their respective Common Partner Interests as set forth on
Exhibit 1 hereto.
(b) Preferred Return. Each of the Preferred Limited
Partners shall be entitled to receive an allocation of Net Profits equal to a
preferred return (the "Preferred Return") with respect to each series of
Preferred Limited Partner Interest held by such Preferred Limited Partner as
provided in the terms and provisions applicable to such series of Preferred
Limited Partner Interest. The terms and conditions applicable to each series
of Preferred Limited Partner Interest now authorized as provided in the
Agreement are as follows:
<TABLE>
<S> <C>
Series A 10% Payment-in-Kind Preferred Limited Partner Interest Exhibit 2
Series B 10% Payment-in-Kind Preferred Limited Partner Interest Exhibit 3
Series C 10% Payment-in-Kind Preferred Limited Partner Interest Exhibit 4
Series D 9 1/2% Preferred Limited Partner Interest Exhibit 5
Series E 10% Payment-in-Kind Preferred Limited Partner Interest Exhibit 6
</TABLE>
APPENDIX - Page 7
<PAGE> 77
The parties intend that the Preferred Return be treated as a priority return to
the Preferred Limited Partners and shall not constitute a guaranteed payment
under Section 707(c) of the Code.
(c) Net Loss. After giving effect to the special
allocations set forth in Sections A.4.2, A.4.3 and A.4.4 hereof, Net Loss for
any Fiscal Year shall be allocated in the following manner:
(i) To the Common Partners pro rata in accordance
with their Common Partner Interests as set forth on Exhibit 1, subject
to the limitation set forth in Section A.4.1(c)(ii) below.
(ii) No Common Limited Partner shall receive an
allocation of Net Loss which would cause such Common Limited Partner
to have an Adjusted Capital Account Deficit at the end of any Fiscal
Year. In the event some but not all Common Limited Partners would
have Adjusted Capital Account Deficits as a consequence of an
allocation of Net Loss pursuant to Section A.4.1(c)(i) hereof, the
limitation set forth in this Section A.4.1(c)(ii) shall be applied on
a Common Limited Partner by Common Limited Partner basis so as to
allocate the maximum permissible Net Loss to each Common Limited
Partner under Treasury Regulations Section 1.704- 1(b)(2)(ii)(d). Net
Loss not allocated to the Common Limited Partners pursuant to this
subparagraph (ii) shall be allocated to the General Partner; provided,
however, that in making subsequent allocations of Net Profits and Net
Loss, the prior reallocation of Net Loss to the General Partner and/or
the Common Limited Partners shall be taken into account so that, to
the extent possible, the total allocation of Net Profits and Net Loss
to both the General Partner and the Common Limited Partners shall be
equal to the allocations that would have been made had the
reallocation to the General Partner and/or the Common Limited Partners
not occurred.
(d) Except as provided in Sections A.4.2, A.4.3 and A.4.4
hereof, upon the occurrence of a Terminating Capital Transaction, any resulting
Terminating Capital Gain or Terminating Capital Loss, as applicable, shall be
allocated to the Partners in a manner, to the extent possible, to cause the
Partners' respective Capital Accounts to equal the amounts that would be
distributable to the Partners upon liquidation of the Partnership in accordance
with Section 6.2 of the Agreement.
A.4.2 Special Allocations.
The following special allocations should be applied in the
order in which they are listed. Such ordering is intended to comply with the
ordering rules in Treasury Regulations Section 1.704-2(j) and shall be applied
consistently therewith.
(a) Minimum Gain Charge back. Except as otherwise
provided in Section 1.704-2(f) of the Treasury Regulations, notwithstanding
anything to the contrary in this Section A.4, if there is a net decrease in
Partnership Minimum Gain during any Fiscal Year, then there shall be
APPENDIX - Page 8
<PAGE> 78
allocated to each Partner items of income and gain for that year (and, if
necessary, subsequent Fiscal Years) equal to that Partner's share of the net
decrease in Partnership Minimum Gain (within the meaning of Treasury
Regulations Section 1.704-2(g)(2)). The foregoing is intended to be a "minimum
gain chargeback" provision as described in Treasury Regulations Section
1.704-2(f) and shall be interpreted consistently therewith.
(b) Partner Nonrecourse Debt Minimum Gain Charge back.
Except as otherwise provided in Section 1.704-2(i)(4) of the Treasury
Regulations, notwithstanding anything to the contrary in this Section A.4, if
during a Fiscal Year there is a net decrease in Partner Nonrecourse Debt
Minimum Gain, then, in addition to the amounts, if any, allocated pursuant to
Subsection 4.2(a), any Partner with a share of that Partner Nonrecourse Debt
Minimum Gain (determined in accordance with Treasury Regulations Section
1.704-2(i)(5)) as of the beginning of the Fiscal Year shall be allocated items
of Partnership income and gain for that year (and, if necessary, for subsequent
Fiscal Years) equal to that Partner's share of the net decrease in the Partner
Nonrecourse Debt Minimum Gain, determined in accordance with Treasury
Regulations Section 1.704-2(i)(4). The foregoing is intended to be the
"Chargeback of partner nonrecourse debt minimum gain" required by Treasury
Regulations Section 1.704-2(i)(4) and shall be interpreted and applied in all
respects in accordance with that Regulation.
(c) Qualified Income Offset. If any Partner unexpectedly
receives any adjustment, allocation or distribution described in Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership
income and gain shall be specially allocated to such Partner in an amount and
manner sufficient to eliminate, to the extent required by the Treasury
Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as
possible. An allocation pursuant to the foregoing sentence shall be made only
if and to the extent that such Partner would have an Adjusted Capital Account
Deficit after all other allocations provided for in Section A.4 have been
tentatively made as if this Section A.4.2(c) were not in this Appendix. This
allocation is intended to constitute a "qualified income offset" within the
meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(3) and shall be
construed in accordance with the requirements thereof.
In the event a Partner has a deficit Capital Account at the end of any
Partnership Fiscal Year which is in excess of the sum of (i) the amount (if
any) such Partner is obligated to restore pursuant to any provision of the
Agreement, and (ii) the amount such Partner is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulations Sections
1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be specially allocated
items of Partnership income and gain in the amount of such excess as quickly as
possible, provided that an allocation pursuant to this clause shall be made
only if and to the extent that such Partner would have a deficit Capital
Account in excess of such sum after all other allocations provided for in this
Section A.4 have been made as if this Section A.4.2(c) were not in this
Appendix.
(d) Nonrecourse Deductions. Nonrecourse Deductions for
any Partnership Fiscal Year or other period shall be allocated among the
Partners in accordance with their Common Partner Interests.
APPENDIX - Page 9
<PAGE> 79
(e) Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any Partnership Fiscal Year or other period shall be specially
allocated to the Partner who bears the economic risk of loss with respect to
the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Treasury Regulations Section 1.704-2(i)(1).
(f) Basis Adjustments. To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b)
or Code Section 743(b) is required under Treasury Regulation Section 1.704-
1(b)(2)(iv)(m) to be taken into account in determining Capital Accounts, the
amount of such adjustment to the Capital Accounts shall be treated as an item
of gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Treasury Regulations.
(g) Allocations Relating to Taxable Issuance of
Partnership Interests. Any income, gain, loss or deduction realized as a
direct or indirect result of the issuance of an interest by the Partnership to
a Partner (the "Issuance Items") shall be allocated among the General Partner
and Limited Partners so that, to the extent possible, the net amount of such
Issuance Items, together with all other allocations under this Appendix to each
Partner, shall be equal to the net amount that would have been allocated to
each such Partner if the Issuance Items had not been realized.
A.4.3 Curative Allocations. The allocations set forth in Section
A.4.2 hereof (except for Section A.4.2(g)) (the "Regulatory Allocations") are
intended to comply with certain requirements of the Treasury Regulations. It
is the intent of the Partners that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Partnership income, gain, loss, or
deduction pursuant to this Section A.4.3. Therefore, notwithstanding any other
provisions of this Section A.4 (other than the Regulatory Allocations and
taking into account Section A.4.1(c)), the General Partner shall make such
offsetting special allocations of Partnership income, gain, loss, or deduction
in whatever manner it determines appropriate so that, after such offsetting
allocations are made, each Partner's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Partner would have had if
the Regulatory Allocations were not part of the Agreement and all Partnership
items were allocated pursuant to Sections A.4.1 and A.4.2(g). In exercising
its discretion under this Section A.4.3, the General Partner shall take into
account future Regulatory Allocations under Sections A.4.2(a) and A.4.2(b)
that, although not yet made, are likely to offset other Regulatory Allocations
previously made under Sections A.4.2(d) and A.4.2(e).
A.4.4 Other Allocation Rules.
(a) For purposes of determining Net Profits, Net Loss or
any other item allocable to any period, Net Profits, Net Loss and other items
will be determined by the General Partners using any permissible method under
Code Section 706 and the related Treasury Regulations.
APPENDIX - Page 10
<PAGE> 80
(b) Unless otherwise required by the Agreement, all items
of credit shall be allocated to the Partners in the same manner as Net Profits.
(c) Solely for purposes of determining a Partner's
proportionate share of the "excess nonrecourse liabilities" of the Partnership
within the meaning of Treasury Regulations Section 1.752-3(a)(3), the Partners'
interests in Partnership profits shall be deemed to be in proportion to their
respective Common Partner Interests.
(d) To the extent permitted by Treasury Regulations
Section 1.704-2(h)(3), the General Partner may endeavor to treat distributions
as having been made from the proceeds of a Nonrecourse Liability or a Partner
Nonrecourse Debt only to the extent that such distributions would not cause or
increase an Adjusted Capital Account Deficit for any Limited Partner.
(e) The Partners are aware of the income tax consequences
of the allocations made by this Article 4 and hereby agree to be bound by the
provisions of this Article 4 in reporting their shares of Partnership income
and loss for income tax purposes.
A.5 Tax Allocations.
In accordance with Code Section 704(c) and the related Treasury
Regulations, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes,
be allocated among the Partners so as to take account of any variation between
the adjusted basis of such property to the Partnership for federal income tax
purposes and its Gross Asset Value. Any elections or other decisions relating
to allocations pursuant to this Section A.5 shall be made by the General
Partner in any manner that reasonably reflects the purpose and intention of
this Appendix and the Agreement. Allocations pursuant to this Section A.5 are
solely for purposes of U.S. federal, state, and local taxes and shall not
affect any Partner's Capital Account or share of Net Profits, Net Loss, or
other items or distributions pursuant to any provision of this Appendix and the
Agreement.
APPENDIX - Page 11
<PAGE> 1
EXHIBIT 3.5
FIRST AMENDMENT TO SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF SOUTHERN FOODS GROUP, L.P.
This First Amendment ("Amendment") to the Second Amended and Restated
Agreement of Limited Partnership of Southern Foods Group, L.P. (the
"Partnership") is made and entered into as of the 31st day of March, 1998, to
be effective as of 3:00 p.m. on September 3, 1997 (the "Effective Time"), by
and among SFG Management Limited Liability Company ("SFG LLC") as the sole
general partner ("General Partner"), and each of the limited partners listed as
signatories to this Amendment.
WHEREAS, on September 3, 1997, the parties to this Amendment entered
into that certain Second Amended and Restated Agreement of Limited Partnership
to be effective as of 3:00 p.m. on September 3, 1997 (the "Original Partnership
Agreement");
WHEREAS, the parties have determined that certain corrections to the
Second Amended and Restated Agreement of Limited Partnership need to be made to
clarify the intent of the parties with respect to certain provisions of the
Original Partnership Agreement, and the parties desire to set forth those
corrections in this Amendment;
WHEREAS, Mid-America Dairymen, Inc. has changed its name to Dairy
Farmers of America, Inc. ("DFA");
NOW THEREFORE, for and in consideration of the mutual covenants
contained in this Amendment, the Partners agree as follows:
1. Defined terms used in this Amendment shall have the meanings
set forth for such terms in the Original Partnership
Agreement, except where the context herein requires otherwise.
2. From and after December 3, 1997, all references to
"Mid-America Dairymen, Inc." or "Mid-Am" shall be deemed to be
references to "Dairy Farmers of America, Inc." or "DFA," as
the case may be.
3. The first sentence of Section 5.2(a)(i)(E) shall be amended by
deleting the phrase "tax authority" and substituting in lieu
thereof the phrase "Governmental Authority."
4. Section 5.2(a)(ii) shall be deleted in its entirety, and the
following substituted in its place:
1
<PAGE> 2
"(ii) Next, unless limited by the terms of any outstanding
financing arrangements set forth in any agreement or
agreements to which the Partnership is a party, Net
Operating Cash Flow shall be distributed among the
Preferred Limited Partners as provided in the terms
and conditions applicable to the series of Preferred
Limited Partner Interests held by such Preferred
Limited Partners."
5. Sections 6.2(c)(ii)(A) and (B) shall be deleted in their
entirety and the following substituted in their place:
"(A) Distributions shall be made to the Preferred
Limited Partners until each has received an
amount equal to the Gross Unpaid Preferred
Return, as hereinafter defined, on all series
of Preferred Limited Partner Interests held
by such Preferred Limited Partner; provided,
however, that no distribution shall be made
pursuant to this Section 6.2 that creates or
increases a Capital Account deficit for any
Partner who is not a General Partner which
exceeds such Partner's obligation, deemed or
actual, to restore such deficit, determined
as follows: Distributions shall first be
determined tentatively pursuant to this
Section 6.2 without regard to the Partners'
Capital Accounts, and then the allocation
provisions of the Appendix shall be applied
tentatively as if such tentative
distributions had been made. If any Partner
who is not a General Partner shall thereby
have a deficit Capital Account which exceeds
his deemed or actual obligation to restore
such deficit, the actual distribution to such
Partner pursuant to this Section 6.2 shall be
equal to the tentative distribution to such
Partner less the amount of the excess to such
Partner. "Gross Unpaid Preferred Return" for
a series of Preferred Limited Partner
Interests means the excess of (i) Allocated
Preferred Return for such series, as defined
in the terms and conditions applicable to
such series, over (ii) the aggregate
accumulated Allocated Preferred Return
previously paid in cash to the holders of
such series of Preferred Limited Partner
Interests. Each distribution made pursuant to
this Section 6.2(c)(ii)(A) shall be
distributed to the Preferred Limited Partners
in proportion to their respective Gross
Unpaid Preferred Returns at the time of such
distribution. Solely for purposes of this
Section 6.2(c)(ii), Gross Unpaid Preferred
Returns shall be determined by excluding from
the calculation of distributions of Preferred
Returns made pursuant to this Section
6.2(c)(ii)(A) the stated amounts of Preferred
Limited Partner Interests issued in payment
of Preferred Returns.
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<PAGE> 3
(B) Distributions shall be made to the Preferred
Limited Partners in an amount equal to the
aggregate Unreturned Preferred Limited
Partner Balances of all Preferred Limited
Partners. In determining Unreturned Preferred
Limited Partner Balances for purposes of this
Section 6.2(c)(ii)(B), the stated amount of
Preferred Limited Partner Interests issued
since the inception of the Partnership in
payment of Preferred Return on any series of
Preferred Limited Partner Interests shall not
be considered as Preferred Limited Partner
Contributions with respect to such series of
Preferred Limited Partner Interests. Each
distribution made pursuant to this Section
6.2(c)(ii)(B) shall be distributed to the
Preferred Limited Partners in proportion to
their respective Unreturned Preferred Limited
Partner Balances."
6. Section 8.11(c)(i), Put Price, shall be amended by deleting
the phrase "September 4, 2001," in the first sentence and
substituting the phrase "January 1, 2003,".
7. Section 8.12(d), Call Price, shall be amended in the second to
the last line after the phrase "Call Option Upon Death" by
adding the phrase "or Disability".
8. Section 12.11, Joinder of Meyer for Limited Purposes, shall be
amended by deleting in the last line the word "not" and
replacing it with the word "no".
9. The following revisions shall be made to Section 13.1, General
Definitions:
(a) The existing definition of "Disability" shall be
deleted and the following definition shall be
substituted in lieu thereof:
"Disability" or "Disabled" means the
inability of Schenkel because of any physical
or emotional illness to perform his duties as
the President and Chief Executive Officer of
the Partnership or the General Partner for
more than 30 hours per week and such
inability to perform his duties shall have
continued for a period of 60 or more
consecutive days.
(b) The definition of "Eligible Partners" shall be
modified by specifying that such term shall have the
meaning set forth in Section 5.1(a)(i)(A)(1).
(c) The definition of "Flow Through Owners" shall be
modified by specifying that such term shall have the
meaning set forth in Section 5.2(a)(i)(E).
(d) The following definition of "Gross Unpaid Preferred
Return" shall be added immediately after the
definition of "General Partner":
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<PAGE> 4
"Gross Unpaid Preferred Return" shall have
the meaning set forth in Section
6.2(c)(ii)(A).
(e) The definition "Income Taxes" shall be modified by
specifying that such term shall have the meaning set
forth in Section 5.2(a)(i)(A)(2).
(f) The definition of "Mid-Am Capital Contribution
Agreement" shall be modified by specifying that such
term shall have the meaning set forth in Section
2.2(c).
(g) The definition of "Mid-Am Contribution Agreement"
shall be amended by specifying that such term shall
have the meaning set forth in Section 2.2(b).
(h) The definition of "Required Distribution Amount"
shall be deleted and there shall be added a
definition of "Partnership Tax Amount" which shall
have the meaning set forth in Section 5.2(a)(i)(A).
(i) The definition of "Total Taxable Income" shall be
deleted.
(j) The definition of "Undistributed Preferred Return"
shall be deleted.
10. The lead in to Section A.4.1.(a)(i) of the Appendix shall be
omitted in its entirety and the following substituted in its
place:
"(i) First, Net Profits shall be
allocated ratably to the Preferred Limited
Partners in accordance with the allocations
of Net Profits set forth in the terms and
conditions applicable to the various series
of Preferred Limited Partner Interests issued
by the Partnership."
11. The lead in to Section A.4.1.(b) of the Appendix shall be
omitted in its entirety and the following substituted in its
place:
"(b) Preferred Return. Each of the
Preferred Limited Partners shall be entitled to receive an
allocation of Net Profits equal to a preferred return (the
"Preferred Return") with respect to each series of Preferred
Limited Partner Interest held by such Preferred Limited
Partner as provided in the terms and provisions applicable to
such series of Preferred Limited Partner Interest. The terms
and conditions applicable to each series of Preferred Limited
Partner Interest now authorized as provided in the Agreement
are set forth in the following Exhibits to the Agreement:"
12. Exhibit 2 shall be amended and restated in its entirety as set
forth on the attached Exhibit 2.
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<PAGE> 5
13. Exhibit 3 shall be amended and restated in its entirety as set
forth on the attached Exhibit 3.
14. Exhibit 4 shall be amended and restated in its entirety as set
forth on the attached Exhibit 4.
15. Exhibit 5 shall be amended and restated in its entirety as set
forth on the attached Exhibit 5.
16. Exhibit 6 shall be amended and restated in its entirety as set
forth on the attached Exhibit 6.
17. In all other respects, the Original Partnership Agreement
shall remain in full force and effect.
18. Joinder of Meyer for Limited Purposes. Meyer joins in the
execution of this Amendment for the limited purpose of
acknowledging the revisions made to Section 12.11 of the
Original Partnership Agreement
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day first written above, to be effective as of the Effective Time.
GENERAL PARTNER:
SFG MANAGEMENT LIMITED LIABILITY
COMPANY
By: /s/ PETE SCHENKEL
-------------------------------------
Its: PRESIDENT and CEO
--------------------------------
COMMON LIMITED PARTNERS:
/s/ PETE SCHENKEL
------------------------------------
Pete Schenkel
DAIRY FARMERS OF AMERICA, INC.
(formerly named MID-AMERICA
DAIRYMEN, INC.)
By: /s/ GERALD L. BOS
--------------------------------
Its: CFO
---------------------------
PREFERRED LIMITED PARTNERS:
DAIRY FARMERS OF AMERICA, INC.
(formerly named MID-AMERICA
DAIRYMEN, INC.)
By: /s/ GERALD L. BOS
--------------------------------
Its: CFO
---------------------------
MID-AM CAPITAL, L.L.C.
By: /s/ GERALD L. BOS
--------------------------------
Its: CEO
---------------------------
Joining for the limited purpose
specified in Section 18 of the Amendment
/s/ ALLEN A. MEYER
- ---------------------------------------
ALLEN A. MEYER
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<PAGE> 7
EXHIBIT 2
AMENDED AND RESTATED DESIGNATION OF
SERIES A 10% PAYMENT-IN-KIND PREFERRED LIMITED PARTNER INTERESTS
This Exhibit 2 constitutes an amendment and a restatement of a
designation of a series of Preferred Interests pursuant to Section 2.4 of the
Second Amended and Restated Agreement of Limited Partnership (the "Agreement").
This designation amends and restates the designation established in Appendix A
to the Amended and Restated Agreement for the issuance of Series A Preferred
Capital Interests of the Partnership on the terms set forth below. The defined
terms used but not defined in this Exhibit 2 shall have the meaning ascribed
thereto in the Agreement.
1. Designation. Effective January 1, 1997, the Partnership
designates and authorizes the issuance of Series A 10% Payment-in-Kind
Preferred Limited Partner Interests ("Series A Preferred Interests") previously
entitled the "Series A Preferred Capital Interests". Series A Preferred
Interests may not be issued by the Partnership in excess of an original stated
amount of $84,947,000, plus the amount of all Undistributed Preferred Returns,
as defined in the Amended and Restated Agreement, as of June 30, 1997, except
that an unlimited stated amount of Series A Preferred Interests may be issued
by the Partnership in payment of Series A Preferred Return in accordance with
Section 4.
2. Ranking. So long as Series A Preferred Interests are
outstanding the Partnership will not issue any securities or interests ranking,
as to participation in the profits or assets of the Partnership, senior to the
Series A Preferred Interests other than in accordance with the Agreement and
with the unanimous written consent of all holders of Series A Preferred
Interests. The issuance of securities or interests ranking senior to the
Series A Preferred Interests shall be deemed to adversely affect the rights of
the Series A Preferred Interests under the Agreement. The Series A Preferred
Interests shall rank pari passu with the Series B, C, D and E Preferred
Interests and any other series that ranks pari passu with the Series A
Preferred Interests; provided, however, the Preferred Return on the Series D
Preferred Interests may, under certain conditions, be paid in cash prior to
dissolution of the Partnership.
3. Preferred Return and Allocation of Net Profits.
(a) Definitions. For purposes of determining the
Preferred Return on the Series A Preferred Interests and the
allocation of Net Profits with respect thereto, the following
definitions shall apply.
(i) "Allocated Preferred Return" means the amount
of aggregate accumulated Net Profits allocated with respect to
Preferred Return on the various series of Preferred Limited Partner
Interests issued by the Partnership.
(ii) "Allocation Period" means a period for which
an allocation of Net Profits is being determined.
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<PAGE> 8
(iii) "Series A Preferred Return" means a return
calculated to provide a cumulative, semi- annually compounded return
in an amount equal to ten percent (10%) per annum determined on the
basis of a year of 365 or 366 days, as the case may be, for the actual
number of days occurring in the period for which the Series A
Preferred Return is being determined, of the average daily balance of
the sum of (a) the Series A Unreturned Preferred Limited Partner
Balance outstanding, if any, from time to time during the period to
which the Preferred Return relates, plus (b) the Unallocated Series A
Preferred Return outstanding, if any, from time to time during the
period to which the Preferred Return relates (excluding from such
calculation, however, the Preferred Return for the period for which
such calculation is being made), commencing on the date on which the
applicable Series A Preferred Limited Partner Capital Contribution was
made by the contributing Preferred Limited Partner. The Series A
Preferred Return shall be calculated for each semi-annual period as of
June 30 and December 31 and, to the extent not paid for any such
period, the Series A Preferred Return shall cumulate on each June 30
and December 31 as provided herein and the amounts which so cumulate
shall be added to the Series A Preferred Return as described above.
(iv) "Series A Allocated Preferred Return" means
the Allocated Preferred Return on the Series A Preferred Interests,
consisting of the aggregate accumulated Net Profits that are allocated
with respect to Series A Preferred Returns as provided in Section 3(b)
hereof and to be paid as provided in Section 4 hereof by the issuance
of additional Series A Preferred Interests.
(v) "Series A Net Profits" means for any
Allocation Period the Net Profits of the Partnership multiplied by the
fraction equal to (a) the Unallocated Series A Preferred Return,
divided by (b) the aggregate of the Unallocated Preferred Returns of
all series of Preferred Interests issued by the Partnership.
(vi) "Series A Unreturned Preferred Limited
Partner Balance" means the Unreturned Preferred Limited Partner
Balance for the Series A Preferred Interests.
(vii) "Unallocated Preferred Return" means with
reference to any series of Preferred Limited Partner Interests issued
by the Partnership, the excess of (a) the aggregate accumulated
Preferred Return on such series of Preferred Limited Partner Interests
(the "Accumulated Preferred Return"), over (b) the aggregate
accumulated amount of Allocated Preferred Return on such series of
Preferred Limited Partner Interests.
(viii) "Unallocated Series A Preferred Return" means
the Unallocated Preferred Return on the Series A Preferred Interests.
(ix) "Unpaid Series A Preferred Return" means the
excess of (a) the Series A Allocated Preferred Return, over (b) the
aggregate accumulated amount of Series A Allocated Preferred Return
paid as provided in Section 4 hereof by the issuance of additional
Series A Preferred Interests.
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<PAGE> 9
(b) The Series A Preferred Interests shall receive an
allocation of Net Profits, for purposes of Section A.4.1(b) of the
Appendix, for each Allocation Period equal to the lesser of (i) the
amount of Unallocated Series A Preferred Return measured as of the
close of the Allocation Period, and (ii) the Series A Net Profits for
such Allocation Period.
4. Payment of Preferred Return. Except as provided in Sections 6
and 9, the Partnership shall not pay the Series A Allocated Preferred Return on
Series A Preferred Interests in cash, but instead such Series A Allocated
Preferred Return shall be paid by the issuance of additional Series A Preferred
Interests in a stated amount equal to the Unpaid Series A Preferred Return.
Such Series A Allocated Preferred Return shall be paid as of each June 30 and
December 31. The Series A Preferred Interests issued in payment of the Series
A Allocated Preferred Return shall be entitled to receive a Series A Preferred
Return from the date of their issuance. Solely for purposes of determining
such Series A Preferred Return, the stated amount of any Series A Preferred
Interests previously issued in payment of Series A Allocated Preferred Return
shall be considered as a Series A Preferred Limited Partner Contribution made
at the time such Series A Preferred Interests were issued in payment of Series
A Allocated Preferred Return.
5. Subordination. The Series A Preferred Interests shall be
subordinated in right of payment to all indebtedness of the Partnership.
6. Payment Only Upon Dissolution. Except for the Optional
Redemption provided for in Section 9, the Series A Preferred Interests,
together with any Series A Allocated Preferred Return that has not yet been
paid by the issuance of additional Series A Preferred Interests as provided in
Section 4 hereof, are payable in cash only upon dissolution of the Partnership.
7. Preference on Liquidation. Upon dissolution of the
Partnership, the Series A Preferred Interests shall have the priority
established in Section 6.2 of the Agreement and shall be pari passu with the
Series B, C, D and E Preferred Interests and any other series that ranks pari
passu with the Series A Preferred Interests.
8. Voting Rights. No holder of Series A Preferred Interests
shall have voting rights or any right to participate in the management of the
Partnership by reason of holding Series A Preferred Interests.
9. Optional Redemption. Subject to the terms and provisions of
any financing arrangements set forth in any agreement to which the Partnership
is a party, the Series A Preferred Interests are redeemable in cash, at the
option of the Partnership, in whole or in part from time to time, at the Call
Price (as defined below).
(a) Redemption Price. The redemption price for
the Series A Preferred Interests (the "Call Price") shall be
the stated amount of the Series A Preferred Interests plus all
Unpaid Series A Preferred Return plus all Unallocated Series A
Preferred Return.
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<PAGE> 10
(b) Redemption Procedure.
(i) Notice of any redemption pursuant to
this Section 9 (a "Call Notice") of Series A Preferred
Interests will be given by the Partnership by mail to each
record holder to be redeemed not fewer than 30 nor more than
60 days prior to the date fixed for redemption thereof. For
purposes of the calculation of the date of redemption and the
dates on which the Call Notice is given, a Call Notice shall
be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, to such holders of
Series A Preferred Interests. Each Call Notice shall be
addressed to such holders of Series A Preferred Interests at
the address of the holder appearing in the books and records
of the Partnership. No defect in the Call Notice or in the
mailing thereof or publication of its contents shall affect
the validity of the redemption proceedings.
(ii) In the event that fewer than all the
outstanding Series A Preferred Interests are to be redeemed,
the Series A Preferred Interests to be redeemed will be
selected at the Partnership's discretion.
(iii) If the Partnership gives a Call
Notice in respect of Series A Preferred Interests, then upon
the date fixed for redemption of the Series A Preferred
Interests, all rights of the holders of the Series A Preferred
Interests so called for redemption will cease, except the
right of the holders of such securities to receive the Call
Price. In the event that any date fixed for redemption of
Series A Preferred Interests is not a business day, then
payment of the Call Price payable on such date will be made on
the next succeeding day which is a business day (and without
any interest or other payment in respect of any such delay),
except that, if such business day falls in the next calendar
year, such payment will be made on the immediately preceding
business day.
10. Effective Date and Transition. The amendment and restatement
of the designation of the Original Series A Preferred Interests shall be
effective as of 3:00 p.m. on September 3, 1997 (the "Effective Time").
Preferred Return shall continue to accrue and cumulate on the Series A
Preferred Interests from and after the Effective Time as provided herein. Any
Undistributed Preferred Return, as defined in the Amended and Restated
Agreement, due with respect to the Series A Preferred Interests as of the
Effective Time shall not be paid in cash as provided in the Amended and
Restated Agreement, but instead the following transition provisions shall
apply:
(a) The excess of (i) the cumulative Preferred Return on
the Series A Preferred Capital Interest, over (ii) the cumulative Net
Profits allocated with respect thereto, determined under the Amended
and Restated Agreement and measured as of the Effective Time, shall be
treated as Unallocated Series A Preferred Return as of such date, and
Series A Preferred Return shall continue to accrue with respect to
such Unallocated Series A Preferred Return as provided herein.
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<PAGE> 11
(b) The excess of (i) aggregate accumulated Net Profits
allocated with respect to the Series A Preferred Capital Interest,
over (ii) all prior distributions of cash with respect to Preferred
Returns on the Series A Preferred Capital Interest, determined under
the Amended and Restated Agreement and measured as of the Effective
Time, shall be treated as Unpaid Series A Preferred Return as of such
date and shall be paid as provided in Section 4 hereof (on the dates
specified in such Section 4 hereof) by issuing additional Series A
Preferred Interests in a stated amount equal to such Unpaid Series A
Preferred Return.
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5
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EXHIBIT 3
DESIGNATION OF
SERIES B 10% PAYMENT-IN-KIND PREFERRED LIMITED PARTNER INTERESTS
This Exhibit 3 constitutes a designation in accordance with Section
2.4 of the Second Amended and Restated Agreement of Limited Partnership (the
"Agreement"). This designation authorizes the issuance of Series B 10%
Payment- in-Kind Preferred Limited Partner Interests of the Partnership under
the terms set forth below. The defined terms used but not defined in this
Exhibit 3 shall have the meaning ascribed thereto in the Agreement.
1. Designation. The Partnership hereby designates and authorizes
the issuance of Series B 10% Payment-In- Kind Preferred Limited Partner
Interests ("Series B Preferred Interests"). Series B Preferred Interests may
not be issued by the Partnership in excess of an original stated amount of
$90,000,000, except that an unlimited stated amount of Series B Preferred
Interests may be issued by the Partnership in payment of Series B Preferred
Return in accordance with Section 4.
2. Ranking. So long as Series B Preferred Interests are
outstanding the Partnership will not issue any securities or interests ranking,
as to participation in the profits or assets of the Partnership, senior to the
Series B Preferred Interests other than in accordance with the Agreement and
with the unanimous written consent of all holders of Series B Preferred
Interests. The issuance of securities or interests ranking senior to the
Series B Preferred Interests shall be deemed to adversely affect the rights of
the Series B Preferred Interests under the Agreement. The Series B Preferred
Interests shall rank pari passu with the Series A, C, D and E Preferred
Interests and any other series that ranks pari passu with the Series B
Preferred Interests; provided, however, the Preferred Return on the Series D
Preferred Interests may, under certain conditions, be paid in cash prior to
dissolution of the Partnership.
3. Preferred Return and Allocation of Net Profits.
(a) Definitions. For purposes of determining the
Preferred Return on the Series B Preferred Interests and the
allocation of Net Profits with respect thereto, the following
definitions shall apply.
(i) "Allocated Preferred Return" means the amount
of aggregate accumulated Net Profits allocated with respect to
Preferred Return on the various series of Preferred Limited Partner
Interests issued by the Partnership.
(ii) "Allocation Period" means a period for which
an allocation of Net Profits is being determined.
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<PAGE> 13
(iii) "Series B Preferred Return" means a return
calculated to provide a cumulative, semi- annually compounded return
in an amount equal to ten percent (10%) per annum determined on the
basis of a year of 365 or 366 days, as the case may be, for the actual
number of days occurring in the period for which the Series B
Preferred Return is being determined, of the average daily balance of
the sum of (a) the Series B Unreturned Preferred Limited Partner
Balance outstanding, if any, from time to time during the period to
which the Preferred Return relates, plus (b) the Unallocated Series B
Preferred Return outstanding, if any, from time to time during the
period to which the Preferred Return relates (excluding from such
calculation, however, the Preferred Return for the period for which
such calculation is being made), commencing on the date on which the
applicable Series B Preferred Limited Partner Capital Contribution was
made by the contributing Preferred Limited Partner. The Series B
Preferred Return shall be calculated for each semi-annual period as of
June 30 and December 31 and, to the extent not paid for any such
period, the Series B Preferred Return shall cumulate on each June 30
and December 31 as provided herein and the amounts which so cumulate
shall be added to the Series B Preferred Return as described above.
(iv) "Series B Allocated Preferred Return" means
the Allocated Preferred Return on the Series B Preferred Interests,
consisting of the aggregate accumulated Net Profits that are allocated
with respect to Series B Preferred Returns as provided in Section 3(b)
hereof and to be paid as provided in Section 4 hereof by the issuance
of additional Series B Preferred Interests.
(v) "Series B Net Profits" means for any
Allocation Period the Net Profits of the Partnership multiplied by the
fraction equal to (a) the Unallocated Series B Preferred Return,
divided by (b) the aggregate of the Unallocated Preferred Returns of
all series of Preferred Interests issued by the Partnership.
(vi) "Series B Unreturned Preferred Limited
Partner Balance" means the Unreturned Preferred Limited Partner
Balance for the Series B Preferred Interests.
(vii) "Unallocated Preferred Return" means with
reference to any series of Preferred Limited Partner Interests issued
by the Partnership, the excess of (a) the aggregate accumulated
Preferred Return on such series of Preferred Limited Partner Interests
(the "Accumulated Preferred Return"), over (b) the aggregate
accumulated amount of Allocated Preferred Return on such series of
Preferred Limited Partner Interests.
(viii) "Unallocated Series B Preferred Return" means
the Unallocated Preferred Return on the Series B Preferred Interests.
(ix) "Unpaid Series B Preferred Return" means the
excess of (a) the Series B Allocated Preferred Return, over (b) the
aggregate accumulated amount of Series B Allocated Preferred Return
paid as provided in Section 4 hereof by the issuance of additional
Series B Preferred Interests.
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<PAGE> 14
(b) The Series B Preferred Interests shall receive an
allocation of Net Profits, for purposes of Section A.4.1(b) of the
Appendix, for each Allocation Period equal to the lesser of (i) the
amount of Unallocated Series B Preferred Return measured as of the
close of the Allocation Period, and (ii) the Series B Net Profits for
such Allocation Period.
4. Payment of Preferred Return. Except as provided in Sections 6
and 9, the Partnership shall not pay the Series B Allocated Preferred Return on
Series B Preferred Interests in cash, but instead such Series B Allocated
Preferred Return shall be paid by the issuance of additional Series B Preferred
Interests in a stated amount equal to the Unpaid Series B Preferred Return.
Such Series B Allocated Preferred Return shall be paid as of each June 30 and
December 31. The Series B Preferred Interests issued in payment of the Series
B Allocated Preferred Return shall be entitled to receive a Series B Preferred
Return from the date of their issuance. Solely for purposes of determining
such Series B Preferred Return, the stated amount of any Series B Preferred
Interests previously issued in payment of Series B Allocated Preferred Return
shall be considered as a Series B Preferred Limited Partner Contribution made
at the time such Series B Preferred Interests were issued in payment of Series
B Allocated Preferred Return.
5. Subordination. The Series B Preferred Interests shall be
subordinated in right of payment to all indebtedness of the Partnership.
6. Payment Only Upon Dissolution. Except for the Optional
Redemption provided for in Section 9, the Series B Preferred Interests,
together with any Series B Allocated Preferred Return that has not yet been
paid by the issuance of additional Series B Preferred Interests as provided in
Section 4 hereof, are payable in cash only upon dissolution of the Partnership.
7. Preference on Liquidation. Upon dissolution of the
Partnership, the Series B Preferred Interests shall have the priority
established in Section 6.2 of the Agreement and shall be pari passu with the
Series A, C, D and E Preferred Interests and any other series that ranks pari
passu with the Series B Preferred Interests.
8. Voting Rights. No holder of Series B Preferred Interests
shall have voting rights or any right to participate in the management of the
Partnership by reason of holding Series B Preferred Interests.
9. Optional Redemption. Subject to the terms and provisions of
any financing arrangements set forth in any agreement to which the Partnership
is a party, the Series B Preferred Interests are redeemable in cash, at the
option of the Partnership, in whole or in part from time to time, at the Call
Price (as defined below).
(a) Redemption Price. The redemption price for
the Series B Preferred Interests (the "Call Price") shall be
the stated amount of the Series B Preferred Interests plus all
Unpaid Series B Preferred Return plus all Unallocated Series B
Preferred Return.
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<PAGE> 15
(b) Redemption Procedure.
(i) Notice of any redemption pursuant to
this Section 9 (a "Call Notice") of Series B Preferred
Interests will be given by the Partnership by mail to each
record holder to be redeemed not fewer than 30 nor more than
60 days prior to the date fixed for redemption thereof. For
purposes of the calculation of the date of redemption and the
dates on which the Call Notice is given, a Call Notice shall
be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, to such holders of
Series B Preferred Interests. Each Call Notice shall be
addressed to such holders of Series B Preferred Interests at
the address of the holder appearing in the books and records
of the Partnership. No defect in the Call Notice or in the
mailing thereof or publication of its contents shall affect
the validity of the redemption proceedings.
(ii) In the event that fewer than all the
outstanding Series B Preferred Interests are to be redeemed,
the Series B Preferred Interests to be redeemed will be
selected at the Partnership's discretion.
(iii) If the Partnership gives a Call
Notice in respect of Series B Preferred Interests, then upon
the date fixed for redemption of the Series B Preferred
Interests, all rights of the holders of the Series B Preferred
Interests so called for redemption will cease, except the
right of the holders of such securities to receive the Call
Price. In the event that any date fixed for redemption of
Series B Preferred Interests is not a business day, then
payment of the Call Price payable on such date will be made on
the next succeeding day which is a business day (and without
any interest or other payment in respect of any such delay),
except that, if such business day falls in the next calendar
year, such payment will be made on the immediately preceding
business day.
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EXHIBIT 4
DESIGNATION OF
SERIES C 10% PAYMENT-IN-KIND PREFERRED LIMITED PARTNER INTERESTS
This Exhibit 4 constitutes a designation in accordance with Section
2.4 of the Second Amended and Restated Agreement of Limited Partnership (the
"Agreement"). This designation authorizes the issuance of Series C 10%
Payment- in-Kind Preferred Limited Partner Interests of the Partnership under
the terms set forth below. The defined terms used but not defined in this
Exhibit 4 shall have the meaning ascribed thereto in the Agreement.
1. Designation. The Partnership hereby designates and authorizes
the issuance of Series C 10% Payment-in- Kind Preferred Limited Partner
Interests ("Series C Preferred Interests"). Series C Preferred Interests may
not be issued by the Partnership in excess of an original stated amount of
$15,000,000 except that an unlimited stated amount of Series C Preferred
Interests may be issued by the Partnership in payment of Series C Preferred
Return in accordance with Section 4.
2. Ranking. So long as Series C Preferred Interests are
outstanding the Partnership will not issue any securities or interests ranking,
as to participation in the profits or assets of the Partnership, senior to the
Series C Preferred Interests other than in accordance with the Agreement and
with the unanimous written consent of all holders of Series C Preferred
Interests. The issuance of securities or interests ranking senior to the
Series C Preferred Interests shall be deemed to adversely affect the rights of
the Series C Preferred Interests under the Agreement. The Series C Preferred
Interests shall rank pari passu with the Series A, B, D and E Preferred
Interests and any other series that ranks pari passu with the Series C
Preferred Interests; provided, however, the Preferred Return on the Series D
Preferred Interests may, under certain conditions, be paid in cash prior to
dissolution of the Partnership.
3. Preferred Return and Allocation of Net Profits.
(a) Definitions. For purposes of determining the
Preferred Return on the Series C Preferred Interests and the
allocation of Net Profits with respect thereto, the following
definitions shall apply.
(i) "Allocated Preferred Return" means the amount
of aggregate accumulated Net Profits allocated with respect to
Preferred Return on the various series of Preferred Limited Partner
Interests issued by the Partnership.
(ii) "Allocation Period" means a period for which
an allocation of Net Profits is being determined.
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<PAGE> 17
(iii) "Series C Preferred Return" means a return
calculated to provide a cumulative, semi- annually compounded return
in an amount equal to ten percent (10%) per annum determined on the
basis of a year of 365 or 366 days, as the case may be, for the actual
number of days occurring in the period for which the Series C
Preferred Return is being determined, of the average daily balance of
the sum of (a) the Series C Unreturned Preferred Limited Partner
Balance outstanding, if any, from time to time during the period to
which the Preferred Return relates, plus (b) the Unallocated Series C
Preferred Return outstanding, if any, from time to time during the
period to which the Preferred Return relates (excluding from such
calculation, however, the Preferred Return for the period for which
such calculation is being made), commencing on the date on which the
applicable Series C Preferred Limited Partner Capital Contribution was
made by the contributing Preferred Limited Partner. The Series C
Preferred Return shall be calculated for each semi-annual period as of
June 30 and December 31 and, to the extent not paid for any such
period, the Series C Preferred Return shall cumulate on each June 30
and December 31 as provided herein and the amounts which so cumulate
shall be added to the Series C Preferred Return as described above.
(iv) "Series C Allocated Preferred Return" means
the Allocated Preferred Return on the Series C Preferred Interests,
consisting of the aggregate accumulated Net Profits that are allocated
with respect to Series C Preferred Returns as provided in Section 3(b)
hereof and to be paid as provided in Section 4 hereof by the issuance
of additional Series C Preferred Interests.
(v) "Series C Net Profits" means for any
Allocation Period the Net Profits of the Partnership multiplied by the
fraction equal to (a) the Unallocated Series C Preferred Return,
divided by (b) the aggregate of the Unallocated Preferred Returns of
all series of Preferred Interests issued by the Partnership.
(vi) "Series C Unreturned Preferred Limited
Partner Balance" means the Unreturned Preferred Limited Partner
Balance for the Series C Preferred Interests.
(vii) "Unallocated Preferred Return" means with
reference to any series of Preferred Limited Partner Interests issued
by the Partnership, the excess of (a) the aggregate accumulated
Preferred Return on such series of Preferred Limited Partner Interests
(the "Accumulated Preferred Return"), over (b) the aggregate
accumulated amount of Allocated Preferred Return on such series of
Preferred Limited Partner Interests.
(viii) "Unallocated Series C Preferred Return" means
the Unallocated Preferred Return on the Series C Preferred Interests.
(ix) "Unpaid Series C Preferred Return" means the
excess of (a) the Series C Allocated Preferred Return, over (b) the
aggregate accumulated amount of Series C Allocated Preferred Return
paid as provided in Section 4 hereof by the issuance of additional
Series C Preferred Interests.
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<PAGE> 18
(b) The Series C Preferred Interests shall receive an
allocation of Net Profits, for purposes of Section A.4.1(b) of the
Appendix, for each Allocation Period equal to the lesser of (i) the
amount of Unallocated Series C Preferred Return measured as of the
close of the Allocation Period, and (ii) the Series C Net Profits for
such Allocation Period.
4. Payment of Preferred Return. Except as provided in Sections 6
and 9, the Partnership shall not pay the Series C Allocated Preferred Return on
Series C Preferred Interests in cash, but instead such Series C Allocated
Preferred Return shall be paid by the issuance of additional Series C Preferred
Interests in a stated amount equal to the Unpaid Series C Preferred Return.
Such Series C Allocated Preferred Return shall be paid as of each June 30 and
December 31. The Series C Preferred Interests issued in payment of the Series
C Allocated Preferred Return shall be entitled to receive a Series C Preferred
Return from the date of their issuance. Solely for purposes of determining
such Series C Preferred Return, the stated amount of any Series C Preferred
Interests previously issued in payment of Series C Allocated Preferred Return
shall be considered as a Series C Preferred Limited Partner Contribution made
at the time such Series C Preferred Interests were issued in payment of Series
C Allocated Preferred Return.
5. Subordination. The Series C Preferred Interests shall be
subordinated in right of payment to all indebtedness of the Partnership.
6. Payment Only Upon Dissolution. Except for the Optional
Redemption provided for in Section 9, the Series C Preferred Interests,
together with any Series C Allocated Preferred Return that has not yet been
paid by the issuance of additional Series C Preferred Interests as provided in
Section 4 hereof, are payable in cash only upon dissolution of the Partnership.
7. Preference on Liquidation. Upon dissolution of the
Partnership, the Series C Preferred Interests shall have the priority
established in Section 6.2 of the Agreement and shall be pari passu with the
Series A, B, D and E Preferred Interests and any other series that ranks pari
passu with the Series C Preferred Interests.
8. Voting Rights. No holder of Series C Preferred Interests
shall have voting rights or any right to participate in the management of the
Partnership by reason of holding Series C Preferred Interests.
9. Optional Redemption. Subject to the terms and provisions of
any financing arrangements set forth in any agreement to which the Partnership
is a party, the Series C Preferred Interests are redeemable in cash, at the
option of the Partnership, in whole or in part from time to time, at the Call
Price (as defined below).
(a) Redemption Price. The redemption price for
the Series C Preferred Interests (the "Call Price") shall be
the stated amount of the Series C Preferred Interests plus all
Unpaid Series C Preferred Return plus all Unallocated Series C
Preferred Return.
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<PAGE> 19
(b) Redemption Procedure.
(i) Notice of any redemption pursuant to
this Section 9 (a "Call Notice") of Series C Preferred
Interests will be given by the Partnership by mail to each
record holder to be redeemed not fewer than 30 nor more than
60 days prior to the date fixed for redemption thereof. For
purposes of the calculation of the date of redemption and the
dates on which the Call Notice is given, a Call Notice shall
be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, to such holders of
Series C Preferred Interests. Each Call Notice shall be
addressed to such holders of Series C Preferred Interests at
the address of the holder appearing in the books and records
of the Partnership. No defect in the Call Notice or in the
mailing thereof or publication of its contents shall affect
the validity of the redemption proceedings.
(ii) In the event that fewer than all the
outstanding Series C Preferred Interests are to be redeemed,
the Series C Preferred Interests to be redeemed will be
selected at the Partnership's discretion.
(iii) If the Partnership gives a Call
Notice in respect of Series C Preferred Interests, then upon
the date fixed for redemption of the Series C Preferred
Interests, all rights of the holders of the Series C Preferred
Interests so called for redemption will cease, except the
right of the holders of such securities to receive the Call
Price. In the event that any date fixed for redemption of
Series C Preferred Interests is not a business day, then
payment of the Call Price payable on such date will be made on
the next succeeding day which is a business day (and without
any interest or other payment in respect of any such delay),
except that, if such business day falls in the next calendar
year, such payment will be made on the immediately preceding
business day.
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EXHIBIT 5
DESIGNATION OF SERIES D 9 1/2% PREFERRED LIMITED PARTNER INTERESTS
This Exhibit 5 constitutes a designation in accordance with Section
2.4 of the Second Amended and Restated Agreement of Limited Partnership (the
"Agreement"). This designation authorizes the issuance of Series D 9 1/2%
Preferred Limited Partner Interests of the Partnership under the terms set
forth below. The defined terms used but not defined in this Exhibit 5 shall
have the meaning ascribed thereto in the Agreement.
1. Designation. The Partnership hereby designates and authorizes
the issuance of Series D 9 1/2% Preferred Limited Partner Interests ("Series D
Preferred Interests"). Series D Preferred Interests may not be issued by the
Partnership in excess of an original stated amount of $30,000,000 except that
an unlimited stated amount of Series D Preferred Interests may be issued by the
Partnership in payment of Series D Preferred Return in accordance with Section
4.
2. Ranking. So long as Series D Preferred Interests are
outstanding the Partnership will not issue any securities or interests ranking,
as to participation in the profits or assets of the Partnership, senior to the
Series D Preferred Interests other than in accordance with the Agreement and
with the unanimous written consent of all holders of Series D Preferred
Interests. The issuance of securities or interests ranking senior to the
Series D Preferred Interests shall be deemed to adversely affect the rights of
the Series D Preferred Interests under the Agreement. The Series D Preferred
Interests shall rank pari passu with the Series A, B, C and E Preferred
Interests and any other series that ranks pari passu with the Series D
Preferred Interests; provided, however, the Preferred Return on the Series D
Preferred Interests may, under certain conditions, be paid in cash prior to
dissolution of the Partnership.
3. Preferred Return and Allocation of Net Profits.
(a) Definitions. For purposes of determining the
Preferred Return on the Series D Preferred Interests and the
allocation of Net Profits with respect thereto, the following
definitions shall apply.
(i) "Allocated Preferred Return" means
the amount of aggregate accumulated Net Profits allocated with
respect to the various series of Preferred Limited Partner
Interests issued by the Partnership.
(ii) "Allocation Period" means a period
for which an allocation of Net Profits is being determined.
(iii) "Series D Preferred Return" means a
return calculated to provide a cumulative, semi-annually
compounded return in an amount equal to nine and one-half
percent (9 1/2%) per annum determined on the basis of a year
of 365 or 366 days, as the case may be, for the actual number
of days occurring in the
1
<PAGE> 21
period for which the Series D Preferred Return is being
determined, of the average daily balance of the sum of (a) the
Series D Unreturned Preferred Limited Partner Balance
outstanding, if any, from time to time during the period to
which the Preferred Return relates, plus (b) the Unallocated
Series D Preferred Return outstanding, if any, from time to
time during the period to which the Preferred Return relates
(excluding from such calculation, however, the Preferred
Return for the period for which such calculation is being
made), commencing on the date on which the Series D Preferred
Limited Partner Capital Contribution was made by the
contributing Preferred Limited Partner. The Series D Preferred
Return shall be calculated for each semi-annual period as of
June 30 and December 31 and, to the extent not paid for any
such period within 45 days after the close of such period, the
Series D Preferred Return shall cumulate on each June 30 and
December 31 as provided herein and the amounts which so
cumulate shall be added to the Series D Preferred Return as
described above.
(iv) "Series D Allocated Preferred
Return" means the Allocated Preferred Return on the Series D
Preferred Interests, consisting of the aggregate accumulated
Net Profits that are allocated with respect to Series D
Preferred Returns as provided in Section 3(b) hereof and to be
paid as provided in Section 4 hereof by the issuance of
additional Series D Preferred Interests.
(v) "Series D Net Profits" means for any
Allocation Period the Net Profits of the Partnership
multiplied by the fraction equal to (a) the Unallocated Series
D Preferred Return, divided by (b) the aggregate of the
Unallocated Preferred Returns of all series of Preferred
Interests issued by the Partnership.
(vi) "Series D Unreturned Preferred
Limited Partner Balance" means the Unreturned Preferred
Limited Partner Balance for the Series D Preferred Interests.
(vii) "Unallocated Preferred Return" means
with reference to any series of Preferred Limited Partner
Interests issued by the Partnership, the excess of (a) the
aggregate accumulated Preferred Return on such series of
Preferred Limited Partner Interests (the "Accumulated
Preferred Return"), over (b) the aggregate accumulated amount
of Allocated Preferred Return on such series of Preferred
Limited Partner Interests.
(viii) "Unallocated Series D Preferred
Return" means the Unallocated Preferred Return on the Series D
Preferred Interests.
(ix) "Unpaid Series D Preferred Return"
means the excess of (a) the Series D Allocated Preferred
Return, over (b) the aggregate accumulated amount of Series D
Allocated Preferred Return paid as provided in Section 4
hereof either by payment in cash or by the issuance of
additional Series D Preferred Interests.
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<PAGE> 22
(b) The Series D Preferred Interests shall receive an
allocation of Net Profits, for purposes of Section A.4.1(b) of the
Appendix, for each Allocation Period equal to the lesser of (i) the
amount of Unallocated Series D Preferred Return measured as of the
close of the Allocation Period, and (ii) the Series D Net Profits for
such Allocation Period.
4. Payment of Preferred Return. The Series D Allocated Preferred
Return on the Series D Preferred Interests shall be paid in cash within 45 days
of each June 30 and December 31, unless, at the time of such distribution, cash
distributions are not permitted pursuant to the terms of any agreement to which
the Partnership is a party. If payment of the Series D Allocated Preferred
Return in cash is so prohibited, the Partnership shall pay the Series D
Allocated Preferred Return in additional Series D Preferred Interests in a
stated amount equal to the Unpaid Series D Preferred Return as of such payment
date. The Series D Preferred Interests issued in payment of the Series D
Allocated Preferred Return shall be entitled to receive a Series D Preferred
Return from the date of their issuance. Solely for purposes of determining
such Series D Preferred Return, the stated amount of any Series D Preferred
Interests previously issued in payment of Series D Allocated Preferred Return
shall be considered as a Series D Preferred Limited Partner Contribution made
at the time such Series D Preferred Interests were issued in payment of Series
D Allocated Preferred Return.
5. Subordination. The Series D Preferred Interests shall be
subordinated in right of payment to all indebtedness of the Partnership.
6. Payment Only Upon Dissolution. Except as provided in Sections
4 and 9, the Series D Preferred Interests, together with all Series D Allocated
Preferred Returns not previously paid in cash or in Series D Preferred
Interests, are payable in cash only upon dissolution of the Partnership.
7. Preference on Liquidation. Upon dissolution of the
Partnership, the Series D Preferred Interests shall have the priority
established in Section 6.2 of the Agreement and shall be pari passu with the
Series A, B, C and E Preferred Interests and any other series that ranks pari
passu with the Series D Preferred Interests.
8. Voting Rights. No holder of Series D Preferred Interests
shall have voting rights or any right to participate in the management of the
Partnership by reason of holding Series D Preferred Interests.
9. Optional Redemption. Subject to the terms and provisions of
any financing arrangements set forth in any agreement to which the Partnership
is a party, the Series D Preferred Interests are redeemable in cash, at the
option of the Partnership, in whole or in part from time to time, at the Call
Price (as defined below).
(a) Redemption Price. The redemption price for
the Series D Preferred Interests (the "Call Price") shall be
the stated amount of the Series D Preferred Interests plus all
Unpaid Series D Preferred Return plus all Unallocated Series D
Preferred Return.
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<PAGE> 23
(b) Redemption Procedure.
(i) Notice of any redemption pursuant to
this Section 9 (a "Call Notice") of Series D Preferred
Interests will be given by the Partnership by mail to each
record holder to be redeemed not fewer than 30 nor more than
60 days prior to the date fixed for redemption thereof. For
purposes of the calculation of the date of redemption and the
dates on which the Call Notice is given, a Call Notice shall
be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, to such holders of
Series D Preferred Interests. Each Call Notice shall be
addressed to such holders of Series D Preferred Interests at
the address of the holder appearing in the books and records
of the Partnership. No defect in the Call Notice or in the
mailing thereof or publication of its contents shall affect
the validity of the redemption proceedings.
(ii) In the event that fewer than all the
outstanding Series D Preferred Interests are to be redeemed,
the Series D Preferred Interests to be redeemed will be
selected at the Partnership's discretion.
(iii) If the Partnership gives a Call
Notice in respect of Series D Preferred Interests, then upon
the date fixed for redemption of the Series D Preferred
Interests, all rights of the holders of the Series D Preferred
Interests so called for redemption will cease, except the
right of the holders of such securities to receive the Call
Price. In the event that any date fixed for redemption of
Series D Preferred Interests is not a business day, then
payment of the Call Price payable on such date will be made on
the next succeeding day which is a business day (and without
any interest or other payment in respect of any such delay),
except that, if such business day falls in the next calendar
year, such payment will be made on the immediately preceding
business day.
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4
<PAGE> 24
EXHIBIT 6
DESIGNATION OF
SERIES E 10% PAYMENT-IN-KIND PREFERRED LIMITED PARTNER INTERESTS
This Exhibit 6 constitutes a designation in accordance with Section
2.4 of the Second Amended and Restated Agreement of Limited Partnership (the
"Agreement"). This designation authorizes the issuance of Series E 10%
Payment- in-Kind Preferred Limited Partner Interests of the Partnership under
the terms set forth below. The defined terms used but not defined in this
Exhibit 6 shall have the meaning ascribed thereto in the Agreement.
1. Designation. The Partnership hereby designates and authorizes
the issuance of an unlimited amount of Series E 10% Payment-in-Kind Preferred
Limited Partner Interests ("Series E Preferred Interests").
2. Ranking. So long as Series E Preferred Interests are
outstanding the Partnership will not issue any securities or interests ranking,
as to participation in the profits or assets of the Partnership, senior to the
Series E Preferred Interests other than in accordance with the Agreement and
with the unanimous written consent of all holders of Series E Preferred
Interests. The issuance of securities or interests ranking senior to the
Series E Preferred Interests shall be deemed to adversely affect the rights of
the Series E Preferred Interests under the Agreement. The Series E Preferred
Interests shall rank pari passu with the Series A, B, C, and D Preferred
Interests and any other series that ranks pari passu with the Series E
Preferred Interests; provided, however, the Preferred Return on the Series D
Preferred Interests may, under certain conditions, be paid in cash prior to
dissolution of the Partnership.
3. Preferred Return and Allocation of Net Profits.
(a) Definitions. For purposes of determining the
Preferred Return on the Series E Preferred Interests and the
allocation of Net Profits with respect thereto, the following
definitions shall apply.
(i) "Allocated Preferred Return" means the amount
of aggregate accumulated Net Profits allocated with respect to
Preferred Return on the various series of Preferred Limited Partner
Interests issued by the Partnership.
(ii) "Allocation Period" means a period for which
an allocation of Net Profits is being determined.
(iii) "Series E Preferred Return" means a return
calculated to provide a cumulative, semi- annually compounded return
in an amount equal to ten percent (10%) per annum determined on the
basis of a year of 365 or 366 days, as the case may be, for the actual
number of days occurring in the period for which the Series E
Preferred Return is
1
<PAGE> 25
being determined, of the average daily balance of the sum of (a) the
Series E Unreturned Preferred Limited Partner Balance outstanding, if
any, from time to time during the period to which the Preferred Return
relates, plus (b) the Unallocated Series E Preferred Return
outstanding, if any, from time to time during the period to which the
Preferred Return relates (excluding from such calculation, however,
the Preferred Return for the period for which such calculation is
being made), commencing on the date on which the applicable Series E
Preferred Limited Partner Capital Contribution was made by the
contributing Preferred Limited Partner. The Series E Preferred Return
shall be calculated for each semi-annual period as of June 30 and
December 31 and, to the extent not paid for any such period, the
Series E Preferred Return shall cumulate on each June 30 and December
31 as provided herein and the amounts which so cumulate shall be added
to the Series E Preferred Return as described above.
(iv) "Series E Allocated Preferred Return" means
the Allocated Preferred Return on the Series E Preferred Interests,
consisting of the aggregate accumulated Net Profits that are allocated
with respect to Series E Preferred Returns as provided in Section 3(b)
hereof and to be paid as provided in Section 4 hereof by the issuance
of additional Series E Preferred Interests.
(v) "Series E Net Profits" means for any
Allocation Period the Net Profits of the Partnership multiplied by the
fraction equal to (a) the Unallocated Series E Preferred Return,
divided by (b) the aggregate of the Unallocated Preferred Returns of
all series of Preferred Interests issued by the Partnership.
(vi) "Series E Unreturned Preferred Limited
Partner Balance" means the Unreturned Preferred Limited Partner
Balance for the Series E Preferred Interests.
(vii) "Unallocated Preferred Return" means with
reference to any series of Preferred Limited Partner Interests issued
by the Partnership, the excess of (a) the aggregate accumulated
Preferred Return on such series of Preferred Limited Partner Interests
(the "Accumulated Preferred Return"), over (b) the aggregate
accumulated amount of Allocated Preferred Return on such series of
Preferred Limited Partner Interests.
(viii) "Unallocated Series E Preferred Return" means
the Unallocated Preferred Return on the Series E Preferred Interests.
(ix) "Unpaid Series E Preferred Return" means the
excess of (a) the Series E Allocated Preferred Return, over (b) the
aggregate accumulated amount of Series E Allocated Preferred Return
paid as provided in Section 4 hereof by the issuance of additional
Series E Preferred Interests.
(b) The Series E Preferred Interests shall receive an
allocation of Net Profits, for purposes of Section A.4.1(b) of the
Appendix, for each Allocation Period equal to the
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<PAGE> 26
lesser of (i) the amount of Unallocated Series E Preferred Return
measured as of the close of the Allocation Period, and (ii) the Series
E Net Profits for such Allocation Period.
4. Payment of Preferred Return. Except as provided in Sections 6
and 9, the Partnership shall not pay the Series E Allocated Preferred Return on
Series E Preferred Interests in cash, but instead such Series E Allocated
Preferred Return shall be paid by the issuance of additional Series E Preferred
Interests in a stated amount equal to the Unpaid Series E Preferred Return.
Such Series E Allocated Preferred Return shall be paid as of each June 30 and
December 31. The Series E Preferred Interests issued in payment of the Series
E Allocated Preferred Return shall be entitled to receive a Series E Preferred
Return from the date of their issuance. Solely for purposes of determining
such Series E Preferred Return, the stated amount of any Series E Preferred
Interests previously issued in payment of Series E Allocated Preferred Return
shall be considered as a Series E Preferred Limited Partner Contribution made
at the time such Series E Preferred Interests were issued in payment of Series
E Allocated Preferred Return.
5. Subordination. The Series E Preferred Interests shall be
subordinated in right of payment to all indebtedness of the Partnership.
6. Payment Only Upon Dissolution. Except for the Optional
Redemption provided for in Section 9, the Series E Preferred Interests,
together with any Series E Allocated Preferred Return that has not yet been
paid by the issuance of additional Series E Preferred Interests as provided in
Section 4 hereof, are payable in cash only upon dissolution of the Partnership.
7. Preference on Liquidation. Upon dissolution of the
Partnership, the Series E Preferred Interests shall have the priority
established in Section 6.2 of the Agreement and shall be pari passu with the
Series A, B, C and D Preferred Interests and any other series that ranks pari
passu with the Series E Preferred Interests.
8. Voting Rights. No holder of Series E Preferred Interests
shall have voting rights or any right to participate in the management of the
Partnership by reason of holding Series E Preferred Interests.
9. Optional Redemption. Subject to the terms and provisions of
any financing arrangements set forth in any agreement to which the Partnership
is a party, the Series E Preferred Interests are redeemable in cash, at the
option of the Partnership, in whole or in part from time to time, at the Call
Price (as defined below).
(a) Redemption Price. The redemption price for
the Series E Preferred Interests (the "Call Price") shall be
the stated amount of the Series E Preferred Interests plus all
Unpaid Series E Preferred Return plus all Unallocated Series E
Preferred Return.
3
<PAGE> 27
(b) Redemption Procedure.
(i) Notice of any redemption pursuant to
this Section 9 (a "Call Notice") of Series E Preferred
Interests will be given by the Partnership by mail to each
record holder to be redeemed not fewer than 30 nor more than
60 days prior to the date fixed for redemption thereof. For
purposes of the calculation of the date of redemption and the
dates on which the Call Notice is given, a Call Notice shall
be deemed to be given on the day such notice is first mailed
by first-class mail, postage prepaid, to such holders of
Series E Preferred Interests. Each Call Notice shall be
addressed to such holders of Series E Preferred Interests at
the address of the holder appearing in the books and records
of the Partnership. No defect in the Call Notice or in the
mailing thereof or publication of its contents shall affect
the validity of the redemption proceedings.
(ii) In the event that fewer than all the
outstanding Series E Preferred Interests are to be redeemed,
the Series E Preferred Interests to be redeemed will be
selected at the Partnership's discretion.
(iii) If the Partnership gives a Call
Notice in respect of Series E Preferred Interests, then upon
the date fixed for redemption of the Series E Preferred
Interests, all rights of the holders of the Series E Preferred
Interests so called for redemption will cease, except the
right of the holders of such securities to receive the Call
Price. In the event that any date fixed for redemption of
Series E Preferred Interests is not a business day, then
payment of the Call Price payable on such date will be made on
the next succeeding day which is a business day (and without
any interest or other payment in respect of any such delay),
except that, if such business day falls in the next calendar
year, such payment will be made on the immediately preceding
business day.
10. Additional Issuance of Series E Preferred Interests
Authorized. The Partnership shall be authorized to issue additional Series E
Preferred Interests under the circumstances specified in Sections 5.6 and 5.7
of the Agreement. The Partnership shall also issue additional Series E
Preferred Interests to DFA if it shall pay to Borden any additional amounts
relating to employee benefit plans in connection with the transactions
contemplated by that certain Stock Purchase and Merger Agreement among Mid-Am
(now DFA), Borden, Inc., BDH Two, Inc. and Borden/Meadow Gold Dairies Holdings,
Inc., dated May 22, 1997. In that event, additional Series E Preferred
Interests in a stated amount of the amount paid to Borden shall be issued to
DFA as of the date of the payment to Borden.
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4
<PAGE> 1
EXHIBIT 3.6
BY-LAWS
OF
SFG CAPITAL CORPORATION
(a Delaware corporation)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be established
and maintained at 1209 Orange Street, Wilmington, Delaware 19801. The
Corporation Trust Company shall be the registered agent of this corporation in
charge thereof.
Section 2. Other Offices. The corporation may have other offices, either
within or without the State of Delaware, at such place or places as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meetings. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting.
<PAGE> 2
Section 2. Other Meetings. Meetings of stockholders for any purpose other
than the election of directors may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting.
Section 3. Voting. Each stockholder entitled to vote in accordance with the
terms of the Certificate of Incorporation and in accordance with the provisions
of these By-Laws shall be entitled to one vote, in person or by proxy, for each
share of stock entitled to vote held by such stockholder, but no proxy shall be
voted after three years from its date unless such proxy provides for a longer
period. Upon the demand of any stockholder, the vote for directors and the vote
upon any question before the meeting, shall be by ballot. All elections for
directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the Certificate of
Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote in the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be opened to the examination of any
stockholder for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof and may be inspected by any
stockholder who is present.
Section 4. Quorum. Except as otherwise required by law, by the Certificate
of Incorporation or by these By-Laws, the presence, in person or by proxy, of
stockholders holding a majority of the stock of the corporation entitled to vote
shall constitute a quorum at all
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<PAGE> 3
meetings of the stockholders. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders entitled to vote thereat,
present in person or by proxy, shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until the
requisite amount of stock entitled to vote shall be present. At such adjourned
meeting at which the requisite amount of stock entitled to vote shall be
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed; but only those stockholders entitled to vote
at the meeting as originally noticed shall be entitled to vote at any
adjournment or adjournments thereof.
Section 5. Special Meetings. Special meetings of the stockholders for any
purpose or purposes may be called by the President or Secretary, or by
resolution of the directors.
Section 6. Notice of Meetings. Written notice, stating the place, date and
time of the meeting, and the general nature of the business to be considered,
shall be given to each stockholder entitled to vote thereat at his address as it
appears on the records of the corporation, not less than ten nor more than fifty
days before the date of the meeting. No business other than that stated in the
notice shall be transacted at any meeting without the unanimous consent of all
the stockholders entitled to vote thereat.
Section 7. Action Without Meeting. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which
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all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. Number and Term. The number of directors shall be one or more.
The directors shall be elected at the annual meeting of the stockholders and
each director shall be elected to serve until his successor shall be elected and
qualified. Directors need not be stockholders.
Section 2. Removal. Any director or directors may be removed either for or
without cause at any time by the affirmative vote of the holders of a majority
of all the shares of stock outstanding and entitled to vote, at a special
meeting of the stockholders called for the purpose, and the vacancies thus
created may be filled, at the meeting held for the purpose of removal, by the
affirmative vote of a majority in interest of the stockholders entitled to vote.
Section 3. Increase of Number. The number of directors may be increased by
amendment of these By-Laws by the affirmative vote of a majority of the
directors, though less than a quorum, or by the affirmative vote of a majority
in interest of the stockholders, at the annual meeting or at a special meeting
called for that purpose, and by like vote the additional directors may be chosen
at such meeting to hold office until the next annual election and until their
successors shall have been elected and qualified.
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Section 4. Powers. The Board of Directors shall exercise all of the powers
of the corporation except such as are by law or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
Section 5. Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of such committee or committees. The member or members thereof present
at any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, or in these By-Laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority to amend the Certificate of Incorporation, to adopt an
agreement of merger or consolidation, to recommend to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, to recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or to amend the By-Laws of the corporation; and,
unless the resolution, these By-Laws or the Certificate of Incorporation
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
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Section 6. Meetings. The newly elected directors shall hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without notice at such places
and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the Board may be called by the President or by the
Secretary on the written request of any two directors on at least two days'
notice to each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.
Section 7. Quorum. A majority of the total number of directors shall
constitute a quorum for the transaction of business. If at any meeting of the
Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum is
obtained, and no further notice thereof need be given other than by announcement
at the meeting which shall be so adjourned.
Section 8. Compensation. Directors shall not receive any stated salary for
their services as directors or as members of committees, but by resolution of
the Board of Directors a fixed fee and expenses of attendance may be allowed for
attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
Section 9. Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a
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meeting, if a written consent thereto is signed by all members of the Board of
Directors, or of such committee as the case may be, and such written consent is
filed with the minutes of proceedings of the Board of Directors or committee.
Section 10. Participation by Conference Telephone. Members of the Board of
Directors of the corporation, or any committee designated by such Board, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
shall constitute presence in person at such meeting.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the corporation shall be a President
and a Secretary, all of whom shall be elected by the Board of Directors and who
shall hold office until their successors are elected and qualified. In addition,
the Board of Directors may elect a Chairman, one or more Vice Presidents, a
Treasurer and such Assistant Secretaries and Assistant Treasurers as they may
deem proper. None of the officers of the corporation need be directors. The
Officers shall be elected at the first meeting of the Board of Directors after
each annual meeting. More than two offices may be held by the same person.
Section 2. Other Officers and Agents. The Board of Directors may appoint
such other officers and agents as it may deem advisable, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
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Section 3. Chairman. The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
Section 4. President. The President shall be the chief executive officer of
the corporation and shall have the general powers and duties of supervision and
management usually vested in the office of president of a corporation. He shall
preside at all meetings of the stockholders if present thereat and, in the
absence or non-election of the Chairman of the Board of Directors, at all
meetings of the Board of Directors, and shall have general supervision,
direction and control of the business of the corporation. Except as the Board of
Directors shall authorize the execution thereof in some other manner, he shall
execute bonds, mortgages and other contracts on behalf of the corporation, and
shall cause the seal to be affixed to any instrument requiring it and when so
affixed the seal shall be attested by the signature of the Secretary or the
Treasurer or an Assistant Secretary or an Assistant Treasurer.
Section 5. Vice President. Each Vice President shall have such powers and
shall perform such duties as shall be assigned to him by the directors.
Section 6. Treasurer. The Treasurer, if one be elected, shall have the
custody of the corporate funds and securities and shall keep full and accurate
account of receipts and disbursements in books belonging to the corporation. He
shall deposit all moneys and other valuables in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors.
The Treasurer shall disburse the funds of the corporation as may be ordered
by the Board of Directors, or the President, taking proper vouchers for such
disbursements. He shall render
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to the President and Board of Directors at the regular meetings of the Board of
Directors, or whenever they may request it, an account of all his transactions
as Treasurer and of the financial condition of the corporation. If required by
the Board of Directors, he shall give the corporation a bond for the faithful
discharge of his duties in such amount and with such surety as the Board of
Directors shall prescribe.
Section 7. Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the President, or by the directors, or stockholders, upon whose requisition
the meeting is called as provided in these By-Laws. He shall record all the
proceedings of the meetings of the corporation and of the directors in a book to
be kept for that purpose, and shall perform such other duties as may be assigned
to him by the directors or the President. He shall have the custody of the seal
of the corporation and shall affix the same to all instruments requiring it,
when authorized by the directors or the President, and attest the same.
Section 8. Assistant Treasurers and assistant Secretaries. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
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ARTICLE V
MISCELLANEOUS
Section 1. Resignations. Any director, member of a committee or corporate
officer may, provided the same would not result in a breach of any contract to
which said person is a party, resign at any time. Such resignation shall be made
in writing, and shall take effect at the time specified therein, and if no time
be specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
Section 2. Vacancies. If the office of any director, member of a committee
or corporate officer becomes vacant, by reason of death, disability or
otherwise, the remaining directors in office, though less than a quorum, by a
majority vote may appoint any qualified person to fill such vacancy, who shall
hold office for the unexpired term and until his successor shall be duly chosen.
Section 3. Certificates of Stock. Certificates of stock, signed by the
Chairman of the Board of Directors, or the President or any Vice President, and
the Treasurer or an Assistant Treasurer, or Secretary or an Assistant Secretary,
shall be issued to each stockholder certifying the number of shares owned by him
in the corporation, unless otherwise required by the Board of Directors. When
such certificates are countersigned (1) by a transfer agent other than the
corporation or its employee, or (2) by a registrar other than the corporation or
its employee, the signatures of such officers may be facsimilies.
Section 4. Lost Certificates. A new certificate of stock may be issued in
the place of any certificate theretofore issued by the corporation, alleged to
have been lost or destroyed, and the directors may, in their discretion, require
the owner of the lost or destroyed certificate, or
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his legal representatives, to give the corporation a bond, in such sum as they
may direct, not exceeding double the value of the stock represented by such
certificate, to indemnify the corporation against any claim that may be made
against it on account of the alleged loss of any such certificate, or the
issuance of any such new certificate.
Section 5. Transfer of Shares. The shares of stock of the corporation shall
be transferable only upon its books by the holders thereof in person or by their
duly authorized attorneys or legal representatives, and upon such transfer the
old certificates shall be surrendered to the corporation by the delivery thereof
to the person in charge of the stock transfer books and ledgers, or to such
other person as the directors may designate, by whom they shall be canceled, and
new certificates shall thereupon be issued. A record shall be made of each
transfer and whenever a transfer shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer.
Section 6. Stockholders Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting;
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provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 7. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
Section 8. Seal. The corporate seal shall be circular in form and shall
contain the name of the corporation, the year of its creation and the words
"CORPORATE SEAL DELAWARE". Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or otherwise reproduced.
Section 9. Fiscal Year The fiscal year of the corporation shall be
determined by resolution of the Board of Directors. In the absence of such
determination, the fiscal year shall be the calendar year.
Section 10. Checks. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
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Section 11. Notice and Waiver of Notice. Whenever any notice is required by
these By-Laws to be given, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage prepaid, addressed to the
person entitled thereto at his address as it appears on the records of the
corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by statute.
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
corporation or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VI
INDEMNIFICATION
To the full extent permitted by law, the corporation must indemnify any
person or his heirs, distributees, next of kin, successors, appointees,
executors, administrators, legal representatives and assigns who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, domestic or foreign,
against expenses, attorneys' fees, court costs,
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judgments, fines, amounts paid in settlement and other losses actually and
reasonably incurred by him in connection with such action, suit or proceeding.
ARTICLE VII
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof by the
affirmative vote of a majority of the stock issued and outstanding and entitled
to vote thereat, or by the affirmative vote of a majority of the Board of
Directors, at any regular or special meeting of the Board of Directors.
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EXHIBIT 3.7
EXECUTION COPY
SFG MANAGEMENT LIMITED LIABILITY COMPANY
(A Delaware Limited Liability Company)
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of September 3, 1997
THE LIMITED LIABILITY COMPANY INTERESTS REFERENCED HEREIN HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR PURSUANT TO THE PROVISIONS OF ANY STATE SECURITIES ACT
CERTAIN RESTRICTIONS ON TRANSFERS OF LIMITED
LIABILITY COMPANY INTERESTS ARE SET FORTH HEREIN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 General Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Definitions for Provisions Requiring Prior Notice to Amend. . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II FORMATION OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Name and Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Registered Office and Registered Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Purposes and Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.7 Foreign Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.8 Mergers, Consolidations and Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.9 No State Law Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.10 Amended and Restated Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Management by Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Representative Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.1 Liability of Representative or Officer of the Company for Certain Acts . . . . . . . . . . . . . . . 16
4.2 Indemnification of Representative, Officer and Members of
the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V MEETINGS OF REPRESENTATIVE COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.3 Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.4 Meetings of All Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.5 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.6 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.7 Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.8 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.9 Action by Representatives Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.10 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.11 Conduct of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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ARTICLE VI CONTRIBUTIONS TO CAPITAL AND CAPITAL ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.1 Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Withdrawal of Members' Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.4 Liability of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.5 Membership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.6 Nature of Membership Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 Deficit Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII ALLOCATIONS, DISTRIBUTIONS, ELECTIONS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.1 Allocations of Profits and Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.3 Limitation Upon Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.5 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.6 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.7 Competitively Sensitive Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.8 Returns and Other Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.9 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.10 Tax Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VIII TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.1 Restrictions on Transfer of Membership Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.2 Death, Dissolution or Incapacity of Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.3 Assignees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.4 Substituted and Additional Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.5 Transfer Upon Exercise of Put Right in Southern Foods Group, L.P . . . . . . . . . . . . . . . . . . 32
ARTICLE IX DISSOLUTION AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Winding Up and Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.3 Distributions in Kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 Certificate of Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE X ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XI MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.2 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.3 Application of Delaware Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.4 No Action for Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.5 Headings and Sections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.6 Amendment of Certificate of Formation and Agreement; Provisions Requiring Prior Notice to Amend . . 38
11.7 Numbers and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.8 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.10 Basis-Adjustment Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.11 Execution of Agreement Constitutes Consent and Waiver. . . . . . . . . . . . . . . . . . . . . . . . 38
11.12 Joinder of Meyer for Limited Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
SCHEDULE 1
APPENDIX
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SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
SFG MANAGEMENT LIMITED LIABILITY COMPANY
THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of SFG Management Limited Liability Company (the "Agreement"), dated as of
September 3, 1997, to be effective as of 3:00 p.m. on September 3, 1997 (the
"Effective Time"), is hereby duly adopted by the Members (as defined below),
who agree to be bound hereby, as the limited liability company agreement of SFG
Management Limited Liability Company, a Delaware limited liability company,
which such Agreement shall amend, restate, replace and supersede all prior
limited liability company agreements of SFG Management Limited Liability
Company (the "Company").
R E C I T A L S
WHEREAS, Mid-America Dairymen, Inc. ("Mid-Am") and Mid-Am Finance,
Inc. ("Finance") entered into that certain Limited Liability Company Agreement
dated December 19, 1994 ("Original Agreement") to form a Delaware limited
liability company under the name SFG Management Limited Liability Company
pursuant to which Mid-Am owned an 80% Membership Interest and Finance owned a
20% Membership Interest; and
WHEREAS, the Certificate of Formation of the Company, dated as of
December 16, 1994, was filed in the Office of the Secretary of State of the
State of Delaware on December 19, 1994; and
WHEREAS, the Company is the General Partner of Southern Foods Group,
L.P. (the "Partnership"); and
WHEREAS, on October 31, 1996, Allen A. Meyer ("Meyer") and Pete
Schenkel ("Schenkel") each acquired a 10% Membership Interest from Finance and
became substitute Members; and
WHEREAS, Mid-Am, Schenkel and Meyer entered into that certain Amended
and Restated Limited Liability Company Agreement as of January 1, 1997 (the
"Amended and Restated Agreement") , pursuant to which Schenkel and Meyer made
additional capital contributions to the Company, the result of which was that
Mid-Am owned 50% of the Membership Interests and Schenkel and Meyer each own
25% of the Membership Interests; and
WHEREAS, pursuant to an SFG Purchase Agreement dated June 19, 1997
between Schenkel and Meyer, Schenkel will purchase all of the existing
Membership Interest of Meyer in the Company resulting in the respective
Membership Interests of all Members being as is set forth on Schedule 1 hereto;
and
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WHEREAS, as a result of the purchase by Schenkel of the Meyer
Membership Interest (the "Ownership Change") and certain other transactions
relating to the Company and the Partnership, the Members desire to amend and
restate in its entirety the Amended and Restated Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained in this Agreement, the Members agree to continue the business of the
Company without dissolution for the purposes and on the terms and conditions
set forth as follows:
ARTICLE I
DEFINITIONS
1.1 General Definitions. Capitalized terms that are used in this
Agreement and are defined in the Appendix shall have the meanings set forth for
such terms in the Appendix. Terms that are defined in Section 1.2 shall have
the meanings set forth for such terms in Section 1.2. The following terms used
in this Agreement shall have the following meanings, unless otherwise expressly
indicated:
"Act" shall mean the Delaware Limited Liability Company Act,
as the same may be amended from time to time.
"Affiliate" means any Person directly or indirectly
controlling, controlled by, or under common control with the Person in
question; if the Person in question is a corporation, any executive
officer or director of the Person in question or of any corporation
directly or indirectly controlling the Person in question. As used in
this definition of "Affiliate, " the term "control" means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract, or otherwise.
"Amended and Restated Agreement" means the Amended and
Restated Limited Liability Company Agreement of SFG Management Limited
Liability Company dated as of January 1, 1997.
"Board of Representatives" or the "Representative Committee,"
which terms are used interchangeably, means the committee of the
Representatives of the Members designated pursuant to Article III.
"Capital Account" means, with respect to any Member, the
account maintained for such Member pursuant to Section 6.2 and the
Appendix of this Agreement.
"Capital Contribution" means, as to any Member, the sum of all
cash and the fair market value of any property (as specified in this
Agreement, or, if not so specified, as determined by the Members)
which has actually been paid or contributed to the Company by such
Member.
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"Certificate of Formation" has the meaning given that term in
Sections 2.1 and 2.2 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means SFG Management Limited Liability Company, a
Delaware limited liability company.
"Disability" means the inability of Schenkel because of any
physical or emotional illness to perform his duties as the President
and Chief Executive Officer of the Company or the Partnership for more
than 30 hours per week.
"Distributable Cash" means all cash, revenues and funds
received by the Company, less the sum of the following to the extent
paid or set aside by the Company: (i) all principal and interest
payments on indebtedness of the Company and all other sums paid to
lenders; (ii) all cash expenditures incurred incident to the normal
operations of the Company's business; and (iii) such cash reserves as
the Representative Committee deems reasonably necessary to the proper
operation of the Company's business.
"Family Controlled Entity" has the meaning set forth for such
term in the Partnership Agreement.
"Fiscal Year" means the Company's fiscal year, which shall be
the calendar year.
"Initial Capital Contribution" means the contribution to the
capital of the Company made by a Member pursuant to this Agreement,
the Original Agreement, the Amended and Restated Agreement or any
other agreement to obtain the Membership Interest of such Member set
forth on Schedule 1 attached hereto.
"Member" means each Person designated as a Member on Schedule
1, attached hereto and hereby made a part hereof, any successor or
successors to all or any part of any such Person's interest in the
Company admitted as a Member of the Company in accordance with Section
8.4, or any additional Member admitted as a Member of the Company in
accordance with Article VIII, each in its capacity as a Member of the
Company, but does not include any Member who has ceased to be a Member
of the Company. "Members" means all such Persons collectively in
their capacity as Members of the Company.
"Membership Interest" means the percentage of limited
liability company interest of a Member of the Company as set forth on
Schedule 1 attached hereto.
"Original Agreement" means the original Limited Liability
Company Agreement of SFG Management Limited Liability Company dated
December 19, 1994.
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"Partnership Agreement" means that certain Second Amended and
Restated Agreement of Limited Partnership of Southern Foods Group,
L.P., of even date herewith, as amended from time to time.
"Person" shall have the meaning given that term in the Act.
"Representative" shall have the meaning set forth in Section
3.1 hereof.
"Representative Committee" or the "Board of Representatives,"
which terms are used interchangeably, means the committee of the
Representatives of the Members designated pursuant to Article III.
"Terminating Capital Transaction" means a sale or other
permanent disposition (including casualty or condemnation) of all or
substantially all of the assets of the Company, or a dissolution of
the Company, or both.
1.2 Definitions for Provisions Requiring Prior Notice to Amend.
The following terms used in the Provisions Requiring Prior Notice to Amend (as
defined below) shall have the following meanings:
"Competitively Sensitive Information" means information that
is not Public and could be used by a competitor or supplier to make
production, pricing or marketing decisions, including but not limited
to information relating to costs, capacity, distribution, marketing,
supply, market territories, customer relationships, the terms of
dealing with any particular customer (including the identity of
individual customers and the quantity sold to any particular
customer), and current and future prices, including discounts,
slotting allowances, bids, or price lists. Information is
presumptively not "Competitively Sensitive" if the information is
aggregated on an entity-wide basis so long as the entity operates more
than three (3) dairy processing plants or if the information is based
on data that is more than six (6) months old. Information that would
not be considered "Competitively Sensitive" includes, but is not
limited to, aggregate entity-wide financial information (including
monthly profit and loss statements, balance sheets, and statements of
cash flow), aggregate customer information, and aggregate price
information (including information on price trends).
"DOJ" means the United States Department of Justice.
"Independent Decisionmaker" means an individual, not an
officer, director, employee, or agent of the Mid-Am Parties or the
Company, the Partnership or any Member, and who is otherwise
independent from the Mid-Am Parties, experienced in accounting and
financial matters, that is designated by the Representative Committee
to perform the assigned functions set forth in the Provisions
Requiring Prior Notice to Amend.
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<PAGE> 9
"Mid-Am Parties" shall mean Mid-America Dairymen, Inc., its
members, directors, officers, employees, subsidiaries, Affiliates
(other than the Company, the Partnership, Schenkel and any other
Person affiliated with Mid-Am only as a result of their relationship
with the Company, the Partnership or Schenkel) and successors, and, as
long as it is owned in whole or in part by Mid-America Dairymen, Inc.,
Mid-Am Capital, L.L.C., its subsidiaries, directors, officers, and/or
employees; provided, however, that with respect to matters that relate
to actions by the Members or Representatives, such term shall mean
only those Mid-Am Parties that are Members or Representatives, as the
case may be.
"Mid-Am Representatives" shall mean any Representatives
appointed to the Representative Committee by the Mid-Am Parties.
"Packaged Pasteurized Milk" means pasteurized milk in final
package form for beverage use as currently defined in 21 C.F.R.
Section 131.110(a).
"Provisions Requiring Prior Notice to Amend" means the
provisions of Sections 1.2, 3.3(d), 7.7, 8.1(c), 9.1(b) and 11.6(b).
"Public" information is information that has been quoted in a
publication other than one authored by the Company or the Partnership,
if it has been disclosed to the public (other than a customer or
supplier of the Company or the Partnership by the Company or the
Partnership) prior to disclosure to the Mid-Am Parties, or is
disclosed to the public (other than a customer or supplier of the
Company or the Partnership by the Company or the Partnership) at the
same time it is disclosed to the Mid-Am Parties.
ARTICLE II
FORMATION OF THE COMPANY
2.1 Members. Upon the execution of this Agreement, and after the
Ownership Change, Schenkel and Mid-Am (sometimes collectively referred to
herein as "Members" and individually as a "Member") shall constitute the
members of the Company. The parties hereto hereby amend, restate and replace
the Amended and Restated Agreement pursuant to the provisions of the Act. The
Certificate of Formation filed with respect to the Company is hereby adopted.
In the event of any inconsistency between the Certificate of Formation and this
Agreement, the terms of this Agreement shall govern, except to the extent such
terms are inconsistent with the Act or jeopardize the tax classification of the
Company as a partnership, in which events such terms shall be null and void ab
initio.
2.2 Name and Formation. The name of the Company is SFG Management
Limited Liability Company. The Certificate of Formation was filed in the
office of the Secretary of State of the State of Delaware on December 19, 1994.
The Company was formed pursuant to the Certificate of Formation on December 19,
1994, under the terms of the Act.
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2.3 Principal Place of Business. The principal place of business
of the Company shall be 3114 S. Haskell, Dallas, Texas 75223. The Company may
locate its place(s) of business and registered office at any other place or
places as may from time to time be deemed necessary or advisable by the
Representative Committee, provided that the Representative Committee shall give
written notice of the change to the Members within thirty (30) days after the
effective date of the change, and if necessary, the Representative Committee
shall amend the Certificate of Formation in accordance with the applicable
requirements of the Act.
2.4 Registered Office and Registered Agent. The Company's
registered office shall be the office of the initial registered agent named in
the Certificate of Formation or such other office selected by the
Representative Committee from time to time. The registered agent of the
Company is the initial registered agent named in the Certificate of Formation
or another Person or Persons selected by the Representative Committee from time
to time.
2.5 Term. The term of the Company shall be until December 31,
2050 unless the Company is earlier dissolved in accordance with either the
provisions of this Agreement or the Act.
2.6 Purposes and Powers. The purposes and character of the
business of the Company shall be to accomplish any or all lawful business for
which limited liability companies may be organized under the Act. The Company
shall have any and all powers which are necessary, proper, advisable,
convenient or desirable to carry out the purposes and business of the Company,
to the extent the same may be legally exercised by limited liability companies
under the Act.
2.7 Foreign Qualification. The Members shall cause the Company to
comply, to the extent legally possible, with all requirements necessary to
qualify the Company as a foreign limited liability company in each jurisdiction
in which the Company conducts business. Each Member shall execute,
acknowledge, swear to and deliver all certificates and other instruments
conforming with this Agreement that are necessary or appropriate to qualify,
continue and terminate the Company as a foreign limited liability company in
all such jurisdictions in which the Company may conduct business.
2.8 Mergers, Consolidations and Conversions. The Company may be a
party to a merger, consolidation or conversion, subject to obtaining the
required vote of the Representative Committee in compliance with Article III
hereof.
2.9 No State Law Partnership. The Members intend that the Company
will be treated as a partnership for tax purposes and that each Member will be
treated as a partner of a partnership for tax purposes, and that the Company
will not be a partnership (including, without limitation, a limited
partnership) or joint venture, and that no Member be a partner or a joint
venturer of any other Member, for any purposes other than tax purposes, and
this Agreement may not be construed to suggest otherwise.
2.10 Amended and Restated Agreement. This Agreement amends,
restates, replaces and supersedes the Amended and Restated Agreement in its
entirety. However, as provided in Section
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7.2 hereof, the Members acknowledge certain obligations to Meyer under the
Amended and Restated Agreement, which will be paid as provided in Section 7.2.
ARTICLE III
MANAGEMENT
3.1 Management by Members.
(a) General. The business and affairs of the Company
shall be managed by the Members (exclusively in their capacity as
members) who shall be represented by and act through the
Representative Committee.
(b) Duties and Obligations. Subject to Section 4.1, each
person serving on the Representative Committee (a "Representative")
and officer of the Company shall exercise such person's business
judgment in managing the business, operations and affairs of the
Company and the Partnership.
(c) No Authority of Members or Representatives to Bind
Company. Unless authorized to do so by this Agreement or by the
Representative Committee, no Member, Representative, agent or employee
of the Company shall have any power or authority to bind the Company
in any way.
3.2 Representative Committee.
(a) Management. Any decisions to be made by the Members
under the Act or this Agreement shall be made by the Representative
Committee unless specifically provided otherwise. The participation
and acts of each Representative of the Representative Committee shall
be the participation and acts of the Member appointing such
Representative and that Member shall be bound thereby.
(b) Decisions Reserved to Members. Notwithstanding the
provisions of Section 3.2(a) or any other provisions herein to the
contrary, the Representative Committee may not cause the Company to do
any of the following actions without the unanimous agreement of all of
the Members of the Company:
(i) the sale, lease, transfer or other
disposition of all or substantially all of the Company's
assets or business;
(ii) any increase or decrease in the
capitalization of the Company;
(iii) the admission of any new Member to the
Company;
(iv) the making of loans by or from the Company
with any Member or any Affiliate of any Member;
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(v) any guarantee by the Company of any
indebtedness or other obligation of any kind of any Member or
any Affiliate of a Member;
(vi) the entry into, or any amendment or
modification or cancellation of, a management, service, or
other agreement or contract between the Company and a Member
or its Affiliates;
(vii) the making of a material tax election under
the Code affecting the Company or its Members unless
specifically allowed pursuant to the terms of this Agreement;
(viii) the confession of a judgment by the Company;
(ix) the filing of bankruptcy by the Company;
(x) the merger or consolidation of the Company or
the conversion of the Company into another form of entity;
(xi) the offering of any securities or limited
liability company interests to third parties by the Company;
(xii) the liquidation or dissolution of the
Company;
(xiii) the delegation to an agent of the Company of
the power to take any of the actions referred to in the
foregoing clauses; and
(xiv) any amendment or modification of this
Agreement or the Certificate of Formation.
(c) Designation and Appointment of Representatives. The
Representative Committee shall consist of four individuals, two of whom shall
be designated and appointed by Mid-Am and two of whom shall be designated and
appointed by Schenkel. Each Representative that such Member has designated and
appointed shall have one vote on all matters as to which such Representative is
entitled to vote. Except as provided in Section 3.2(b), the Representatives
shall in all respects relating to the Company represent and act on behalf of
the Members.
(d) General.
(i) Removal. Any Representative may be removed
by the Member appointing such Representative at any time with
or without cause.
(ii) Resignation. Any Representative may resign
at any time by giving notice to the Member appointing such
Representative with a copy to the President (hereinafter
defined) and to the other Representatives on the
Representative Committee. A Representative's resignation
shall take effect at the time specified in
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the notice and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make
it effective.
(iii) Vacancies. Any vacancy occurring in the
Representative Committee shall be filled by the Member
appointing the Representative causing such vacancy.
(iv) Meetings. Meetings of the Representative
Committee shall be held in accordance with Article V.
(v) Reimbursement. The Representatives shall be
entitled to receive reimbursement for reasonable
"out-of-pocket" expenses incurred in connection with their
services to the Company.
(vi) Indemnification. The Company shall indemnify
the Representatives to the extent set forth in Article IV.
3.3 Officers.
(a) Election of Officers. The Company shall elect a
chief executive officer, a president and chief operating officer, a
vice president, a secretary and a treasurer for the Company. No
officers need be a Member of the Company or a resident of Delaware.
The Company shall have such other officers and agents as shall be
deemed necessary, who shall be appointed for such terms and shall
exercise such powers and perform such duties as shall be determined
from time to time by the Representative Committee. Any two or more
offices may be held by the same person.
(i) Each officer of the Company shall hold office
until his successor is chosen and is qualified in his stead or
until his death or until his resignation or removal from
office.
(ii) Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by such person
as is elected or appointed by the Representative Committee.
(iii) The compensation of all officers and agents
shall be fixed by the Representative Committee.
(b) Authority and Duties. The officers of the Company
shall have the authority and shall exercise the powers and perform the
duties specified below and as may be additionally specified by the
Representative Committee or this Agreement (and in all cases
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where the duties of any officer are not prescribed by this Agreement
or the Representative Committee, such officer shall follow the orders
and instructions of the President):
(i) President and Chief Executive Officer. The
President and Chief Executive Officer shall be the Chief
Executive Officer of the Company and the Partnership and shall
preside over the general and active operational matters of the
business of the Company and the Partnership, and shall direct,
manage and control the operational matters of the Company and
the Partnership to the best of the President and Chief
Executive Officer's ability. The President and Chief
Executive Officer shall serve until resignation or dissolution
and liquidation of the Company or removal by the
Representative Committee. The President and Chief Executive
Officer shall, subject to the provisions of Section 3.3(d),
have full and complete authority, power and discretion to make
any and all decisions and do any and all things that the
President and Chief Executive Officer deems to be reasonably
required in furtherance of the Company and the Partnership's
business and objectives. Without limiting the generality of
the foregoing, the President and Chief Executive Officer or
such subordinate officer designated by the President and Chief
Executive Officer, or any officer duly authorized by the
Representative Committee shall have the power and authority on
behalf of the Company:
(A) to purchase liability and other
insurance to protect the Company and
the Partnership's property and
business;
(B) to invest any Company or Partnership
funds temporarily (by way of example
but not limitation) in time
deposits, short-term governmental
obligations, commercial paper or
other investments;
(C) to employ accountants, legal
counsel, managing agents or other
experts, employees or agents to
perform services for the Company or
the Partnership and to compensate
them from Company or Partnership
funds;
(D) to negotiate with employees and any
labor union representing employees
of the Company or the Partnership;
and
(E) to carry out all orders and
resolutions of the Representative
Committee.
(ii) Vice President. The Vice President, unless
otherwise determined by the Representative Committee, shall,
in the absence or disability of the President and Chief
Executive Officer, perform the duties and have the authority
and exercise the powers of the President and Chief Executive
Officer. He shall perform such other duties and have such
other authority and powers as the Representative Committee may
from time to time prescribe or as the President and Chief
Executive Officer may
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<PAGE> 15
from time to time delegate. There may be more than one Vice
President as determined by the Representative Committee.
(iii) Secretary. The Secretary shall attend all
meetings of the Representative Committee and Members and
record all votes and the minutes of all proceedings in a book
to be kept for that purpose and shall perform like duties for
any committee, if requested. He shall give, or cause to be
given, notice of the meetings of the Representative Committee
and Members where such notices are required by this Agreement
or the Act to be given. He shall be under the supervision of
the President and Chief Executive Officer. He shall perform
such other duties and have such other authority and powers as
the Representative Committee may from time to time prescribe
or as the President and Chief Executive Officer may from time
to time delegate.
(iv) Treasurer. The Treasurer shall have the
custody of the Company funds and shall keep full and accurate
accounts of receipts and disbursements of the Company, and
shall deposit all monies and other valuable effects in the
name and to the credit of the Company in such depositories as
may be designated by the Representative Committee. He shall
disburse the funds of the Company as may be ordered by the
Representative Committee, taking proper vouchers for such
disbursements, and shall render to the President and Chief
Executive Officer and Representative Committee, at the regular
meetings of the Representative Committee, or whenever they may
require it, an account of all his transactions as Treasurer
and of the financial condition of the Company and the
Partnership. If required by the Representative Committee, he
shall give the Company and the Partnership a bond in such
form, in such sum, and with such surety or sureties as shall
be satisfactory to the Representative Committee for the
faithful performance of the duties of his office and for the
restoration to the Company and the Partnership, in case of his
death, resignation, retirement or removal from office, of all
books, papers, vouchers, money or other property of whatever
kind in his possession or under his control belonging to the
Company or the Partnership. He shall perform such other
duties and have such other authority and powers as the
Representative Committee may from time to time prescribe or as
the President and Chief Executive Officer may from time to
time delegate.
(v) Required Officers. The Representative
Committee shall not be required to fill the office of Vice
President or to name any committee until, in the opinion of
the Representative Committee, there is a need for such
offices, committees, or any of them, to be filled.
(c) Execution of Contracts. Each of the President and
Chief Executive Officer or such subordinate officer or officers
designated by the President and Chief Executive Officer or any officer
designated by the Representative Committee shall have the authority to
execute on behalf of the Company and the Partnership all agreements,
instruments and documents, including, without limitation, checks,
drafts, notes and other negotiable
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<PAGE> 16
instruments, mortgages, deeds of trusts, security agreements,
financing statements, documents providing for the acquisition,
mortgage or disposition of the Company or the Partnership's property,
assignments, bills of sale, leases, partnership agreements and any
other instruments or documents necessary to effectuate any actions
which have been approved by the Members or the Representative
Committee (if such actions require under the Act or this Agreement the
approval of the Members or the Representative Committee) or by the
President and Chief Executive Officer (if such actions do not require
under the Act or this Agreement the approval of the Members or the
Representative Committee).
(d) Actions Requiring Representative Committee Approval.
(i) Notwithstanding any other provision of this
Agreement (except for Section 3.3(d)(ii) below), and in
addition to any other actions requiring Member or
Representative Committee approval as provided herein or in the
Act, the following actions on behalf of the Company shall
require the approval of the Representative Committee, which
approval shall be by the unanimous vote of the Representative
Committee:
(A) the incurrence of any indebtedness,
making of any contract making of any
capital expenditure or investment,
the disposal or pledge of Company
property or settlement of any claim
or litigation in an amount in excess
of $50,000, if not contemplated and
approved by the Representative
Committee unless in the President
and Chief Executive Officer's
reasonable good faith judgment any
such cost must be incurred on an
emergency basis to protect the
properties or assets of the Company
or the Partnership or any portion
thereof from substantial loss, to
preclude additional material
expenditures or to avoid material
liability;
(B) any actions or approvals to be taken
by the Company on behalf of the
Partnership;
(C) the appointment or removal of any
officer of the Company or the
Partnership and the compensation of
all officers and agents of the
Company or the Partnership;
(D) the acquisition, expansion or
disposal of facilities of the
Company or the Partnership; and
(E) any other agreement which would
substantially affect the operation
of the Company or the Partnership.
Notwithstanding the preceding provisions of this subparagraph
(d)(i) to the contrary (but subject to Section 3.3(d)(ii)),
the approval of the Representative Committee shall
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not be required with respect to any of the actions listed
above if such actions have been approved by the unanimous
agreement of the Members of the Company.
(ii) Notwithstanding any provision in this
Agreement to the contrary, with respect to the matters
specified in Section 3.3(d)(i) above, the Mid-Am
Representatives shall have the following rights or limitations
on its rights.
(A) With respect to the matters
specified in Section 3.3(d)(i)(A),
the Mid-Am Representatives shall not
have the right to vote on such
matters except the Mid-Am
Representatives shall have the right
to vote on the settlement of any
claim or litigation in an amount in
excess of $50,000 and when another
provision of this Section 3.3(d)(ii)
expressly so permits.
(B) With respect to the matters
specified in Section 3.3(d)(i)(B),
the Mid-Am Representatives shall not
have the right to vote on such
matters unless another provision of
this Section 3.3(d)(ii) expressly so
permits.
(C) With respect to the matters
specified in Section 3.3(d)(i)(C),
the Representatives appointed by
Schenkel will nominate officers of
the Company and the Partnership.
The Representatives appointed by
Schenkel cannot nominate any member,
director, officer or employee of the
Mid-Am Parties to serve as an
officer of the Company or the
Partnership. The Mid-Am
Representatives will agree to vote
for the appointment of any officer
nominated by the Representatives
appointed by Schenkel except the
Mid-Am Representatives can withhold
their consent if such nominee lacks
management experience in (or
relevant to) the dairy processing
business or the specialized area for
which he or she is to be appointed
(e.g. financial management), or has
been declared bankrupt, has been
charged with or convicted of a
felony, or has been held liable (or
caused an employer to be held
liable) for breach of fiduciary duty
or fraud. In addition, the
Representatives appointed by
Schenkel will recommend the
compensation of all officers and
agents of the Company and the
Partnership and the Mid-Am
Representatives will agree to vote
for such compensation as recommended
except the Mid-Am Representatives
can withhold their consent if they
can convince an Independent
Decisionmaker, acting independently
and using his or her own business
judgment, that such compensation is
not consistent with the past
practices of the Company or is not
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reasonable and customary for the
industry based on the Partnership's
performance.
(D) With respect to the matters
specified in Section 3.3(d)(i)(D),
the Mid-Am Representatives may
participate and vote on such
matters, except that
(1) with respect to matters
relating to Pasteurized
Packaged Milk, the Mid-Am
Representatives shall not
participate in any vote or
other action regarding (a)
any budget detailing capital
expenditures relating to the
manufacture, packaging, sale
or distribution of
Pasteurized Packaged Milk by
the Partnership; or (b) any
capital expenditures relating
to the manufacture,
packaging, sale or
distribution by the
Partnership of Pasteurized
Packaged Milk for any item
that is part of a project
with a total cost of $3
million or less. Should any
of the Mid-Am Representatives
disagree with a proposal for
any capital expenditure item
of the Partnership relating
to the manufacture,
packaging, sale or
distribution of Pasteurized
Packaged Milk with a total
project cost greater than $3
million, such Mid-Am
Representatives will vote in
favor of such capital
expenditure unless, prior to
such vote, they shall have
persuaded an Independent
Decisionmaker, acting
independently and using his
or her own business judgment,
that the capital expenditure
would not be a rational
business decision and would
threaten the ongoing
financial viability of the
Partnership.
(2) with respect to products other
than Pasteurized Packaged
Milk, the Mid-Am
Representatives shall not
vote upon or otherwise take
any action to disapprove (a)
any budget of the Partnership
detailing capital
expenditures relating to the
manufacture, packaging, sale
or distribution of products
other than Pasteurized
Packaged Milk; or (b) any
capital expenditures by the
Partnership with regards to
expenditures relating to the
manufacture, packaging, sale
or distribution of products
other than Pasteurized
Packaged Milk for any item
that is part of a project
with a total cost of $3
million or less. Should any
of the Mid-Am Representatives
disagree with a proposal for
any capital expenditure item
of
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<PAGE> 19
the Partnership relating to the
manufacture, packaging, sale
or distribution of products
other than Pasteurized
Packaged Milk with a total
project cost greater than $3
million, any such Mid-Am
Representative will
nonetheless vote in favor of
such capital expenditure
unless, prior to said vote,
they shall have persuaded an
Independent Decisionmaker,
acting independently and
using his or her own business
judgment, that the
expenditure would not be a
rational business decision
for a company whose primary
business purpose is to
manufacture, promote, sell
and distribute products with
milk as their primary
ingredient.
(3) The Mid-Am Representatives
shall not participate in any
vote on or take any steps to
prevent or disapprove the
possible incurrence by the
Partnership of any new
indebtedness in connection
with the actions described in
(1) and (2) above; provided,
however, that the Mid-Am
Representatives shall vote to
approve such new indebtedness
to the extent required to
satisfy any requirements
imposed by a prospective
creditor or a creditor of the
Partnership, other than the
Mid-Am Parties. The Mid-Am
Parties shall cooperate with
the Company and the
Partnership in obtaining
financing for capital
expenditures, but shall not
be required to make an equity
contribution or loan to the
Partnership, to guarantee any
Partnership indebtedness, or
to otherwise finance any
capital expenditure other
than by the Partnership's own
credit.
(E) With respect to the matters
specified in Section 3.3(d)(i)(E),
the Mid-Am Representatives shall
abstain from, and shall not have the
right to vote on, such matters
unless another provision of this
Section 3.3(d)(ii) expressly so
permits.
When the Mid-Am Representatives do not have rights with
respect to the matters set forth in this Section 3.3(d)(ii),
(A) the Mid-Am Representatives shall abstain from voting on
such action, (B) the Schenkel appointed Representatives shall
have the exclusive right, power and authority to vote upon,
and take, such action, and in such case the unanimous vote of
the Schenkel appointed Representatives shall be deemed the
unanimous vote of the Representative Committee and, (C) the
Mid-Am Representatives shall be deemed to have participated
in such action for purposes of Section 3.2.
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<PAGE> 20
(e) General.
(i) Removal. Any officer may be removed at any
time by the vote of the Representative Committee whenever in
the Representative Committee's best judgment the best
interests of the Company or the Partnership will be served
thereby, but such removal will be without prejudice to the
contract rights, if any, of the person so removed. Election
or appointment of an officer shall not in itself create
contract rights.
(ii) Resignation. Any officer may resign at any
time, subject to the rights or obligations under any existing
contracts between the officer and the Company or the
Partnership, by giving written notice to the President and
Chief Executive Officer or the Representative Committee. An
officer's resignation shall take effect at the time specified
in the notice, and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make
it effective.
(iii) Vacancies. A vacancy in any office, however
occurring, may be filled by the Representative Committee as
provided in Section 3.3(d) for the unexpired portion of the
term.
(iv) Indemnification. The Company shall indemnify
the officers to the extent set forth in Article IV.
3.4 Conflicts of Interest. Subject to the other express
provisions of this Agreement, each Member of the Company at any time and from
time to time may engage in and possess interests in other business ventures of
any and every type and description, independently or with others, including one
in competition with the Company, with no obligation to offer the Company or any
other Member the right to participate therein. Each Member shall promptly give
notice to all other Members of any business in which such Member engages which
competes or may compete with the business conducted by the Company. The
Company may transact business with any Member, or affiliate thereof, provided
the terms of those transactions are not materially less favorable than those
the Company would obtain from unrelated third parties.
ARTICLE IV
INDEMNIFICATION
4.1 Liability of Representative or Officer of the Company for
Certain Acts. Each Representative and officer of the Company shall exercise
such person's business judgment in managing the business, operations and
affairs of the Company and the Partnership. Absent fraud, deceit, gross
negligence, willful misconduct or a wrongful taking, neither a Representative
nor an officer of the Company or the Partnership shall be liable or obligated
to the Members or to the Company or the Partnership for any mistake of fact or
judgment, for the doing of any act, or for the
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<PAGE> 21
failure to do any act in conducting the business, operations and affairs of the
Company or the Partnership which may cause or result in any loss or damage to
the Company or its Members or to the Partnership. No Representative or officer
of the Company or the Partnership guarantees the return of the Members' capital
contributions or a profit for the Members from the operations of the Company or
the Partnership. No Representative or officer of the Company or the
Partnership shall be responsible to any Member because of a loss of such
Member's investment, unless the loss shall have been the result of the
Representative's or officer's fraud, deceit, gross negligence, willful
misconduct or a wrongful taking. Neither the Representatives nor officers of
the Company or the Partnership shall be jointly and severally liable for fraud,
deceit, gross negligence, willful misconduct or wrongful taking by another
person, but each such person shall only be liable for such person's own actions
and omissions.
4.2 Indemnification of Representative, Officer and Members of the
Company.
(a) Right to Indemnification. The Company shall
indemnify, to the fullest extent permitted by law (including without
limitation in circumstances in which, in the absence of this Section
4.2(a), indemnification would be discretionary under the laws of
Delaware or limited or subject to particular standards of conduct
under such laws) each Representative, Member of the Company and
officer of the Company or the Partnership against all costs, expenses
and liability, including reasonable attorneys' fees, incurred in
connection with, relating to or as a result of any action, suit or
proceeding to which a Representative, Member of the Company or officer
of the Company or the Partnership may be involved or made a party by
reason of being or having been a Representative, Member of the
Company, or an officer of the Company or the Partnership or while a
Representative, or an officer of the Company or the Partnership is or
was serving at the request of the Company as a manager, director,
officer, partner, trustee, employee, fiduciary or agent of any other
domestic or foreign limited liability company, corporation,
partnership, joint venture, trust, employee benefit plan or other
entity or enterprise.
(b) Advancement of Expenses. In the event of any action,
suit or proceeding in which a Representative, Member of the Company or
officer of the Company or the Partnership is involved or which may
give rise to a right of indemnification under Section 4.2(a),
following written request to the Company by the Representative, Member
of the Company, or officer of the Company or the Partnership, the
Company shall pay to such Representative, officer or Member, to the
fullest extent permitted by law (including without limitation in
circumstances in which, in the absence of this Section 4.2(b),
advancement of expenses would be discretionary under the laws of
Delaware or limited or subject to particular standards of conduct
under such laws), amounts to cover expenses incurred by the
Representative, officer or Member in, relating to or as a result of
such action, suit or proceeding in advance of its final disposition.
(c) Settlements. The Company shall not be liable under
this Section 4.2 for any amounts paid in settlement of any action,
suit or proceeding effected without the approval of the Representative
Committee. The Company shall not settle any action, suit or
proceeding in any manner that would impose any penalty or limitation
on a Representative,
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<PAGE> 22
officer or Member of the Company, or officer of the Company or the
Partnership without the Representative, officer or Member's written
consent. Consent to a proposed settlement of any action, suit or
proceeding shall not be unreasonably withheld by the Representative
Committee.
(d) Liability Insurance. The Company may purchase and
maintain insurance on behalf of any Person who is or was a
Representative, Member of the Company or officer of the Company or the
Partnership or who is or was serving at the request of the Company as
a manager, director, officer, partner, trustee, employee, fiduciary or
agent of any other domestic or foreign limited liability company,
corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise against any liability asserted against
and incurred by a Representative, Member of the Company or officer of
the Company or the Partnership in any such capacity or arising out of
a Representative, officer or Member's status as such, whether or not
the Company would have the power to indemnify such Person against such
liability under the provisions of this Section. Any such insurance
may be procured from any insurance company designated by the
Representative Committee, whether such insurance company is formed
under the laws of Delaware or any other jurisdiction of the United
States or elsewhere.
(e) Other Rights and Remedies. The rights to
indemnification and advancement of expenses provided in this Section
shall be in addition to any other rights a Representative, Member of
the Company or officer of the Company or the Partnership may have or
hereafter acquire under any law, provision of the Certificate of
Formation, any other or further provision of this Agreement, vote of
the Representative Committee, agreement or otherwise. The Company
shall have the right, but shall not be obligated, to indemnify or
advance expenses to any employee or agent of the Company in accordance
with and to the fullest extent permitted by law.
(f) Applicability Effect. The rights to indemnification
and advancement of expenses provided in this Section shall be
applicable to acts or omissions that occurred prior to the adoption of
this Section, shall continue as to any Representative, Member of the
Company or officer of the Company or the Partnership during the period
such Representative, officer or Member serves in any one or more of
the capacities covered by this Section, shall continue thereafter so
long as the Representative, officer or Member may be subject to any
possible action, suit or proceeding by reason of the fact that the
Representative, officer or Member served in any one or more of the
capacities covered by this Section, and shall inure to the benefit of
the estate and personal representatives of each such person. Any
repeal or modification of this Section or of any provision hereof
shall not affect any rights or obligations then existing. All rights
to indemnification under this Section shall be deemed to be provided
by a contract between the Company and each Representative, Member of
the Company or officer of the Company or the Partnership.
(g) Limitation on Members' Liability. The
indemnification provided for in this Section shall in no event cause
the Members to incur any liability beyond their Capital Contributions,
their share of any undistributed profits of the Company, their payment
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<PAGE> 23
obligations provided for herein and their obligations to repay funds
wrongfully distributed to them, nor shall it result in any liability
of the Members to any third party, except as required by the Act.
ARTICLE V
MEETINGS OF REPRESENTATIVE COMMITTEE
5.1 Meetings. Meetings of the Representative Committee may be
called for any purpose, unless otherwise prescribed by statute, by the Chief
Executive Officer, the President and Chief Operating Officer, any two
Representatives or by any Member holding at least ten percent (10%) of the
outstanding interest in the Company.
5.2 Place of Meetings. The Representatives may designate any
place, either within or outside the State of Texas, as the place of meeting for
meetings. If no designation is made, the place of meeting shall be the
principal office of the Company in the State of Texas. Representatives may
participate in such meetings by means of conference telephone and similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting as provided herein
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
5.3 Notice of Meetings. The Chief Executive Officer, the
President and Chief Operating Officer or the Person(s) calling the meeting
shall cause written notice stating the place, day and hour of the meeting and,
in the case of a special meeting, the purpose for which the meeting is called
to be delivered not less than ten (10) nor more than sixty (60) days before the
date of the meeting, either personally or by mail, to each Representative
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, addressed to the Representative
at such Representative's business address as set forth in the records of the
Company, with postage prepaid. If a meeting is adjourned to another place or
time, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Representative entitled to vote at the meeting.
5.4 Meetings of All Representatives. If all of the
Representatives shall meet at any time and place, either within or outside of
the State of Texas, and consent to the holding of a meeting at such time and
place, such meeting shall be valid without call or notice, and any action taken
at such meeting shall be lawful.
5.5 Record Date. For the purpose of determining Representatives
who are entitled to notice of or to vote at any meeting of the Representative
Committee or any adjournment thereof, or Members entitled to receive payment of
any distribution, or in order to make a determination of Members for any other
purpose, the date on which notice of the meeting is mailed or the date on
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which the action declaring such distribution is adopted or the date on which
the action requiring such other determination is taken, as the case may be,
shall be the record date for such determination. When a determination of
Representatives who are entitled to vote at any meeting of the Representative
Committee has been made as provided in this Section, such determination shall
apply to any adjournment thereof. Notwithstanding the foregoing provisions of
this Section, the record date for determining Representatives who are entitled
to take action without a meeting pursuant to Section 5.9 shall be the date
specified in such Section.
5.6 Quorum. A quorum shall consist of at least one Representative
designated by each Member; provided that in the event of a quorum not being
present, such meeting shall be adjourned to a date fourteen days after the date
of such meeting but at the same time and location and any Representatives then
in attendance shall be deemed to be a quorum.
5.7 Manner of Acting. If a quorum is present, except as provided
in Section 3.3(d)(ii), the unanimous vote of the Representatives entitled to
vote on the subject matter shall be the act of the Members.
5.8 Proxies. At any meeting of the Representative Committee, a
Representative may vote in person or by proxy executed in writing by the
Representative or by a duly authorized attorney-in-fact. Such proxy shall be
filed with the Chief Executive Officer or the President and Chief Operating
Officer before or at the time of the meeting. No proxy shall be valid after 11
months from the date of its execution, unless otherwise provided in the proxy.
5.9 Action by Representatives Without a Meeting. Action required
or permitted to be taken at a meeting of the Representative Committee may be
taken without a meeting if the action is evidenced by one or more written
consents describing the action taken, signed by each Representative entitled to
vote. Such consent(s) shall have the same force and effect as a unanimous vote
of the Representatives and may be stated as such in any document. Action taken
under this Section is effective when all Representatives entitled to vote have
signed the consent, unless the consent specifies a different effective date.
The record date for determining Representatives entitled to take action without
a meeting shall be the date the first Representative signs a written consent.
All consents signed pursuant to this Section shall be delivered to the
Secretary for inclusion in the minutes or for filing with the Company's
records.
5.10 Waiver of Notice. When any notice is required to be given to
any Representative, a waiver thereof in writing signed by the Person entitled
to such notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice. By attending a meeting, a
Representative: (a) waives objection to lack of notice or defective notice of
such meeting unless the Representative, at the beginning of the meeting,
objects to the holding of the meeting or the transaction of business at the
meeting, and (b) waives objection to consideration at such meeting of a
particular matter not within the purpose or purposes described in the notice of
such meeting unless the Representative objects to considering the matter when
it is presented.
5.11 Conduct of Meetings. All meetings of the Representative
Committee shall be presided over by the chairman of the meeting, who shall be a
Representative designated by
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<PAGE> 25
unanimous agreement of the Representatives. The chairman of any meeting of the
Representative Committee shall determine the order of business and the
procedure at the meeting, including such regulation of the manner of voting and
the conduct of discussion as seemed to him in order.
ARTICLE VI
CONTRIBUTIONS TO CAPITAL AND CAPITAL ACCOUNTS
6.1 Capital Contributions.
(a) Initial Capital Contribution. Each of the Members
previously made an Initial Capital Contribution. No Member shall be
obligated to make any Capital Contribution beyond its Initial Capital
Contribution unless otherwise specifically required by the Act or this
Agreement.
(b) Additional Capital Contributions. If at any time the
Representative Committee determines that the Company has insufficient
funds to carry out the purposes of the Company, the Representative
Committee may, but only on the unanimous agreement of the Members,
request additional contributions to the capital of the Company on such
terms, conditions and provisions as may be unanimously agreed upon by
all the Members.
(c) Interest on Capital Contribution. No Member shall be
paid interest on any Capital Contribution to the Company.
(d) No Benefit Conferred Upon Creditors. The provisions
of this Section 6.1 are intended solely to benefit the Members and, to
the fullest extent permitted by applicable law, shall not be construed
as conferring any benefit upon any creditor of the Company (and no
such creditor shall be a third party beneficiary of this Agreement),
and no Member shall have any duty or obligation to any creditor of the
Company to make any additional Capital Contributions to the Company.
6.2 Capital Accounts. A separate Capital Account will be
maintained for each Member in accordance with the Appendix attached hereto.
6.3 Withdrawal of Members' Capital Contributions.
(a) A Member shall not receive out of the Company's
property any part of its Capital Contributions until all liabilities
of the Company, except the liabilities to Members on account of their
Capital Contributions, have been paid or there remains property of the
Company sufficient to pay such liabilities.
(b) No Member shall have the right to withdraw all or any
part of its Capital Contribution, except as may be otherwise
specifically provided in this Agreement. Under circumstances
involving a return of any Capital Contributions, no Member shall have
the right to receive property other than cash.
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<PAGE> 26
(c) No Member shall have priority over any other Member,
either as to the return of Capital Contributions or as to profits,
losses or distributions; provided that this subsection shall not apply
to loans (as distinguished from Capital Contributions) which a Member
has made to the Company.
6.4 Liability of Members. Except as required by the Act, no
Member shall be liable for the debts, liabilities or obligations of the Company
beyond its respective Capital Contribution obligations pursuant to Section 6.1
hereof.
6.5 Membership Interests. The Membership Interest of each Member
is set forth opposite his or its respective name on Schedule 1 attached hereto.
6.6 Nature of Membership Interest. A Membership Interest is
personal property. A Member shall have no interest in specific property of the
Company.
6.7 Deficit Capital Accounts. No Member will be required to pay
to the Company, to any other Member, or to any third party any deficit balance
which may exist from time to time in the Member's Capital Account.
ARTICLE VII
ALLOCATIONS, DISTRIBUTIONS, ELECTIONS AND REPORTS
7.1 Allocations of Profits and Losses. The Net Profits of the
Company and any Net Losses shall be allocated among the Members in accordance
with the provisions of the Appendix hereto.
7.2 Distributions. Except as otherwise required by this Section
7.2, Section 7.3 and Article IX, all distributions of any nature whatsoever,
including, without limitation, partial returns of capital, profit
distributions, refinancing proceeds and liquidating distributions, shall be
made solely to the Members in proportion to their respective Membership
Interests as set forth on Schedule 1 attached hereto.
(a) Any distribution received from Southern Foods Group,
L.P. (a "Southern Foods Distribution") that is made for the purpose of
providing funds to enable Meyer or Schenkel or any transferees of
Schenkel to pay SFG Income Taxes, as hereinafter defined, shall be
immediately distributed by the Company to the party or parties for
whom the Southern Foods Distribution is made, as designated by
Southern Foods Group, L.P. "SFG Income Taxes" means income taxes
payable with respect to an allocable share of the income, gains,
losses and deductions of the Company since its inception realized by
the Company in its capacity as a Partner in Southern Foods Group, L.P.
as a result of the Company being taxable on an allocable share of the
income, gains, losses and deductions of Southern Foods Group, L.P.
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(b) Distributable Cash in an amount equal to the amount
specified in Sections 7.2(b)(i) shall be distributed to the Members in
accordance with the provisions of this Section 7.2, at least five days
before the Members or their Flow-Through Owners, as hereinafter
defined, are required to pay their estimated and final federal, state
and local income taxes on the income of the Company allocated to the
Members. In addition, the Representative Committee, in its
discretion, may authorize the distribution of additional amounts of
Distributable Cash to the Members in an amount equal to the amount
specified in Sections 7.2(b)(ii) and (iii). Notwithstanding the
foregoing, no distribution of the Distributable Cash of the Company
shall be made if and to the extent that after the distribution is made
the liabilities of the Company, excluding the Company's liability to
the Members for their Capital Contributions, shall exceed the fair
market value of the assets of the Company. Subject to Article IX
below, Distributable Cash required or authorized to be distributed
shall be distributed among the Members in the following order of
priority:
(i) First, Distributable Cash for each Fiscal
Year or other taxable period shall be distributed among the
Members (the "Required Distribution Amount") until each of the
Members have received a distribution in an amount equal to the
greater of: (1) the combined federal, state and local income
tax on the amount of such Member's Total Taxable Income, as
hereinafter defined, for such period, which combined federal,
state and local income tax shall be calculated using the
highest combined tax rates for individuals under federal,
state and local laws after taking into account any
deductibility of such taxes on any other tax return; or (2)
the combined federal alternative minimum tax (as imposed by
Sections 55 through 59 of the Code or the subsequent
equivalent of such provisions) on the amount of such Member's
federal alternative minimum taxable income and applicable
state and local income tax on the amount of state and/or local
taxable income or state alternative minimum taxable income, as
applicable to individuals, on the amount of such Member's
Total Taxable Income for such period, which combined federal
alternative minimum tax and state and local income tax shall
be calculated using the highest combined federal alternative
minimum tax rate and either state and/or local alternative
minimum tax rates or state and/or local income tax rates, as
applicable to individuals, after taking into account any
deductibility of such taxes on any other tax return.
(A) In the event Distributable Cash is
insufficient to satisfy the Required
Distribution Amount for a year, such
deficiency shall be satisfied as
soon thereafter as Distributable
Cash is available.
(B) For purposes of this Agreement,
"Total Taxable Income" means the net
amount of taxable income allocated
to a Member for such period pursuant
to Articles VII and IX as modified
by the Appendix hereto, including
without limitation the allocation to
such Member of all items of Company
income, gains, deductions and losses
required to be separately stated and
allocated among the Members for
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income tax purposes. For purposes of
this Section 7.2(b)(i), the
Company's Total Taxable Income and
alternative minimum taxable income
shall be determined by excluding
from Company income the Company's
allocable share of items of income,
gain, loss, and deduction of
Southern Foods Group, L.P.
(C) For all periods from and after the
inception of the Company, the amount
of the aggregate distribution made
under this Section 7.2(b)(i) (or the
substantial equivalent of such
provision in the Amended and
Restated Agreement) to a Member for
each year shall be appropriately
adjusted in the current year or in
future years, regardless of whether
such Member is then a Member in the
Company (by making additional
mandatory distributions to such
Member in the case of tax increases
or by reducing future distributions
to such Member under this Section
7.2(b)(i) in the case of tax
decreases) to reflect any
adjustments in income tax
liabilities as a result of
adjustments made for any reason to
any items of income, gain, loss,
deduction or credit of the Company
that are included in the Company's
Total Taxable Income or alternative
minimum taxable income. Except as
otherwise provided herein, mandatory
distributions shall also be made
under this Section 7.2(b)(i) to
reimburse each Member for any
interest expense, penalties or other
additions to tax incurred by such
Member as a result of such
adjustments.
(D) Mid-Am acknowledges that, because of
the terms of agreed financing
arrangements applicable to Southern
Foods Group, L.P., Mid-Am will not
receive distributions under Section
7.2(a) hereof so long as such
financing arrangements are in place.
Mid-Am likewise acknowledges and
agrees that distributions will be
made to Mid-Am under this Section
7.2(b)(i) only to the extent of
income taxes on Mid-Am's allocable
share of Total Taxable Income.
(E) Pursuant to the provisions of
Section 7.2(a), the Company is
expected to receive a Southern Foods
Distribution on or before September
15, 1997 with respect to 1997 income
taxable to Meyer and Schenkel for
the period ending on the sale of
Meyer's interest to Schenkel which
will be re-distributed to such
individuals, and additional Southern
Foods Distributions with respect to
income taxable to Schenkel for the
remainder of 1997. In addition,
Meyer and Schenkel shall be entitled
to receive distributions under this
Section 7.2(b)(i)
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with respect to their respective
allocable shares of Total Taxable
Income or alternative minimum
taxable income, as applicable, for
1997.
(F) The intent of this Section 7.2(b)(i)
is that, for Meyer and Schenkel and
any transferees of Schenkel (the
"Eligible Members"), each such
Eligible Member have received and
shall receive distributions under
Sections 7.2(a) and 7.2(b)(i) as
necessary to fully reimburse such
Eligible Member or its Flow- Through
Owners, as hereinafter defined, for
all Income Taxes, as hereinafter
defined, incurred as a result of
such Eligible Member or its
Flow-Through Owners being required
to report, and pay with respect to,
his, her or its allocable share of
the items of income, gain, loss,
deduction and credit of the Company,
from and after the inception of the
Company, regardless of whether such
Income Taxes result from paying
estimated Income Taxes, or from
paying Income Taxes as a result of
filing income tax returns or other
reports or amending such returns or
reports, or whether such Income
Taxes are incurred pursuant to
examinations or audits of such
returns or reports by any tax
authority. The provisions of this
Section 7.2(b)(i) shall be
interpreted consistent with the
foregoing stated intent; provided,
that, with respect to Income Taxes
payable by Eligible Members or their
Flow-Through Owners with respect to
their allocable shares of items of
income, gain, loss and deduction of
Southern Foods Group, L.P., the
Company's responsibility shall be
limited to distributing such
Southern Foods Tax Distributions as
it may receive from time to time.
(G) In the event an entity taxable as a
corporation shall become an Eligible
Member or a Flow-Through Owner, the
amount and timing of the
distributions under this Section
7.2(b)(i) shall be appropriately
adjusted to reflect its status as a
corporation subject to income tax.
(H) In the event that a self-employment
tax or similar tax is imposed on a
Member or any of its Flow-Through
Owners with respect to such tax
constitutes an income tax and
Member's Total Taxable Income
alternative taxable income or other
measure based in whole or in part on
such Member's allocable share of the
Company's net income, the tax rate
applicable to such self-employment
or similar tax shall be added to,
and treated as a constituent part
of, the income tax
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rate (and, if applicable, the
alternative minimum tax rate) of the
applicable taxing jurisdiction.
(I) As used in this Section 7.2, the
term "Flow-Through Owner" of a
Member means the direct or indirect
owner of an interest in a Member
that is taxable on such Member's
share of the various items of
taxable income or loss or
alternative minimum taxable income
or loss of the Company by reason of
owning a direct or indirect interest
in the Company through one or more S
corporations or entities taxed as
partnerships for federal income tax
purposes, and the term "Income
Taxes" means all federal, state,
local, foreign and other net income
taxes, fees, assessments or charges
of any kind whatever, together with
any interest and any penalties,
additions to tax or additional
amounts with respect thereto.
(ii) Next, Distributable Cash may be distributed
to the Members in an amount equal to the excess, if any, of
(1) the Total Taxable Income allocated to the Members for all
years, over (2) the sum of all prior distributions to the
Members pursuant to this Section 7.2 (such excess, the
"Undistributed Member Return"). If Distributable Cash is
insufficient to pay each Member an amount equal to the
Undistributed Member Return due each Member, then
Distributable Cash shall be distributed proportionally to each
Member based on the proportion that the Undistributed Member
Return bears to the aggregate Undistributed Member Return due
all Members.
(iii) The balance, if any, of Distributable Cash
may be distributed to the Members in proportion to their
respective Membership Interests as set forth on Schedule 1
attached hereto if the Representative Committee authorizes
such a distribution.
Provided, however, except for distributions under Sections
7.2(a) and 7.2(b)(i), no distribution of Distributable Cash
shall be made if such distribution would reduce a Member's
Capital Account below zero.
7.3 Limitation Upon Distributions. The Company may not make a
distribution to its Members to the extent that such distribution is prohibited
pursuant to the Act or other applicable law.
7.4 Defaults. If a Member is in default with respect to a
provision of this Agreement, such Member's right to receive distributions shall
be suspended. The Company shall promptly give the defaulting Member notice of
the default. Upon such Member's cure of the default, such Member's rights to
receive distributions shall be restored and such Member shall receive all
suspended distributions.
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7.5 Accounting Principles. The profits and losses of the Company
shall be determined in accordance with accounting principles applied on a
consistent basis under generally accepted accounting principles.
7.6 Records. The Company shall maintain records and accounts of
all operations and expenditures of the Company. At a minimum, the Company
shall keep at its principal place of business the following records:
(a) A current list that states:
(i) the name and mailing address of each Member;
and
(ii) the Membership Interest owned by each Member;
(b) Copies of the federal, state and local information or
income or franchise tax returns for each of the Company's six most
recent tax years;
(c) A copy of the Certificate of Formation, the Original
Agreement, the Amended and Restated Agreement, this Agreement, all
amendments or restatements, executed copies of any powers of attorney,
and copies of any document that creates, in the manner provided by the
Certificate of Formation or this Agreement, classes or groups of
Members;
(d) Correct and complete books and records of account of
the Company;
(e) Records of all proceedings and actions taken by the
Representative Committee or Members; and
(f) Any other books, records or documents required by the
Act or other applicable law.
7.7 Competitively Sensitive Information. The Members acknowledge
that the Company, its Members and the Partnership will possess certain
non-Public, Competitively Sensitive Information which the parties reasonably
believe in good faith is not in the best interest of the Company, its Members
or the Partnership to disclose to or among Members or could damage the Company,
its Members or the Partnership or their respective businesses if such
information is not kept confidential. The Members hereby agree to the
following, which the Members agree are (x) reasonable standards under the Act
for disclosure of non-Public, Competitively Sensitive Information and (y) will
materially benefit the Company and the Members:
(a) Non-Disclosure of Competitively Sensitive
Information. The Company, the Partnership and the Mid-Am Parties
shall not, directly or indirectly, discuss with or provide, disclose,
or otherwise make available to each other any non-Public,
Competitively Sensitive Information relating to Pasteurized Packaged
Milk, and the Mid-Am Parties shall have no right to inspect or copy
non-Public, Competitively Sensitive Information from the books,
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records, reports, and accounts of the Company or the Partnership
relating to any of the foregoing.
(b) The Mid-Am Parties Right to Information.
Notwithstanding anything contained in Section 7.7(a) above, upon
reasonable notice, the Mid-Am Parties shall be entitled to request,
obtain, and retain copies of:
(i) on a quarterly basis, a true and full
explanation from the officers of the Company regarding
material changes to the general state of business and
financial condition of the Company and the Partnership; so
long as such explanation does not include non-Public,
Competitively Sensitive Information related to Pasteurized
Packaged Milk;
(ii) promptly after they become available, copies
of the Company's and the Partnership's federal, state, and
local income tax returns or information statements for each
year;
(iii) a list showing the names, addresses, and
percentage ownership interests of each owner of the Company
and of the Partnership;
(iv) monthly financial statements (prepared based
on generally accepted accounting principles), including a
balance sheet, a statement of profits and losses, a statement
of cash flow and any other information regarding the general
status or condition of the Mid-Am Parties' Membership Interest
in the Company and their interests in the Partnership;
(v) financial statements and other information as
required by the Mid-Am Parties' creditors (other than any
entity affiliated through ownership with any Mid-Am Party) for
the sole purpose of permitting such creditors to monitor the
Mid-Am Parties' overall financial condition and/or to enforce
any rights they may have with regards to their credit
arrangements with the Mid-Am Parties; and
(vi) minutes of those portions of meetings of the
Representative Committee at which the Mid-Am Parties were, or
would be permitted to be, in attendance.
(c) Audit Rights. Unless the Representative Committee
shall determine to the contrary, a nationally recognized accounting
firm, which may be the accounting firm that prepares audited financial
statements for a Member, shall prepare audited financial statements
for the Partnership. In the event the Representative Committee does
not require audited financial statements for the Partnership, upon
prior written notice to the Company, for so long as the Mid-Am Parties
own a Membership Interest in the Company and an interest in the
Partnership and in the Mid-Am Parties' sole discretion, the Mid-Am
Parties may have conducted by an accounting firm acting on the Mid-Am
Parties' behalf, at the Partnership's expense, one audit of the
financial accounts and records of the Partnership per
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calendar year; provided, however, that the Mid-Am Parties may, for so
long as the Mid-Am Parties own a Membership Interest in the Company
and an interest in the Partnership and in the Mid-Am Parties' sole
discretion, cause additional audits to be so conducted in any given
calendar year at its own expense; and further provided, however, that
any such accounting firm performing such audit shall not provide to
the Mid-Am Parties, and the Mid-Am Parties shall not seek, any
Competitively Sensitive Information with respect to the business and
operations of the Company, the Partnership or the industry in which
the Partnership operates that is discovered or otherwise derived in
the course of conducting the audit of the financial accounts and
records of the Partnership.
7.8 Returns and Other Elections. Subject to its review and
approval thereof, the Representative Committee shall cause the preparation and
timely filing of all tax returns required to be filed by the Company or the
Partnership pursuant to the Code, and all other tax returns deemed necessary
and required in each jurisdiction in which the Company or the Partnership does
business. Copies of such Company tax returns, or pertinent information
therefrom, shall be furnished to the Members within seventy-five (75) days
after the end of each Fiscal Year of the Company. All elections permitted to
be made by the Company, the Partnership or by the Company on behalf of the
Partnership, pursuant to federal or state laws, shall be made with the
unanimous consent of the Representatives.
7.9 Tax Matters Partner. Mid-Am shall be the "tax matters
partner" of the Company pursuant to Section 6231(a)(7) of the Code. The "tax
matters partner" shall take such action as may be necessary to cause each other
Member to become a "notice partner" within the meaning of Section 6231(a)(8) of
the Code. The "tax matters partner" shall inform each other Member of all
significant matters that may come to its attention in its capacity as "tax
matters partner" by giving notice thereof on or before the fifth (5th) business
day after becoming aware thereof and, within that time, shall forward to each
other Member copies of all significant written communications it may receive in
that capacity. The "tax matters partner" may not take any action contemplated
by Sections 6222 through 6232 of the Code without the unanimous consent of the
Representative Committee, but this sentence does not authorize the "tax matters
partner" to take any action left to the determination of an individual Member
under Section 6222 through 6232 of the Code or any similar state or local
provision.
7.10 Tax Classification. The Members hereby intend that the
Company be taxed and classified as a partnership for federal and state income
tax purposes. Members and the Representative Committee shall take all steps,
and do all acts and things, including the filing of elections or tax returns
with a federal, local, municipal, state or other governmental body as are or
may be reasonably necessary or appropriate to ensure the Company is taxed and
classified as a partnership for federal and state income tax purposes. Unless
otherwise provided in this Agreement, no Representative, officer or Member
shall take any action to change the classification of the Company as a
partnership for federal and/or state income tax purposes without the unanimous
written consent of all Members.
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ARTICLE VIII
TRANSFERABILITY
8.1 Restrictions on Transfer of Membership Interest.
(a) Except as otherwise provided in this Article VIII, no
Member shall have the right to sell, pledge, transfer or assign all or
any portion of its Membership Interest without the unanimous consent
of all of the Members.
(b) Notwithstanding anything to the contrary contained
herein, unless all of the Members shall consent, no Member shall sell,
pledge, transfer or assign any portion of its Membership Interest if
such sale, pledge, transfer or assignment:
(i) when added to the total of all other sales,
transfers or assignments of Membership Interests within the
preceding twelve (12) months, would result in the Company
being considered to have terminated within the meaning of Code
Section 708;
(ii) would otherwise cause the Company to lose its
status as a partnership for federal income tax purposes; or
(iii) would violate any federal securities laws or
any applicable state securities laws (including suitability
standards).
(c) Notwithstanding any provision in this Agreement to
the contrary, neither the Mid-Am Parties shall purchase or accept a
transfer of, nor shall the Company repurchase or redeem, all or any
part of the voting Membership Interests, if such purchase or transfer
would cause the Mid-Am Parties to own a percentage of voting
Membership Interests that is more than 50% of the total voting
Membership Interests in existence at the time of proposed transfer or
purchase.
8.2 Death, Dissolution or Incapacity of Member. Subject to
Sections 8.5 and 8.6 hereto, if a Member dies, dissolves or becomes bankrupt or
legally incapacitated, the liquidator, personal representative, trustee or
receiver of his estate shall have all the rights of a Member for the purpose of
settling or managing his estate and such power as the Member possessed to
assign all or any part of his interest and to join with such assignee in
satisfying conditions precedent to such assignee becoming a substituted Member.
8.3 Assignees.
(a) The Company shall not recognize for any purpose any
purported sale, pledge, transfer or assignment of all or any fraction
of the interest of a Member unless all costs of such assignment have
been paid by the assigning Member and there is filed with the Company
a written and dated notification of such sale, pledge, transfer or
assignment, in satisfactory form, executed and acknowledged by both
the seller, pledgor, transferor or
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<PAGE> 35
assignor and the purchaser, pledgee, transferee or assignee and such
notification (i) contains the agreement by the purchaser, pledgee,
transferee or assignee to be bound by all the terms and provisions of
this Agreement and (ii) represents that such sale, pledge, transfer or
assignment was made in accordance with all applicable securities laws
and regulations (including suitability standards) and Section 8.1(b)
hereof. Any sale, pledge, transfer or assignment shall be recognized
by the Company as effective on the date of receipt of such
notification by the Company.
(b) Any Member who assigns all its interest in the
Company pursuant to the terms of this Article VIII shall cease to be a
Member.
(c) A Person who is the assignee of all or any fraction
of the interest of a Member, but does not become a substituted Member
pursuant to Section 8.4 hereof, and desires to make a further
assignment of such interest, shall be subject to all the provisions of
this Article to the same extent and in the same manner as any Member
desiring to make an assignment of its interest.
8.4 Substituted and Additional Members.
(a) No Member shall have the right to substitute in its
place a purchaser, pledgee, assignee, transferee, donee, heir, legatee
or other recipient of all or any portion of the Membership Interest of
such Member unless such Person is admitted to the Company as a
substituted Member pursuant to this Section 8.4(a). Furthermore, any
such purchaser, pledgee, assignee, transferee, donee, legatee,
distributee or other recipient of any interest shall have no right to
participate in the management of the business and affairs of the
Company unless such Person is admitted to the Company as a substituted
Member pursuant to this Section 8.4(a). Any such purchaser, pledgee,
assignee, transferee, donee, legatee, distributee or other recipient
of any interest who is not now a Member shall become a substituted
Member only if (i) all of the Members, other than the transferring
Member, unanimously consent in writing to the admission of such Person
as a Member, (ii) such Person agrees: (1) to become a Member, (2) to
execute and acknowledge such documents and instruments of conveyance
in form and substance as may be necessary in the opinion of counsel to
the Company to effect such transfer and to confirm the agreement of
the transferee, (3) to be bound by all of the terms and conditions of
this Agreement, as it may be amended from time to time, and (4) to pay
all reasonable expenses connected with such Person's admission,
including reasonable attorneys' fees required for the preparation of
such instruments to effect such admission to the Company, and (iii)
the provisions of this Article are satisfied. Any transfer or
purported transfer of any Member's interest shall be null and void
unless made strictly in compliance with the provisions of this
Article. The transferee of any Membership Interest shall be subject
to all terms, conditions, restrictions and obligations of this
Agreement.
(b) Any Person may, subject to the terms and conditions
of this Agreement, become an additional Member in the Company by the
sale of new Membership Interests for such consideration as is
determined by unanimous written consent of all of the Members.
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(c) No Person shall become a substituted or additional
Member until such Person has satisfied the requirements of this
Article VIII; provided, however, that for the purpose of allocating
profits, losses and distributions, a Person shall be treated as having
become, and as appearing in the records of the Company as a Member, as
the case may be, on such date as the sale, assignment or transfer to
such Person was recognized by the Company pursuant to Section 8.3.
8.5 Transfer Upon Exercise of Put Right in Southern Foods Group,
L.P.
(a) Put Right. If Schenkel or his Family Controlled
Entity should elect to dispose of his or its Common Partner Interest
(as defined in the Partnership Agreement) in Southern Foods Group,
L.P. pursuant to the put option granted in such Partnership Agreement,
then Schenkel or his Family Controlled Entity who or which elects to
dispose of the Common Partner Interest will be obligated to provide
notice to the Company and Mid-Am (a "Put Notice"), requiring the
Company or Mid-Am (subject to the provisions of Section 8.1(c)), to
purchase at the Put Price (as defined in subparagraph (d) below), all
of his Membership Interest in the Company (the "Put Interest").
(b) Put Option. The Company or Mid-Am shall have until
the 30th day following receipt of the Put Notice within which to
notify Schenkel or a Family Controlled Entity of the election of the
Company to purchase the Put Interest at the Put Price. In the event
that the Company does not elect to purchase the Put Interest, then
Mid-Am must purchase the Put Interest at the Put Price.
Notwithstanding anything in this Section 8.5 to the contrary, if at
any time after the date hereof, Schenkel should die, the personal
representative of the estate of Schenkel, or if no personal
representative is appointed or no administration is necessary, then
the heirs at law of Schenkel (the "Successor in Interest") or the
Family Controlled Entity that owns the Membership Interest of Schenkel
shall provide a Put Notice to the Company and Mid-Am within sixty (60)
days of Schenkel's death. The Company shall have until the 30th day
following the date such Put Notice is received within which to notify
the Successor in Interest or the Family Controlled Entity, as
applicable, of the election of the Company to purchase the Put
Interest of Schenkel at the Put Price. In the event that the Company
does not elect to purchase the Put Interest, then Mid-Am must purchase
the Put Interest at the Put Price. The provisions of the three
immediately-preceding sentences of this Section 8.5 shall apply only
in the event of the death of Schenkel.
(c) Put Closing. The closing of the purchase of the Put
Interest (the "Put Closing") shall take place at the offices of the
Company on a date not more than sixty (60) days after the date on
which the Put Notice is received by the Company and Mid-Am, or at such
other time and place as Schenkel, the Successor in Interest, the
Family Controlled Entity, the Company or Mid-Am, as applicable, may
agree upon (the "Put Closing Date").
(d) Put Price. The price (the "Put Price") that
Schenkel, the Family Controlled Entity or the Successor In Interest
shall receive for the Put Interest shall be the Put Price Adjusted
Capital Account of Schenkel determined as set forth herein. Solely
for purposes of determining the Put Price, the "Put Price Adjusted
Capital Account" of Schenkel is
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Schenkel's Capital Account as of the date of exercise of the Put Right
after all income and expense items have been closed to Company Capital
Accounts as though the Company had sold on such date its one percent
(1%) interest in the Partnership for the amount determined under
Section 8.11(c) of the Partnership Agreement, to be the "Put Price"
applicable to a purchase and sale of such one percent (1%) interest in
the Company.
(e) Method of Payment. The Put Price shall be payable in
cash unless the parties, with the requisite consent of any secured
lenders to the Company, agree otherwise.
8.6 Transfer Upon Exercise of Call Option in Southern Foods Group,
L.P.
(a) Exercise of Call Option. If the Partnership or
Mid-Am exercises the Call Option granted in the Partnership Agreement,
which exercise shall be subject to the restrictions contained in
Section 8.1(c), the Company or Mid-Am shall be obligated to provide
notice (the "Call Notice") to Schenkel, if Schenkel or his Family
Controlled Entity must sell all or a portion of its interest in
Southern Foods Group, L.P. to the Partnership or Mid-Am pursuant to
the call option granted in such Partnership Agreement, to purchase an
equivalent percentage of Membership Interest ("Call Amount") from
Schenkel that is equal to the percentage of total Common Partner
Interest (as defined in the Partnership Agreement) that the
Partnership or Mid-Am purchased from Schenkel or his Family Controlled
Entity pursuant to the call option granted in such Partnership
Agreement.
(b) Call Option in Event of Death or Disability of
Schenkel. In the event of the death or Disability of Schenkel and
should Schenkel, the Successor in Interest or the Family Controlled
Entity fail to provide the Put Notice to the Company and Mid-Am as
described in Sections 8.5(a) and (b), then the Company or Mid-Am shall
have the right to call the Put Interest by notice (the "Call Notice
Upon Death or Disability") to Schenkel, the Successor in Interest or
the Family Controlled Entity within ninety (90) days of Schenkel's
death or Disability (the "Call Option Upon Death or Disability").
(c) Call Closing. The closing pursuant to this Section
8.6, whether pursuant to a Call Notice or a Call Notice Upon Death or
Disability, shall take place (i) at the offices of the Company on a
date (the "Call Closing Date") not more than sixty (60) days after the
date on which Schenkel or the Family Controlled Entity received the
Call Notice or not more than thirty (30) days after the date on which
Schenkel, the Successor in Interest or the Family Controlled Entity
received the Call Notice Upon Death or Disability, or (ii) at such
other time and place as Schenkel, the Successor in Interest, the
Family Controlled Entity, the Company, or Mid- Am, as applicable, may
agree upon. On the Call Closing Date, Schenkel, the Successor in
Interest and/or the Family Controlled Entity will deliver to the
Company or Mid-Am, as applicable, documentation evidencing his or its
interest to be purchased by the Company or Mid-Am, as applicable.
(d) Call Price. The price (the "Call Price") that
Schenkel shall receive for the Call Amount shall be determined in the
same manner for determining the Put Price as provided for in Section
8.5(d).
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(e) Method of Payment. The Call Price payable pursuant
to this Section 8.6 shall be payable in cash on the Call Closing Date
unless the parties agree otherwise.
ARTICLE IX
DISSOLUTION AND TERMINATION
9.1 Dissolution.
(a) The Company shall be dissolved upon the first of the
following to occur:
(i) The period fixed for the duration of the
Company shall expire;
(ii) The unanimous written agreement of all of the
Members to dissolve the Company;
(iii) At any time there are no members of the
Company unless, within ninety (90) days of the occurrence of
the event that terminated the continued membership of the last
remaining member of the Company (the "Termination Event"), the
personal representative of the last remaining member agrees in
writing to continue the Company and to the admission to the
Company of such personal representative or its nominee or
designee as a member, effective as of the occurrence of the
Termination Event. Such successor or its nominee or designee
shall be admitted upon its execution of an instrument
signifying its agreement to be bound by the terms and
conditions of this Agreement; or
(iv) The entry of a decree of judicial
dissolution under Section 18-802 of the Act.
(b) The Mid-Am Parties will not seek to initiate
dissolution, winding up or liquidation of the Company (including by
resignation or withdrawal), except where Schenkel has been:
(i) declared bankrupt, insolvent, or placed in
receivership;
(ii) indicted for or convicted of a felony;
(iii) held by a court or arbitrator to have
committed fraud against the Mid-Am Parties, the Partnership or
the Company; or
(iv) declared incompetent by a court;
provided, however, the Mid-Am Parties may initiate
dissolution, winding up or liquidation of the Company pursuant
to Section 9.1(a)(iv) if they have persuaded an Independent
Decisionmaker, acting independently and using his or her own
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business judgment, that dissolution, winding up or liquidation
is necessary to minimize the long-term losses to the Members.
Other than as set forth in the preceding sentence, the Mid-Am
Parties hereby expressly waive to the fullest extent permitted
by the Act, any right which they may otherwise have to obtain
an entry of a decree of judicial dissolution under Section
18-802 of the Act with respect to the Company.
(c) Upon dissolution of the Company, the business and
affairs of the Company shall be wound up, and the assets of the
Company shall be liquidated under this Article IX.
(d) Dissolution of the Company shall be effective as of
the day on which the event occurs giving rise to the dissolution, but
the Company shall not terminate until there has been a winding up of
the Company's business and affairs, and the assets of the Company have
been distributed as provided in Section 9.2.
(e) Upon dissolution of the Company, the Members may
cause any part or all of the assets of the Company to be sold in such
manner as the Members shall upon unanimous written agreement determine
in an effort to obtain the best prices for such assets; provided,
however, that the Members may distribute assets of the Company in kind
to the Members to the extent practicable as provided in Section 9.3.
9.2 Winding Up and Liquidation. Upon dissolution of the Company,
it shall be wound up and liquidated as quickly as circumstances will allow.
The assets of the Company shall be applied to Company liabilities in the
following order:
(a) To pay or provide for all amounts owing by the
Company to creditors other than Members in the order of priority as
provided by law, and for expenses of winding up.
(b) To pay or provide for all amounts owing by the
Company to Members other than for capital and profits.
(c) To pay or provide for all amounts owing by the
Company to the Members for capital and for profits, as follows:
(i) The Members' Capital Accounts shall be
adjusted as if the assets of the Company were sold for fair
market value and the gain or loss therefrom allocated to the
Members according to Article VII and the Appendix hereto.
Fair market value shall be determined by unanimous agreement
among the Members, or failing unanimous agreement, determined
as follows: Mid-Am and Schenkel shall each name an appraiser
of independent standing. The two (2) appraisers shall
establish the fair market value of the assets by mutual
agreement but, if they do not reach such agreement within
thirty (30) days after the appointment of the later of them,
the two (2) appraisers shall select a third appraiser and the
average of the two (2) closest appraisals shall be the final
determination of the fair market value of the assets.
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(ii) Each Member shall be paid an amount equal to
the amount of each Member's Capital Account. Distributions
may be made in cash or in kind.
(iii) Any remaining assets shall be distributed to
the Members in cash or in kind pro rata according to their
respective Membership Interests.
9.3 Distributions in Kind. If any assets of the Company are
distributed in kind, subject to the priorities set forth in Section 9.2, such
assets shall be distributed to the Members entitled thereto as
tenants-in-common in the same proportions as the Members would have been
entitled to cash distributions if such property had been sold for cash and the
net proceeds thereof distributed to the Members. In the event that
distributions in kind are made to the Members upon dissolution and liquidation
of the Company, the Capital Account balances of such Members shall be adjusted
to reflect the Members' allocable share of gain or loss which would have
resulted if the distributed property had been sold at its fair market value.
9.4 Certificate of Cancellation. When all liabilities and
obligations of the Company have been paid or discharged, or adequate provision
has been made therefor, and all of the remaining property and assets of the
Company have been distributed to the Members according to their respective
rights and interests, the Certificate of Cancellation shall be executed on
behalf of the Company by the Members or an authorized Member and shall be filed
with the Secretary of State of Delaware, and the Members shall execute,
acknowledge and file any and all other instruments necessary or appropriate to
reflect the dissolution and termination of the Company.
ARTICLE X
ARBITRATION
The Members agree to submit all controversies, claims and matters of
difference to arbitration in Dallas, Texas, according to the rules and
practices of the American Arbitration Association from time to time in force.
This submission and agreement to arbitrate shall be specifically enforceable.
Arbitration may proceed in the absence of one party if notice of the proceeding
has been given to such party. The parties agree to abide by all awards
rendered in such proceedings. Such awards shall be final and binding on all
parties to the extent and in the manner provided by the state rules of civil
procedure. All awards may be filed with the clerk of one (1) or more courts,
state or federal, having jurisdiction over the party against whom such award is
rendered or such party's property, as a basis of judgment and of the issuance
of execution for its collection. No party shall be considered in default
hereunder during the pendency of arbitration proceedings relating to such
default.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Notices. Except as otherwise specifically provided in this
Agreement, all notices or communications required or permitted hereunder shall
be in writing and shall be deemed to be
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<PAGE> 41
delivered when (a) hand-delivered, (b) when deposited in the United States
mail, postage prepaid, certified U.S. mail, return receipt requested, and
addressed, in each such case, to the address set forth in this Section 11.1 for
such Member and Company, and as set forth in the records of the Company as to
Representatives and officers, or the addresses as changed pursuant to the
requirements of this Section, or (c) if telexed or telecopied, to the telex or
telecopier number listed below for such Member or the telecopier number listed
in the records of the Company for such Representative or officer or to such
other number as such Member, Representative or officer may have subsequently
provided in writing to the Company pursuant to this Section.
(a) If to Mid-America Dairymen, Inc.:
3253 East Chestnut Expressway
Springfield, Missouri 65804
Attention: Gerald L. Bos
Telecopy: (417) 865-1093
(b) If to Pete Schenkel:
3114 South Haskell
Dallas, Texas 75223
Telecopy: (214) 821-1689
(c) If to the Company, to the registered agent and the
registered office specified in this Agreement with a copy to the other
parties hereto.
Any party may change the address or telecopy number for notices to be
sent to it by written notice delivered pursuant to the terms of this
Section 11.1.
11.2 Waiver of Notice. Whenever, by statute, the Certificate of
Formation or this Agreement, notice is required to be given to the Company, a
Representative, an officer or a Member, a waiver thereof in writing signed by
the Person or Persons entitled to such notice, whether before or after the time
stated in such notice, shall be equivalent to the giving of such notice.
Attendance of a Representative at a Representative Committee meeting shall
constitute a waiver of notice of such meeting, except where a Representative
attends the meeting for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or convened.
11.3 Application of Delaware Law. This Agreement, and the
application or interpretation hereof, shall be governed exclusively by the laws
of the State of Delaware, without regard to conflicts of law principles, and
specifically the Act.
11.4 No Action for Partition. No Member shall have any right to
maintain any action for partition with respect to the property of the Company.
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<PAGE> 42
11.5 Headings and Sections. The headings in this Agreement are
inserted for convenience only and are in no way intended to describe,
interpret, define, or limit the scope, extent or intent of this Agreement or
any provision hereof. Unless the context requires otherwise, all references in
this Agreement to Sections or Articles shall be deemed to mean and refer to
Sections or Articles of this Agreement.
11.6 Amendment of Certificate of Formation and Agreement;
Provisions Requiring Prior Notice to Amend.
(a) Except as otherwise expressly set forth in this
Agreement, the Certificate of Formation of the Company and this
Agreement may be amended, supplemented or restated only upon the
unanimous written consent of all of the Members. Upon obtaining the
approval of any amendment to the Certificate of Formation, the Members
shall cause such Certificate to be amended in accordance with the Act.
(b) The Provisions Requiring Prior Notice to Amend shall
not be modified without 60 days prior written notice to the DOJ,
unless the DOJ shall consent to a shorter period. The Provisions
Requiring Prior Notice to Amend shall terminate if the Mid-Am Parties
shall cease to have any financial interest in the Partnership or the
Company.
11.7 Numbers and Gender. Where the context so indicates, the
masculine shall include feminine and neuter, and the neuter shall include the
masculine and feminine, the singular shall include the plural.
11.8 Binding Effect. Except as herein otherwise provided to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
Members, their distributees, heirs, legal representatives, executors,
administrators, successors and permitted assigns except the Provisions
Requiring Notice to Amend shall not apply to any successor or permitted assigns
of the Mid-Am Parties so long as the successor or permitted assignee is not a
Mid-Am Party or an Affiliate of a Mid-Am Party.
11.9 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and shall be
binding upon the Member who executed the same, but all of such counterparts
shall constitute the same Agreement.
11.10 Basis-Adjustment Election. The Representative Committee may
elect pursuant to Section 754 of the Code to adjust the basis of the Company's
assets for all transfers of Company interests or distributions of property to
Members if such election would benefit any Member or the Company.
11.11 Execution of Agreement Constitutes Consent and Waiver. In
accordance with the provisions of Article VIII of this Agreement, Mid-Am hereby
consents to the sale of the Membership Interests of Meyer to Schenkel, waives
any rights it may have to acquire such Membership Interest under the terms of
this Agreement, and agrees that effective as of the effective time of the
Ownership Change, Schenkel shall become a substituted Member of the Company
with respect to the
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<PAGE> 43
Membership Interests owned by Meyer. Execution of this Agreement by Schenkel
constitutes the agreement by Schenkel to be bound by all the terms and
provisions of this Agreement with respect to the Membership Interests
previously owned by Meyer and acquired by Schenkel and Schenkel represents that
such sale was made in accordance with all applicable securities laws and
regulations (including suitability standards) and with Section 8.1(b) of this
Agreement. Schenkel also agrees to pay all reasonable expenses connected with
his admission as a substitute Member with respect to the Membership Interest of
Meyer.
11.12 Joinder of Meyer for Limited Purposes. Subject to the
rights granted to Meyer under Section 7.2 of this Agreement to receive certain
distributions, Meyer joins in the execution of this Agreement for the limited
purpose of acknowledging that, effective as of the effective time the Ownership
Change, which shall be the same time as the Ownership Change with respect to
the Partnership, Meyer ceases to be a Member of the Company.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS.]
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<PAGE> 44
IN WITNESS WHEREOF, the undersigned, being all the Members of the
Company, do hereby agree to be bound by and to perform all of the terms and
provisions set forth in this Agreement effective as of the Effective Time.
MID-AMERICA DAIRYMEN, INC.
By: /s/ GERALD L. BOS
-------------------------------------
Its: Vice President
------------------------------------
/s/ PETE SCHENKEL
----------------------------------------
PETE SCHENKEL
JOINING FOR THE LIMITED PURPOSE
SPECIFIED IN SECTION 11.12 OF THIS
AGREEMENT
/s/ ALLEN A. MEYER
- ---------------------------------
ALLEN A. MEYER
<PAGE> 45
SCHEDULE 1
MEMBERSHIP INTEREST
<TABLE>
<CAPTION>
NAME MEMBERSHIP INTEREST
- ---------------------------- -------------------
<S> <C>
Mid-America Dairymen, Inc. 50%
Pete Schenkel 50%
</TABLE>
SCHEDULE 1 - Page 1
<PAGE> 46
APPENDIX
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
SFG MANAGEMENT LIMITED LIABILITY COMPANY
A.1 Introduction.
This Appendix sets forth principles under which items of income, gain,
loss, deduction and credit shall be allocated among the Members. This Appendix
also provides for the determination and maintenance of Capital Accounts,
generally in accordance with Treasury Regulations promulgated under Section
704(b) of the Code, for purposes of determining such allocations.
A.2 Definitions.
For purposes of this Appendix, the following terms have the meanings
set forth below. If a capitalized term is used herein but not defined in this
Section A.2, it shall have the meaning ascribed thereto in the Agreement,
unless the context otherwise indicates.
"Adjusted Capital Account Balance" means, with respect to any Member,
the balance in such Member's Capital Account as of the end of the relevant
Fiscal Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts which such
Member is obligated to restore pursuant to any provision of the
Agreement (including this Appendix) or is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in
Treasury Regulations Sections 1.704- 1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Balance is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
APPENDIX - Page 1
<PAGE> 47
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:
(a) Credit to such Capital Account any amounts which such
Member is obligated to restore pursuant to any provision of the
Agreement (including this Appendix) or is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in
Treasury Regulations Sections 1.704- 1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
"Capital Account" shall have the meaning set forth in Section A.3
hereof.
"Company Minimum Gain" has the meaning set forth for "partnership
minimum gain" in Treasury Regulations Section 1.704-2(b)(2) and shall be
determined in accordance with Treasury Regulations Section 1.704-2(d).
"Depreciation" means, for each Fiscal Year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such Fiscal Year, except that if the Gross Asset Value
of an asset differs from its adjusted basis for federal income tax purposes at
the beginning of such Fiscal Year, Depreciation shall be an amount which bears
the same ratio to such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such Fiscal
Year bears to such beginning adjusted tax basis; provided, however, that if the
adjusted basis for federal income tax purposes of an asset at the beginning of
such Fiscal Year is zero, Depreciation shall be determined with reference to
such beginning Gross Asset Value using any reasonable method selected by the
Representative Committee.
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross fair market
value of such asset, as determined by the contributing Member and the
Representative Committee;
(b) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as
determined by the Representative Committee, as of the following times:
(i) the acquisition of an additional interest in the Company by any
new or existing Member in exchange for more than a de minimis Capital
Contribution; (ii) the distribution by the Company to a Member of more
than a de minimis amount of property as
APPENDIX - Page 2
<PAGE> 48
consideration for an interest in the Company; and (iii) the
liquidation of the Company within the meaning of Treasury Regulations
Section 1.704-1(b)(2)(ii)(g); provided, however, that adjustments
pursuant to clauses (i) and (ii) above shall be made only if the
Representative Committee reasonably determines that such adjustments
are necessary or appropriate to reflect the relative economic
interests of the Members in the Company;
(c) The Gross Asset Value of any Company asset
distributed to any Member shall be adjusted to equal the gross fair
market value of such asset on the date of distribution as determined
by the distributee and the Representative Committee; and
(d) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Treasury
Regulations Section 1.704-1(b)(2)(v)(m), subparagraph (f) of the A.2
definition of Net Profits and Net Loss and Section A.4.2(f) hereof;
provided, however, that Gross Asset Values shall not be adjusted
pursuant to this definition to the extent the Representative Committee
determines that an adjustment pursuant to subparagraph (b) of this
definition is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to
this definition.
If the Gross Asset Value of an asset has been determined or adjusted pursuant
to subparagraphs (a), (b) or (d) of this definition, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Net Profits and Net Loss.
"Member Nonrecourse Debt" has the meaning set forth for "partner
nonrecourse debt" in Treasury Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" has the meaning set forth for
"partner nonrecourse debt minimum gain" in Treasury Regulations Section
1.704-2(i)(2) and shall be determined in accordance with Treasury Regulations
Section 1.704-2(i)(3).
"Member Nonrecourse Deductions" has the meaning set forth for "partner
nonrecourse deductions" in Treasury Regulations Section 1.704-2(i)(1) and shall
be determined in accordance with Treasury Regulations Section 1.704-2(i)(2).
"Net Profits" and "Net Loss" means, for each Fiscal Year or other
period, an amount equal to the Company's taxable income or loss for such year
or period, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss, or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or
loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net
Profits or Net Loss shall be added to such taxable income or loss;
APPENDIX - Page 3
<PAGE> 49
(b) Any expenditures of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(b), and not otherwise taken into account in
computing Net Profits or Net Loss, shall be subtracted from such
taxable income or loss;
(c) In the event the Gross Asset Value of any Company
asset is adjusted pursuant to subparagraphs (b) or (c) of the Section
A.2 definition of Gross Asset Value, the amount of such adjustment
shall be taken into account as gain or loss from disposition of the
asset for purposes of computing Net Profits and Net Loss;
(d) Gain or loss resulting from any disposition of
Company property with respect to which gain or loss is recognized for
federal income tax purposes shall be computed by reference to the
Gross Asset Value of the property disposed of (unreduced by any
liabilities attributable thereto), notwithstanding that the adjusted
tax basis of such property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such Fiscal Year or other period, computed in accordance with the
Section A.2 definition of Depreciation;
(f) To the extent an adjustment to the adjusted tax basis
of any Company asset pursuant to Code Section 734(b) or Code Section
743(b) is required pursuant to Treasury Regulations Section 1.704-
1(b)(2)(iv)(m)(4) to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a
Member's Interest, the amount of such adjustment shall be treated as
an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases the basis of the asset) from the
disposition of the asset and shall be taken into account for purposes
of computing Profits or Losses; and
(g) Notwithstanding any other provisions of this
definition, any items which are specially allocated pursuant to
Sections A.4.2, A.4.3 and A.4.4 hereof shall not be taken into account
in computing Net Profits or Net Loss.
The amounts of the items of Company income, gain, loss or deduction available
to be specially allocated pursuant to Sections A.4.2 and A.4.3 hereof shall be
determined by applying rules analogous to those set forth in subparagraphs (a)
through (d) of this definition.
"Nonrecourse Deductions" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(1) and shall be determined according to the
provisions of Treasury Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulations Section 1.704-2(b)(3).
APPENDIX - Page 4
<PAGE> 50
A.3 Capital Accounts.
A.3.1 The Company shall determine and maintain Capital Accounts.
"Capital Account" shall mean an account of each Member determined and
maintained throughout the full term of the Company in accordance with the
capital accounting rules of Treasury Regulations Section 1.704-1(b)(2)(iv).
Without limiting the generality of the foregoing, the following rules shall
apply:
(a) The Capital Account of each Member shall be credited
with (i) an amount equal to such Member's Capital Contributions and
the fair market value of property contributed (if permitted hereunder)
to the Company by such Member (net of liabilities that the Company is
considered to assume or to which it is considered to take subject to
Code Section 752), (ii) such Member's share of the Company's Net
Profits together with items of income or gain specially allocated to
such Member pursuant to Sections A.4.2, A.4.3 and A.4.4, and (iii) the
amount of any Company liabilities assumed by such Member or which are
secured by property distributed to such Member.
(b) The Capital Account of each Member shall be debited
by (i) the amount of cash and the fair market value of property
distributed to such Member (net of liabilities assumed by such Member
and liabilities to which such distributed property is subject), (ii)
such Member's share of the Company's Net Loss together with items of
loss or deduction specially allocated to such Member pursuant to
Sections A.4.2, A.4.3 and A.4.4, and (iii) the amount of any
liabilities of such Member assumed by the Company or which are secured
by any property contributed by such Member to the Company.
(c) Upon the transfer by a Member of all or part of an
interest in the Company in accordance with the terms of the Agreement,
the Capital Account of the transferor that is attributable to the
transferred interest shall carry over to the transferee and the
Capital Accounts of the Members shall be adjusted to the extent
provided in Treasury Regulations Section 1.704-1(b)(2)(iv)(m).
(d) In determining the amount of any liability for
purposes of Sections A.3.1(a) and A.3.1(b), Code Section 752(c) and
any other applicable provisions of the Code and the Treasury
Regulations will be taken into account.
(e) In the event that the Company distributes property
(other than money) to the Members, the Capital Account balances of the
Members shall be adjusted, in accordance with Treasury Regulations
Section 1.704-1(b)(2)(iv)(e), to reflect the manner in which any
unrealized income, gain, loss and deduction inherent in such property
(that has not been reflected in the Capital Accounts previously) would
be allocated among the Members if such property were sold at its fair
market value (which value in no event shall be less than the amount of
any nonrecourse indebtedness to which such property is subject).
(f) Except as otherwise required by Treasury Regulations
Section 1.704-1(b)(2)(iv), adjustment to such Capital Accounts in
respect of Company income, gain, loss, deduction, and Code Section
705(a)(2)(B) expenditures (or items thereof) shall be made with
APPENDIX - Page 5
<PAGE> 51
reference to the federal income tax treatment of such items (and, in
the case of book items, with reference to the federal income tax
treatment of the corresponding tax items) at the Company level,
without regard to any requisite or elective tax treatment of such
items at the Member level.
(g) In the event the Representative Committee shall
determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are
secured by contributions or distributed property or which are assumed
by the Company or Members), are computed in order to comply with such
Treasury Regulations, the Representative Committee may make such
modification, provided that it is not likely to have a material effect
on the amounts distributed to any Member pursuant to Article VII of
the Agreement upon the dissolution of the Company. The Representative
Committee also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the
Members and the amount of Company capital reflected on the Company's
balance sheet, as computed for book purposes, in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv)(g), and (ii) make any
appropriate modifications in the event unanticipated events (for
example, the acquisition by the Company of oil or gas properties)
might otherwise cause this Agreement not to comply with Treasury
Regulations Section 1.704-1(b).
A.4 Allocations of Net Profits and Net Loss.
A.4.1 In General.
(a) Net Profits. After giving effect to the special
allocations set forth in Sections A.4.2, A.4.3 and A.4.4 hereof, Net
Profits for any Fiscal Year shall be allocated to the Members as
follows:
(i) First, in the event that Net Losses have been
allocated in prior Fiscal Years among the Members in amounts
that were not in proportion to their respective Membership
Interests, as set forth on Schedule 1 attached hereto, Net
Profits shall be allocated among the Members insofar as
possible to cause their respective Capital Accounts to be in
proportion to their Membership Interests.
(ii) Next, to the extent that allocable Net
Profits exceed the Net Profits previously allocated for the
period under Section A.4.1(a)(i) hereof, Net Profits shall be
allocated to the Members pro rata in accordance with their
respective Membership Interests.
(b) Net Loss. After giving effect to the special
allocations set forth in Sections A.4.2, A.4.3 and A.4.4 hereof, Net
Loss for any Fiscal Year shall be allocated to the Members as follows:
APPENDIX - Page 6
<PAGE> 52
(i) To the Members pro rata in accordance with
their Membership Interests, subject to the limitation set
forth in Section A.4.1(b)(ii) below.
(ii) No Member shall receive an allocation of Net
Loss which would cause the Member to have an Adjusted Capital
Account Deficit at the end of any Fiscal Year. In the event
some but not all Members would have Adjusted Capital Account
Deficits as a consequence of an allocation of Net Loss
pursuant to Section A.4.1(b)(i) hereof, the limitation set
forth in this Section A.4.1(b)(ii) shall be applied on a
Member by Member basis so as to allocate the maximum
permissible Net Loss to each Member under Treasury Regulations
Section 1.704-1(b)(2)(ii)(d). Net Loss not allocated to the
Members pursuant to this subparagraph (ii) shall be allocated
to the Members with positive Capital Accounts; provided,
however, that in making subsequent allocations of Net Profits
and Net Loss, the prior reallocation of Net Loss to the
Members with positive capital accounts shall be taken into
account so that, to the extent possible, the total allocation
of Net Profits and Net Loss to Members shall be equal to the
allocations that would have been made had the reallocation to
the Members with positive capital accounts not occurred.
A.4.2 Special Allocations. The following special allocations should
be applied in the order in which they are listed. Such ordering is intended to
comply with the ordering rules in Treasury Regulations Section 1.704-2(j) and
shall be applied consistently therewith.
(a) Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-2(f) of the Treasury Regulations,
notwithstanding anything to the contrary in this Section A.4, if there
is a net decrease in Company Minimum Gain during any Fiscal Year, then
there shall be allocated to each Member items of income and gain for
that year (and, if necessary, subsequent Fiscal Years) equal to that
Member's share of the net decrease in Company Minimum Gain (within the
meaning of Treasury Regulations Section 1.704-2(g)(2)). The foregoing
is intended to be a "minimum gain chargeback" provision as described
in Treasury Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith.
(b) Member Nonrecourse Debt Minimum Gain Chargeback.
Except as otherwise provided in Section 1.704-2(i)(4) of the Treasury
Regulations, notwithstanding anything to the contrary in this Section
A.4, if during a Fiscal Year there is a net decrease in Member
Nonrecourse Debt Minimum Gain, then, in addition to the amounts, if
any, allocated pursuant to Subparagraph 4.2(a), any Member with a
share of that Member Nonrecourse Debt Minimum Gain (determined in
accordance with Treasury Regulations Section 1.704-2(i)(5)) as of the
beginning of the Fiscal Year shall be allocated items of Company
income and gain for that year (and, if necessary, for subsequent
Fiscal Years) equal to that Member's share of the net decrease in the
Member Nonrecourse Debt Minimum Gain, determined in accordance with
Treasury Regulations Section 1.704-2(i)(4). The foregoing is intended
to be the "chargeback of partner nonrecourse debt minimum gain"
required by Treasury Regulations Section 1.704-2(i)(4) and shall be
interpreted and applied in all respects in accordance with that
Regulation.
APPENDIX - Page 7
<PAGE> 53
(c) Qualified Income Offset. If any Member unexpectedly
receives any adjustment, allocation or distribution described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6),
items of Company income and gain shall be specially allocated to such
Member in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Member as quickly as possible. An allocation pursuant
to the foregoing sentence shall be made only if and to the extent that
such Member would have an Adjusted Capital Account Deficit after all
other allocations provided for in Section A.4 have been tentatively
made as if this Section A.4.2(c) were not in this Appendix. This
allocation is intended to constitute a "qualified income offset"
within the meaning of Treasury Regulations Section 1.704-
1(b)(2)(ii)(d)(3) and shall be construed in accordance with the
requirements thereof.
In the event a Member has a deficit Capital Account at the end
of any Company Fiscal Year which is in excess of the sum of (i) the
amount (if any) such Member is obligated to restore pursuant to any
provision of the Agreement, and (ii) the amount such Member is deemed
to be obligated to restore pursuant to the penultimate sentences of
Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each
such Member shall be specially allocated items of Company income and
gain in the amount of such excess as quickly as possible, provided
that an allocation pursuant to this clause shall be made only if and
to the extent that such Member would have a deficit Capital Account in
excess of such sum after all other allocations provided for in this
Section A.4 have been made as if this Section A.4.2(c) were not in
this Appendix.
(d) Nonrecourse Deductions. Nonrecourse Deductions for
any Company Fiscal Year or other period shall be allocated among the
Members in accordance with their Membership Interests.
(e) Member Nonrecourse Deductions. Member Nonrecourse
Deductions for any Company Fiscal Year or other period shall be
specially allocated to the Member who bears the economic risk of loss
with respect to the Member Nonrecourse Debt to which such Member
Nonrecourse Deductions are attributable in accordance with Treasury
Regulations Section 1.704-2(i)(1).
(f) Basis Adjustments. To the extent an adjustment to
the adjusted tax basis of any Company asset pursuant to Code Section
734(b) or Code Section 743(b) is required under Treasury Regulation
Section 1.704- 1(b)(2)(iv)(m) to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital
Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases
such basis) and such gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Section of the
Treasury Regulations.
(g) Allocations Relating to Taxable Issuance of
Membership Interests. Any income, gain, loss or deduction realized as
a direct or indirect result of the issuance of an interest by the
Company to a Member (the "Issuance Items") shall be allocated among
the
APPENDIX - Page 8
<PAGE> 54
Members so that, to the extent possible, the net amount of such
Issuance Items, together with all other allocations under this
Appendix to each Member, shall be equal to the net amount that would
have been allocated to each such Member if the Issuance Items had not
been realized.
A.4.3 Curative Allocations. The allocations set forth in Section
A.4.2 hereof (except for Section A.4.2(g)) (the "Regulatory Allocations") are
intended to comply with certain requirements of the Treasury Regulations. It
is the intent of the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss, or deduction
pursuant to this Section A.4.3. Therefore, notwithstanding any other
provisions of this Section A.4 (other than the Regulatory Allocations and
taking into account Section A.4.1(c)), the Representative Committee shall make
such offsetting special allocations of Company income, gain, loss, or deduction
in whatever manner it determines appropriate so that, after such offsetting
allocations are made, each Member's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Member would have had if
the Regulatory Allocations were not part of the Agreement and all Company items
were allocated pursuant to Sections A.4.1, A.4.2(g) and A.4.4(a). In
exercising its discretion under this Section A.4.3, the Representative
Committee shall take into account future Regulatory Allocations under Sections
A.4.2(a) and A.4.2(b) that, although not yet made, are likely to offset other
Regulatory Allocations previously made under Sections A.4.2(d) and A.4.2(e).
A.4.4 Other Allocation Rules.
(a) Subject to and after the application of Sections
A.4.2 and A.4.3, in the event of a Terminating Capital Transaction,
all items of income, deduction, gain and loss attributable to such
capital transactions shall be allocated (after taking into account all
allocations of Net Profits and Net Loss and distributions for all
prior periods, but before taking into account distributions
attributable to such capital transactions), so that the Members'
resulting Capital Account balances are (as nearly as possible) equal
to the amounts which would be distributable to the Members if
distributions in liquidation of the Company were made in accordance
with the Members' Membership Interests.
(b) For purposes of determining Net Profits, Net Loss or
any other item allocable to any period, Net Profits, Net Loss and
other items will be determined by the Representative Committee using
any permissible method under Code Section 706 and the related Treasury
Regulations.
(c) Unless otherwise required by the Agreement, all items
of credit shall be allocated to the Members in the same manner as Net
Profits.
(d) Solely for purposes of determining a Member's
proportionate share of the "excess nonrecourse liabilities" of the
Company within the meaning of Treasury Regulations Section
1.752-3(a)(3), the Members' interests in Company profits shall be
deemed to be in proportion to their respective Membership Interests.
APPENDIX - Page 9
<PAGE> 55
(e) To the extent permitted by Treasury Regulations
Section 1.704-2(h)(3), the Representative Committee may endeavor to
treat distributions as having been made from the proceeds of a
Nonrecourse Liability or a Member Nonrecourse Debt only to the extent
that such distributions would cause or increase an Adjusted Capital
Account Balance for any Member.
(f) The Members are aware of the income tax consequences
of the allocations made by this Article 4 and hereby agree to be bound
by the provisions of this Article 4 in reporting their shares of
Company income and loss for income tax purposes.
A.5 Tax Allocations.
In accordance with Code Section 704(c) and the related Treasury
Regulations, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Members so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its Gross Asset Value. Any elections or other decisions relating to
allocations pursuant to this Section A.5 shall be made by the Representative
Committee in any manner that reasonably reflects the purpose and intention of
this Appendix and the Agreement. Allocations pursuant to this Section A.5 are
solely for purposes of U.S. federal, state, and local taxes and shall not
affect any Member's Capital Account or share of Net Profits, Net Loss or other
items or distributions pursuant to any provision of this Appendix and the
Agreement.
APPENDIX - Page 10
<PAGE> 1
EXHIBIT 3.8
FIRST AMENDMENT TO SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF SFG MANAGEMENT LIMITED LIABILITY COMPANY
This First Amendment ("Amendment") to the Second Amended and Restated
Limited Liability Company Agreement of SFG Management Limited Liability Company
(the "Company") is made and entered into as of the 31st day of March, 1998, to
be effective as of 3:00 p.m. on September 3, 1997 (the "Effective Time"), by and
among each of the members listed as signatories to this Amendment (the
"Members").
WHEREAS, on September 3, 1997, the parties to this Amendment entered
into that certain Second Amended and Restated Limited Liability Company
Agreement of SFG Management Limited Liability Company to be effective as of 3:00
p.m. on September 3, 1997 (the "Original LLC Agreement");
WHEREAS, the parties have determined that certain corrections to the
Original LLC Agreement need to be made to clarify the intent of the parties and
the parties, desire to set forth those amendments in this Amendment;
WHEREAS, Mid-America Dairymen, Inc. has changed its name to Dairy
Farmers of America, Inc. ("DFA");
NOW THEREFORE, for and in consideration of the mutual covenants
contained in this Amendment, the Members agree as follows:
1. Defined terms used in this Amendment shall have the meanings set
forth for such terms in the Original Agreement, except where the
context herein requires otherwise.
2. From and after December 3, 1997, all references to "Mid-America
Dairymen, Inc." or "Mid-Am" shall be deemed to be references to
"Dairy Farmers of America, Inc." or "DFA," as the case may be.
3. The definition of Disability contained in Section 1.1 of the
Original LLC Agreement shall be modified by adding to the end of
the definition "and such disability shall have continued for a
period of sixty or more consecutive days."
4. Section 7.2(b)(i)(H) of the Original LLC Agreement shall be
deleted in its entirety and the following substituted in its
place:
1
<PAGE> 2
"(H) In the event that a self-employment tax or similar tax is
imposed upon a Member or any of its Flow-Through Owners based in
whole or in part upon such Member's allocable share of the
Company's net income, such tax constitutes an income tax and the
tax rate applicable to such self-employment or similar tax
(taking into account the deductibility, if any, of such
self-employment or similar tax) shall be added to, and treated as
a constituent part of, the income tax rate (and, if applicable,
the alternative minimum tax rate) of the applicable taxing
jurisdiction."
5. Section 8.5(a) of the Original LLC Agreement shall be amended in
the second to the last line by inserting the phrase "or its"
between the words "his" and "Membership" so that the last phrase
after the comma reads "all of his or its Membership Interest in
the Company (the "Put Interest")."
6. Section 11.1 shall be amended by inserting in the first sentence
of such section the word "the" before the word "Company" where
that word first appears in such sentence.
7. In all other respects, the Original LLC Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day first written above, to be effective as of the Effective Time.
DAIRY FARMERS OF AMERICA, INC.
(formerly Mid-America Dairymen, Inc.)
By: /s/ GERALD L. BOS
-------------------------------------
Its: CFO
------------------------------------
/s/ PETE SCHENKEL
-----------------------------------------
PETE SCHENKEL
2
<PAGE> 1
EXHIBIT 4.1
EXECUTION COPY
================================================================================
Southern Foods Group, L.P.
SFG Capital Corporation
9 7/8% Senior Subordinated Notes due 2007
-------------------------
INDENTURE
Dated as of September 4, 1997
-------------------------
Texas Commerce Bank National Association,
Trustee
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
Definitions and Incorporation by Reference
<S> <C> <C>
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . 32
SECTION 1.03. Incorporation by Reference of Trust Indenture Act . . . .
33
SECTION 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . 33
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.02. Execution and Authentication . . . . . . . . . . . . . . 36
SECTION 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . 37
SECTION 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . 38
SECTION 2.05. Securityholder Lists . . . . . . . . . . . . . . . . . . 38
SECTION 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . 39
SECTION 2.07. Replacement Securities . . . . . . . . . . . . . . . . . 40
SECTION 2.08. Outstanding Securities . . . . . . . . . . . . . . . . . 40
SECTION 2.09. Temporary Securities . . . . . . . . . . . . . . . . . . 41
SECTION 2.10. Cancelation . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 2.11. Defaulted Interest . . . . . . . . . . . . . . . . . . . 42
SECTION 2.12. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 2.13. Book Entry Provisions for U.S. Global
Securities . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 2.14. Special Transfer Provisions . . . . . . . . . . . . . . . 44
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . 50
SECTION 3.02. Selection of Securities
To Be Redeemed . . . . . . . . . . . . . . . . . . . . 50
SECTION 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . 51
SECTION 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . 52
SECTION 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . 52
SECTION 3.06. Securities Redeemed in Part . . . . . . . . . . . . . . . 52
SECTION 3.07. Optional Redemption . . . . . . . . . . . . . . . . . . . 52
SECTION 3.08. No Sinking Fund . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
<PAGE> 3
<TABLE>
ARTICLE 4
Covenants
<S> <C> <C>
SECTION 4.01. Payment of Securities . . . . . . . . . . . . . . . . . . 53
SECTION 4.02. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 4.03. Limitation on Indebtedness . . . . . . . . . . . . . . . 55
SECTION 4.04. Limitation on Restricted Payments . . . . . . . . . . . . 58
SECTION 4.05. Limitation on Restrictions on Distributions from
Restricted Subsidiaries . . . . . . . . . . . . . . . 62
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Equity
Interests . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 4.07. Limitation on Transactions with Affiliates . . . . . . . 67
SECTION 4.08. Change of Control . . . . . . . . . . . . . . . . . . . . 69
SECTION 4.09. Compliance Certificate . . . . . . . . . . . . . . . . . 70
SECTION 4.10. Further Instruments and Acts . . . . . . . . . . . . . . 70
SECTION 4.11. Limitation on Liens . . . . . . . . . . . . . . . . . . . 71
SECTION 4.12. Future Note Guarantors . . . . . . . . . . . . . . . . . 71
SECTION 4.13. Limitation on Lines of Business . . . . . . . . . . . . . 71
SECTION 4.14. Limitation on Sale/Leaseback Transactions . . . . . . . .
71
SECTION 4.15. Limitation on the Sale or Issuance of Equity Interests
of Restricted Subsidiaries . . . . . . . . . . . . . . 72
SECTION 4.16. Limitation on Business Activities of SFG
Capital. . . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE 5
Successor to Issuers
SECTION 5.01. When Issuers May Merge or Transfer Assets . . . . . . . . 72
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . 74
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . 77
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . 77
SECTION 6.05. Control by Majority . . . . . . . . . . . . . . . . . . . 77
</TABLE>
<PAGE> 4
SECTION 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . 78
SECTION 6.07. Rights of Holders to Receive Payment . . . . . . . . . . 78
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . 78
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . 79
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . 80
SECTION 6.12. Waiver of Stay or Extension Laws . . . . . . . . . . . . 80
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . 80
SECTION 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . 82
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . 83
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . 83
SECTION 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . 83
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . . . . . . . 84
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . 84
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . 85
SECTION 7.09. Successor Trustee by Merger . . . . . . . . . . . . . . . 86
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . 87
SECTION 7.11. Preferential Collection of Claims Against Issuers . . . . 87
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance . . . . 87
SECTION 8.02. Conditions to Defeasance . . . . . . . . . . . . . . . . 89
SECTION 8.03. Application of Trust Money . . . . . . . . . . . . . . . 90
SECTION 8.04. Repayment to Issuers . . . . . . . . . . . . . . . . . . 90
SECTION 8.05. Indemnity for Government Obligations . . . . . . . . . . 90
SECTION 8.06. Reinstatement . . . . . . . . . . . . . . . . . . . . . . 91
ARTICLE 9
Amendment
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . . . 91
SECTION 9.02. With Consent of Holders . . . . . . . . . . . . . . . . . 92
SECTION 9.03. Compliance with Trust Indenture Act . . . . . . . . . . . 94
SECTION 9.04. Revocation and Effect of Consents and Waivers . . . . . .
SECTION 9.05. Notation on or Exchange
of Securities. . . . . . . . . . . . . . . . . . . . . 94
<PAGE> 5
SECTION 9.06. Trustee to Sign Amendments . . . . . . . . . . . . . . . 95
SECTION 9.07. Payment for Consent . . . . . . . . . . . . . . . . . . . 95
ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate . . . . . . . . . . . . . . . . 95
SECTION 10.02. Liquidation, Dissolution, Bankruptcy . . . . . . . . . . 96
SECTION 10.03. Default on Senior Indebtedness . . . . . . . . . . . . . 96
SECTION 10.04. Acceleration of Payment of Securities . . . . . . . . . . 97
SECTION 10.05. When Distribution Must Be Paid Over . . . . . . . . . . . 98
SECTION 10.06. Subrogation . . . . . . . . . . . . . . . . . . . . . . . 98
SECTION 10.07. Relative Rights . . . . . . . . . . . . . . . . . . . . . 98
SECTION 10.08. Subordination May Not Be Impaired by Issuers . . . . . . 98
SECTION 10.09. Rights of Trustee and Paying Agent . . . . . . . . . . . 98
SECTION 10.10. Distribution or Notice to Representative . . . . . . . . 99
SECTION 10.11. Article 10 Not To Prevent Events of Default or
Limit Right To Accelerate . . . . . . . . . . . . . 99
SECTION 10.12. Trust Moneys Not Subordinated . . . . . . . . . . . . . . 99
SECTION 10.13. Trustee Entitled To Rely . . . . . . . . . . . . . . . . 100
SECTION 10.14. Trustee to Effectuate Subordination . . . . . . . . . . . 100
SECTION 10.15. Trustee Not Fiduciary for Holders of
Senior Indebtedness. . . . . . . . . . . . . . . . . . 101
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
Subordination Provisions . . . . . . . . . . . . . . 101
SECTION 10.17. Trustee's Compensation Not Prejudiced . . . . . . . . . . 101
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls . . . . . . . . . . . . . . 101
SECTION 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 102
SECTION 11.03. Communication by Holders with Other Holders . . . . . . . 102
SECTION 11.04. Certificate of Opinion as to Conditions Precedent . . . . 102
SECTION 11.05. Statements Required in Certificate or Opinion . . . . . . 103
SECTION 11.06. When Securities Disregarded . . . . . . . . . . . . . . . 103
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar . . . . . . 104
SECTION 11.08. Legal Holidays . . . . . . . . . . . . . . . . . . . . . 104
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 11.09. Governing Law . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 11.10. No Recourse Against Others . . . . . . . . . . . . . . . 104
SECTION 11.11. Successors . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 11.12. Multiple Originals . . . . . . . . . . . . . . . . . . . 104
SECTION 11.13. Table of Contents; Headings . . . . . . . . . . . . . . . 105
SECTION 11.14. Separability . . . . . . . . . . . . . . . . . . . . . . 105
</TABLE>
Exhibit A - Form of Initial Security
Exhibit B - Form of Exchange Security
Exhibit C - Form of Note Guarantee
Exhibit D - Form of Certificate to be delivered in
Connection with Transfers pursuant to Rule 144A
Exhibit E - Form of Certificate to be delivered in
Connection with Transfers pursuant to
Regulation S
Exhibit F - Form of Transferee Letter of Representation
Exhibit G - Form of Certificate to be delivered upon
Termination of Restricted Period
<PAGE> 7
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10
(c) . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . 11.03
313(a) . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . 11.02
(d) . . . . . . . . . . . . . . . . . . . . . 7.06
314(a) . . . . . . . . . . . . . . . . . . . . . 4.02; 4.12; 11.02
(b) . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . 4.12
315(a) . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . 7.05; 11.02
(c) . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last
sentence) . . . . . . . . . . . . . . . . . . . . . 11.06
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . 6.07
317(a)(1) . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . 2.04
318(a) . . . . . . . . . . . . . . . . . . . . . 11.01
</TABLE>
N.A. means Not Applicable.
- ---------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE> 8
INDENTURE dated as of September 4, 1997,
among SOUTHERN FOODS GROUP, L.P., a Delaware limited
partnership, and SFG Capital CORPORATION, a Delaware
corporation, as issuers, and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION, a nation banking association,
as trustee.
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Issuers' 9
7/8% Senior Subordinated Notes due 2007 (the "Initial Securities") and, if and
when issued as provided in the Exchange and Registration Rights Agreement of
even date herewith, the Issuers' 9 7/8% Senior Subordinated Series A Notes due
2007(the "Exchange Securities", and together with the Initial Notes, the
"Securities").
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Acquisition Indebtedness" means Indebtedness of the Company
or a Restricted Subsidiary Incurred in connection with the acquisition of (i)
all or substantially all of the assets or operations of a dairy processing
facility or all or substantially all of the assets or operations of a Person
primarily engaged in the distribution of milk or other dairy related products,
(ii) all or substantially all of the outstanding Equity Interests of a Person
engaged primarily in the distribution or processing of milk or other dairy
related products and (iii) trademarks of milk or other dairy related products.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Equity Interests) to be used by the Company or a
Restricted Subsidiary in a Related Business; (ii) the Equity Interests of a
Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Equity Interests by the Company or another Restricted Subsidiary; or (iii)
Equity Interests constituting a minority interest in any Person that at such
time is a Restricted Subsidiary; provided, however, that any such
<PAGE> 9
2
Restricted Subsidiary described in clauses (ii) or (iii) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of Sections 4.06 and 4.07 only, "Affiliate" of the
Company shall also mean any owner of shares representing 10% or more of the
total voting power of the Voting Equity Interests of the General Partner (as
long as the Company remains a limited partnership) or the Company or of rights
or warrants to purchase such Voting Equity Interests (whether or not currently
exercisable) and any Person who would be an Affiliate of any such owner
pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other
disposition of Equity Interests of a Restricted Subsidiary (other than
directors' qualifying Equity Interests), property or other assets (each
referred to for the purposes of this definition as a "disposition") by the
Company or any of its Restricted Subsidiaries (including any disposition by
means of a merger, consolidation or similar transaction) other than (i) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of
inventory in the ordinary course of business, (iii) any disposition in the
ordinary course of business of obsolete and worn out equipment or equipment
that is no longer used or useful in the conduct of the business of the Company
or any Restricted Subsidiary, (iv) any dispositions or series of related
dispositions for a consideration valued in the good faith judgment of the
Company at less than $1,000,000, (v) transactions permitted by Section 5.01,
(vi) for purposes of Section 4.06 only, a disposition subject to Section 4.04
and (vii) any asset swap or other exchange of a dairy processing facility for
another dairy processing facility with any Person who is not an Affiliate of
the Company; provided that third party appraisals of all material properties to
be exchanged are received by the
<PAGE> 10
3
Company in connection with such exchange and the terms of such exchange are no
less favorable to the Company than those indicated by such appraisals.
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Securities, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with
respect to any Indebtedness or Preferred Equity Interest, the quotient obtained
by dividing (i) the sum of the products of the numbers of years from the date
of determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Equity Interest multiplied by the amount of such payment by (ii) the
sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or
in respect of the Credit Agreement, the other Senior Credit Documents and any
Refinancing Indebtedness with respect thereto, as amended from time to time,
including principal, premium (if any), interest (including interest accruing on
or after the filing of any petition in bankruptcy or for reorganization
relating to either of the Issuers whether or not a claim for post-filing
interest is allowed in such proceedings), fees, charges, expenses,
reimbursement obligations, guarantees and all other amounts payable thereunder
or in respect thereof.
"Business Day" means a day other than a Saturday, Sunday or
other day on which banking institutions in the State of New York or the State
of Texas are authorized or required by law to close.
"Capitalized Lease Obligations" means an obligation that is
required to be classified and accounted for as a capitalized lease for
financial reporting purposes in accordance with GAAP, and the amount of
Indebtedness represented by such obligation shall be the capitalized amount of
such obligation determined in accordance with GAAP; and the Stated Maturity
thereof shall be the date of the last payment of rent or any other amount due
under such lease.
<PAGE> 11
4
"Change of Control" means the occurrence of any of the
following events:
(i) the sale, lease, exchange or transfer, in one transaction
or a series of transactions, of all or substantially all of the assets
of the Company and its Restricted Subsidiaries, to any Person other
than a Permitted Holder;
(ii) the adoption of a plan relating to the liquidation or
dissolution of the Company or SFG Capital;
(iii) the Permitted Holders fail to own in the aggregate,
directly or indirectly, at least 50% of each class of Voting Equity
Interests in the Company or, for as long as the Company remains a
limited partnership, the General Partner; or
(iv) the Company fails to own, of record and beneficially,
100% of the Equity Interests of SFG Capital.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Southern Foods Group, L.P., a Delaware limited
partnership, until a successor replaces it and, thereafter, means the
successor.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of EBITDA for the period of the
most recent four consecutive fiscal quarters ending prior to the date of such
determination and as to which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro
<PAGE> 12
5
forma basis to such Indebtedness as if such Indebtedness had been Incurred on
the first day of such period and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of such
period, (B) if since the beginning of such period any Indebtedness of the
Company or any of its Restricted Subsidiaries has been repaid, repurchased,
defeased or otherwise discharged (other than Indebtedness under a revolving
credit or similar arrangement unless such revolving credit Indebtedness has
been permanently repaid and has not been replaced) Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Indebtedness had been repaid, repurchased, defeased or
otherwise discharged on the first day of such period, (C) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
that are the subject of such Asset Disposition for such period or increased by
an amount equal to the EBITDA (if negative) directly attributable thereto for
such period, and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable
to any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Equity Interests of any Restricted
Subsidiary are sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent
the Company and its continuing Restricted Subsidiaries are no longer liable for
such Indebtedness after such sale), and increased by the interest income
attributable to the assets which are the subject of such Asset Disposition for
such period, (D) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary)
or an acquisition of assets, including any investment in a Restricted
Subsidiary or any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes all
or substantially all of an operating unit of a business, EBITDA and
Consolidated Interest Expense
<PAGE> 13
6
for such period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period and (E) if since the
beginning of such period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such period) shall have made any Asset Disposition or
any Investment or acquisition of assets that would have required an adjustment
pursuant to clause (C) or (D) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto as if
such Asset Disposition, Investment or acquisition of assets occurred on the
first day of such period. For purposes of this definition, whenever pro forma
effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro
forma calculations shall be determined in good faith by a responsible financial
or accounting Officer of the Company. If any Indebtedness bears a floating
rate of interest and is being given pro forma effect, the interest expense on
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term as at the date of determination in
excess of 12 months).
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its Restricted Subsidiaries, plus, to
the extent Incurred by the Company and its Restricted Subsidiaries in such
period but not included in such interest expense, (i) interest expense
attributable to Capitalized Lease Obligations, (ii) amortization of debt
discount and debt issuance cost, (iii) capitalized interest, (iv) noncash
interest expense, (v) commissions, discounts and other fees and charges with
respect to letters of credit and bankers' acceptance financing, (vi) interest
accruing on any Indebtedness of any other Person to the extent such
Indebtedness is Guaranteed by the Company or any Restricted Subsidiary;
provided that payment of such amounts by the Company or any Restricted
Subsidiary is being made to, or is sought by, the holders of such Indebtedness
pursuant to such Guarantee, (vii) net
<PAGE> 14
7
costs associated with Hedging Obligations (including amortization of fees),
(viii) Preferred Equity Interests distributions or dividends, other than
payment-in-kind distributions, in respect of all Preferred Equity Interests of
the Company and its Subsidiaries and Disqualified Interests of the Company held
by Persons other than the Company or a Wholly Owned Subsidiary and (ix) the
cash contributions to any employee participation plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Company) in connection with Indebtedness
Incurred by such plan or trust and less, (a) to the extent included in such
interest expense, the amortization of capitalized debt issuance costs related
to the Transactions and (b) interest income.
"Consolidated Net Income" means, for any period, the net
income (loss) of the Company and its Restricted Subsidiaries; provided,
however, that there shall not be included in such Consolidated Net Income:
(i) any net income (loss) of any Person if such Person is not
a Subsidiary of the Company, except that (A) subject to the
limitations contained in clause (iv) below, the Company's equity in
the net income of any such Person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company
or a Subsidiary of the Company as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a
Subsidiary of the Company, to the limitations contained in clause
(iii) below) and (B) the Company's equity in a net loss of any such
Person for such period but only to the extent of the aggregate
Investment of the Company and any Restricted Subsidiary in such Person
shall be included in determining such Consolidated Net Income;
(ii) any net income (loss) of any person acquired by the
Company or a Restricted Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition;
(iii) any net income (loss) of any Restricted Subsidiary if
such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions
by such
<PAGE> 15
8
Restricted Subsidiary, directly or indirectly, to the Company, except
that (A) subject to the limitations contained in clause (iv) below,
the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been
distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend (subject, in
the case of a dividend that could have been made to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Restricted Subsidiary for
such period, but only to the extent of the Investment of the Company
and its Restricted Subsidiaries in such Person, shall be included in
determining such Consolidated Net Income;
(iv) any gain or loss realized upon the sale or other
disposition of any asset of the Company or its Restricted Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) that is not
sold or otherwise disposed of in the ordinary course of business and
any gain or loss realized upon the sale or other disposition of any
Equity Interest of any Person;
(v) any extraordinary gain or loss;
(vi) exchange or translation gains or losses on foreign
currencies; and
(vii) the cumulative effect of a change in accounting
principles.
"Consolidated Net Worth" means the total of the amounts shown
on the balance sheet of the Company and its Restricted Subsidiaries, determined
on a Consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending prior to the taking of any action for the purpose of which the
determination is being made and for which financial statements are available,
as (i) the par or stated amount of all outstanding Equity Interests of the
Company plus (ii) paid-in capital or capital surplus relating to such Equity
Interests plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit and less (B) any amounts attributable to Disqualified
Interests.
<PAGE> 16
9
"Consolidation" means the consolidation of the amounts of each
of the Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied. The term "Consolidated" has a correlative meaning.
"Corporate Trust Office of the Trustee" means the address of
the Trustee specified in Section 11.02 or such other address as to which the
Trustee may give notice to the Issuers.
"Credit Agreement" means the credit agreement dated as of
September 4, 1997, among the Company, Mid-Am, The Chase Manhattan Bank, as
administrative agent, and the lenders party thereto from time to time, as
amended, waived or otherwise modified from time to time (except to the extent
that any such amendment, waiver or other modification thereto would, on the
date of such amendment, waiver or modification, be prohibited by the terms of
this Indenture, unless otherwise agreed to by the Holders of at least a
majority in aggregate principal amount of Securities at the time outstanding),
including any such amendments or modifications (or any other credit agreement
or credit agreements) that replace, refund or refinance, in whole or in part,
any of the commitments or loans thereunder.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Definitive Securities" means Securities that are in the form
of Exhibit A or Exhibit B attached hereto that do not include the Global
Securities Legend thereof.
"Depository" means, with respect to the Securities issuable or
issued in whole or in part in global form, the person specified in Section 2.03
as the Depository with respect to the Securities, until a successor shall have
been appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depository" shall mean or include such successor.
<PAGE> 17
10
"Designated Senior Indebtedness" means (i) the Bank
Indebtedness and (ii) any other Senior Indebtedness which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof, are committed to lend
up to, at least $50,000,000 and is specifically designated by the Company in
the instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of this Indenture.
"Disqualified Interest" means, with respect to any Person, any
Equity Interest which by its terms (or by the terms of any security or other
interest into which it is convertible or for which it is exchangeable or
exercisable) or upon the happening of any event (i) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (ii) is
convertible or exchangeable for Indebtedness or Disqualified Interests
(excluding Equity Interests which are convertible or exchangeable solely at the
option of the Company or a Restricted Subsidiary) or (iii) is redeemable at the
option of the holder thereof, in whole or in part, in each case on or prior to
91 days after the Stated Maturity of the Securities; provided, that only the
portion of Equity Interests which so matures or is mandatorily redeemable, is
so convertible or exchangeable or is so redeemable at the option of the holder
thereof prior to such Stated Maturity shall be deemed to be Disqualified
Interests.
"EBITDA" for any period means the Consolidated Net Income for
such period plus, to the extent deducted in calculating such Consolidated Net
Income, (i) income tax expense or Partnership Tax Amount, (ii) Consolidated
Interest Expense; provided that the distributions or dividends referred to in
clause (viii) of the definition of Consolidated Interest Expense shall be
included only to the extent, if any, that such distributions or dividends are
deducted in calculating Consolidated Net Income, (iii) depreciation expense,
(iv) amortization expense and (v) all other non-cash charges (excluding all
such charges to the extent they represent future cash disbursements or cash
receipts reasonably expected to materialize prior to the Stated Maturity of the
Securities), in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute
<PAGE> 18
11
EBITDA only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating Consolidated Net Income and only if
a corresponding amount would be permitted at the date of determination to be
paid as a dividend to the Company by such Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Subsidiary or its equityholders.
"Eligible Partner" means Mr. Pete Schenkel as a holder of
direct or indirect partnership interests in the Company or any taxable
successor(s) to all or part of his direct or indirect partnership interests in
the Company.
"Equity Interest" in any partnership, limited liability
company or corporation means any general, limited, preferred or other interest
or evidence of equity participation in such partnership, any interest in such
limited liability company and any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such corporation, including any
Preferred Equity Interests, but excluding any debt securities convertible into
such equity.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange and Registration Rights Agreement" means the
Exchange and Registration Rights Agreement dated September 4, 1997, by and
among the Initial Purchaser and the Issuers, as such agreement may be amended,
modified, or supplemented from time to time in accordance with the terms
thereof.
"Exchange Securities" means the 9 7/8% Senior Subordinated
Series A Notes due 2007 to be issued pursuant to this Indenture in connection
with the offer to exchange Securities for the Initial Securities that may be
made by the Issuers pursuant to the Exchange and Registration Rights Agreement.
"Existing Agreement" means any written agreement to which
either of the Issuers was a party on the Issue Date as in effect on the Issue
Date.
<PAGE> 19
12
"Flav-O-Rich Facility" means the dairy plant located in
Canton, Mississippi which on the Issue Date was subject to a lease by the
Company from Flav-O-Rich, Inc., a Kentucky cooperative association.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Issue Date, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
this Indenture shall be computed in conformity with GAAP.
"General Partner" means the Partner of the Company that has
the power to direct the management and set the policies of the Company.
"Global Security" means a Security that is in the form of
Exhibit A or Exhibit B hereto that includes the Global Securities Legend
thereof.
"Governing Board" of the Company means (i) the Representative
Committee of the members or other controlling authority of the General Partner,
as long as the Company remains a limited partnership, (ii) the board of
directors of the Company, if the Company has reorganized as, or otherwise
changed form into, a corporation or (iii) the manager or managing members or
any controlling committee of members, if the Company has reorganized as a
limited liability company.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and any obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or
<PAGE> 20
13
other obligation of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep- well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of
such Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Equity Interest
of a Person existing at the time such person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be Incurred by such person at the time it becomes a Restricted Subsidiary.
"Indebtedness" means, with respect to any Person on any date
of determination (without duplication),
(i) the principal of and premium or discount (if any) in
respect of indebtedness of such Person for borrowed money;
(ii) the principal of and premium or discount (if any) in
respect of obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement
obligations with respect thereto)(other than obligations with respect
to letters of credit securing obligations (other than obligations
described in clauses (i), (ii) and (iii) entered into
<PAGE> 21
14
in the ordinary course of business of such Person to the extent that
such letters of credit are not drawn upon);
(iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services (except Trade Payables,
accrued expenses Incurred in the ordinary course of business and
contingent obligations to pay purchase price or earn-outs), which
purchase price is due more than six months after the date of placing
such property in service or taking delivery and title thereto or the
completion of such services;
(v) all Capitalized Lease Obligations and all Attributable
Debt of such Person;
(vi) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of Disqualified
Interests or, with respect to any Restricted Subsidiary, any Preferred
Equity Interests to the extent such obligation arises on or before 91
days following the Stated Maturity of the Securities (but excluding,
in each case, any accrued dividends);
(vii) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed
by such Person; provided, however, that the amount of Indebtedness of
such Person shall be the lesser of (A) the fair market value of such
asset at such date of determination and (B) the amount of such
Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the extent
Guaranteed by such Person; and
(ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above as
such amount would be reflected on a balance sheet prepared in accordance with
GAAP and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
<PAGE> 22
15
"Indenture" means this Indenture as amended or supplemented
from time to time.
"Initial Purchaser" means Chase Securities Inc.
"Initial Securities" means the 9 7/8% Senior Subordinated
Notes due 2007, issued under this Indenture on or about the date hereof.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of such
Person) or other extension of credit (including by way of Guarantee or similar
arrangement) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Equity Interests,
Indebtedness or other similar instruments issued by such Person.
"Issue Date" means the date on which the Initial Securities
are originally issued.
"Issuers" means the Company and SFG Capital and, for purposes
of any provision contained herein and required by the TIA, each other obligor
on the indenture securities.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or
other title retention agreement or lease in the nature thereof).
"Limited Partner" means any Partner of the Company that
generally has limited liability with respect to the obligations of the Company
and does not have the right to control, through its ownership of limited
partnership interests, the day-to-day operations of the Company.
"Meadow Gold Dairies" means the dairy operations of
Borden/Meadow Gold Dairies Holdings, Inc., a Delaware
<PAGE> 23
16
corporation, operated under the Meadow Gold trademarks, as constituted prior to
the Transactions, and its predecessors.
"Mid-Am" means Mid-America Dairymen, Inc., a Kansas
cooperative marketing association, and its successors following any merger or
consolidation involving Mid-Am.
"Mid-Am Capital 9 1/2% Preferred Interests" means the
$30,000,000 stated amount of Series D 9 1/2% preferred limited partner
interests in the Company originally issued by the Company to Mid-Am Capital,
L.L.C., a Delaware limited liability company, on the Issue Date, as amended
(except to the extent that any such amendment thereto would be prohibited by
the terms of this Indenture, unless otherwise agreed to by the Holders of at
least a majority in aggregate principal amount of Securities at the time
outstanding).
"Net Available Cash" from an Asset Disposition means cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received
in the form of assumption by the acquiring person of Indebtedness or other
obligations relating to the properties or assets that are the subject of such
Asset Disposition or received in any other noncash form) therefrom, in each
case net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all federal, state, provincial, foreign
and local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to any person
owning a beneficial interest in assets subject to sale or minority interest
holders in Subsidiaries or joint ventures as a result of such Asset
Disposition, (iv) appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition and (v) any portion of the
purchase price from an Asset Disposition placed in escrow (whether as a reserve
for adjustment of the purchase price, for satisfaction of indemnities in
respect of such Asset Disposition or
<PAGE> 24
17
otherwise in connection with such Asset Disposition); provided, however, that
upon termination of any such escrow, Net Available Cash shall be increased by
any portion of funds therein released to the Company or any Restricted
Subsidiary.
"Net Cash Proceeds", with respect to any issuance or sale of
Equity Interests, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters', initial purchasers' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net
of taxes paid or payable as a result thereof.
"Note Guarantee" means any Guarantee of the Securities that
may from time to time be executed and delivered by a Restricted Subsidiary
pursuant to the terms of this Indenture. Each such Note Guarantee shall have
subordination provisions equivalent to those contained in this Indenture and
shall be substantially in the form of Exhibit D hereto.
"Note Guarantor" means any Restricted Subsidiary that has
issued a Note Guarantee.
"Officer" of either Issuer, as the case may be, means the
Chief Executive Officer, the Chief Financial Officer, the Chief Accounting
Officer, the President, any Vice President, the Treasurer or any Assistant
Treasurer or the Secretary or any Assistant Secretary of such Issuer and, in
the case of the Company, the General Partner acting on behalf of the Company.
"Officers' Certificate" of either Issuer, as the case may be,
means a certificate signed by two Officers of such Issuer.
"Opinion of Counsel" means a written opinion from
legal counsel who is acceptable to the Trustee. The counsel may be an employee
of, or counsel to, the Issuers or the Trustee.
"Partner" means any Person owning an Equity Interest in a
partnership.
"Partnership Tax Amount" means the amount of money directly or
indirectly payable as a distribution with respect to the Eligible Partner's
direct or indirect partnership interests in the Company (including such
<PAGE> 25
18
Eligible Partner's direct or indirect interests in the General Partner) to
enable such Eligible Partner to pay Federal, state and local Income Taxes
(including quarterly estimated Income Taxes) with respect to the Company's net
income or any division or segment thereof allocable to such Eligible Partner.
For the purposes of this definition:
(a) "Income Taxes" means all Federal, state and local taxes,
fees, assessment or charges of any kind, imposed on, or determined
with reference to, net income of the Company or any division or
segment thereof, or any allocable portion thereof, including, without
limitation, any self-employment or similar tax imposed with resect to
an Eligible Partner's allocable share of net income or any division or
segment thereof, and "Income Tax" means any one of such Income Taxes.
(b) The Partnership Tax Amount in any applicable fiscal year
shall equal the greater of (1) the product of (i) the sum of (A) the
highest marginal Federal tax rate (taking into account deductions or
credits for state and local taxes) applicable to the Eligible Partner
(at either individual or corporate rates, as applicable) with respect
to the Company's taxable income directly or indirectly allocable to
such Eligible Partner with respect to such applicable fiscal year, (B)
the highest state tax rate (taking into account deductions or credits
for local taxes) applicable to the Eligible Partner (at either
individual or corporate rates, as applicable) with respect to the
Company's taxable income directly or indirectly allocable to such
Eligible Partner with respect to such applicable fiscal year and (C)
the highest local tax rate applicable to the Eligible Partner (at
either individual or corporate rates, as applicable) with respect to
the Company's taxable income directly or indirectly allocable to such
Eligible Partner with respect to such applicable fiscal year,
multiplied by (ii) the Company's taxable income directly or indirectly
allocable to such Eligible Partner with respect to such fiscal year or
(2) the product of (i) the sum of (A) the highest Federal alternative
minimum tax rate (taking into account deductions or credits for state
and local taxes) applicable to the Eligible Partner (at either
individual or corporate rates, as applicable) with respect to the
Company's alternative minimum taxable income directly or indirectly
allocable to such Eligible Partner with respect to such applicable
fiscal year, (B) the highest state tax rate (taking into
<PAGE> 26
19
account deductions or credits for local taxes) applicable to the
Eligible Partner (at either individual or corporate rates, as
applicable) with respect to the Company's taxable income or
alternative minimum taxable income, as applicable, directly or
indirectly allocable to such Eligible Partner with respect to such
applicable fiscal year and (C) the highest local tax rate applicable
to the Eligible Partner (at either individual or corporate rates, as
applicable) with respect to the Company's taxable income or
alternative minimum taxable income, as applicable, directly or
indirectly allocable to such Eligible Partner with respect to such
applicable fiscal year, multiplied by (ii) the Company's taxable
income or alternative minimum taxable income, as applicable, directly
or indirectly allocable to such Eligible Partner with respect to such
fiscal year. The Partnership Tax Amount for each applicable fiscal
year shall be appropriately adjusted to reflect (i) any tax losses of
the Company arising in any prior fiscal year (assuming that any such
losses are carried forward and used to offset the Company's taxable
income in the applicable fiscal year) and (ii) the Company's payment
of any withholding taxes that would give rise to a credit or other tax
benefit to the Company (or the Eligible Partner).
(c) Payments or distributions in connection with the
Partnership Tax Amount related to payments of estimated Federal Income
Tax shall be payable in quarterly installments with respect to the
applicable fiscal year, in each case no more than five days prior to
the Federal estimated tax due dates applicable to the Eligible
Partner. Such quarterly installments shall be based upon the
Company's then good faith estimate of its taxable income (or
alternative minimum taxable income, as applicable) directly or
indirectly allocable to the Eligible Partner (as calculated in the
manner described in paragraph (b) above), subject to appropriate
adjustment to reflect over and under payment of any prior quarterly
periods during the applicable fiscal year, and in each quarter shall
be no greater than the applicable estimated tax payment to be paid by
such Eligible Partner to the applicable Governmental Authority.
(d) Payments or distributions in connection with the
Partnership Tax Amount related to the filing of extensions of time for
filing Income Tax returns for a fiscal year shall be payable in each
case no more than
<PAGE> 27
20
five days prior to the applicable date on which such payment of Income
Tax is due, shall be based upon the Company's then good faith estimate
of its taxable income (or alternative minimum taxable income, as
applicable) directly or indirectly allocable to the Eligible Partner
for such fiscal year, and shall be no greater than the applicable tax
payment to be paid by such Eligible Partner to the applicable
Governmental Authority.
(e) The aggregate amount of all payments made in connection
with the Partnership Tax Amount with respect to the applicable fiscal
year shall be based upon the Company's taxable income (or alternative
minimum taxable income, as applicable) directly or indirectly
allocable to the Eligible Partner with respect to such applicable
fiscal year as shown on the Company's filed Federal Income Tax return
for such fiscal year, or if such return is not filed when the
financial statements referred to in Section 5.01(a) of the Credit
Agreement for such fiscal year are delivered, the Company's then good
faith estimate of the amount of its taxable income (or alternative
minimum taxable income, as applicable), taking into account any
separately stated items, for such fiscal year. In the event that the
Company files an amended Income Tax return (or upon the Company's
filing of its original return for the applicable fiscal year if the
Partnership Tax Amount was based upon the Company's good faith
estimate of its taxable income or alternative minimum taxable income,
as applicable, that is inconsistent with its calculation of its
taxable income (or alternative minimum taxable income, as applicable)
for any such fiscal year(s)), or in the event that a Governmental
Authority determines that information reflected in any of the
Company's Income Tax returns for such fiscal year is inaccurate or
incomplete, then the Company shall make a proper adjustment (including
any penalties, interest or other charges related to the adjustment or
correction of information reflected in such returns(s) or the filing
of such return(s)) to the amount payable in connection with the
Partnership Tax Amount for such fiscal year(s). According to whether
such adjustments to the amounts payable in connection with the
Partnership Tax Amount for the applicable year are positive or
negative with respect to the Eligible Partner, the Company shall, as
applicable, either promptly pay to the Eligible Partner as a
distribution as needed to fund payment to a Governmental Authority by
such Eligible Partner, or shall require the Eligible Partner to
<PAGE> 28
21
promptly pay to it, the amount of any such adjustment (and no further
payments in connection with the Partnership Tax Amount shall be paid
until the Eligible Partner has repaid any such excess to the Company).
Payments or distributions to the Eligible Partner upon the Eligible
Partner's filing original Income Tax returns for a fiscal year shall
be payable in each case no more than five days prior to the applicable
date on which the Income Tax payment is due in connection with such
return filing, and shall be no greater than the applicable tax payment
to be paid by such Eligible Partner to the applicable Governmental
Authority.
(f) In the event that the aggregate amount of payments in
connection with the Partnership Tax Amount actually distributed in
respect of any fiscal year exceeds the amounts determined as indicated
in paragraph (e) above for such fiscal year, the Eligible Partner
shall promptly repay any such excess to the Company (and no further
payments in connection with the Partnership Tax Amount shall be paid
until the Eligible Partner has repaid any such excess to the Company).
(g) For all periods from and after the inception of the
Company as a partnership, the amount of the aggregate payments in
connection with the Partnership Tax Amount made with respect to the
direct or indirect partnership interests held by an Eligible Partner
for each fiscal year shall be appropriately adjusted in the current
fiscal year or in future fiscal years, regardless of whether such
Eligible Partner has held, or now or in the future holds, a direct or
indirect partnership interest in the Company (to allow additional
payments in connection with the Partnership Tax Amount for the benefit
of such Eligible Partner in the case of tax increases or in the case
of tax decreases by the Eligible Partner paying any tax decrease to
the Company) to reflect any adjustments in Income Tax liabilities as a
result of adjustments made for any reason to items of income, gain,
loss, deduction or credit of the Company, or adjustments made in the
Eligible Partner's allocable shares of such items (regardless of
whether occurring as a result of the Company's filing of an amended
return or as a result of an examination or audit by a Governmental
Authority). For the period up to and including Mr. Schenkel's
purchase of Mr. Meyer's direct or indirect partnership interests in
the Company, "Eligible Partner" shall also include Mr. Allen Meyer as
a former holder of a partnership interest in the Company.
<PAGE> 29
22
(h) In the event that, for any reason, all or any portion of
the Partnership Tax Amount cannot be distributed to an Eligible
Partner, such deficiency in payments in connection with the
Partnership Tax Amount shall be distributed to such Eligible Partner
in any subsequent fiscal year.
"Permitted Holders" means Mid-Am or any of its Subsidiaries,
Schenkel and any Person acting in the capacity of an underwriter or initial
purchaser in connection with a public or private offering of Equity Interests
in the Company.
"Permitted Investment" means an Investment by the Company or
any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary (other
than SFG Capital); provided, however, that such Person's primary business is a
Related Business; (iii) Temporary Cash Investments; (iv) receivables owing to
the Company or any Restricted Subsidiary, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include
such concessionary trade terms as the Company or any such Restricted Subsidiary
deems reasonable under the circumstances; (v) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vi) loans or advances to employees made in
the ordinary course of business consistent with past practices of the Company
or such Restricted Subsidiary and not exceeding $2,000,000 in the aggregate
outstanding at any one time; and (vii) Equity Interests, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments.
<PAGE> 30
23
"Permitted Liens" means with respect to the Company and its
Subsidiaries:
(a) Liens to secure Indebtedness permitted under the
provisions described under clause (b)(i) or (ii) of Section 4.03;
(b) pledges or deposits made or other Liens granted by the
Company and its Restricted Subsidiaries (1) under workmen's
compensation laws, unemployment insurance laws or similar legislation,
(2) in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which the Company or a
Restricted Subsidiary is a party or (3) to secure public or statutory
obligations of the Company or a Restricted Subsidiary or deposits of
cash or United States government bonds to secure surety or appeal
bonds to which the Company or a Restricted Subsidiary is a party, or
deposits as security for contested taxes or import duties or for the
payment of rent, in each case Incurred in the ordinary course of
business;
(c) Liens imposed by law, such as carriers', warehousemen's,
mechanics', employees' and other like Liens, in each case for sums not
yet due or being contested in good faith by appropriate proceedings or
other Liens arising out of judgments, awards, decrees or orders of any
court or other Governmental Authority against the Company or a
Restricted Subsidiary with respect to which the Company or a
Restricted Subsidiary shall then be proceeding with an appeal or other
proceedings for review;
(d) Liens for property taxes not yet due or payable or subject
to penalties for non-payment or which are being contested in good
faith and by appropriate proceedings;
(e) Liens in favor of issuers of surety, performance,
judgment, appeal and other like bonds or letters of credit issued
pursuant to the request of and for the account of the Company or a
Restricted Subsidiary in the ordinary course of its business;
(f) minor survey exceptions, minor encumbrances, easements, or
reservations of, or rights of others for,
<PAGE> 31
24
licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning provisions,
carveouts, conditional waivers or other restrictions as to the use of
real properties or minor irregularities of title (and with respect to
leasehold interests, mortgages, obligations, Liens and other
encumbrances Incurred, created, assumed or permitted to exist and
arising by, through or under a landlord or owner of the leased
property, with or without consent of the lessee) or Liens incidental
to the conduct of the business of the Company and its Restricted
Subsidiaries or to the ownership of their properties which were not
Incurred in connection with Indebtedness and which do not in the
aggregate materially impair the use of such properties in the
operation of the business of the Company and its Restricted
Subsidiaries;
(g) Liens existing or provided for under written arrangements
existing on the Issue Date;
(h) Liens securing Indebtedness or other obligations of a
Restricted Subsidiary owing to the Company or a Wholly Owned
Subsidiary;
(i) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under this Indenture, secured
by a Lien on the same property securing such Hedging Obligations;
(j) Liens to secure any refinancing, refunding, replacement,
renewal, repayment or extension (or successive refinancings,
refundings, replacements, renewals, repayments or extensions) as a
whole, or in part, of any Indebtedness secured by any Lien referred to
in clause (g), (i), (l), (m) or (n) of this definition; provided,
however, that (x) such new Lien shall be limited to all or part of the
same property that secured the original Lien (plus improvements on
such property) and (y) the Indebtedness secured by such Lien at such
time is not increased to any amount greater than the sum of (A) the
outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clauses (g), (i), (l), (m) and (n) at the
time original Lien became a Permitted Lien and (B) an amount necessary
to pay any fees and expenses, including premiums, related to such
refinancing, refunding, replacement, renewal, repayment or extension;
<PAGE> 32
25
(k)(i) Liens or restrictions that have been placed by any
developer, landlord or other third party on property over which the
Company or any Restricted Subsidiary has easement rights or on any
real property leased by the Company and subordination or similar
agreements relating thereto and (ii) any condemnation or eminent
domain proceedings affecting any real property;
(l) Liens on property, assets or Equity Interests of a Person
at the time such Person becomes a Subsidiary of the Company; provided,
however, such Liens are not created, Incurred or assumed by such
Person in connection with, or in contemplation of, such other Person
becoming a Subsidiary of the Company; provided further, however, that
such Liens may not extend to any other property owned by the Company
or any Restricted Subsidiary;
(m) Liens on property or assets at the time the Company or a
Restricted Subsidiary acquired the property or assets, including any
acquisition by means of a merger or consolidation with or into the
Company or a Restricted Subsidiary; provided, however, that such Liens
are not created in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens may not extend
to any other property owned by the Company or any Restricted
Subsidiary; and
(n) any Lien on Equity Interests or other securities of an
Unrestricted Subsidiary that secures Indebtedness of such Unrestricted
Subsidiary.
"Person" means any individual, corporation, partnership,
limited partnership, limited liability company, joint venture, association,
joint-stock company, trust, unincorporated organization, government or any
agency or political subdivision thereof or any other entity.
"Preferred Equity Interests", as applied to the Equity
Interests of any partnership, limited liability company or corporation, means
Equity Interests of any class
<PAGE> 33
26
or classes (however designated) which are preferred as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such partnership, limited liability company or
corporation, over Equity Interests of any other class of such partnership,
limited liability company or corporation.
"principal" of a Security means the principal of the Security
plus the premium (if any) payable on the Security which is due or overdue or is
to become due at the relevant time.
"Public Equity Offering" means an underwritten primary public
offering of Equity Interests of the Company pursuant to an effective
registration statement under the Securities Act.
"Public Market" means any time after (i) a Public Equity
Offering has been consummated and (ii) at least 15% of the total issued and
outstanding Equity Interests of the Company have been distributed by means of
an effective registration statement under the Securities Act.
"Purchase Agreement" means the agreement for the purchase of
$150,000,000 aggregate principal amount of senior subordinated Securities among
the Issuers and the Initial Purchaser dated August 27, 1997.
"Purchase Money Mortgages" means Indebtedness consisting of
the deferred purchase price of an asset or assets including any conditional
sale obligation, any obligation under any title retention agreement or other
purchase money obligation; provided that (i) such Indebtedness is Incurred
within 180 days of the acquisition of such asset or assets by the Company or
its Restricted Subsidiaries, (ii) the Average Life of such Indebtedness is less
than the anticipated useful life of such asset or assets and (iii) such
Indebtedness is secured by a first priority Lien on such asset or assets.
"Redemption Date" means the date on which the Securities are
optionally redeemed pursuant to Section 3.07.
"Refinancing Indebtedness" means Indebtedness that is Incurred
to refund, refinance, replace, renew, repay or extend (including pursuant to
any defeasance or
<PAGE> 34
27
discharge mechanism) (collectively, "refinances", and "refinanced" shall have a
correlative meaning), in whole or in part, any Indebtedness existing on the
date of this Indenture or Incurred in compliance with this Indenture (including
Indebtedness of the Company or SFG Capital that refinances Indebtedness of any
Restricted Subsidiary (to the extent permitted in this Indenture) and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that, with respect to any
Refinancing Indebtedness (other than Bank Indebtedness), (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced or 91 days following the Stated Maturity of the
Securities, if shorter, (ii) the Refinancing Indebtedness has an Average Life
at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being refinanced and (iii)
such Refinancing Indebtedness is Incurred in an aggregate principal amount (or
if issued with original issue discount, an aggregate issue price) that is equal
to or less than the aggregate principal amount (or if issued with original
issue discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced; provided further, however, that Refinancing
Indebtedness shall not include Indebtedness of a Restricted Subsidiary (other
than SFG Capital) that refinances Indebtedness of the Company or SFG Capital.
"Registered Exchange Offer" shall have the meaning set forth
in the Exchange and Registration Rights Agreement.
"Related Business" means any business which is the same as or
related, ancillary or complementary to the businesses of the Company on the
Issue Date.
"Representative" means the trustee, agent or representative
(if any) for an issue of Senior Indebtedness.
"Restricted Payment" with respect to any Person means (i) the
distribution of any sort in respect of its Equity Interests, including any
payment in connection with any merger or consolidation involving such Person
(other than dividends or distributions payable solely in its
<PAGE> 35
28
Equity Interests (other than Disqualified Interests) or in options, warrants or
other rights to purchase its Equity Interests, as the case may be, or dividends
or distributions payable solely to such Person and its wholly owned
Subsidiaries), (ii) the purchase, redemption or other acquisition or retirement
for value of any Equity Interest of such Person or any direct or indirect
parent of such Person, (iii) the purchase, repurchase, redemption or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, of any Subordinated Obligation of
such Person (other than the purchase, repurchase, or other acquisition of a
Subordinated Obligation acquired in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity due within one year of the
date of the acquisition of such Subordinated Obligation) or (iv) the making of
any Investment (other than a Permitted Investment) in any Unrestricted
Subsidiary or in any Affiliate of such Person other than a wholly owned
Subsidiary of such Person or a Person which will become a wholly owned
Subsidiary of such Person as a result of such Investment.
"Restricted Securities Legend" means the legend of the same
name set forth in Exhibit A hereto.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person, and the Company or such
Restricted Subsidiary leases it from such Person, other than leases between the
Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries.
"Schenkel" means Pete Schenkel and any entity in which
Schenkel and members of his family (consisting of persons described in Section
318(a)(1) of the Code) own more than a 50% interest.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of either of the
Issuers secured by a Lien.
<PAGE> 36
29
"Securities" means, collectively, the Initial Securities and,
when and if issued as provided in the Exchange and Registration Rights
Agreement, the Exchange Securities.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to the
Global Security (as appointed by the Depository), or any successor entity
thereto and shall initially be the Trustee.
"Senior Credit Documents" means the collective reference to
the Credit Agreement, the notes issued pursuant thereto and the Guarantees
thereof, and the Security Agreements, the Mortgages and the Pledge Agreements
(each as defined in the Credit Agreement).
"Senior Indebtedness" of the Company or SFG Capital means all
principal of, premium (if any), accrued and unpaid interest (if any)(including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or SFG Capital whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, Guarantees and other amounts owing with
respect to all Indebtedness of the Company or SFG Capital, and including all
Bank Indebtedness, and all Refinancing Indebtedness with respect thereto,
whether outstanding on the Issue Date or thereafter Incurred, unless in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding it is expressly provided that such obligations are not superior in
right of payment to the Securities; provided, however, that Senior Indebtedness
shall not include (i) any obligation of the Company to any Subsidiary of the
Company, (ii) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities), (iii) any Indebtedness or obligation
of the Company or SFG Capital which is subordinate or junior in any respect to
any other Indebtedness or obligation of the Company or SFG Capital, as the case
may be, including any Senior Subordinated Indebtedness and any Subordinated
Obligations, (iv) any obligations with respect to any Equity Interest, (v) any
Indebtedness Incurred in violation of this
<PAGE> 37
30
Indenture or (vi) any liability for federal, foreign, state, local or other
taxes owed or owing by the Company or SFG Capital.
"Senior Subordinated Indebtedness" means the Securities and
any other Indebtedness of the Company or SFG Capital that specifically provides
that such Indebtedness is to rank pari passu with the Securities and is not
subordinated by its terms to any Indebtedness or other obligation of the
Company or SFG Capital, as the case may be, which is not Senior Indebtedness.
"Series E 10% Preferred Interests" means the Series E 10%
Payment-in-Kind Preferred Limited Partner Interests of the Company.
"SFG Capital" means SFG Capital Corporation, a Delaware
corporation.
"Significant Subsidiary" means any Subsidiary of the Company,
other than SFG Capital, that would be a "Significant Subsidiary" of the Company
within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency beyond the control of the issuer thereof unless
such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the
Company or SFG Capital (whether outstanding on the Issue Date or thereafter
Incurred) that is subordinate or junior in right of payment to the Securities
pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of the Equity Interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, representatives, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
<PAGE> 38
31
(i) such Person or (ii) one or more Subsidiaries of such Person or both;
provided, however, that the Company shall not be deemed to be a Subsidiary of
Mid-Am.
"Temporary Cash Investments" means any of the following: (i)
any investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or any
agency thereof, (ii) investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital, surplus and
undivided profits aggregating in excess of $250,000,000 (or the foreign
currency equivalent thereof) and whose long-term debt is rated "A" (or such
similar equivalent rating) or higher by at least one nationally recognized
statistical rating organized (as defined in Rule 436 under the Securities Act),
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered into
with a bank meeting the qualifications described in clause (ii) above, (iv)
investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with
a rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc. ("S&P"), (v) investments in securities with maturities of six
months or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
S&P or "A" by Moody's Investors Service, Inc. and (vi) investments in mutual
funds and bank collective investments or trust funds whose investment
guidelines restrict such funds' investments to those satisfying the provisions
of clauses (i) through (v) above.
<PAGE> 39
32
"Term Loans" means the Tranche A Term Loans and the Tranche B
Term Loans outstanding under the Credit Agreement.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of this Indenture, or such
other date as may be established by the TIA.
"Trade Payables" means, with respect to any Person, any
accounts payable or any indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person arising in the ordinary course of
business in connection with the acquisition of goods or services.
"Transactions" means the series of related transactions
occurring substantially simultaneously with the original offering of the
Initial Securities for resale by the Initial Purchaser as more fully described
and defined in the offering memorandum dated August 27, 1997 prepared by the
Issuers in conjunction with such offering.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.06 hereof.
"Trustee" means the party named as such in this Indenture
until a successor replaces it in accordance with the terms of this Indenture
and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President
or any other officer or assistant officer of the Trustee assigned by the
Trustee to administer its corporate trust matters with responsibility for the
administration of this Indenture, and, in the case of any certification
required to be signed by a Trust Officer, such officer who is authorized by the
Trustee from time to time to execute such certificates.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the
<PAGE> 40
33
Governing Board in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Governing Board may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company), other than SFG Capital, to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Equity Interest in, or
Indebtedness of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary that is not a Subsidiary to be so designated;
provided, however, that either (A) the Subsidiary to be so designated has total
consolidated assets of $10,000 or less or (B) if such Subsidiary has
consolidated assets greater than $10,000, then such designation would be
permitted under Section 4.04. The Governing Board may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default shall
have occurred and be continuing. Any such designation by the Governing Board
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the authorization of the Governing Board giving effect to such designation and
an Officers' Certificate of the Company certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the option of the issuer
thereof.
"Voting Equity Interests" of a partnership, limited liability
company or corporation means all classes of Equity Interests of such
partnership, limited liability company or corporation then outstanding and that
normally entitle the holders of such interests to participate in the management
or to elect those participating in the management of such partnership, limited
liability company or corporation.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all
the Equity Interests of which (other than
<PAGE> 41
34
directors' qualifying Equity Interests) are owned by the Company or another
Wholly Owned Subsidiary.
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . . 4.07
"Agent Members" . . . . . . . . . . . . . . . . . . . . . . . . . 2.13(a)
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Blockage Notice" . . . . . . . . . . . . . . . . . . . . . . . . 10.03
"covenant defeasance option" . . . . . . . . . . . . . . . . . . 8.01(b)
"cross acceleration provision" . . . . . . . . . . . . . . . . . 6.01
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . 6.01
"IAIs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.01(b)
"IAI Global Note" . . . . . . . . . . . . . . . . . . . . . . . . 2.01(b)
"judgment default provision" . . . . . . . . . . . . . . . . . . 6.01
"legal defeasance option" . . . . . . . . . . . . . . . . . . . . 8.01(b)
"Legal Holiday" . . . . . . . . . . . . . . . . . . . . . . . . . 11.08
"Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.06
"Offer Amount" . . . . . . . . . . . . . . . . . . . . . . . . . 4.06
"Offer Period" . . . . . . . . . . . . . . . . . . . . . . . . . 4.06
"Offshore Securities Exchange Date" 2.01(c)
"Permanent Offshore Physical
Securities" . . . . . . . . . . . . . . . . . . . . . . . . . 2.01(c)
"pay the Securities" . . . . . . . . . . . . . . . . . . . . . . 10.03
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Payment Blockage Period" . . . . . . . . . . . . . . . . . . . . 10.03
"Physical Securities" . . . . . . . . . . . . . . . . . . . . . . 2.01(e)
"Purchase Date" . . . . . . . . . . . . . . . . . . . . . . . . . 4.06
"QIBs" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.01(b)
"Rule 144A" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.01(b)
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Successor Company" . . . . . . . . . . . . . . . . . . . . . . . 5.01
"Temporary Offshore Physical
Securities" . . . . . . . . . . . . . . . . . . . . . . . . . 2.01(c)
"U.S. Global Security" . . . . . . . . . . . . . . . . . . . . . 2.01(b)
"U.S. Physical Securities" . . . . . . . . . . . . . . . . . . . 2.01(b)
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture
Act. This Indenture is subject to the mandatory provisions of the TIA, which
are incorporated by
<PAGE> 42
35
reference in and made a part of this Indenture. The following TIA terms have
the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means each of the
Issuers and any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule
have the meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) unsecured Indebtedness shall not be deemed to be
subordinate or junior to Secured Indebtedness merely by virtue of its
nature as unsecured Indebtedness;
(7) the principal amount of any non-interest bearing or other
discount security at any date shall
<PAGE> 43
36
be the principal amount thereof that would be shown on a balance sheet
of the issuer thereof dated such date prepared in accordance with GAAP
and accretion of principal on such security shall be deemed to be the
Incurrence of Indebtedness; and
(8) the principal amount of any Preferred Equity Interest
shall be (i) the maximum liquidation value of such Preferred Equity
Interest or (ii) the maximum mandatory redemption or mandatory
repurchase price with respect to such Preferred Equity interest,
whichever is greater.
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating. (a) The Initial Securities and
the Trustee's certificate of authentication shall be substantially in the form
of Exhibit A, which is hereby incorporated in and expressly made a part of this
Indenture, and as otherwise provided in this Article 2. Any Exchange
Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit B, which is incorporated in and expressly
made a part of this Indenture, and as otherwise provided in this Article 2.
The Securities may have notations, legends or endorsements required by law,
stock exchange rule, agreements to which the Issuers or the Note Guarantors (if
any) are subject (provided that any such notation, legend or endorsement is in
a form acceptable to the Issuers). Each Security shall be dated the date of
its authentication. The terms of the Securities set forth in Exhibit A and B
are part of the terms of this Indenture. The Securities shall be issuable only
in registered form without coupons and only in denominations of $1,000 and
integral multiples thereof.
(b) The Initial Securities are being jointly offered and sold
by the Issuers pursuant to the Purchase Agreement. Initial Securities offered
and sold to "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act ("Rule 144A")) ("QIBs") in accordance with Rule 144A as provided
in the Purchase Agreement, shall be issued on the Issue Date initially in the
form of a permanent Global Security substantially in
<PAGE> 44
37
the form set forth in Exhibit A (the "QIB Global Security"). On the Issue
Date, a similar Global security (the "IAI Global Security", and with the QIB
Global Security each a "U.S. Global Security") will also be issued to
accommodate transfers of Securities from QIBs to institutional "Accredited
Investors" (within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) ("IAIs"). On the Issue Date, each U.S. Global Security will be
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Issuers and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of each U.S. Global Security may from time to time
be increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, as hereinafter provided.
Transfers of Initial Securities from QIBs to IAIs, and from IAIs to QIBs, will
be represented by appropriate increases and decreases to the respective amounts
of the appropriate U.S. Global Securities, as more fully provided in Section
2.13.
(c) Initial Securities offered and sold in reliance on
Regulation S, if any, shall be issued initially in the form of temporary
certificated Securities in registered form substantially in the form set forth
in Exhibit A (the "Temporary Offshore Physical Securities"). The Temporary
Offshore Physical Securities will be registered in the name of, and held by, a
temporary certificate holder designated by the Initial Purchaser until the
later of the completion of the distribution of the Initial Securities and the
termination of the "restricted period" (as defined in Regulation S) with
respect to the offer and sale of the Initial Securities (the "Offshore
Securities Exchange Date"). The Issuers shall promptly notify the Trustee in
writing of the occurrence of the Offshore Securities Exchange Date and, at any
time following the Offshore Securities Exchange Date, upon receipt by the
Trustee and the Issuers of a certificate substantially in the form set forth in
Exhibit E, the Issuers shall execute, and the Trustee shall authenticate and
make available for delivery, one or more permanent certificated Securities in
registered form substantially in the form set forth in Exhibit A (the
"Permanent Offshore Physical Securities") in exchange for the Temporary
Offshore Physical Securities of like tenor and amount.
<PAGE> 45
38
(d) Initial Securities offered and sold other than as
described in the preceding two paragraphs, if any, shall be issued in the form
of permanent certificated Securities in registered form in substantially the
form set forth in Exhibit A (the "U.S. Physical Securities").
(e) The Temporary Offshore Physical Securities, Permanent
Offshore Physical Securities and U.S. Physical Securities are at times
collectively herein referred to as the "Physical Securities".
SECTION 2.02. Execution and Authentication. One or more
Officers of each of the Issuers shall sign the Securities for such Issuer by
manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate and make available for delivery
(1) Initial Securities for original issue in an aggregate principal amount of
$150,000,000 and (2) Exchange Securities for issue only in a Registered
Exchange Offer, pursuant to the Exchange and Registration Rights Agreement, for
Initial Securities for a like principal amount of Initial Securities exchanged
pursuant thereto, in each case upon a written order of the Issuers signed by
two Officers of the Company and two Officers of SFG Capital. Such order shall
specify the amount of the Securities to be authenticated, the date on which the
original issue of Securities is to be authenticated and whether the Securities
are to be Initial Securities or Exchange Securities. The aggregate principal
amount of Securities outstanding at any time may not exceed $150,000,000 except
as provided in Section 2.07.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Issuers to authenticate the Securities. Any such appointment
shall be evidenced by an
<PAGE> 46
39
instrument signed by an authorized officer of the Trustee, a copy of which
shall be furnished to the Issuers. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as any Registrar, Paying Agent or agent for service of notices and
demands.
SECTION 2.03. Registrar and Paying Agent. The Issuers shall
jointly maintain an office or agency where Securities may be presented for
registration of transfer or for exchange (the "Registrar") and an office or
agency where Securities may be presented for payment (the "Paying Agent"). The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Issuers may have one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional
paying agent.
The Issuers shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co- registrar not a party to this
Indenture, which shall incorporate the terms of the TIA. The agreement shall
implement the provisions of this Indenture that relate to such agent. The
Issuers shall notify the Trustee of the name and address of any such agent. If
the Issuers fail to maintain a Registrar or Paying Agent, the Trustee shall act
as such and shall be entitled to appropriate compensation therefor pursuant to
Section 7.07. Either of the Issuers or any domestically organized Wholly Owned
Subsidiary may act as Paying Agent, Registrar, co-registrar or transfer agent.
The Issuers initially appoint the Trustee as Registrar and
Paying Agent in connection with the Securities.
The Issuers initially appoint The Depository Trust Company to
act as Depositary with respect to the Global Securities, and the Trustee shall
initially be the Securities Custodian with respect to the Global Securities.
The Issuers may remove any Registrar or Paying Agent upon
written notice to such Registrar or Paying Agent and to the Trustee; provided
that no such removal shall become effective until (1) acceptance of an
appointment by
<PAGE> 47
40
a successor as evidenced by an appropriate agreement entered into by the Issuers
and such successor Registrar or Paying Agent, as the case may be, and delivered
to the Trustee or (2) notification to the Trustee that the Trustee shall serve
as Registrar or Paying Agent until the appointment of a successor in accordance
with clause (1) above. The Registrar or Paying Agent may resign at any time
upon written notice; provided, however, that the Trustee may resign as Paying
Agent or Registrar only if the Trustee also resigns as Trustee in accordance
with Section 7.08.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to
each due date of the principal and interest on any Security, the Issuers shall
deposit with the Paying Agent (or if either of the Issuers or a permitted
Wholly Owned Subsidiary is acting as Paying Agent, segregate and hold in trust
for the benefit of the Persons entitled thereto) a sum sufficient to pay such
principal and interest when so becoming due. The Issuers shall require each
Paying Agent (other than the Trustee) to agree in writing that the Paying Agent
shall hold in trust for the benefit of Securityholders or the Trustee all money
held by the Paying Agent for the payment of principal of or interest on the
Securities and shall notify the Trustee of any default by the Issuers in making
any such payment. If either of the Issuers or a permitted Wholly Owned
Subsidiary acts as Paying Agent, it shall segregate the money held by it as
Paying Agent and hold it as a separate trust fund. The Issuers at any time may
require a Paying Agent to pay all money held by it to the Trustee and to
account for any funds disbursed by the Paying Agent. Upon complying with this
Section, the Paying Agent shall have no further liability for the money
delivered to the Trustee.
Any money deposited with any Paying Agent, or then held by
either of the Issuers or a permitted Wholly Owned Subsidiary in trust for the
payment of principal or interest on any Security and remaining unclaimed for
two years after such principal and interest has become due and payable shall be
paid to the Issuers at their request, or, if then held by either of the Issuers
or a permitted Wholly Owned Subsidiary, shall be discharged from such trust;
and the Securityholders shall thereafter, as unsecured general creditors, look
only to the Issuers for payment thereof, and all liability of the Paying Agent
with respect to such money, and all liability of either of the Issuers or such
permitted Wholly Owned Subsidiary as trustee thereof, shall thereupon cease.
<PAGE> 48
41
SECTION 2.05. Securityholder Lists. The Trustee shall
preserve in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of Securityholders. If the Trustee
is not the Registrar, the Issuers shall furnish, or cause the Registrar to
furnish, to the Trustee, in writing at least five Business Days before each
interest payment date and at such other times as the Trustee may request in
writing, a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of Securityholders.
SECTION 2.06. Transfer and Exchange. The Securities shall be
issued in registered form and shall be transferable only upon the surrender of
a Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the
Registrar shall register the transfer as requested if the requirements of
Section 8-401(l) of the Uniform Commercial Code are met. When Securities are
presented to the Registrar or a co-registrar with a request to exchange them
for an equal principal amount of Securities of other denominations, the
Registrar shall make the exchange as requested if the same requirements are
met. To permit registration of transfers and exchanges, the Issuers shall
execute and the Trustee shall authenticate Securities at the Registrar's or
co-registrar's request. The Issuers may require payment of a sum sufficient to
pay all taxes, assessments or other governmental charges in connection with any
transfer or exchange pursuant to this Section. The Issuers shall not be
required to make, and the Registrar need not register, transfers or exchanges
of Securities selected for redemption (except, in the case of Securities to be
redeemed in part, the portion thereof not to be redeemed) or transfers or
exchanges of any Securities for a period of 15 days before a selection of
Securities to be redeemed.
Prior to the due presentation for registration of transfer of
any Security, the Issuers, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the Person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and accrued and unpaid
<PAGE> 49
42
interest (if any) on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and none of the Issuers, the Trustee,
the Paying Agent, the Registrar or any co-registrar shall be affected by notice
to the contrary.
Any Holder of a U.S. Global Security shall, by acceptance of
such Global Security, agree that transfers of beneficial interests in such
Global Security may be effected only through a book-entry system maintained by
the Holder of such Global Security (or its agent), and that ownership of a
beneficial interest in such Global Security shall be required to be reflected
in a book entry.
All Securities issued upon any transfer or exchange pursuant
to this Section 2.06 will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
SECTION 2.07. Replacement Securities. If a mutilated
Security is surrendered to the Registrar or if the Holder of a Security claims
that the Security has been lost, destroyed or wrongfully taken, the Issuers
shall issue and the Trustee shall authenticate a replacement Security if the
requirements of Section 8-405 of the Uniform Commercial Code are met, such that
the Holder (i) satisfies the Issuers or the Trustee within a reasonable time
after he has notice of such loss, destruction or wrongful taking and the
Registrar does not register a transfer prior to receiving such notification,
(ii) makes such request to the Issuers or the Trustee prior to the Security
being acquired by a bona fide purchaser and (iii) satisfies any other
reasonable requirements of the Trustee. If required by the Trustee or the
Issuers, such Holder shall furnish an indemnity bond sufficient in the judgment
of the Trustee to protect the Issuers, the Trustee, the Paying Agent, the
Registrar and any co-registrar from any loss that any of them may suffer if a
Security is replaced. The Issuers and the Trustee may charge the Holder for
their expenses in replacing a Security. In the event any such mutilated, lost,
destroyed or wrongfully taken Security has become or is about to become due and
payable, the Issuers in their discretion may pay such Security instead of
issuing a new Security in replacement thereof.
<PAGE> 50
43
Every replacement Security is an additional joint obligation
of the Issuers.
The provisions of this Section 2.07 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, lost, destroyed or wrongfully taken
Securities.
SECTION 2.08. Outstanding Securities. Securities outstanding
at any time are all Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancelation and those described in
this Section as not outstanding. A Security does not cease to be outstanding
because either of the Issuers or an Affiliate of either of the Issuers holds
the Security.
If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding unless the Trustee and the Issuers receive proof satisfactory
to them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or maturity date money
sufficient to pay all principal and interest payable on that date with respect
to the Securities (or portions thereof) to be redeemed or maturing, as the case
may be, and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by either of the Issuers or any of their Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be disregarded.
SECTION 2.09. Temporary Securities. Until Definitive
Securities and Global Securities are ready for delivery, the Issuers may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities
<PAGE> 51
44
shall be substantially in the form of Definitive Securities but may have
variations that the Issuers consider appropriate for temporary Securities.
Without unreasonable delay, the Issuers shall prepare and the Trustee shall
authenticate Definitive Securities and deliver them in exchange for temporary
Securities upon surrender of such temporary Securities at the office or agency
of the Issuers, without charge to the Holder.
SECTION 2.10. Cancelation. The Issuers at any time may
deliver Securities to the Trustee for cancelation. The Registrar and the
Paying Agent shall forward to the Trustee any Securities surrendered to them
for registration of transfer, exchange or payment. The Trustee and no one else
shall cancel all Securities surrendered for registration of transfer, exchange,
payment or cancelation and deliver canceled Securities to the Issuers pursuant
to written direction by an Officer of the Company and an Officer of SFG
Capital. The Issuers may not issue new Securities to replace Securities they
have redeemed, paid or delivered to the Trustee for cancelation. The Trustee
shall not authenticate Securities in place of canceled Securities other than
pursuant to the terms of this Indenture.
SECTION 2.11. Defaulted Interest. If the Issuers default in
a payment of interest on the Securities, the Issuers shall pay the defaulted
interest (plus interest on such defaulted interest to the extent lawful) in any
lawful manner. The Issuers may pay the defaulted interest to the persons who
are Securityholders on a subsequent special record date. The Issuers shall fix
or cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail or cause to be
mailed to each Securityholder a notice that states the special record date, the
payment date and the amount of defaulted interest to be paid.
The Issuers may make payment of any defaulted interest in any
other lawful manner not inconsistent with the requirements (if applicable) of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Issuers to the Trustee of the proposed payment pursuant to this paragraph, such
manner of payment shall be deemed practicable by the Trustee.
<PAGE> 52
45
SECTION 2.12. CUSIP Numbers. The Issuers in issuing the
Securities may use "CUSIP" numbers (if then generally in use) and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers.
SECTION 2.13. Book-Entry Provisions for U.S. Global Security.
(a) Each U.S. Global Security initially shall (i) be
registered in the name of the Depositary for such U.S. Global Security or the
nominee of such Depositary and (ii) be delivered to the Trustee as the initial
Securities Custodian for such Depositary.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect to any U.S.
Global Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under such U.S. Global Security, and the Depositary may be
treated by the Issuers, the Trustee and any agent of the Issuers or the Trustee
as the absolute owner of such U.S. Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Issuers, the
Trustee or any agent of the Issuers or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or shall impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a Holder of any
Security.
(b) Transfers of a U.S. Global Security shall be limited
to transfers of such U.S. Global Security in whole, but not in part, to the
Depositary, its successors or their respective nominees. Interests of
beneficial owners in a U.S. Global Security may be transferred in accordance
with the rules and procedures of the Depositary and the provisions of Section
2.14. If required to do so pursuant to any applicable law or regulation,
beneficial owners may obtain U.S. Physical Securities in exchange for their
<PAGE> 53
46
beneficial interests in a U.S. Global Security upon written request in
accordance with the Depositary's and the Registrar's procedures. In addition,
U.S. Physical Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in a U.S. Global Security if (i) the
Depositary notifies the Issuers that it is unwilling or unable to continue as
Depositary for such U.S. Global Security or the Depositary ceases to be a
clearing agency registered under the Exchange Act, at a time when the
Depositary is required to be so registered in order to act as Depositary, and
in each case a successor depositary is not appointed by the Issuers within 90
days of such notice or, (ii) the Issuers execute and deliver to the Trustee and
Security Registrar an Officers' Certificate of each of the Issuers stating that
such U.S. Global Security shall be so exchangeable or (iii) an Event of Default
has occurred and is continuing and the Registrar has received a request from
the Depositary.
(c) In connection with any transfer of a portion of the
beneficial interest in a U.S. Global Security pursuant to subsection (b) of
this Section to beneficial owners who are required to hold U.S. Physical
Securities, the Registrar shall reflect on its books and records the date and a
decrease in the principal amount of such U.S. Global Security in an amount
equal to the principal amount of the beneficial interest in the U.S. Global
Security to be transferred, and the Issuers shall execute, and the Trustee
shall authenticate and deliver, one or more U.S. Physical Securities of like
tenor and amount.
(d) In connection with the transfer of an entire U.S.
Global Security to beneficial owners pursuant to subsection (b) of this
Section, such U.S. Global Security shall be deemed to be surrendered to the
Trustee for cancelation, and the Issuers shall execute, and the Trustee shall
authenticate and deliver, to each beneficial owner identified by the Depositary
in exchange for its beneficial interest in such U.S. Global Security, an equal
aggregate principal amount of U.S. Physical Securities of authorized
denominations.
(e) Any U.S. Physical Security delivered in exchange for
an interest in a U.S. Global Security pursuant to subsection (c) or subsection
(d) of this Section shall, except as otherwise provided by paragraph (f) of
Section 2.14, bear the Restricted Securities Legend.
<PAGE> 54
47
(f) The registered holder of a U.S. Global Security may
grant proxies and otherwise authorize any person, including Agent Members and
persons that may hold interests through Agent Members, to take any action which
a Holder is entitled to take under this Indenture or the Securities.
SECTION 2.14. Special Transfer Provisions.
Unless and until an Initial Security is transferred or
exchanged under an effective registration statement under the Securities Act,
the following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited
Investors. The following provisions shall apply with respect to the
registration of any proposed transfer of an Initial Security to any IAI which
is not a QIB (excluding Non-U.S. Persons) that is consistent with the
Restricted Securities Legend:
(i) The Registrar shall register the transfer of such
Initial Security if (x) the requested transfer is after the date that
is two years after the later of the Issue Date and the last date on
which either of the Issuers or any of their Affiliates was the owner
of such Initial Security (such later date, the "Resale Restriction
Termination Date") or (y) the proposed transferee has delivered to the
Registrar a certificate substantially in the form set forth in Exhibit
C.
(ii) If the proposed transferee is an Agent Member, and
the Initial Security to be transferred consists of U.S. Physical
Securities or an interest in the QIB Global Security, upon receipt by
the Registrar of (x) the document, if any, required by paragraph (i)
and (y) instructions given in accordance with the Depositary's and the
Registrar's procedures therefor, the Registrar shall reflect on its
books and records the date and an increase in the principal amount of
the IAI Global Security in an amount equal to (x) the principal amount
of the U.S. Physical Securities to be transferred, and the Trustee
shall cancel the U.S. Physical Security so transferred or (y) the
amount of the beneficial interest in the QIB Global Security to be so
transferred (in which case
<PAGE> 55
48
the Registrar shall reflect on its books and records the date and an
appropriate decrease in the principal amount of the QIB Global
Security).
(iii) If the proposed transferee is entitled to receive a
U.S. Physical Security as provided in Section 2.13 and the proposed
transferor is an Agent Member holding a beneficial interest in a U.S.
Global Security, upon receipt by the Registrar of (x) the documents,
if any, required by paragraph (i) and (y) instructions given in
accordance with the Depositary's and the Registrar's procedures
therefor, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of such U.S. Global
Security in an amount equal to the principal amount of the beneficial
interest in such U.S. Global Security to be transferred, and the
Issuers shall execute, and the Trustee shall authenticate and deliver,
one or more U.S. Physical Securities of like tenor and amount.
(iv) If the Initial Security to be transferred consists of
U.S. Physical Securities and the proposed transferee is entitled to
receive a U.S. Physical Security as provided in Section 2.13, upon
receipt by the Registrar of the document, if any, required by
paragraph (i), the Registrar shall register such transfer and the
Issuers shall execute, and the Trustee shall authenticate and deliver,
one or more U.S. Physical Securities of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall
apply with respect to the registration of any proposed transfer of an Initial
Security to a QIB (excluding Non-U.S. Persons):
(i) If the Security to be transferred consists of U.S.
Physical Securities, Temporary Offshore Physical Securities, Permanent
Offshore Physical Securities or an interest in the IAI Global
Security, the Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has provided the Registrar
with a certificate substantially in the form set forth in Exhibit F
hereto.
<PAGE> 56
49
(ii) If the proposed transferee is an Agent Member, and
the Initial Security to be transferred consists of U.S. Physical
Securities, Temporary Offshore Physical Securities, Permanent Offshore
Physical Securities or an interest in the IAI Global Security, upon
receipt by the Registrar of (x) the document, if any, required by
paragraph (i) and (y) instructions given in accordance with the
Depositary's and the Registrar's procedures therefor, the Registrar
shall reflect on its books and records the date and an increase in the
principal amount of the QIB Global Security in an amount equal to (x)
the principal amount of the U.S. Physical Securities, Temporary
Offshore Physical Securities or Permanent Offshore Physical
Securities, as the case may be, to be transferred, and the Trustee
shall cancel the Physical Security so transferred or (y) the amount of
the beneficial interest in the IAI Global Security to be so
transferred (in which case the Registrar shall reflect on its books
and records the date and an appropriate decrease in the principal
amount of the IAI Global Security).
(iii) If the proposed transferee is entitled to receive a
U.S. Physical Security as provided in Section 2.13 and the proposed
transferor is an Agent Member holding a beneficial interest in a U.S.
Global Security, upon receipt by the Registrar of (x) the documents,
if any, required by paragraph (i) and (y) instructions given in
accordance with the Depositary's and the Registrar's procedures
therefor, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of such U.S. Global
Security in an amount equal to the principal amount of the beneficial
interest in such U.S. Global Security to be transferred, and the
Issuers shall execute, and the Trustee shall authenticate and deliver,
one or more U.S. Physical Securities of like tenor and amount.
(iv) If the Initial Security to be transferred consists of
U.S. Physical Securities, Temporary Offshore Physical Securities or
Permanent Offshore Physical Securities and the proposed transferee is
entitled to receive a U.S. Physical Security as provided in Section
2.13, upon receipt by the Registrar of the document, if any, required
by
<PAGE> 57
50
paragraph (i), the Registrar shall register such transfer and the
Issuers shall execute, and the Trustee shall authenticate and deliver,
one or more U.S. Physical Securities of like tenor and amount.
(c) Transfers by Non-U.S. Persons Prior to October 14,
1997. The following provisions shall apply with respect to registration of any
proposed transfer of an Initial Security by a Non-U.S. Person prior to October
14, 1997.
(i) The Registrar shall register the transfer of any
Initial Security (x) if the proposed transferee is a Non-U.S. Person
and the proposed transferor has provided the Registrar with a
certificate substantially in the form set forth in Exhibit G hereto or
(y) if the proposed transferee is a QIB and the proposed transferor
has provided the Registrar with a certificate substantially in the
form set forth in Exhibit F hereto. Unless clause (ii) below is
applicable, the Issuers shall execute, and the Trustee shall
authenticate and deliver, one or more Temporary Offshore Physical
Securities of like tenor and amount.
(ii) If the proposed transferee is an Agent Member in
connection with a proposed transfer of an Initial Security to a QIB,
upon receipt by the Registrar of (x) the document, if any, required by
paragraph (i) and (y) instructions given in accordance with the
Depositary's and the Registrar's procedures therefor, the Registrar
shall reflect on its books and records the date and an increase in the
principal amount of the QIB Global Security in an amount equal to the
principal amount of the Temporary Offshore Physical Security to be
transferred, and the Registrar shall cancel the Temporary Offshore
Physical Securities so transferred.
(d) Transfers by Non-U.S. Persons on or After October 14,
1997. The following provisions shall apply with respect to any transfer of an
Initial Security by a Non-U.S. Person on or after October 14, 1997:
(i) (x) If the Initial Security to be transferred is a
Permanent Offshore Physical Note, the Registrar shall register such
transfer, (y) if the Initial Security to be transferred is a Temporary
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51
Offshore Physical Note, upon receipt of a certificate substantially in
the form set forth in Exhibit E from the proposed transferor, the
Registrar shall register such transfer and (z) in the case of either
clause (x) or (y), unless clause (ii) below is applicable, the Issuers
shall execute, and the Trustee shall authenticate and deliver, one or
more Permanent Offshore Physical Securities of like tenor and amount.
(ii) If the proposed transferee is an Agent Member in
connection with a proposed transfer of an Initial Security to a QIB,
upon receipt by the Registrar of instructions given in accordance with
the Depositary's and the Registrar's procedures therefor, the
Registrar shall reflect on its books and records the date and an
increase in the principal amount of the QIB Global Security in an
amount equal to the principal amount of the Temporary Offshore
Physical Security or of the Permanent Offshore Physical Security to be
transferred, and the Trustee shall cancel the Physical Security so
transferred.
(e) Transfers to Non-U.S. Persons at Any Time. The
following provisions shall apply with respect to any transfer of an Initial
Security to a Non-U.S. Person:
(i) Prior to October 14, 1997, the Registrar shall
register any proposed transfer of an Initial Security to a Non-U.S.
Person upon receipt of a certificate substantially in the form set
forth in Exhibit G from the proposed transferor and the Issuer shall
execute, and the Trustee shall authenticate and make available for
delivery, one or more Temporary Offshore Physical Securities.
(ii) On and after October 14, 1997, the Registrar shall
register any proposed transfer to any Non- U.S. Person (w) if the
Initial Security to be transferred is a Permanent Offshore Physical
Security, (x) if the Initial Security to be transferred is a Temporary
Offshore Physical Security, upon receipt of a certificate
substantially in the form set forth in Exhibit E from the proposed
transferor, (y) if the Initial Security to be transferred is a U.S.
Physical Security or an interest in a U.S. Global Security, upon
receipt of a certificate substantially in the form set forth in
Exhibit E from the proposed
<PAGE> 59
52
transferor and (z) in the case of either clause (w), (x) or (y), the
Issuers shall execute, and the Trustee shall authenticate and deliver,
one or more Permanent Offshore Physical Securities of like tenor and
amount.
(iii) If the proposed transferor is an Agent Member holding a
beneficial interest in a U.S. Global Security, upon receipt by the
Registrar of (x) the document, if any, required by paragraph (i), and
(y) instructions in accordance with the Depositary's and the
Registrar's procedures therefor, the Registrar shall reflect on its
books and records the date and a decrease in the principal amount of
such U.S. Global Security in an amount equal to the principal amount
of the beneficial interest in the U.S. Global Security to be
transferred and the Issuers shall execute, and the Trustee shall
authenticate and deliver, one or more Permanent Offshore Physical
Securities of like tenor and amount.
(f) Restricted Securities Legend. Upon the transfer,
exchange or replacement of Securities not bearing the Restricted Securities
Legend, the Registrar shall deliver Securities that do not bear the Restricted
Securities Legend. Upon the transfer, exchange or replacement of Securities
bearing the Restricted Securities Legend, the Registrar shall deliver only
Securities that bear the Restricted Securities Legend unless either (i) such
transfer, exchange or replacement of such Securities occurs after the Resale
Restriction Termination Date or (ii) there is delivered to the Registrar an
Opinion of Counsel reasonably satisfactory to the Issuers and the Trustee to
the effect that neither such legend nor the related restrictions on transfer
are required in order to maintain compliance with the provisions of the
Securities Act.
(g) General. By its acceptance of any Security bearing
the Restricted Securities Legend, each Holder of such a Security acknowledges
the restrictions on transfer of such Security set forth in this Indenture and
in the Restricted Securities Legend and agrees that it will transfer such
Security only as provided in this Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.13 or this Section
2.14. The Issuers shall have the right to inspect and make copies of all such
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53
letters, notices or other written communications at any reasonable time upon
the giving of reasonable written notice to the Registrar.
Interest payable on the Securities shall be computed on the
basis of a 360-day year comprised of 30-day months.
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Issuers elect to
redeem Securities pursuant to paragraph 5 of the Securities, they shall notify
the Trustee in writing of the redemption date, the principal amount of
Securities to be redeemed and the paragraph of the Securities pursuant to which
the redemption will occur.
The Issuers shall give each notice to the Trustee provided for
in this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate from each of the Issuers and an Opinion of Counsel to the effect
that such redemption will comply with the conditions herein. If fewer than all
the Securities are to be redeemed, the record date relating to such redemption
shall be selected by the Issuers and given to the Trustee, which record date
shall be not fewer than 15 days after the date of notice to the Trustee. Any
such notice may be canceled at any time prior to notice of such redemption
being mailed to any Holder and shall thereby be void and of no effect.
SECTION 3.02. Selection of Securities To Be Redeemed. If
fewer than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed pro rata or by lot or by a method that complies with
applicable legal and securities exchange requirements, if any, and that the
Trustee considers fair and appropriate and in accordance with methods generally
used at the time of selection by fiduciaries in similar circumstances. The
Trustee shall make the selection from outstanding Securities not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000. Securities
and portions of Securities that the Trustee selects shall be in amounts of
$1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply
to
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54
Securities called for redemption also apply to portions of Securities called
for redemption. The Trustee shall notify the Company promptly of the
Securities or portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not
more than 60 days before a date for redemption of Securities, the Issuers shall
mail a notice of redemption by first-class mail to each Holder of Securities to
be redeemed.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be
redeemed, the certificate numbers and principal amounts of the
particular Securities to be redeemed;
(6) that, unless the Issuers default in making such redemption
payment or the Paying Agent is prohibited from making such payment
pursuant to the terms of this Indenture, interest on Securities (or
portion thereof) called for redemption ceases to accrue on and after
the redemption date;
(7) the paragraph of the Securities pursuant to which the
Securities called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Securities.
At the Issuers' request, the Trustee shall give the notice of
redemption in the Issuers' names and at the
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55
Issuers' expense. In such event, the Issuers shall provide the Trustee with
the information required by this Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable
on the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued and unpaid interest (if any) to the
redemption date; provided that if the redemption date is after a regular record
date and on or prior to the interest payment date, the accrued interest shall
be payable to the Securityholder of the redeemed Securities registered on the
relevant record date. Failure to give notice or any defect in the notice to
any Holder shall not affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to 10:00
a.m. on the redemption date, the Issuers shall deposit with the Paying Agent
(or, if either or both of the Issuers or a permitted Wholly Owned Subsidiary is
the Paying Agent, shall segregate and hold in trust) money sufficient to pay
the redemption price of and accrued and unpaid interest (if any) on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption that have been delivered by the Issuers to the
Trustee for cancelation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of
a Security that is redeemed in part, the Issuers shall execute and the Trustee
shall authenticate for the Holder (at the Issuers' expense) a new Security
equal in principal amount to the unredeemed portion of the Security
surrendered.
SECTION 3.07. Optional Redemption. (a) Except as set forth
in the next paragraph, the Securities may not be redeemed prior to September 1,
2002. On and after such date, the Issuers may redeem the Securities in whole
at any time or in part from time to time upon not less than 30 nor more than 60
days' prior notice mailed by first-class mail to each Holder's registered
address at the following redemption prices (expressed as a percentage of
principal amount), plus accrued and unpaid interest (if any) to the
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56
Redemption Date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date that
is on or prior to the Redemption Date), if redeemed during the 12-month period
commencing on or after September 1 of the years set forth below:
<TABLE>
<CAPTION>
Period
Price Redemption
- ------ ----------
<S> <C>
2002 104.938%
2003 103.292%
2004 101.646%
2005 and thereafter 100.000%
</TABLE>
(b) Notwithstanding the foregoing, at any time and from
time to time prior to September 1, 2000, the Issuers may redeem in the
aggregate up to one-third of the original aggregate principal amount of
Securities with the proceeds of one or more Public Equity Offerings by the
Company following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount thereof) of 109.875% plus
accrued and unpaid interest (if any) to the Redemption Date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date that is on or prior to the Redemption
Date); provided, however, that at least two-thirds of the original aggregate
principal amount of the Securities must remain outstanding after each such
redemption.
SECTION 3.08. No Sinking Fund. There shall be no sinking
fund for the payment of principal on the Securities to the Securityholders.
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities. The Issuers shall
promptly pay the principal of and interest on the Securities on the dates and
in the manner provided in the Securities and in this Indenture. Principal and
interest shall be considered paid on the date due if on such date the Trustee
or the Paying Agent (but only if other than the Issuers or a Wholly Owned
Subsidiary) holds by 11:00 a.m., New York City time, in accordance with this
Indenture money in available funds sufficient to pay all principal and interest
then due and the Trustee or the
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57
Paying Agent, as the case may be, is not prohibited from paying such money to
the Securityholders on that date pursuant to the terms of this Indenture.
The Issuers shall pay interest on overdue principal at the
rate specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC Reports. Prior to the filing of the
registration statement pursuant to the Exchange and Registration Rights
Agreement, the Issuers shall provide within a reasonable time (not to exceed 45
days following the end of the first three fiscal quarters of any fiscal year
and 90 days following the end of such year) to the Trustee, Securityholders and
prospective Securityholders (upon request) quarterly and annual financial
statements prepared in accordance with GAAP (provided that, in the case of such
quarterly financial statements, such financial statements may be prepared in
substantial compliance with Part I of Form 10-Q), together with management's
discussion and analysis of financial condition and results of operations and,
in the case of annual financial statements, a description of any changes in, or
disagreements with, accountants on accounting and financial disclosure, a brief
description of the Company's business, a discussion of any material legal
proceedings in which the Issuers are involved (other than routine legal
proceedings incidental to the conduct of business) and a discussion of the
compensation paid to, and any material arrangements with, executive officers.
Following the filing of such registration statement, notwithstanding that the
Issuers may not be required to be or remain subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Issuers shall file
with the SEC, and provide the Trustee and Securityholders within 15 days after
they file them with the SEC, copies of the Company's annual report and the
information, documents and other reports that are specified in Section 13 or
15(d) of the Exchange Act (commencing with the quarterly report on Form 10-Q
for the quarter ended March 31, 1998). In addition, following a Public Equity
Offering, the Issuers shall furnish to the Trustee, the Securityholders and any
Prospective Securityholder (upon request), promptly upon their becoming
available, copies of the annual report to partners or equityholders and any
other information provided by the Company to its equityholders generally. The
Issuers also shall comply with the other provisions of TIA Section 314(a).
<PAGE> 65
58
SECTION 4.03. Limitation on Indebtedness. (a) The Company
shall not, and shall not permit any of its Restricted Subsidiaries to, Incur
any Indebtedness; provided, however, that the Company or any Restricted
Subsidiary may Incur Indebtedness if on the date thereof the Consolidated
Coverage Ratio would be greater than 2.00:1.00 if such Indebtedness is Incurred
on or prior to September 1, 1999, and 2.25:1.00 if such Indebtedness is
Incurred thereafter. Notwithstanding the foregoing, the Company shall not
permit SFG Capital or any other future Restricted Subsidiary to issue, to any
party other than the Company or any Wholly Owned Subsidiary, any Preferred
Equity Interest.
(b) Notwithstanding Section 4.03(a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness under the Credit Agreement (as the same may
be amended from time to time without increasing the committed amount
outstanding, except as otherwise permitted by this Section) in an
aggregate principal amount on the date of Incurrence which, when added
to all other Indebtedness Incurred pursuant to this clause (i) and
then outstanding, shall not exceed $190,000,000 less the aggregate
amount of all prepayments of principal applied to reduce the then
outstanding Indebtedness under the Term Loans actually made since the
Issue Date;
(ii) Indebtedness in an aggregate principal amount at any time
outstanding not in excess of $60,000,000 in respect of revolving
credit, working capital and letter of credit facilities;
(iii) Indebtedness of the Company owing to and held by any
Wholly Owned Subsidiary or Indebtedness of a Restricted Subsidiary
owing to and held by the Company or any Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any
Equity Interest or any other event that results in any such Wholly
Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Company or
a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof;
(iv)(A) Indebtedness represented by the Securities and (B) any
Indebtedness (other than the Indebtedness described in clauses (i)
through (iii) above) outstanding on the Issue Date;
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59
(v) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in connection with, in contemplation of, or
to provide all or any portion of the funds or credit support utilized
to consummate, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was otherwise acquired by the Company); provided,
however, that at the time such Restricted Subsidiary is acquired by
the Company, the Company would have been able to Incur $1.00 of
additional Indebtedness pursuant to Section 4.03(a) after giving
effect to the Incurrence of such Indebtedness pursuant to this clause
(v);
(vi) Indebtedness (A) in respect of performance bonds,
bankers' acceptances, letters of credit and surety or appeal bonds
provided by the Company or any of its Restricted Subsidiaries to
customers in the ordinary course of business, (B) in respect of
performance bonds or similar obligations of the Company or any of its
Restricted Subsidiaries in connection with pledges, deposits or
payments made or given in the ordinary course of business in
connection with or to secure statutory, regulatory or similar
obligations, including obligations under milk market orders and (C)
under Currency Agreements and Interest Rate Agreements, in each case
entered into for bona fide hedging purposes of the Company in the
ordinary course of business; provided, however, that, in the case of
Currency Agreements and Interest Rate Agreements, such Currency
Agreements and Interest Rate Agreements do not increase the
Indebtedness of the Company outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest
rates or by reason of fees, indemnities and compensation payable
thereunder;
(vii) Indebtedness (other than Indebtedness permitted to be
Incurred pursuant to Section 4.03(a) or any other clause of this
Section 4.03(b)) in an aggregate principal amount on the date of
Incurrence which, when added to all other Indebtedness Incurred
pursuant to this clause (vii) and then outstanding, shall not exceed
$30,000,000; provided, however, that
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60
the Indebtedness permitted by this clause (vii) shall only be
Indebtedness of the Company and shall not be Indebtedness of any
Subsidiary of the Company (other than SFG Capital acting as co-issuer
or co-obligor of Indebtedness of the Company);
(viii) Indebtedness represented by the Note Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i), (ii) or
(iii) above;
(ix) Purchase Money Mortgages and Capitalized Lease
Obligations in an aggregate principal amount not in excess of
$10,000,000 at any time outstanding;
(x) Acquisition Indebtedness not in excess of $15,000,000 at
any time outstanding;
(xi) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations,
or from Guarantees or letters of credit, surety bonds or performance
bonds securing any obligation of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in each case Incurred in
connection with the disposition of any business assets or Restricted
Subsidiary (other than Guarantees of Indebtedness or any other
obligations Incurred by any Person acquiring all or any portion of
such business assets or Restricted Subsidiary for the purpose of
financing such acquisition) in a principal amount not to exceed the
gross proceeds actually received by the Company or any of its
Restricted Subsidiaries in connection with such disposition; provided,
however, that the principal amount of any Indebtedness Incurred
pursuant to this clause (xi), when taken together with all
Indebtedness Incurred pursuant to this clause (xi) and then
outstanding, shall not exceed $5,000,000; or
(xii) Any Refinancing Indebtedness incurred in respect of any
Indebtedness incurred pursuant to paragraph (a) or this paragraph (b),
other than clauses (iii), (iv)(A), (vi) and (viii) hereof.
(c) Notwithstanding the foregoing, the Company shall not
Incur any Indebtedness pursuant to paragraph (b) above if the proceeds thereof
are used, directly or indirectly, to repay, prepay, redeem, defease, retire,
refund or refinance any Subordinated Obligations unless such Indebtedness shall
be subordinated to the Securities to at least the same extent as such
Subordinated
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61
Obligations. The Company shall not Incur any Indebtedness pursuant to Section
4.03(a) or 4.03(b) if such Indebtedness is subordinate or junior in ranking in
any respect of any Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. In addition, the Company shall not Incur any
Secured Indebtedness which is not Senior Indebtedness unless contemporaneously
therewith effective provision is made to secure the Securities equally and
ratably with such Secured Indebtedness for so long as such Secured Indebtedness
is secured by a Lien.
(d) Notwithstanding any other provision of this Section 4.03,
the maximum amount of Indebtedness that the Company or any Restricted
Subsidiary may Incur pursuant to this Section shall not be deemed to be
exceeded solely as a result of fluctuations in the exchange rates of
currencies. For purposes of determining the outstanding principal amount of
any particular Indebtedness Incurred pursuant to this Section 4.03, (i)
Indebtedness permitted by this Section 4.03 need not be permitted solely by
reference to one provision permitting such Indebtedness but may be permitted in
part by one such provision and in part by one or more other provisions of this
Section permitting such Indebtedness and (ii) in the event that Indebtedness or
any portion thereof meets the criteria of more than one of the types of
Indebtedness described in this Section, the Company, in its sole discretion,
shall classify such Indebtedness and only be required to include the amount of
such Indebtedness in one of such clauses.
SECTION 4.04. Limitation on Restricted Payments. (a) The
Company shall not, and shall not permit any of its Restricted Subsidiaries,
directly or indirectly, to make any Restricted Payment if at the time the
Company or such Restricted Subsidiary makes such Restricted Payment:
(i) a Default shall have occurred and be continuing (or would
result therefrom);
(ii) the Company could not Incur at least $1.00 of additional
Indebtedness under Section 4.03(a); or
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62
(iii) the aggregate amount of such Restricted Payment and all
other Restricted Payments (the amount so expended, if other than in
cash, to be determined in good faith by the Governing Board, whose
determination shall be conclusive and evidenced by a resolution of the
Governing Board) declared or made subsequent to the Issue Date would
exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during
the periods (such periods to be treated as one accounting
period) (x) from the Issue Date to the end of the most recent
fiscal quarter for which financial statements are available at
the time of such Restricted Payment and (y) with respect to
Consolidated Net Income attributable to SFG and not
attributable to Meadow Gold Dairies, from July 1, 1997 to the
Issue Date (or, in case such Consolidated Net Income for such
periods shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the
Company from the issue or sale of its Equity Interests (other
than Disqualified Interests) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary of the Company
or, except as provided for in clause (D), an employee
participation plan or other trust established by the Company
or any of its Subsidiaries);
(C) the amount by which Indebtedness of the Company
or its Restricted Subsidiaries is reduced on the Company's
balance sheet upon the conversion or exchange (other than by a
Subsidiary) subsequent to the Issue Date of any Indebtedness
of the Company or its Restricted Subsidiaries issued after the
Issue Date and convertible or exchangeable for Equity
Interests (other than Disqualified Interests) of the Company
(less the amount of any cash or other property distributed by
the Company or any Subsidiary of the Company upon such
conversion or exchange); and
(D) the aggregate Net Cash Proceeds received by the
Company from the issue or sale of its Equity Interests (other
than Disqualified Interests) to an employee participation plan
or similar trust subsequent to the Issue Date;
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63
provided, however, that if such plan or trust Incurs any
Indebtedness to, or Guaranteed by, the Company or any of its
Restricted Subsidiaries to finance the acquisition of such
Equity Interests, such aggregate amount shall be limited to
such Net Cash Proceeds less such Indebtedness Incurred to or
Guaranteed by the Company or any of its Restricted
Subsidiaries and any increase in the Consolidated Net Worth of
the Company resulting from principal repayments made by such
plan or trust with respect to Indebtedness Incurred by it to
finance the purchase of such Equity Interests.
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) any purchase or redemption of Equity Interests of the
Company or Subordinated Obligations made by exchange for, or out of
the proceeds of the substantially concurrent sale of, Equity Interests
of the Company (other than Disqualified Interests and other than
Equity Interests issued or sold to a Subsidiary of the Company or an
employee participation plan or other trust established by the Company
or any of its Subsidiaries); provided, however, that (A) such purchase
or redemption shall be excluded from the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale
applied in the manner set forth in this clause (i) shall be excluded
from clause (iii)(B) of Section 4.04(a);
(ii) any purchase or redemption of Subordinated Obligations
from Net Available Cash to the extent permitted by Section 4.06;
provided, however, that such purchase or redemption shall be excluded
from the calculation of the amount of Restricted Payments;
(iii) distributions to the holders of Equity Interests paid
within 60 days after the date of declaration thereof if at such date of
declaration such distribution would have complied with Section
4.04(a); provided, however, that such distributions shall be included
in the calculation of the amount of Restricted Payments;
(iv) as long as the Company remains a limited partnership,
payments to the General Partner in the amount equal to the sum of the
following: (A) franchise taxes and other fees required by the General
Partner to maintain its existence as a limited
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64
liability company or corporation, as the case may be, and (B) the
operating costs of the General Partner that are attributable to the
governance of the Company in an amount up to $100,000 per fiscal year;
provided, however, that such payments shall be excluded from the
calculation of the amount of Restricted Payments;
(v) as long as the Company remains a limited partnership,
periodic payments to an Eligible Partner in an aggregate amount not to
exceed the Partnership Tax Amount; provided, however, that such
payments shall be excluded from the calculation of the amount of
Restricted Payments;
(vi)(A) issuances of Series E 10% Preferred Interests, (B)
scheduled distributions in kind to holders of Preferred Equity
Interests, (C) scheduled cash distributions to the holders of up to
$15,000,000 in stated amount of the Mid-Am Capital 9 1/2% Preferred
Interests; provided that at the time such distributions are made, and
after giving pro forma effect to such distributions, the Consolidated
Coverage Ratio exceeds 2.25 to 1.00 and (D) scheduled cash
distributions to the holders of the remainder of the stated amount of
the Mid-Am Capital 9 1/2% Preferred Interests; provided that at the
time such distributions are made, and after giving pro forma effect to
such distributions and any distributions to be made pursuant to (C) of
this clause (vi), the Consolidated Coverage Ratio exceeds 2.40 to
1.00; provided further, that such cash distributions shall be included
in the calculation of the amount of Restricted Payments;
(vii) the repurchase of Equity Interests in the Company or its
Subsidiaries from employees, former employees, directors or former
directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including
employment agreements) or plans (or amendments thereto) approved by
the Governing Board under which such individuals purchase or sell or
are granted the option to purchase or sell, Equity Interests in the
Company or its Subsidiaries; provided, however, that the aggregate
amount of such repurchases shall not exceed $1,000,000 in any calendar
year; provided further, however, that such repurchases shall be
excluded from the calculation of the amount of Restricted Payments;
<PAGE> 72
65
(viii) any payment up to $1,200,000 in the aggregate to
repurchase the Flav-O-Rich Facility; provided, however, that such
payment shall be excluded from the calculation of the amount of
Restricted Payments; or
(ix) any purchase or redemption of Subordinated Obligations of
the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Subordinated Obligations of the
Company; provided, however, that such purchase or redemption shall be
excluded from the calculation of the amount of Restricted Payments.
SECTION 4.05. Limitation on Restrictions on Distributions
from Restricted Subsidiaries. The Company shall not, and shall not permit any
of its Restricted Subsidiaries to, create or otherwise cause or permit to exist
or become effective any consensual encumbrance or restriction on the ability of
any such Restricted Subsidiary to (i) pay dividends or make any other
distributions on its Equity Interests or pay any Indebtedness owed to the
Company, (ii) make any loans or advances to the Company or (iii) transfer any
of its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date, including the Credit
Agreement;
(2) any encumbrance or restriction with respect to a
Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary prior to the date
on which such Restricted Subsidiary was acquired by the Company (other
than Indebtedness Incurred as consideration in connection with, in
contemplation of, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary
became a Subsidiary of the Company or was otherwise acquired by the
Company) and outstanding on such date;
(3) any encumbrance or restriction with respect to such
Restricted Subsidiary pursuant to an agreement constituting
Refinancing Indebtedness of Indebtedness Incurred pursuant to an
agreement referred to in clause (1) of this Section or this clause (3)
or contained in any amendment to an agreement referred to
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66
in clause (1) of this Section or this clause (3); provided, however,
that the encumbrances and restrictions contained in any such
refinancing agreement or amendment taken as a whole are no less
favorable in any material respect to the Securityholders than
encumbrances and restrictions contained in such agreements;
(4) in the case of clause (iii), any encumbrance or
restriction (A) that restricts in a customary manner the subletting,
assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, (B) by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on,
any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by this Indenture or (C) contained in security
agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such encumbrance or restrictions restrict the
transfer of the property subject to such security agreements or
mortgages;
(5) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Equity Interests or assets
of such Restricted Subsidiary pending the closing of such sale or
disposition; and
(6) encumbrances or restrictions arising or existing by
reason of applicable law.
SECTION 4.06. Limitation on Sales of Assets and Subsidiary
Equity Interests. (a) The Company shall not, and shall not permit any
Restricted Subsidiary to, make any Asset Disposition unless (i) the Company or
such Restricted Subsidiary receives consideration (including by way of relief
from, or by any other Person assuming sole responsibility for, any liabilities,
contingent or otherwise) at the time of such Asset Disposition at least equal
to the fair market value of the Equity Interests and assets subject to such
Asset Disposition, (ii) at least 75% of the consideration thereof received by
the Company or such Restricted Subsidiary is in the form of cash or cash
equivalents and (iii) an amount equal to 100% of the Net Available Cash from
such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) (A) first, to the extent the Company elects (or
is required by the terms of any Senior Indebtedness or Indebtedness (other than
Preferred Equity Interests) of a
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67
Wholly Owned Subsidiary), to prepay, repay or purchase Senior Indebtedness or
such Indebtedness (in each case other than Indebtedness owed to the Company or
an Affiliate of the Company) within 180 days after the later of the date of
such Asset Disposition or the receipt of such Net Available Cash; (B) second,
to the extent of the balance of Net Available Cash after application in
accordance with clause (A), to the extent the Company or such Restricted
Subsidiary elects, to reinvest in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary) within 180 days
from the later of such Asset Disposition or the receipt of such Net Available
Cash; (C) third, within 45 days after the later of the application of Net
Available Cash in accordance with clauses (A) and (B) and the date that is 180
days from the date of the Asset Disposition to the extent of the balance of
such Net Available Cash after application in accordance with clauses (A) and
(B), to make an Offer to purchase Securities pursuant to and subject to the
conditions of Section 4.06(b), (D) fourth, to the extent of the balance of such
Net Available Cash after application in accordance with clauses (A), (B) and
(C), to (x) acquire Additional Assets (other than Indebtedness and Equity
Interests) or (y) prepay, repay or purchase Indebtedness of the Company (other
than Indebtedness owed to an Affiliate of the Company and other than
Disqualified Interests of the Company) or Indebtedness of any Restricted
Subsidiary (other than Indebtedness owed to the Company or an Affiliate of the
Company), in each case described in this clause (D) within one year from the
receipt of such Net Available Cash or, if the Company has made an Offer
pursuant to Section 4.06(b), six months from the date such Offer is consummated
and (E) fifth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B), (C) and (D), for any
legitimate business purpose; provided, however that in connection with any
prepayment, repayment or purchase of Indebtedness pursuant to clause (A), (C)
or (D) above, the Company or such Restricted Subsidiary shall retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions of this Section
4.06, the Company and the Restricted Subsidiaries shall not be required to
apply any Net Available Cash in accordance with this Section except to the
extent that the aggregate Net Available Cash from all Asset Dispositions that
is not applied in accordance with this Section 4.06 exceeds $5,000,000.
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For purposes of this Section 4.06, the following are deemed to
be cash equivalents: (x) the assumption of Indebtedness of the Company (other
than Disqualified Interests of the Company) or any Restricted Subsidiary and
the release of the Company or such Restricted Subsidiary from all liability on
such Indebtedness in connection with such Asset Disposition (in which case the
Company will, without further action, be deemed to have applied such assumed
Indebtedness in accordance with clause (A) of the preceding paragraph) and (y)
securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the
purchase of Securities pursuant to Section 4.06(a)(iii)(C), the Issuers shall
be required to purchase Securities tendered pursuant to an offer by the Issuers
for the Securities (the "Offer") at a purchase price of 100% of their principal
amount plus accrued and unpaid interest (if any) to the Purchase Date in
accordance with the procedures (including prorationing in the event of
oversubscription) set forth in Section 4.06(c). If the aggregate purchase
price of Securities tendered pursuant to the Offer is less than the Net
Available Cash allotted to the purchase of the Securities, the Company shall
apply the remaining Net Available Cash in accordance with clauses (D) and (E)
of Section 4.06(a)(iii). The Issuers shall not be required to make an Offer
for Securities pursuant to this Section if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (A) and (B)
of Section 4.06(a)(iii)) is less than $15,000,000 for any particular Asset
Disposition (which lesser amount shall be carried forward for purposes of
determining whether an Offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition).
(c)(1) Promptly, and in any event within 10 days after the
Issuers become obligated to make an Offer, the Issuers shall be obligated to
deliver to the Trustee and send, by first-class mail to each Holder, a written
notice stating that the Holder may elect to have his Securities purchased by
the Issuers either in whole or in part (subject to prorationing as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price. The notice shall
specify a purchase date not less than 30 days nor more than 60 days after the
date of such notice (the "Purchase Date") and shall contain such information
concerning the business of the Issuers which
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69
the Issuers in good faith believe will enable such Holders to make an informed
decision (which at a minimum shall include the following documents (or the
equivalent of such documents if the Issuers have yet to file the registration
statement contemplated by the Exchange and Registration Right Agreement): (i)
the most recently filed Annual Report on Form 10-K (including audited
consolidated financial statements) of the Company, the most recent subsequently
filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the
Company filed subsequent to such Quarterly Report, other than Current Reports
describing Asset Dispositions otherwise described in the offering materials (or
corresponding successor reports), (ii) a description of material developments
in the Issuers' business subsequent to the date of the latest of such Reports,
and (iii) if material, appropriate pro forma financial information) and all
instructions and materials necessary to tender Securities pursuant to the
Offer, together with the address referred to in clause (3).
(2) Not later than the date upon which written notice of an
Offer is delivered to the Trustee as provided above, the Issuers shall deliver
to the Trustee an Officers' Certificate of each of the Issuers as to (i) the
amount of the Offer (the "Offer Amount"), (ii) the allocation of the Net
Available Cash from the Asset Dispositions pursuant to which such Offer is
being made and (iii) the compliance of such allocation with the provisions of
Section 4.06(a). On such date, the Issuers shall also irrevocably deposit with
the Trustee or with a paying agent (or, if either or both of the Issuers are
acting as its or their own paying agent, segregate and hold in trust) an amount
equal to the Offer Amount to be invested in Temporary Cash Investments and to
be held for payment in accordance with the provisions of this Section. Upon
the expiration of the period for which the Offer remains open (the "Offer
Period"), the Issuers shall deliver to the Trustee for cancelation the
Securities or portions thereof that have been properly tendered to and are to
be accepted by the Issuers. The Trustee (or the Paying Agent, if not the
Trustee) shall, on the Purchase Date, mail or deliver payment to each tendering
Holder in the amount of the applicable purchase price as set forth in the
written notice delivered to the Trustee and the Holders in accordance with
paragraph c(i) above. In the event that the aggregate purchase price of the
Securities delivered by the Issuers to the Trustee is less than the Offer
Amount, the Trustee shall deliver the excess to the Issuers immediately after
the expiration of the Offer Period for application in accordance with this
Section.
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(3) Holders electing to have a Security purchased shall be
required to surrender the Security, with an appropriate form duly completed, to
the Issuers at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders shall be entitled to withdraw their
election if the Trustee or either of the Issuers receives not later than one
Business Day prior to the Purchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security which was delivered by the Holder for purchase and a
statement that such Holder is withdrawing its election to have such Security
purchased. If at the expiration of the Offer Period the aggregate principal
amount of Securities surrendered by Holders exceeds the Offer Amount, the
Trustee shall select the Securities to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Issuers so that only
Securities in denominations of $1,000, or integral multiples thereof, shall be
purchased). Holders whose Securities are purchased only in part shall be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
(4) At the time the Issuers deliver Securities to the Trustee
which are to be accepted for purchase, the Issuers shall also deliver an
Officers' Certificate of each of the Issuers stating that such Securities are
to be accepted by such Issuer pursuant to and in accordance with the terms of
this Section. A Security shall be deemed to have been accepted for purchase at
the time the Trustee, directly or through an agent, mails or delivers payment
therefor to the surrendering Holder.
(d) The Issuers shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Issuers shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached their obligations under this Section by virtue thereof.
SECTION 4.07. Limitation on Transactions with Affiliates.
(a) The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, enter into or conduct any transaction (including, the
purchase, sale, lease or exchange of any
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property or the rendering of any service) with any Affiliate of the Company (an
"Affiliate Transaction") on terms (i) that are materially less favorable to the
Company or such Restricted Subsidiary, as the case may be, than those that
could be obtained in a comparable transaction with a Person who is not such an
Affiliate and (ii) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $1,000,000, has not been approved by a majority
of the members or directors, as the case may be, of the Governing Board that
have no personal stake in such Affiliate Transaction and are not employed by or
otherwise associated with such Affiliate; provided that if such Affiliate
Transaction involves an amount in excess of $20,000,000, a fairness opinion
must be provided by a nationally recognized appraisal or investment banking
firm; provided further that in the case of arrangements for the purchase or
sale of milk or other dairy products from an Affiliate in the ordinary course
of business such arrangements, purchases and sales shall be considered in the
aggregate and no fairness opinion shall be required.
(b) The provisions of Section 4.07(a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to Section 4.04, (ii) any
issuance of securities (including Equity Interests), or other payments, awards
or grants in cash, securities (including Equity Interests) or otherwise
pursuant to, or the funding of, employment arrangements and participation plans
approved by the Governing Board, (iii) loans or advances to employees in the
ordinary course of business in accordance with past practices of the Company
not to exceed $2,000,000 in the aggregate outstanding at any one time, (iv) the
payment of reasonable fees to directors of the Governing Board or directors of
the Company's Subsidiaries who, in either case, are not employees of the
Company or its Subsidiaries, (v) any transaction effected pursuant to an
Existing Agreement between the Company and any Affiliate, (vi) any Permitted
Investment, (vii) any transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries or any transaction contemplated
by the Transactions, (viii) indemnification agreements with, and the payment of
fees and indemnities to, directors, officers, and employees of the Company and
its Restricted Subsidiaries, in each case in the ordinary course of business
and (ix) any employment, non-competition or confidentiality agreements entered
into by the Company or any Restricted Subsidiary with its employees in the
ordinary course of business.
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SECTION 4.08. Change of Control. (a) Upon a Change of
Control, each Holder shall have the right to require that the Issuers
repurchase all or any part of such Holder's Securities at a purchase price in
cash equal to 101% of the principal amount thereof, plus accrued and unpaid
interest (if any) to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date that is on or prior to the date of purchase), in
accordance with the terms contemplated in Section 4.08(b). In the event that
at the time of such Change of Control the terms of the Bank Indebtedness
restrict or prohibit the repurchase of Securities pursuant to this Section,
then prior to the mailing of the notice to Holders provided for in Section
4.08(b) below but in any event within 30 days following any Change of Control,
the Company shall (i) repay in full all Bank Indebtedness or offer to repay in
full all Bank Indebtedness and repay the Bank Indebtedness of each lender who
has accepted such offer or (ii) obtain the requisite consent under the
agreements governing the Bank Indebtedness to permit the repurchase of the
Securities as provided for in Section 4.08(b).
(b) Within 30 days following any Change of Control, the
Issuers shall mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder
has the right to require the Issuers to purchase such Holder's
Securities at a purchase price in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest (if any) to the date
of purchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment
date that is on or prior to the date of purchase);
(2) the circumstances and relevant facts and financial
information regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Issuers, consistent
with this Section, that a Holder must follow in order to have its
Securities purchased.
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(c) Holders electing to have a Security purchased shall be
required to surrender the Security, with an appropriate form duly completed, to
the Issuers at the address specified in the notice at least three Business Days
prior to the purchase date. Holders shall be entitled to withdraw their
election if the Trustee or either of the Issuers receives not later than one
Business Day prior to the purchase date a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security which was delivered for purchase by the Holder and a
statement that such Holder is withdrawing his election to have such Security
purchased.
(d) On the purchase date, all Securities purchased by the
Issuers under this Section shall be delivered to the Trustee for cancelation,
and the Issuers shall pay the purchase price plus accrued and unpaid interest
(if any) to the Holders entitled thereto.
(e) The Issuers shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Issuers shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached their obligations under this Section by virtue thereof.
SECTION 4.09. Compliance Certificate. The Issuers shall
deliver to the Trustee within 120 days after the end of each fiscal year of the
Issuers an Officers' Certificate of each of the Issuers stating that in the
course of the performance by the signers of their duties as Officers of the
Company or SFG Capital, as the case may be, they would normally have knowledge
of any Default and whether or not the signers know of any Default that occurred
during such period. If they do, the certificate shall describe the Default,
its status and what action the Issuers have taken, are taking or propose to
take with respect thereto. The Issuers also shall comply with Section
314(a)(4) of the TIA.
SECTION 4.10. Further Instruments and Acts. Upon request of
the Trustee, the Issuers shall execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
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SECTION 4.11. Limitation on Liens. The Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
Incur any Lien on any of its property or assets (including Equity Interests),
whether owned on the original Issue Date or thereafter acquired, securing any
Indebtedness other than Senior Indebtedness of the Company or a Restricted
Subsidiary unless contemporaneously therewith (or prior thereto) effective
provision is made to secure the Securities or the Note Guarantee, as the case
may be, equally and ratably with (or on a senior basis to, in the case of
Indebtedness expressly subordinated in right of payment to the Securities or
the Note Guarantee, as the case may be) such obligation for so long as such
obligation is so secured. The preceding sentence shall not require the Company
or any Subsidiary of the Company to equally and ratably secure the Securities
if such Lien consists of Permitted Liens.
SECTION 4.12. Future Note Guarantors. The Company shall
cause each Restricted Subsidiary (other than SFG Capital) that Incurs
Indebtedness in excess of $100,000 to execute and deliver to the Trustee a Note
Guarantee pursuant to which such Restricted Subsidiary shall Guarantee payment
of the Securities. Each Note Guarantee shall be limited to an amount which the
Company reasonably believes will not exceed the maximum amount that can be
Guaranteed by that Restricted Subsidiary without rendering the Note Guarantee,
as it relates to such Restricted Subsidiary, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
SECTION 4.13. Limitation on Lines of Business. The Company
shall not, and shall not permit any Restricted Subsidiary to, engage in any
business, other than a Related Business.
SECTION 4.14. Limitation on Sale/Leaseback Transactions. The
Company shall not, and shall not permit any Restricted Subsidiary to, enter
into any Sale/Leaseback Transaction with respect to any property unless (a) the
Company or such Restricted Subsidiary would be entitled to (i) Incur
Indebtedness in an amount equal to the Attributable Debt with respect to such
Sale/Leaseback Transaction pursuant to Section 4.03 and (ii) create a Lien on
such property securing such Attributable Debt without equally and ratably
securing the Securities pursuant to Section 4.11, (b) the net cash proceeds
received by the Company or any Restricted Subsidiary in connection with such
Sale/Leaseback Transaction are at least equal to the
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75
fair value (as determined in good faith by the Governing Board) of such
property and (c) the transfer of such property is permitted by and the Company
applies the proceeds of such transaction in compliance with, Section 4.06.
SECTION 4.15. Limitation on the Sale or Issuance of Equity
Interests of Restricted Subsidiaries. The Company shall not sell any Equity
Interest in a Restricted Subsidiary and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell any of its Equity
Interests except to the Company or a Wholly Owned Subsidiary unless the
proceeds of any sale of such Equity Interests will be treated as Net Available
Cash from an Asset Disposition and are applied in accordance with Section 4.06.
SECTION 4.16. Limitation on the Business Activities of SFG
Capital. SFG Capital shall not engage in any trade or business, and shall
conduct no business activity, other than the Incurrence of Indebtedness
permitted under Section 4.03 and the issuance of Equity Interests to the
Company and activities incidental thereto. Furthermore, SFG Capital shall not
create, capitalize or otherwise own or acquire any Subsidiary.
ARTICLE 5
Successor to Issuers
SECTION 5.01. When Issuers May Merge or Transfer Assets.
Neither the Company nor SFG Capital shall consolidate with or merge with or
into, or convey, transfer or lease all or substantially all its assets to, any
Person; provided, however, that the Company may consolidate with or merge with
or into, or convey transfer or lease all or substantially all its assets to any
Person if the following conditions are met:
(i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a corporation, limited liability company
or limited partnership organized and existing under the laws of the
United States of America, any State thereof or the District of
Columbia, and the Successor Company (if not the Company) shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Securities and this Indenture;
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(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Restricted Subsidiary as a result of such transaction
as having been Incurred by the Successor Company or such Restricted
Subsidiary at the time of such transaction), no Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a);
(iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount which
is not less than the Consolidated Net Worth of the Company immediately
prior to such transaction; and
(v) the Company shall have delivered to the Trustee an
Officers' Certificate of the Company and an Opinion of Counsel, each
stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with this Indenture.
The Successor Company shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this
Indenture, but the predecessor Company in the case of a conveyance, transfer or
lease of all or substantially all its assets shall not be released from the
obligation to pay the principal of and interest on the Securities.
Notwithstanding the foregoing clauses (ii), (iii) and (iv),
(a) any Restricted Subsidiary, other than SFG Capital, may consolidate with,
merge into or transfer all or part of its properties and assets to the Company
and (b) the Company may merge with an Affiliate of the Company incorporated or
organized for the purpose of (x) incorporating or organizing the Company in
another jurisdiction to realize tax or other benefits or (y) changing
organizational form from a limited partnership to a corporation or limited
liability company.
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ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default"
occurs if:
(1) the Issuers default in any payment of interest on any
Security when the same becomes due and payable, whether or not such
payment shall be prohibited by Article 10, and such default continues
for a period of 30 days;
(2) the Issuers (i) default in the payment of the principal of
any Security when the same becomes due and payable at its Stated
Maturity, upon redemption, upon declaration or otherwise, whether or
not such payment shall be prohibited by Article 10, or (ii) fail to
redeem or purchase Securities when required pursuant to this Indenture
or the Securities, whether or not such redemption or purchase shall be
prohibited by Article 10;
(3) the Issuers fail to comply with Section 5.01;
(4) the Issuers fail to comply with Section 4.02, 4.03, 4.04,
4.05, 4.06, 4.07, 4.08, 4.11, 4.12, 4.13 or 4.14 (other than a failure
to purchase Securities when required under Section 4.06 or 4.08) and
such failure continues for 30 days after the notice specified below;
(5) the Issuers fail to comply with any of their agreements in
the Securities or this Indenture (other than those referred to in (1),
(2), (3) or (4) above) and such failure continues for 60 days after
the notice specified below;
(6) Indebtedness of the Issuers or any Significant Subsidiary
is not paid within any applicable grace period after final maturity or
is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds
$10,000,000 or its foreign currency equivalent at the time and such
failure continues for 10 days after the notice specified below;
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(7) Either of the Issuers or any Significant Subsidiary
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case;
(C) consents to the appointment of a Custodian of it
or for any substantial part of its property;
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against either of the Issuers or
any Significant Subsidiary in an involuntary case;
(B) appoints a Custodian of either of the Issuers or
any Significant Subsidiary or for any substantial part of its
property; or
(C) orders the winding up or liquidation of either of
the Issuers or any Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order
or decree remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess
of $10,000,000 or its foreign currency equivalent (to the extent not
covered by insurance) at the time is entered against either of the
Issuers or any Significant Subsidiary and is not discharged, waived or
stayed and either (A) an enforcement proceeding has been commenced by
any creditor upon such judgment or decree or (B) such judgment or
decree remains outstanding for a period of 60 days after such judgment
becomes final and non-appealable; or
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(10) any Note Guarantee shall cease to be in full force and
effect (except as contemplated by the terms thereof) or any Note
Guarantor or person acting by or on behalf of such Note Guarantor
shall deny or disaffirm its obligations under this Indenture or any
Note Guarantee and such Default continues for 30 days after the notice
specified below.
The foregoing shall constitute Events of Default whatever the
reason for any such Event of Default and whether it is voluntary or involuntary
or is effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body.
The term "Bankruptcy Law" means Title 11, United States Code,
or any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clause (4) or (5) is not an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the
outstanding Securities notify the Issuers of the Default, and the Issuers do
not cure such Default within the time specified after receipt of such notice.
Such notice must specify the Default, demand that it be remedied and state that
such notice is a "Notice of Default".
The Issuers shall deliver to the Trustee, within 30 days after
the occurrence thereof, written notice in the form of an Officers' Certificate
of each of the Issuers of any Event of Default under clause (6) and any event
which with the giving of notice or the lapse of time would become an Event of
Default under clause (4), (5) or (9), its status and what action the Issuers
have taken, are taking or propose to take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default (other
than an Event of Default specified in Section 6.01(7) or (8) with respect to
the Issuers) occurs and is continuing, the Trustee by notice to the Issuers, or
the Holders of at least 25% in principal amount of the outstanding Securities
by notice to the Issuers, may declare the principal of and accrued and unpaid
interest (if any) on all the Securities to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable immediately.
If an Event of Default specified in Section 6.01(7) or (8) with respect to
either
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of the Issuers occurs, the principal of and accrued and unpaid interest (if
any) on all the Securities shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Securityholder. The Holders of a majority in principal amount of the
Securities by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of, or interest on, the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Securityholder in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a
majority in principal amount of the Securities by notice to the Trustee may
waive an existing Default and its consequences except (i) a Default in the
payment of the principal of or interest on a Security or (ii) a Default in
respect of a provision that under Section 9.02 cannot be amended without the
consent of each Securityholder affected. When a Default is waived, it is
deemed cured, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority
in principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture
or, subject to Section 7.01, that the Trustee determines is unduly prejudicial
to the rights of other Securityholders or would
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involve the Trustee in personal liability; provided, however, that the Trustee
may take any other action deemed proper by the Trustee that is not inconsistent
with such direction. Prior to taking any action hereunder, the Trustee shall
be entitled to indemnification satisfactory to it in its sole discretion
against all losses and expenses caused by taking or not taking such action.
SECTION 6.06. Limitation on Suits. A Securityholder may not
pursue any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating
that an Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of security or
indemnity; and
(5) the Holders of a majority in principal amount of the
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of principal of and liquidated damages and interest on the
Securities held by such Holder, on or after the respective due dates expressed
in the Securities, or to bring suit for the enforcement of any such payment on
or after such respective dates, shall not be impaired or affected without the
consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the
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Issuers for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Issuers, any Subsidiary of
the Company or Note Guarantor, their creditors or their property and, unless
prohibited by law or applicable regulations, may vote on behalf of the Holders
in any election of a trustee in bankruptcy or other Person performing similar
functions, and any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any money
or property pursuant to this Article 6, it shall pay out the money or property
in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Indebtedness to the extent
required by Article 10;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, and any liquidated
damages without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal, any
liquidated damages and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section. At least 15 days before
such record date, the Trustee shall mail to each Securityholder and the Issuers
a notice that states the record date, the payment date and amount to be paid.
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SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant. This Section does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit
by Holders of more than 10% in principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. Neither of
the Issuers nor any Note Guarantor (to the extent it may lawfully do so) shall
at any time insist upon, or plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay or extension law wherever enacted, now or
at any time hereafter in force, which may affect the covenants or the
performance of this Indenture, and the Issuers and each Note Guarantor (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in their exercise as a prudent Person would exercise or use under the
circumstances in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations
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shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b)
of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
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(h) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be genuine and to
have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate of either or both of the Issuers or an Opinion
of Counsel. The Trustee shall not be liable for any action it takes or omits
to take in good faith in reliance on any such Officers' Certificate or Opinion
of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) None of the Trustee or its officers, directors,
employees, affiliates or agents shall be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other paper or document unless requested in writing to do so
by the Holders of not less than a majority in principal amount of the
Securities at the time outstanding and payment to the Trustee of the costs,
expenses and liabilities likely to be incurred in such investigation is, in the
opinion of the Trustee, reasonably assured to it, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
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matters as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the books,
records and premises of either of the Issuers, personally or by agent or
attorney.
(g) Subject to its duties as Trustee and pursuant to the TIA
and this Indenture, neither the Trustee nor any of its directors, officers,
employees, agents or control persons shall be responsible for any act or
omission of any Custodian, Paying Agent or Registrar that is not an Affiliate
of the Trustee and that is selected other than by the Trustee, performed or
omitted in compliance with any custodial or other agreement, or any act or
omission of the Issuers or any other third Person, including, without
limitation, in connection with actions taken pursuant to this Indenture.
(h) Subject to its duties as Trustee and pursuant to the TIA
and this Indenture, the Trustee shall not be charged with knowledge of any act,
failure to act or breach of any Person upon the occurrence of which the Trustee
may be required to act, unless a Trust Officer of the Trustee obtains actual
knowledge of such failure or unless written notice of any event which is an
Event of Default is received by the Trustee at the Corporate Trust Office of
the Trustee and such notice references the Securities and this Indenture.
SECTION 7.03. Individual Rights of Trustee. The Trustee in
its individual or any other capacity may become the owner or pledgee of
Securities and may otherwise deal with the Issuers or their Affiliates with the
same rights it would have if it were not Trustee. Any Paying Agent, Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Issuers'
use of the proceeds from the Securities, and it shall not be responsible for
any statement of the Issuers in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and
is continuing and if it is known to a Trust
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Officer, the Trustee shall mail to each Securityholder notice of the Default
within the earlier of 90 days after it occurs or 30 days after it is known to a
Trust Officer or written notice is received by the Trustee. Except in the case
of a Default in payment of principal of or interest on any Security (including
payments pursuant to the mandatory redemption provisions of such Security, if
any), the Trustee may withhold the notice if and so long as a committee of its
Trust Officers in good faith determines that withholding the notice is in the
interests of Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of May 15 that
complies with, and to the extent such report is required by, Section 313(a) of
the TIA. The Trustee shall also comply with Section 313(b) of the TIA.
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange (if any) on
which the Securities are listed. The Issuers agree to notify promptly the
Trustee whenever the Securities become listed on any stock exchange and of any
delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Issuers shall
pay to the Trustee from time to time reasonable compensation for its services,
including services such as default administration. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuers shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred or made by it, including costs of collection,
in addition to the compensation for its services. Such expenses shall include
the reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and experts. The Issuers and the Note
Guarantors (if any), jointly and severally, shall indemnify the Trustee, its
officers, directors, employees and agents against any and all loss, liability
or expense (including reasonable attorneys' fees) incurred by them without
negligence or bad faith on their part in connection with the administration of
this trust and the performance of their duties hereunder. The Trustee shall
notify the Issuers of any claim for which it may seek indemnity promptly upon
obtaining actual knowledge thereof; provided that any failure so to notify the
Issuers shall
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not relieve the Issuers or any Note Guarantor of their indemnity obligations
hereunder. The Issuers shall defend the claim and the indemnified party shall
provide reasonable cooperation at the Issuers' expense in the defense. Such
indemnified parties may have separate counsel, and the Issuers shall pay the
fees and expenses of such counsel; provided that the Issuers shall not be
required to pay such fees and expenses if they assume such indemnified parties'
defense and, in such indemnified parties' reasonable judgment, there is no
conflict of interest between the Issuers and such parties in connection with
such defense. The Issuers shall not be required to pay the costs and expenses
of any settlement made without their consent (which consent shall not be
unreasonably withheld). The Issuers need not reimburse any expense or
indemnify against any loss, liability or expense incurred by an indemnified
party through such party's own wilful misconduct, negligence or bad faith.
To secure the Issuers' payment obligations in this Section,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee other than money or property held in trust to
pay principal of and interest on particular Securities.
The Issuers' and the Note Guarantors' (if any) payment
obligations pursuant to this Section shall survive the satisfaction or
discharge of this Indenture, any rejection or termination of this Indenture
under any bankruptcy law or the resignation or removal of the Trustee. When
the Trustee incurs expenses or renders services after the occurrence of a
Default specified in Section 6.01(7) or (8) with respect to either of the
Issuers, the expenses and compensation for services are intended to constitute
expenses of administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign
at any time by so notifying the Issuers. The Holders of a majority in
principal amount of the Securities may remove the Trustee by so notifying the
Trustee and may appoint a successor Trustee. The Issuers shall remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
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(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Issuers or by the
Holders of a majority in principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Issuers shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, subject to the
lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee or the
Holders of 10% in principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to
this Section, the Issuers' obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation or association
without any further act shall be the successor Trustee; provided that such
corporation or
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banking association shall otherwise be eligible and qualified under this
Article 7.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of
the successor to the Trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee
shall at all times satisfy the requirements of TIA Section 310(a). The
Trustee shall have a combined capital and surplus of at least $50,000,000 as
set forth in its most recent published annual report of condition. The Trustee
shall comply with TIA Section 310(b); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities or certificates of interest or
participation in other securities of the Issuers are outstanding if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against
Issuers. The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance. (a) When (i) the Issuers deliver to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.07) for
cancelation or (ii) all outstanding Securities have become due and payable,
whether at maturity or as a result of the mailing of a notice of redemption
pursuant to Article 3 hereof and the Issuers irrevocably deposit with the
Trustee
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funds or U.S. Government Obligations on which payment of principal and interest
when due will be sufficient to pay at maturity or upon redemption all
outstanding Securities, including interest thereon to maturity or such
redemption date (other than Securities replaced pursuant to Section 2.07), and
if in either case the Issuers pay all other sums payable hereunder by the
Issuers, then this Indenture shall, subject to Section 8.01(c), cease to be of
further effect. The Trustee shall acknowledge satisfaction and discharge of
this Indenture on demand of the Issuers accompanied by an Officers' Certificate
of each of the Issuers and an Opinion of Counsel and at the cost and expense of
the Issuers.
(b) Subject to Sections 8.01(c) and 8.02, the Issuers at any
time may terminate (i) all of their obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) their obligations under Sections
4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16,
5.01(iii) and 5.01(iv) and the operation of Section 6.01(3) (with respect to
Section 5.01(iii) and 5.01(iv) only), 6.01(4), 6.01(6), 6.01(7) (with respect
to Significant Subsidiaries only), 6.01(8) (with respect to Significant
Subsidiaries only) and 6.01(9) ("covenant defeasance option"). The Issuers may
exercise their legal defeasance option notwithstanding their prior exercise of
their covenant defeasance option.
If the Issuers exercise their legal defeasance option, payment
of the Securities may not be accelerated because of an Event of Default. If
the Issuers exercise their covenant defeasance option, payment of the
Securities may not be accelerated because of an Event of Default specified in
Section 6.01(4), 6.01(6), 6.01(7) (with respect to Significant Subsidiaries
only), 6.01(8) (with respect to Significant Subsidiaries only) and 6.01(9) or
because of the failure of the Issuers to comply with (iii) and (iv) of Section
5.01.
Upon satisfaction of the conditions set forth herein and upon
request of the Issuers, the Trustee shall acknowledge in writing the discharge
of those obligations that the Issuers terminate.
(c) Notwithstanding clauses (a) and (b) above, the Issuers'
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.04, 8.05
and 8.06 shall survive until the Securities have been paid in full.
Thereafter, the Issuers' obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
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SECTION 8.02. Conditions to Defeasance. The Issuers may
exercise their legal defeasance option or their covenant defeasance option only
if:
(1) the Issuers irrevocably deposit in trust with the Trustee
money or U.S. Government Obligations for the payment of principal,
premium (if any) and interest on the Securities to maturity or
redemption, as the case may be;
(2) the Issuers deliver to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and
without reinvestment on the deposited U.S. Government Obligations plus
any deposited money without investment will provide cash at such times
and in such amounts as will be sufficient to pay principal and
interest when due on all the Securities to maturity or redemption, as
the case may be;
(3) 123 days pass after the deposit is made and during the
123-day period no Default specified in Section 6.01(7) or (8) with
respect to the Issuers occurs which is continuing at the end of the
period;
(4) the deposit does not constitute a default under any other
agreement binding on the Issuers and is not prohibited by Article 10;
(5) the Issuers deliver to the Trustee an Opinion of Counsel
to the effect that the trust resulting from the deposit does not
constitute, or is qualified as, a regulated investment company under
the Investment Company Act of 1940;
(6) in the case of the legal defeasance option, the Issuers
shall have delivered to the Trustee an Opinion of Counsel stating that
(i) the Issuers have received from, or there has been published by,
the Internal Revenue Service a ruling, or (ii) since the date of this
Indenture there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Securityholders will not recognize
income, gain or loss for Federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same
amounts,
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in the same manner and at the same times as would have been the case
if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Issuers
shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Securityholders will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred; and
(8) the Issuers deliver to the Trustee an Officers'
Certificate of each of the Issuers and an Opinion of Counsel, each
stating that all conditions precedent to the defeasance and discharge
of the Securities as contemplated by this Article 8 have been complied
with.
Before or after a deposit, the Issuers may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date
in accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall
hold in trust money or U.S. Government Obligations deposited with it pursuant
to this Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities. Money
and securities so held in trust are not subject to Article 10.
SECTION 8.04. Repayment to Issuers. The Trustee and the
Paying Agent shall promptly turn over to the Issuers upon request any excess
money or securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Issuers upon written request any money
held by them for the payment of principal or interest that remains unclaimed
for one year, and, thereafter, Securityholders entitled to the money must look
to the Issuers for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The
Issuers shall pay and shall indemnify the Trustee against any tax, fee or other
charge imposed on or
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assessed against deposited U.S. Government Obligations or the principal and
interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent
is unable to apply any money or U.S. Government Obligations in accordance with
this Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Issuers' obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, if the
Issuers have made any payment of interest on or principal of any Securities
because of the reinstatement of their obligations, the Issuers shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders. The Issuers and
the Trustee may amend this Indenture or the Securities without notice to or
consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or
in place of certificated Securities; provided, that the uncertificated
Securities are issued in registered form for purposes of Section
163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article 10 that would limit or
terminate the benefits available to any holder of Senior Indebtedness
(or Representatives therefor) under Article 10;
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(5) to add Guarantees with respect to the Securities or to
secure the Securities;
(6) to add to the covenants of the Issuers for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Issuers;
(7) to comply with any requirements of the SEC in connection
with qualifying this Indenture under the TIA;
(8) to make any change that does not adversely affect the
rights of any Securityholder; or
(9) to provide for the issuance of the Exchange Securities,
which shall have terms substantially identical in all material
respects to the Initial Securities (except that the transfer
restrictions contained in the Initial Securities shall be modified or
eliminated, as appropriate), and which shall be treated, together with
any outstanding Initial Securities, as a single issue of securities.
An amendment under this Section may not make any change that
adversely affects the rights under Article 10 of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness
(or any group or Representative thereof authorized to give a consent) consent
to such change.
After an amendment under this Section becomes effective, the
Issuers shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any
defect therein, shall not impair or affect the validity of an amendment under
this Section.
SECTION 9.02. With Consent of Holders. The Issuers, the Note
Guarantors and the Trustee may amend this Indenture or the Securities without
notice to any Securityholder but with the written consent of the Holders of at
least a majority in principal amount of the
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Securities. However, without the consent of each Securityholder affected, an
amendment may not:
(1) reduce the amount of Securities whose Holders must consent
to an amendment;
(2) reduce the rate of or extend the time for payment of
interest or any liquidated damages on any Security;
(3) reduce the principal of or extend the Stated Maturity of
any Security;
(4) reduce the premium payable upon the redemption of any
Security or change the time at which any Security may be redeemed in
accordance with Article 3;
(5) make any Security payable in money other than that stated
in the Security;
(6) make any change in Article 10 that adversely affects the
rights of any Securityholder under Article 10;
(7) make any change in Section 6.04 or 6.07 or the second
sentence of this Section; or
(8) modify or affect in any manner adverse to the Holders the
terms and conditions of the obligation of any Note Guarantor for the
due and punctual payment of the principal of or any liquidated damages
or interest on Securities.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that
adversely affects the rights under Article 10 of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness
(or any group or representative thereof authorized to give a consent) consent
to such change.
After an amendment under this Section becomes effective, the
Issuers shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any
defect
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therein, shall not impair or affect the validity of an amendment under this
Section 9.02.
SECTION 9.03. Compliance with Trust Indenture Act. Every
amendment to this Indenture or the Securities shall comply with the TIA as then
in effect.
SECTION 9.04. Revocation and Effect of Consents
and Waivers. A consent to an amendment or a waiver by a Holder of a Security
shall bind the Holder and every subsequent Holder of that Security or portion
of the Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent or waiver is not made on the
Security. However, any such Holder or subsequent Holder may revoke the consent
or waiver as to such Holder's Security or portion of the Security if the
Trustee receives the notice of revocation before the date the amendment or
waiver becomes effective. After an amendment or waiver becomes effective, it
shall bind every Securityholder. An amendment or waiver becomes effective once
the requisite number of consents are received by either of the Issuers or the
Trustee.
The Issuers may, but shall not be obligated to, fix a record
date for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated proxies), and
only those Persons, shall be entitled to give such consent or to revoke any
consent previously given or to take any such action, whether or not such
Persons continue to be Holders after such record date. No such consent shall
be valid or effective for more than 120 days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an
amendment changes the terms of a Security, the Trustee may require the Holder
of the Security to deliver it to the Trustee. The Trustee may place an
appropriate notation on the Security regarding the changed terms and return it
to the Holder. Alternatively, if the Trustee or the Issuers so determine, the
Issuers in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make
the appropriate notation or to issue a new Security shall not affect the
validity of such amendment.
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SECTION 9.06. Trustee To Sign Amendments. The Trustee shall
sign any amendment authorized pursuant to this Article 9 if the amendment does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing such
amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be fully
protected in relying upon, an Officers' Certificate of each of the Issuers and
an Opinion of Counsel stating that such amendment is authorized or permitted by
this Indenture, that such amendment is the legal, valid and binding obligation
of the Issuers and the Note Guarantors enforceable against them in accordance
with its terms, subject to customary exceptions, and complies with the
provisions hereof (including Section 9.03).
SECTION 9.07. Payment for Consent. Neither the Issuers nor
any Affiliate of either of the Issuers shall, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Indenture or the Securities
unless such consideration is offered to be paid to all Holders that so consent,
waive or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement.
ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate. The Issuers agree,
and each Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article 10, to the prior payment in full of
all Senior Indebtedness and that the subordination is for the benefit of and
enforceable by the holders of Senior Indebtedness. The Securities shall in all
respects rank pari passu with all other Senior Subordinated Indebtedness of
either of the Issuers and only Indebtedness of either of the Issuers that is
Senior Indebtedness shall rank senior to the Securities in accordance with the
provisions set forth herein. For purposes of these subordination provisions,
the Indebtedness evidenced by the Securities is deemed to include the
liquidated damages payable pursuant to the
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provisions set forth in the Securities and the Exchange and Registration Rights
Agreement. All provisions of this Article 10 shall be subject to Section
10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon
any payment or distribution of the assets of either of the Issuers to creditors
upon a total or partial liquidation or a total or partial dissolution of either
of the Issuers or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to either of the Issuer or such Issuer's property:
(1) holders of Senior Indebtedness shall be entitled to
receive payment in full of the Senior Indebtedness before
Securityholders shall be entitled to receive any payment of principal
of or interest on the Securities; and
(2) until the Senior Indebtedness is paid in full, any payment
or distribution to which Securityholders would be entitled but for
this Article 10 shall be made to holders of Senior Indebtedness as
their interests may appear.
SECTION 10.03. Default on Senior Indebtedness. The Issuers
may not pay the principal of, premium (if any) or interest on the Securities or
make any deposit pursuant to Section 8.01 and may not repurchase, redeem or
otherwise retire any Securities (collectively, "pay the Securities") if (i) any
Senior Indebtedness is not paid when due or (ii) any other default on Senior
Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated
in accordance with its terms unless, in either case, (x) the default has been
cured or waived and any such acceleration has been rescinded or (y) such Senior
Indebtedness has been paid in full; provided, however, that the Issuers may pay
the Securities without regard to the foregoing if either of the Issuers and the
Trustee receive written notice approving such payment from the Representative
of the Designated Senior Indebtedness with respect to which either of the
events in clause (i) or (ii) of this sentence has occurred and is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the preceding sentence) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
the Issuers may not pay the Securities for a period (a "Payment Blockage
Period") commencing upon
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the receipt by the Trustee (with a copy to the Issuers) of written notice (a
"Blockage Notice") of such default from the Representative of such Designated
Senior Indebtedness specifying an election to effect a Payment Blockage Period
and ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Issuers from the Person
or Persons who gave such Blockage Notice, (ii) by repayment in full of such
Designated Senior Indebtedness or (iii) because the default giving rise to such
Blockage Notice is no longer continuing). Notwithstanding the provisions
described in the immediately preceding sentence (but subject to the provisions
contained in the first sentence of this Section), unless the holders of such
Designated Senior Indebtedness or the Representative of such holders shall have
accelerated the maturity of such Designated Senior Indebtedness, the Issuers may
resume payments on the Securities after such Payment Blockage Period. Not more
than one Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period; provided, however, that if any Blockage Notice
within such 360-day period is given by or on behalf of any holders of Designated
Senior Indebtedness (other than the Bank Indebtedness), the Representative of
the Bank Indebtedness may give another Blockage Notice within such period;
provided further, however, that in no event may the total number of days during
which any Payment Blockage Period or Periods is in effect exceed 179 days in the
aggregate during any 360 consecutive day period. For purposes of this Section,
no default or event of default that existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis of the commencement of a subsequent Payment Blockage Period by
the Representative of such Designated Senior Indebtedness, whether or not within
a period of 360 consecutive days, unless such default or event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
SECTION 10.04. Acceleration of Payment of Securities. If
payment of the Securities is accelerated because of an Event of Default, the
Issuers or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representative) of the acceleration. If any
Designated Senior Indebtedness is outstanding, the Issuers may not pay the
Securities until five Business Days after such holders or the Representative of
the Designated
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Senior Indebtedness receive notice of such acceleration and, thereafter, may
pay the Securities only if this Article 10 otherwise permits payment at that
time.
SECTION 10.05. When Distribution Must Be Paid Over. If a
distribution is made to Securityholders that because of this Article 10 should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of Senior Indebtedness and pay it over to
them as their interests may appear.
SECTION 10.06. Subrogation. After all Senior Indebtedness is
paid in full and until the Securities are paid in full, Securityholders shall
be subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness. A distribution made under
this Article 10 to holders of Senior Indebtedness which otherwise would have
been made to Securityholders is not, as between the Issuers and
Securityholders, a payment by the Issuers on Senior Indebtedness.
SECTION 10.07. Relative Rights. This Article 10 defines the
relative rights of Securityholders and holders of Senior Indebtedness. Nothing
in this Indenture shall:
(1) impair, as between the Issuers and Securityholders, the
obligation of the Issuers, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Securityholder from exercising
its available remedies upon a Default, subject to the rights of
holders of Senior Indebtedness to receive distributions otherwise
payable to Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Issuers.
No right of any holder of Senior Indebtedness to enforce the subordination of
the Indebtedness evidenced by the Securities shall be impaired by any act or
failure to act by the Issuers or by their failure to comply with this
Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent.
Notwithstanding Section 10.03, the Trustee or Paying Agent may continue to make
payments on the Securities and shall not be charged with knowledge of the
existence of facts that would prohibit the making of any
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such payments unless, not less than two Business Days prior to the date of such
payment, a Trust Officer of the Trustee receives notice satisfactory to it that
payments may not be made under this Article 10. The Issuers, the Registrar or
co-registrar, the Paying Agent, a Representative or a holder of Senior
Indebtedness may give the notice; provided, however, that, if an issue of
Senior Indebtedness has a Representative, only the Representative may give the
notice. The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of any
Senior Indebtedness (or a Representative) to establish that such notice has
been given by a holder of such Senior Indebtedness or a Representative thereof.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not Trustee.
The Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article 10 with respect to any Senior Indebtedness which may at any time be
held by it, to the same extent as any other holder of Senior Indebtedness; and
nothing in Article 7 shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article 10 shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 7.07.
SECTION 10.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of Senior
Indebtedness, the distribution may be made and the notice given to their
Representative (if any); provided that the Trustee has been given the name and
address of such Representative.
SECTION 10.11. Article 10 Not To Prevent Events of Default or
Limit Right To Accelerate. The failure to make a payment pursuant to the
Securities by reason of any provision in this Article 10 shall not be construed
as preventing the occurrence of a Default. Nothing in this Article 10 shall
have any effect on the right of the Securityholders or the Trustee to
accelerate the maturity of the Securities.
SECTION 10.12. Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary, payments from money
or the proceeds of U.S. Government Obligations held in trust under Article 8 by
the Trustee for the payment of principal of and interest on the Securities
shall not be subordinated to the prior payment
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of any Senior Indebtedness or subject to the restrictions set forth in this
Article 10, and none of the Securityholders shall be obligated to pay over any
such amount to the Issuers or any holder of Senior Indebtedness of either of
the Issuers or any other creditor of either of the Issuers.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other Indebtedness of either of the Issuers, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article 10. In the event that
the Trustee determines, in good faith, that evidence is required with respect
to the right of any Person as a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this Article 10, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of Senior Indebtedness held by such Person, the extent
to which such Person is entitled to participate in such payment or distribution
and other facts pertinent to the rights of such Person under this Article 10,
and, if such evidence is not furnished, the Trustee may defer any payment to
such Person pending judicial determination as to the right of such Person to
receive such payment. The provisions of Sections 7.01 and 7.02 shall be
applicable to all actions or omissions of actions by the Trustee pursuant to
this Article 10.
SECTION 10.14. Trustee To Effectuate Subordination. Each
Securityholder by accepting a Security authorizes and directs the Trustee on
its behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination between the Securityholders and the
holders of Senior Indebtedness as provided in this Article 10 and appoints the
Trustee as attorney-in-fact for any and all such purposes.
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SECTION 10.15. Trustee Not Fiduciary for Holders of Senior
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if
it shall mistakenly pay over or distribute to Securityholders, the Issuers or
any other Person, money or assets to which any holders of Senior Indebtedness
shall be entitled by virtue of this Article 10 or otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
Subordination Provisions. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and
are intended to be, an inducement and a consideration to each holder of any
Senior Indebtedness, whether such Senior Indebtedness was created or acquired
before or after the issuance of the Securities, to acquire and continue to
hold, or to continue to hold, such Senior Indebtedness and such holder of
Senior Indebtedness shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Indebtedness.
SECTION 10.17. Trustee's Compensation Not Prejudiced.
Nothing in this Article shall apply to amounts due to the Trustee pursuant to
other sections of this Indenture.
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls. If any
provision of this Indenture limits, qualifies or conflicts with another
provision which is required to be included in this Indenture by the TIA, the
required provision shall control.
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SECTION 11.02. Notices. Any notice or communication shall be
in writing and delivered in person, by overnight delivery service or mailed by
first-class mail addressed as follows:
if to the Issuers:
Southern Foods Group, L.P.
SFG Capital Corporation
Attention of: Chief Financial officer
3114 South Haskell
Dallas, Texas 75223
if to the Trustee:
Texas Commerce Bank National Association
Attention of: Corporate Trust Department
2200 Ross Avenue, Fifth Floor
Dallas, Texas 75201
The Issuers or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Securityholder shall
be mailed to the Securityholder at the Securityholder's address as it appears
on the registration books of the Registrar and shall be sufficiently given if
so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Issuers, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by
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the Issuers to the Trustee to take or refrain from taking any action under this
Indenture, the Issuers shall furnish to the Trustee:
(1) an Officers' Certificate of each of the Issuers in form
and substance reasonably satisfactory to the Trustee stating that, in
the opinion of the signers, all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been
complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 11.06. When Securities Disregarded. In determining
whether the Holders of the required principal amount of Securities have
concurred in any direction, waiver or consent, Securities owned by either of
the Issuers or by any Person directly or indirectly controlling or controlled
by, or under direct or indirect common control with, either of the Issuers
shall be disregarded and deemed not to be outstanding, except that, for the
purpose of determining whether the Trustee shall be protected in relying on any
such direction, waiver or
<PAGE> 114
107
consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at
the time shall be considered in any such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 11.08. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday or a day on which banking institutions are not required to
be open in the State of New York or the State of Texas. If a payment date is a
Legal Holiday, payment shall be made on the next succeeding day that is not a
Legal Holiday, and no interest shall accrue for the intervening period. If a
regular record date is a Legal Holiday, the record date shall not be affected.
SECTION 11.09. Governing Law. THIS INDENTURE AND THE
SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 11.10. No Recourse Against Others. No director,
officer, partner (including any general partner), employee, incorporator or
equityholder of either of the Issuers, as such, shall have any liability for
any obligations of the Issuers under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities. Such waiver may not be effective to waive
liabilities under the federal securities laws, and it is the view of the SEC
that such waiver is against public policy.
SECTION 11.11. Successors. All agreements of each of the
Issuers and each Note Guarantor in this Indenture and the Securities shall bind
its successors. All agreements of the Trustee in this Indenture shall bind its
successors.
<PAGE> 115
108
SECTION 11.12. Multiple Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough
to prove this Indenture.
SECTION 11.13. Table of Contents; Headings. The table of
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
SECTION 11.14. Separability. In case any provision in this
Indenture or in the Securities shall be invalid illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby and such provision shall be ineffective
only to the extent of such invalidity, illegality or unenforceability.
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
SOUTHERN FOODS GROUP, L.P.,
by SFG Management Limited
Liability Company,
its general partner,
by /s/ PETE SCHENKEL
-------------------------
Name: Pete Schenkel
Title: President and Chief
Executive Officer
SFG CAPITAL CORPORATION,
by /s/ PETE SCHENKEL
-------------------------
Name: Pete Schenkel
Title: President and Chief
Executive Officer
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as Trustee,
by /s/ ILLEGIBLE
-------------------------
Name:
Title:
<PAGE> 116
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On September 4, 1997, before me personally came F. T. (Pete)
Schenkel, to me known, who, being by me duly sworn, did depose and say that he
is the President and Chief Executive Officer of SFG Management Limited
Liability Company, a Delaware limited liability company, and that he signed his
name thereto on behalf of such limited liability company acting in its capacity
as general partner of Southern Foods Group, L.P., a Delaware limited
partnership.
/s/ APHRODITE XIDAS
----------------------------
Notary Public in and for the
State of New York
Name: Aphrodite Xidas
My commission expires:
Jan. 29, 1998
----------------------------
<PAGE> 117
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On September 4, 1997, before me personally came F. T. (Pete)
Schenkel, to me known, who, being by me duly sworn, did depose and say that he
is the President and Chief Executive Officer of SFG Capital Corporation, a
Delaware corporation, and that he signed his name thereto on behalf of such
corporation.
/s/ APHRODITE XIDAS
----------------------------
Notary Public in and for the
State of New York
Name: Aphrodite Xidas
My commission expires:
Jan. 29, 1998
----------------------------
<PAGE> 118
STATE OF NEW YORK )
) SS
COUNTY OF NEW YORK )
On September 4, 1997, before me personally came John G. Jones,
to me known, who, being by me duly sworn, did depose and say that he is the
Vice President of Texas Commerce Bank National Association, a national banking
association, and that he signed his name thereto on behalf of such association.
/s/ MARISOL DAVILA
----------------------------
Notary Public in and for the
State of New York
Name: Marisol Davila
My commission expires:
Sept. 30, 1999
----------------------------
<PAGE> 1
EXHIBIT 4.2
[FORM OF FACE OF EXCHANGE SECURITY]
[Global Securities Legend]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), TO THE
ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.(1)
SOUTHERN FOODS GROUP, L.P.
SFG CAPITAL CORPORATION
9 7/8% SENIOR SUBORDINATED SERIES A NOTE DUE 2007
No. # CUSIP No. 842875ACO
$
SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership, and SFG
CAPITAL CORPORATION, a Delaware corporation, jointly promise to pay to ,
or registered assigns, the principal sum of $ on September 1, 2007.
Interest Payment Dates: March 1 and September 1
Record Dates: February 15 and August 15
- ----------------
(1) This paragraph should only be added if the Security is issued in global
form.
<PAGE> 2
2
Additional provisions of this Security are set forth on the other side
of this Security.
Dated:
SOUTHERN FOODS GROUP, L.P.,
by SFG Management Limited
Liability Company, its
general partner,
by
--------------------------
Name:
Title:
by
--------------------------
Name:
Title:
SFG CAPITAL CORPORATION,
by
--------------------------
Name:
Title:
by
--------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
Chase Bank of Texas,
National Association,
as Trustee, certifies [Seal]
that this is one of
the Securities referred
to in the Indenture,
by
--------------------------
Authorized Signatory
<PAGE> 3
3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
9 7/8% Senior Subordinated Series A Note due 2007
1. Interest
SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership (the
"Company"), and SFG CAPITAL CORPORATION, a Delaware corporation ("SFG Capital",
and, together with the Company and the successors and assigns of the Company
and SFG Capital, the "Issuers"), jointly promise to pay interest on the
principal amount of this Security at the rate per annum shown above.
The Issuers will pay interest and liquidated damages, if any,
semiannually on March 1 and September 1 of each year. Interest on the
Securities will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from September 4, 1997. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The Issuers
shall pay interest on overdue principal at the rate borne by the Securities
plus 1% per annum, and it shall pay interest on overdue installments of
interest at the same rate to the extent lawful.
2. Method of Payment
The Issuers will pay interest (except defaulted interest) to the
Persons who are registered holders of Securities at the close of business on
the February 15 or August 15 next preceding the interest payment date even if
securities are canceled after the record date and on or before the interest
payment date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Issuers will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, the Issuers may pay principal and interest by check
payable in such money or by wire transfer of federal funds.
3. Paying Agent and Registrar
Initially, CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, formerly TEXAS
COMMERCE BANK NATIONAL BANK, a national banking association ("Trustee"), will
act as Paying Agent and Registrar. The Issuers may appoint and change any Paying
Agent, Registrar or co-registrar without notice to the Holders. Either of the
Issuers or any domestically
<PAGE> 4
4
organized Wholly Owned Subsidiary may act as Paying Agent, Registrar or
co-registrar.
4. Indenture
The Issuers issued the Securities under an Indenture dated as of
September 4, 1997 ("Indenture"), among the Issuers and the Trustee. The terms
of the Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act").
Terms defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are unsecured senior subordinated obligations of the
Issuers limited to $150,000,000 aggregate principal amount at any one time
outstanding (subject to Section 2.07 of the Indenture). This Security is one of
the Exchange Securities referred to in the Indenture. The Securities include
the Initial Securities and any Exchange Securities issued in exchange for the
Initial Securities pursuant to the Indenture. The Initial Securities and the
Exchange Securities are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries; the payment of
dividends on, and redemption of, Equity Interests of the Company and its
Restricted Subsidiaries and the redemption of certain Subordinated Obligations
of the Company and its Restricted Subsidiaries; Investments; sales of assets
and Equity Interests of Restricted Subsidiaries; certain transactions with
Affiliates of the Company; the sale or issuance of Equity Interests of the
Restricted Subsidiaries; the creation of Liens; the lines of business in which
the Company and its Restricted Subsidiaries may operate; Sale/Leaseback
Transactions; and consolidations, mergers and transfers of all or substantially
all of the Company's assets. In addition, the Indenture prohibits certain
restrictions on distributions and dividends from Restricted Subsidiaries.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to September 1, 2002. On and after that date, the Issuers may
redeem the
<PAGE> 5
5
Securities in whole at any time or in part from time to time at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest (if any) to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date that is on or prior to the date of redemption),
if redeemed during the 12-month period beginning on or after September 1 of the
years set forth below:
Redemption
Period Price
- ------ ----------
2002 ......................................................... 104.938%
2003 ......................................................... 103.292%
2004 ......................................................... 101.646%
2005 and thereafter .......................................... 100.000%
Notwithstanding the foregoing, at any time prior to September 1, 2000,
the Issuers may redeem in the aggregate up to one-third of the original
aggregate principal amount of Securities with the proceeds of one or more
Public Equity Offerings by the Company following which there is a Public
Market at a redemption price (expressed as a percentage of principal amount) of
109.875% plus accrued and unpaid interest (if any) to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of redemption); provided, however, that at least two-thirds of the
original aggregate principal amount of the Securities must remain outstanding
after each such redemption.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at its registered address. In case of any partial
redemption, the Trustee shall select the Securities to be redeemed pro rata or
by lot or by a method that complies with applicable legal and securities
exchange requirements, if any, and that the Trustee considers fair and
appropriate and in accordance with methods generally used at the time of
selection by fiduciaries in similar circumstances. Securities in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued interest
on all Securities (or portions thereof) to be
<PAGE> 6
6
redeemed on the redemption date is deposited with the Paying Agent on or before
the redemption date and certain other conditions are satisfied, on and after
such date interest ceases to accrue on such Securities (or such portions
thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have the
right, subject to certain conditions set forth in the Indenture, to cause the
Issuers to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest (if any) to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of repurchase) as provided in, and subject to the terms of, the
Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness of either of
the Issuers, as defined in the Indenture. To the extent provided in the
Indenture, Senior Indebtedness of the Issuers must be paid before the
Securities may be paid. The Issuers agree, and each Securityholder by accepting
a Security agrees, to the subordination provisions contained in the Indenture
and authorizes the Trustee to give it effect and appoints the Trustee as
attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be
redeemed) or to transfer or exchange any Securities for a period of 15 days
prior to a selection of Securities to be redeemed or 15 days before an interest
payment date.
<PAGE> 7
7
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for one year, the Trustee or Paying Agent shall pay the money back to the
Issuers at their written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Issuers and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions set forth in the Indenture, the Issuers
at any time may terminate some or all of their obligations under the Securities
and the Indenture if the Issuers deposit with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the
Securities and (ii) any past default or noncompliance with any provision may be
waived with the consent of the Holders of a majority in principal amount then
outstanding of the Securities. Subject to certain exceptions set forth in the
Indenture, without the consent of any Securityholder, the Issuers and the
Trustee may amend the Indenture or the Securities to cure any ambiguity,
omission, defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to make any change in Article 10 that
would limit or terminate the benefits available to any holder of Senior
Indebtedness (or representative thereof) under Article 10, or to add guarantees
with respect to the Securities or to secure the Securities, or to add
additional covenants or surrender rights and powers conferred on the Issuers,
or to comply
<PAGE> 8
8
with any request of the SEC in connection with qualifying the Indenture under
the Act, or to make certain changes in the subordination provisions, or to make
any change that does not adversely affect the rights of any Securityholder.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
on the Securities at maturity, upon redemption pursuant to paragraph 5 of the
Securities, or failure by the Issuers to redeem or purchase, upon declaration
or otherwise (whether or not such payment is prohibited by Article 10),
Securities when required; (iii) failure by the Issuers to comply with other
agreements in the Indenture or the Securities, in certain cases subject to
notice and lapse of time; (iv) certain accelerations (including failure to pay
within any grace period after final maturity) of other Indebtedness of the
Issuers if the amount accelerated (or so unpaid) exceeds $10,000,000 or its
foreign currency equivalent; (v) certain events of bankruptcy, insolvency or
reorganization with respect to the Issuers and the Significant Subsidiaries;
(vi) certain judgments or decrees not covered by insurance for the payment of
money in excess of $10,000,000 or its foreign currency equivalent against the
Issuers or a Significant Subsidiary; (vii) a Note Guarantee ceasing to be in
full force and effect (other than in accordance with its terms) or any Note
Guarantor denies or disaffirms its obligations under the Indenture or its Note
Guarantee and such Default continues for 30 days. If an Event of Default occurs
and is continuing, the Trustee or the Holders of at least 25% in principal
amount of the Securities may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default
which will result in the Securities being due and payable immediately upon the
occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture
or the Securities unless it receives reasonable indemnity or security. Subject
to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal, premium, if any, or interest) if and
so long as a committee of its Trust
<PAGE> 9
9
Officers in good faith determines that withholding notice is in the interest of
the Holders.
15. Trustee Dealings with the Issuers
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Issuers or their Affiliates and may otherwise deal with the
Issuers or their Affiliates with the same rights it would have if it were not
Trustee.
16. No Recourse Against Others
A director, officer, partner (including any general partner),
employee, incorporator or equityholder of either of the Issuers, as such, shall
not have any liability for any obligations of the Issuers under the Securities
or the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
17. Governing Law
THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
18. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
<PAGE> 10
10
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Issuers have caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
THE ISSUERS WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST
AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH HAS IN
IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
SOUTHERN FOODS GROUP, L.P.
SFG CAPITAL CORPORATION
3114 SOUTH HASKELL
DALLAS, TX 75223
ATTENTION OF CHIEF FINANCIAL OFFICER
<PAGE> 11
11
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- ----------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint _____________________________________________ agent
to transfer this Security on the books of the Issuers. The agent may substitute
another to act for him.
Date: Your Signature:
-------------------------- -------------------------------
Signature Guarantee:
----------------------------------------------------------
(Signature must be guaranteed by a
participant in a recognized signature
guarantee medallion program)
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
<PAGE> 12
12
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been
made:
<TABLE>
<CAPTION>
Date of Amount of decrease Amount of increase Principal amount Signature of
Exchange in Principal in Principal of this Global authorized officer
Amount of this Amount of this Security following of Trustee or
Global Security Global Security such decrease or Securities
increase Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 13
13
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Issuers
pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by
the Issuers pursuant to Section 4.06 or 4.08 of the Indenture, state the
amount: $ _____________.
Date: _________________ Your Signature: _________________________________
(Sign exactly as your name appears on the other side
of the Security)
Signature Guarantee: ___________________________________________
(Signature must be guaranteed by a
participant in a recognized signature
guarantee medallion program)
<PAGE> 1
EXHIBIT 4.3
EXECUTION COPY
SOUTHERN FOODS GROUP, L.P.
SFG CAPITAL CORPORATION
$150,000,000
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
September 4, 1997
CHASE SECURITIES INC.
270 Park Avenue
4th floor
New York, New York 10017
Ladies and Gentlemen:
Southern Foods Group, L.P., a Delaware limited partnership
("SFG"), and SFG Capital Corporation, a Delaware corporation ("SFG Capital"
and, together with SFG, the "Issuers"), propose jointly to issue and sell to
Chase Securities Inc. (the "Initial Purchaser"), upon the terms and subject to
the conditions set forth in a purchase agreement dated August 27, 1997 (the
"Purchase Agreement"), $150,000,000 aggregate principal amount of their 9 7/8%
Senior Subordinated Notes due 2007 (the "Securities"). Capitalized terms used
but not defined herein shall have the meanings given to such terms in the
Purchase Agreement.
As an inducement to the Initial Purchaser to enter into the
Purchase Agreement and in satisfaction of a condition to the obligations of the
Initial Purchaser thereunder, each of the Issuers agrees with the Initial
Purchaser, for the benefit of the holders (including the Initial Purchaser) of
the Securities, the Exchange Securities (as defined herein) and the Private
Exchange Securities (as defined herein) (collectively, the "Holders"), as
follows:
1. Registered Exchange Offer. The Issuers shall (i) prepare
and, not later than 210 days following the date of original issuance of the
Securities (the "Issue Date"), file with the Commission a registration
statement (the "Exchange Offer Registration Statement") on an appropriate form
under the Securities Act with respect to a proposed offer to the Holders of the
Securities (the "Registered Exchange Offer") to issue and deliver to such
Holders, in exchange for the Securities, a like aggregate principal amount of
debt securities of the Issuers (the "Exchange Securities") that are identical
in all material respects to the Securities, except for the transfer
restrictions relating to the Securities, (ii) use their reasonable best efforts
to cause the Exchange Offer Registration Statement to become effective under
the Securities Act no later than 270 days after the Issue Date and the
Registered Exchange Offer to be consummated no later than 300 days after the
Issue Date and (iii) keep the Exchange Offer Registration Statement effective
for not less than 30 days (or longer, if required by applicable law) after the
date on which notice of the Registered Exchange Offer is mailed to the Holders
(such period
<PAGE> 2
2
being called the "Exchange Offer Registration Period"). The Exchange
Securities will be issued under the Indenture or an indenture (the "Exchange
Securities Indenture") among the Issuers and the Trustee or such other bank or
trust company that is reasonably satisfactory to the Initial Purchaser, as
trustee (the "Exchange Securities Trustee"), such indenture to be identical in
all material respects to the Indenture, except for the transfer restrictions
relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration
Statement, the Issuers shall promptly commence the Registered Exchange Offer,
it being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for Exchange Securities (assuming that such
Holder (a) is not an affiliate of either of the Issuers or an Exchanging Dealer
(as defined herein) not complying with the requirements of the next sentence,
(b) is not the Initial Purchaser holding Securities that have, or that are
reasonably likely to have, the status of an unsold allotment in an initial
distribution, (c) acquires the Exchange Securities in the ordinary course of
such Holder's business and (d) has no arrangements or understandings with any
person to participate in the distribution of the Exchange Securities) and to
trade such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and without material
restrictions under the securities laws of the several states of the United
States. Each of the Issuers, the Initial Purchaser and each Exchanging Dealer
acknowledge that, pursuant to current interpretations by the Commission's staff
of Section 5 of the Securities Act, each Holder that is a broker- dealer
electing to exchange Securities, acquired for its own account as a result of
market-making activities or other trading activities, for Exchange Securities
(an "Exchanging Dealer"), is required to deliver a prospectus containing
substantially the information set forth in Annex A hereto on the cover, in
Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of
the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution"
section of such prospectus in connection with a sale of any such Exchange
Securities received by such Exchanging Dealer pursuant to the Registered
Exchange Offer.
If, prior to the consummation of the Registered Exchange
Offer, any Holder holds any Securities acquired by it that have, or that are
reasonably likely to be determined to have, the status of an unsold allotment
in an initial distribution, or any Holder is not entitled to participate in the
Registered Exchange Offer, the Issuers shall, upon the request of any such
Holder, simultaneously with the delivery of the Exchange Securities in the
Registered Exchange Offer, issue and deliver to any such Holder, in exchange
for the Securities held by such Holder (the "Private Exchange"), a like
aggregate principal amount of debt securities of the Issuers (the "Private
Exchange Securities") that are identical in all material respects to the
Exchange Securities, except for the transfer restrictions relating to such
Private Exchange Securities. The Private Exchange Securities will be issued
under the same indenture as the Exchange Securities, and the Issuers shall use
their reasonable best efforts to cause the Private Exchange Securities to bear
the same CUSIP number as the Exchange Securities.
In connection with the Registered Exchange Offer, the Issuers
shall:
(a) mail to each Holder a copy of the prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
<PAGE> 3
3
(b) keep the Registered Exchange Offer open for not less than
30 days (or longer, if required by applicable law) after the date on
which notice of the Registered Exchange Offer is mailed to the
Holders;
(c) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, the City
of New York;
(d) permit Holders to withdraw tendered Securities at any
time prior to the close of business, New York City time, on the last
business day on which the Registered Exchange Offer shall remain open;
and
(e) otherwise comply in all respects with all laws that are
applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered
Exchange Offer and any Private Exchange, as the case may be, the Issuers shall:
(a) accept for exchange all Securities tendered and not
validly withdrawn pursuant to the Registered Exchange Offer and the
Private Exchange;
(b) deliver to the Trustee for cancelation all Securities so
accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as
the case may be, promptly to authenticate and deliver to each Holder,
Exchange Securities or Private Exchange Securities, as the case may
be, equal in principal amount to the Securities of such Holder so
accepted for exchange.
The Issuers shall use their reasonable best efforts to keep
the Exchange Offer Registration Statement effective and to amend and supplement
the prospectus contained therein in order to permit such prospectus to be used
by all persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such persons must comply with such
requirements in order to resell the Exchange Securities; provided that (i) in
the case where such prospectus and any amendment or supplement thereto must be
delivered by an Exchanging Dealer, such period shall be the lesser of 180 days
and the date on which all Exchanging Dealers have sold all Exchange Securities
held by them and (ii) the Issuers shall make such prospectus and any amendment
or supplement thereto available to any broker- dealer for use in connection
with any resale of any Exchange Securities for a period of not less than 90
days after the consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the
case may be, shall provide that the Securities, the Exchange Securities and the
Private Exchange Securities shall vote and consent together on all matters as
one class and that none of the Securities, the Exchange Securities or the
Private Exchange Securities will have the right to vote or consent as a
separate class on any matter.
<PAGE> 4
4
Interest on each Exchange Security and Private Exchange
Security issued pursuant to the Registered Exchange Offer and in the Private
Exchange will accrue from the last interest payment date on which interest was
paid on the Securities surrendered in exchange therefor or, if no interest has
been paid on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer
shall be required to represent to the Issuers that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate in the distribution of the Securities or the Exchange Securities
within the meaning of the Securities Act and (iii) such Holder is not an
affiliate of either of the Issuers or, if it is such an affiliate, such Holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Issuers will
ensure that (i) any Exchange Offer Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement thereto
complies in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder, (ii) any Exchange Offer Registration
Statement and any amendment thereto does not, when it becomes effective,
contain 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 and (iii) any prospectus forming part of any Exchange Offer
Registration Statement, and any supplement to such prospectus, does not, as of
the consummation of the Registered Exchange Offer, include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
2. Shelf Registration. If (i) because of any change in law
or applicable interpretations thereof by the Commission's staff the Issuers are
not permitted to effect the Registered Exchange Offer as contemplated by
Section 1 or (ii) any Securities validly tendered and not withdrawn pursuant to
the Registered Exchange Offer are not exchanged for Exchange Securities within
300 days after the Issue Date or, if the Exchange Offer is being made but is
required by law to be extended to a later date, the expiration of such later
date, or (iii) the Initial Purchaser so requests with respect to Securities or
Private Exchange Securities not eligible to be exchanged for Exchange
Securities in the Registered Exchange Offer and held by it following the
consummation of the Registered Exchange Offer or (iv) any applicable law or
interpretations do not permit any Holder to participate in the Registered
Exchange Offer or (v) any Holder that participates in the Registered Exchange
Offer does not receive freely transferable Exchange Securities in exchange for
tendered Securities, unless such Holder has failed to satisfy the conditions
related to receiving freely transferable Exchange Securities or (vi) the
Issuers so elect, then the following provisions shall apply:
(a) the Issuers shall use their reasonable best efforts to
file as promptly as practicable (but in no event more than 30 days
after so required or requested pursuant to this Section 2) with the
Commission, and thereafter shall use their reasonable best efforts to
cause to be declared effective, a shelf registration statement on an
appropriate form under the Securities Act relating to the offer and
sale of the Transfer Restricted
<PAGE> 5
5
Securities (as defined below) by the Holders thereof from time to time
in accordance with the methods of distribution set forth in such
registration statement (hereafter, a "Shelf Registration Statement"
and, together with any Exchange Offer Registration Statement, a
"Registration Statement");
(b) the Issuers shall use their reasonable best efforts to
keep the Shelf Registration Statement continuously effective in order
to permit the prospectus forming part thereof to be used by Holders of
Transfer Restricted Securities for a period ending on the earlier of
(i) two years from the Issue Date or such shorter period that will
terminate when all the Transfer Restricted Securities covered by the
Shelf Registration Statement have been sold pursuant thereto and (ii)
the date on which the Securities become eligible for resale without
volume restrictions pursuant to Rule 144 under the Securities Act (in
any such case, such period being called the "Shelf Registration
Period"). The Issuers shall be deemed not to have used their
reasonable best efforts to keep the Shelf Registration Statement
effective during the requisite period if either of them voluntarily
takes any action that would result in Holders of Transfer Restricted
Securities covered thereby not being able to offer and sell such
Transfer Restricted Securities during that period, unless (i) such
action is required by applicable law or (ii) such action is taken in
good faith and for valid business reasons (not including the avoidance
of the Issuers' obligations hereunder) related to the acquisition or
divestiture of assets, so long as the Issuers comply with the
requirements of Section 4(j), if applicable; and
(c) notwithstanding any other provisions hereof, the Issuers
will ensure that (i) any Shelf Registration Statement and any
amendment thereto and any prospectus forming part thereof and any
supplement thereto complies in all material respects with the
Securities Act and the rules and regulations of the Commission
thereunder, (ii) any Shelf Registration Statement and any amendment
thereto (in either case, other than with respect to information
included therein in reliance upon or in conformity with written
information furnished to either of the Issuers by or on behalf of any
Holder specifically for use therein (the "Holders' Information")) does
not contain 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 and (iii) any prospectus forming
part of any Shelf Registration Statement, and any supplement to such
prospectus (in either case, other than with respect to Holders'
Information), does not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that
the Holders of Transfer Restricted Securities will suffer damages if the
Issuers fail to fulfill their obligations under Section 1 or 2, as applicable,
and that it would not be feasible to ascertain the extent of such damages.
Accordingly, if (i) the applicable Registration Statement is not filed with the
Commission on or prior to 210 days after the Issue Date, (ii) the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, is not declared effective within 270 days after the Issue Date (or in
the case of a Shelf Registration Statement required to be filed in response to
a change in law or the applicable interpretations of Commission's staff,
<PAGE> 6
6
if later, within 45 days after publication of the change in law or
interpretation), (iii) the Registered Exchange Offer is not consummated on or
prior to 300 days after the Issue Date or (iv) if the Shelf Registration
Statement is required to be filed, the Shelf Registration Statement is filed
and declared effective within 270 days after the Issue Date (or in the case of
a Shelf Registration Statement required to be filed in response to a change in
law or the applicable interpretations of Commission's staff, if later, within
45 days after publication of the change in law or interpretation) but shall
thereafter cease to be effective (at any time that the Issuers are obligated to
maintain the effectiveness thereof) without being succeeded within 60 days by
an additional Registration Statement filed and declared effective (each such
event referred to in clauses (i) through (iv), a "Registration Default"), the
Issuers will be obligated to pay liquidated damages to each Holder of Transfer
Restricted Securities, during the period of one or more such Registration
Defaults, in an amount equal to $ 0.192 per week per $1,000 principal amount of
Transfer Restricted Securities held by such Holder until (i) the applicable
Registration Statement is filed, (ii) the Exchange Offer Registration Statement
is declared effective and the Registered Exchange Offer is consummated, (iii)
the Shelf Registration Statement is declared effective or (iv) the Shelf
Registration Statement again becomes effective, as the case may be. Following
the cure of all Registration Defaults, the accrual of liquidated damages will
cease. As used herein, the term "Transfer Restricted Securities" means (i)
each Security until the date on which such Security has been exchanged for a
freely transferable Exchange Security in the Registered Exchange Offer, (ii)
each Security or Private Exchange Security until the date on which it has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) each Security or Private
Exchange Security until the date on which it is distributed to the public
pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule
144(k) under the Securities Act. Notwithstanding anything to the contrary in
this Section 3(a), the Issuers shall not be required to pay liquidated damages
(i) to a Holder of Transfer Restricted Securities if such Holder was eligible
to participate in the Registered Exchange Offer and did not participate in the
Registered Exchange Offer or, if such Holder participated in the Registered
Exchange Offer, such Holder failed to comply with its obligations to make the
representations set forth in the second to last paragraph of Section 1 or
failed to provide the information required to be provided by it, if any,
pursuant to Section 4(n) or (ii) to any Holder of Transfer Restricted
Securities registered pursuant to the Shelf Registration Statement for any
period during which the effectiveness of the Shelf Registration Statement is
suspended as a result of action taken by either of the Issuers in accordance
with subpart (ii) of the last sentence of Section 2(b), provided that the
Issuers comply with the requirements of Section 4(j).
(b) The Issuers shall notify the Trustee and the Paying Agent
under the Indenture immediately upon the happening of each and every
Registration Default. The Issuers shall pay the liquidated damages due on the
Transfer Restricted Securities by depositing with the Paying Agent (which may
not be either of the Issuers for these purposes), in trust, for the benefit of
the Holders thereof, prior to 10:00 a.m., New York City time, on the next
interest payment date specified by the Indenture and the Securities, sums
sufficient to pay the liquidated damages then due. The liquidated damages due
shall be payable on each interest payment date specified by the Indenture and
the Securities to the record holder entitled to receive the interest payment to
be made on such date. Each obligation to pay liquidated damages shall be
deemed to accrue from and including the date of the applicable Registration
Default.
<PAGE> 7
7
(c) The parties hereto agree that the liquidated damages
provided for in this Section 3 constitute a reasonable estimate of, and are
intended to constitute, the sole damages that will be suffered by Holders of
Transfer Restricted Securities by reason of the failure of (i) the Shelf
Registration Statement or the Exchange Offer Registration Statement to be
filed, (ii) if the Shelf Registration Statement is required to be filed, the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.
4. Registration Procedures. In connection with any
Registration Statement, the following provisions shall apply:
(a) the Issuers shall (i) furnish to the Initial Purchaser,
prior to the filing thereof with the Commission, a copy of the
Registration Statement and each amendment thereof and each supplement,
if any, to the prospectus included therein and shall use their
reasonable best efforts to reflect in each such document, when so
filed with the Commission, such comments as the Initial Purchaser may
reasonably propose, (ii) include the information set forth in Annex A
hereto on the cover, in Annex B hereto in the "Exchange Offer
Procedures" section and the "Purpose of the Exchange Offer" section
and in Annex C hereto in the "Plan of Distribution" section of the
prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D hereto in
the Letter of Transmittal delivered pursuant to the Registered
Exchange Offer and (iii) if requested by the Initial Purchaser,
include the information required by Items 507 or 508 of Regulation
S-K, as applicable, in the prospectus forming a part of the Exchange
Offer Registration Statement;
(b) the Issuers shall advise the Initial Purchaser, each
Exchanging Dealer and the Holders (if applicable) and, if requested by
any such person, confirm such advice in writing (which advice pursuant
to clauses (ii) through (v) shall be accompanied by an instruction to
suspend the use of the prospectus until the requisite changes have
been made):
(i) when any Registration Statement and any
amendment thereto has been filed with the Commission and when
such Registration Statement or any post-effective amendment
thereto has become effective;
(ii) of any request by the Commission for amendments
or supplements to any Registration Statement or the prospectus
included therein or for additional information;
(iii) of the issuance by the Commission of any stop
order suspending the effectiveness of any Registration
Statement or the initiation of any proceedings for that
purpose;
(iv) of the receipt by either of the Issuers of any
notification with respect to the suspension of the
qualification of the Securities, the Exchange
<PAGE> 8
8
Securities or the Private Exchange Securities for sale in any
jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(v) of the happening of any event that requires the
making of any changes in any Registration Statement or the
prospectus included therein in order that the statements
therein are not misleading and do not omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading;
(c) the Issuers will make every reasonable effort to obtain
the withdrawal at the earliest possible time of any order suspending
the effectiveness of any Registration Statement;
(d) the Issuers will furnish to each Holder of Transfer
Restricted Securities included within the coverage of any Shelf
Registration Statement, without charge, at least one conformed copy of
such Shelf Registration Statement and any post-effective amendment
thereto, including financial statements and schedules and, if any such
Holder so requests in writing, all exhibits thereto (including those,
if any, incorporated by reference);
(e) the Issuers will, during the Shelf Registration Period,
promptly deliver to each Holder of Transfer Restricted Securities
included within the coverage of any Shelf Registration Statement,
without charge, as many copies of the prospectus (including each
preliminary prospectus) included in such Shelf Registration Statement
and any amendment or supplement thereto as such Holder may reasonably
request; and each of the Issuers consents to the use of such
prospectus or any amendment or supplement thereto by each of the
selling Holders of Transfer Restricted Securities in connection with
the offer and sale of the Transfer Restricted Securities covered by
such prospectus or any amendment or supplement thereto;
(f) the Issuers will furnish to the Initial Purchaser and
each Exchanging Dealer, and to any other Holder who so requests,
without charge, at least one conformed copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto,
including financial statements and schedules and, if the Initial
Purchaser or Exchanging Dealer or any such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated
by reference);
(g) the Issuers will, during the Exchange Offer Registration
Period or the Shelf Registration Period, as applicable, promptly
deliver to the Initial Purchaser, each Exchanging Dealer and such
other persons that are required to deliver a prospectus following the
Registered Exchange Offer, without charge, as many copies of the final
prospectus included in the Exchange Offer Registration Statement or
the Shelf Registration Statement and any amendment or supplement
thereto as the Initial Purchaser, such Exchanging Dealer or such other
person may reasonably request; and each of the Issuers consents to the
use of such prospectus or any amendment or supplement thereto by the
Initial Purchaser, any such Exchanging Dealer or any such other
person, as applicable, as aforesaid;
<PAGE> 9
9
(h) prior to the effective date of any Registration
Statement, the Issuers will use their reasonable best efforts to
register or qualify, or cooperate with the Holders of Securities,
Exchange Securities or Private Exchange Securities included therein
and their respective counsel in connection with the registration or
qualification of, such Securities, Exchange Securities or Private
Exchange Securities for offer and sale under the securities or blue
sky laws of such jurisdictions as any such Holder reasonably requests
in writing and do any and all other acts or things necessary or
advisable to enable the offer and sale in such jurisdictions of the
Securities, Exchange Securities or Private Exchange Securities covered
by such Registration Statement; provided that neither of the Issuers
will be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action
which would subject it to general service of process or to taxation in
any such jurisdiction where it is not then so subject;
(i) the Issuers will cooperate with the Holders of
Securities, Exchange Securities or Private Exchange Securities to
facilitate the timely preparation and delivery of certificates
representing Securities, Exchange Securities or Private Exchange
Securities to be sold pursuant to any Registration Statement free of
any restrictive legends and in such denominations and registered in
such names as the Holders thereof may request in writing prior to
sales of Securities, Exchange Securities or Private Exchange
Securities pursuant to such Registration Statement;
(j) if any event contemplated by Section 4(b)(ii) through (v)
occurs during the period for which the Issuers are required to
maintain an effective Registration Statement, the Issuers will
promptly prepare and file with the Commission a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus or file any other required document so that, as thereafter
delivered to purchasers of the Securities, Exchange Securities or
Private Exchange Securities from a Holder, the prospectus will not
include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided that, in the case of an event referred to in
subpart (ii) of the last sentence of Section 2(b), the Issuers will
prepare and file with the Commission within 30 days after the
occurrence of such event such post-effective amendment to the
Registration Statement or supplement to the related prospectus or
other required document;
(k) not later than the effective date of the applicable
Registration Statement, the Issuers will provide a CUSIP number for
the Securities, the Exchange Securities and the Private Exchange
Securities, as the case may be, and provide the applicable trustee
with printed certificates for the Securities, the Exchange Securities
or the Private Exchange Securities, as the case may be, in a form
eligible for deposit with DTC;
(l) each of the Issuers will comply with all applicable rules
and regulations of the Commission, and SFG will make generally
available to its security holders as soon as practicable after the
effective date of the applicable Registration Statement an earning
statement satisfying the provisions of Section 11(a) of the Securities
Act;
<PAGE> 10
10
provided that in no event shall such earning statement be delivered
later than 45 days after the end of a twelve-month period (or 90 days,
if such period is a fiscal year) beginning with the first month of
SFG's first fiscal quarter commencing after the effective date of the
applicable Registration Statement, which statement shall cover such
twelve-month period;
(m) the Issuers will cause the Indenture or the Exchange
Securities Indenture, as the case may be, to be qualified under the
Trust Indenture Act as required by applicable law in a timely manner;
(n) the Issuers may require each Holder of Transfer
Restricted Securities to be registered pursuant to any Shelf
Registration Statement to furnish to the Issuers such information
concerning the Holder and the distribution of such Transfer Restricted
Securities as the Issuers may from time to time reasonably require for
inclusion in such Shelf Registration Statement, and the Issuers may
exclude from such registration the Transfer Restricted Securities of
any Holder that fails to furnish such information within a reasonable
time after receiving such request;
(o) in the case of a Shelf Registration Statement, each
Holder of Transfer Restricted Securities to be registered pursuant
thereto agrees by acquisition of such Transfer Restricted Securities
that, upon receipt of any notice from the Issuers pursuant to Section
4(b)(ii) through (v), such Holder will discontinue disposition of such
Transfer Restricted Securities until such Holder's receipt of copies
of the supplemental or amended prospectus contemplated by Section 4(j)
or until advised in writing (the "Advice") by the Issuers that the use
of the applicable prospectus may be resumed; if the Issuers shall give
any notice under Section 4(b)(ii) through (v) during the period that
the Issuers are required to maintain an effective Registration
Statement (the "Effectiveness Period"), such Effectiveness Period
shall be extended by the number of days during such period from and
including the date of the giving of such notice to and including the
date when each seller of Transfer Restricted Securities covered by
such Registration Statement shall have received (x) the copies of the
supplemental or amended prospectus contemplated by Section 4(j) (if an
amended or supplemental prospectus is required) or (y) the Advice (if
no amended or supplemental prospectus is required);
(p) in the case of a Shelf Registration Statement, the
Issuers shall enter into such customary agreements (including, if
requested, an underwriting agreement in customary form) and take all
such other action, if any, as Holders of a majority in aggregate
principal amount of the Securities, Exchange Securities and Private
Exchange Securities being sold or the managing underwriters (if any)
shall reasonably request in order to facilitate any disposition of
Securities, Exchange Securities or Private Exchange Securities
pursuant to such Shelf Registration Statement;
(q) in the case of a Shelf Registration Statement, each of
the Issuers shall (i) make reasonably available for inspection by a
representative of, and Special Counsel (as defined below) acting for,
Holders of a majority in aggregate principal amount of the Securities,
Exchange Securities and Private Exchange Securities being sold and any
<PAGE> 11
11
underwriter participating in any disposition of Securities, Exchange
Securities or Private Exchange Securities pursuant to such Shelf
Registration Statement, all relevant financial and other records,
pertinent documents and properties of such Issuer and (ii) use its
reasonable best efforts to have its partners, directors, officers,
employees, accountants and counsel, as applicable, supply all relevant
information reasonably requested by such representative, Special
Counsel or any such underwriter (an "Inspector") in connection with
such Shelf Registration Statement; and
(r) in the case of a Shelf Registration Statement, each of
the Issuers shall, if requested by Holders of a majority in aggregate
principal amount of the Securities, Exchange Securities and Private
Exchange Securities being sold, their Special Counsel or the managing
underwriters (if any) in connection with such Shelf Registration
Statement, use their reasonable best efforts to cause (i) its counsel
to deliver an opinion relating to the Shelf Registration Statement and
the Securities, Exchange Securities or Private Exchange Securities, as
applicable, in customary form, (ii) its officers to execute and
deliver all customary documents and certificates requested by Holders
of a majority in aggregate principal amount of the Securities,
Exchange Securities and Private Exchange Securities being sold, their
Special Counsel or the managing underwriters (if any) and (iii) its
independent public accountants to provide a comfort letter or letters
in customary form, subject to receipt of appropriate documentation as
contemplated, and only if permitted, by Statement of Auditing
Standards No. 72.
5. Registration Expenses. The Issuers will bear all expenses
incurred in connection with the performance of their obligations under Sections
1, 2, 3 and 4 (except as set forth in the first paragraph of Section 9) and the
Issuers will reimburse the Initial Purchaser and the Holders for the reasonable
fees and disbursements of one firm of attorneys (in addition to any local
counsel) chosen by the Holders of a majority in aggregate principal amount of
the Securities, the Exchange Securities and the Private Exchange Securities to
be sold pursuant to each Registration Statement (the "Special Counsel") acting
for the Initial Purchaser or Holders in connection therewith.
6. Indemnification. (a) In the event of a Shelf
Registration Statement or in connection with any prospectus delivery pursuant
to an Exchange Offer Registration Statement by the Initial Purchaser or
Exchanging Dealer, as applicable, each of the Issuers agrees, jointly and
severally, to indemnify and hold harmless each Holder (including, without
limitation, the Initial Purchaser or any such Exchanging Dealer), its
affiliates, their respective directors, officers, employees, representatives
and agents, and each person, if any, who controls such Holder within the
meaning of the Securities Act or the Exchange Act (collectively referred to for
purposes of this Section 6 and Section 7 as a Holder) from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, without limitation, any loss, claim, damage, liability or
action relating to purchases and sales of Securities, Exchange Securities or
Private Exchange Securities) to which that Holder may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in any such Registration Statement or any prospectus forming
part thereof or in any amendment or supplement thereto
<PAGE> 12
12
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and shall reimburse each Holder promptly upon demand for any legal
or other expenses reasonably incurred by that Holder in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that neither of the
Issuers shall not be liable in any such 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 in, or omission or alleged omission from,
any of such documents in reliance upon and in conformity with any Holders'
Information; and provided, further, that, with respect to any such untrue
statement in, or omission from, any related preliminary prospectus, the
indemnity agreement contained in this Section 6(a) shall not inure to the
benefit of any Holder from whom the person asserting any such loss, claim,
damage, liability or action received Securities, Exchange Securities or Private
Exchange Securities to the extent that such loss, claim, damage, liability or
action of or with respect to such Holder results from the fact that both (A) a
copy of the final prospectus was not sent or given to such person at or prior
to the written confirmation of the sale of such Securities, Exchange Securities
or Private Exchange Securities to such person and (B) the untrue statement in,
or omission from, the related preliminary prospectus was corrected in the final
prospectus unless, in either case, such failure to deliver the final prospectus
was a result of non-compliance by the Issuers with Section 4(d), 4(e), 4(f) or
4(g).
(b) In the event of a Shelf Registration Statement, each
Holder shall indemnify and hold harmless each of the Issuers, its affiliates,
their respective partners, directors, officers, employees, representatives and
agents, and each person, if any, who controls such Issuer within the meaning of
the Securities Act or the Exchange Act (collectively referred to for purposes
of this Section 6(b) and Section 7 as an Issuer), from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof,
to which such Issuer may become subject, whether commenced or threatened, under
the Securities Act, the Exchange Act, any other federal or state statutory law
or regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement
or alleged untrue statement of a material fact contained in any such
Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with any Holders'
Information furnished to such Issuer by such Holder, and shall reimburse such
Issuer for any legal or other expenses reasonably incurred by such Issuer in
connection with investigating or defending or preparing to defend against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that no such Holder shall be liable for any indemnity claims hereunder in
excess of the amount of net proceeds received by such Holder from the sale of
Securities, Exchange Securities or Private Exchange Securities pursuant to such
Shelf Registration Statement.
<PAGE> 13
13
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party pursuant to Section 6(a) or 6(b), notify the
indemnifying party in writing of the claim or the commencement of that action;
provided, however, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have under this Section 6 except to
the extent that it has been materially prejudiced (through the forfeiture of
substantive rights or defenses) by such failure; and provided, further, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 6. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this Section 6 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than the reasonable costs of
investigation; provided, however, that an indemnified party shall have the
right to employ its own counsel in any such action, but the fees, expenses and
other charges of such counsel for the indemnified party will be at the expense
of such indemnified party unless (A) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (B)
the indemnified party has reasonably concluded (based upon advice of counsel to
the indemnified party) that there may be legal defenses available to it or
other indemnified parties that are different from or in addition to those
available to the indemnifying party, (C) a conflict or potential conflict
exists (based upon advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party (in which case the indemnifying
party will not have the right to direct the defense of such action on behalf of
the indemnified party) or (D) the indemnifying party has not in fact employed
counsel reasonably satisfactory to the indemnified party to assume the defense
of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement of any such action effected without
its written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment for the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without
the prior written consent of the indemnified party (which consent shall not be
unreasonably withheld), effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such
<PAGE> 14
14
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
7. Contribution. If the indemnification provided for in
Section 6 is unavailable or insufficient to hold harmless an indemnified party
under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such loss, claim, damage or liability,
or action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Issuers (it being understood that
the benefit to either Issuer shall be considered a benefit to both Issuers)
from the offering and sale of the Securities, on the one hand, and a Holder
with respect to the sale by such Holder of Securities, Exchange Securities or
Private Exchange Securities, on the other, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Issuers (it being understood that
the fault of either Issuer shall be considered the fault of both Issuers), on
the one hand, and such Holder, on the other, with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Issuers, on the one hand, and a Holder, on
the other, with respect to such offering and such sale shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) received by or on behalf of the Issuers
as set forth in the table on the cover of the Offering Memorandum, on the one
hand, bear to the total proceeds received by such Holder with respect to its
sale of Securities, Exchange Securities or Private Exchange Securities, on the
other hand. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to the
Issuers or information supplied by the Issuers, on the one hand, or to any
Holders' Information supplied by such Holder, on the other, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 7 were to be determined by pro rata allocation or by any other method
of allocation that does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, damage or liability, or action in respect thereof,
referred to above in this Section 7 shall be deemed to include, for purposes of
this Section 7, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending or preparing to
defend any such action or claim. Notwithstanding the provisions of this
Section 7, an indemnifying party that is a Holder of Securities, Exchange
Securities or Private Exchange Securities shall not be required to contribute
any amount in excess of the amount by which the total price at which the
Securities, Exchange Securities or Private Exchange Securities sold by such
indemnifying party to any purchaser exceeds the amount of any damages which
such indemnifying party has otherwise paid or become liable to pay by reason of
any untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
<PAGE> 15
15
8. Rules 144 and 144A. Each of the Issuers shall use its
reasonable best efforts to file the reports required to be filed by it under
the Securities Act and the Exchange Act in a timely manner and, if at any time
such Issuer is not required to file such reports, it will, upon the written
request of any Holder of Transfer Restricted Securities, make publicly
available other information so long as necessary to permit sales of such
Holder's securities pursuant to Rules 144 and 144A. Each of the Issuers
covenants that it will take such further action as any Holder of Transfer
Restricted Securities may reasonably request, all to the extent required from
time to time to enable such Holder to sell Transfer Restricted Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rules 144 and 144A (including, without limitation, the
requirements of Rule 144A(d)(4)). Upon the written request of any Holder of
Transfer Restricted Securities, such Issuer shall deliver to such Holder a
written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to
require either of the Issuers to register any of its securities pursuant to the
Exchange Act.
9. Underwritten Registrations. If any of the Transfer
Restricted Securities covered by any Shelf Registration Statement are to be
sold in an underwritten offering, the investment banker or investment bankers
and manager or managers that will administer the offering will be selected by
the Holders of a majority in aggregate principal amount of such Transfer
Restricted Securities included in such offering, subject to the consent of the
Issuers (which shall not be unreasonably withheld or delayed), and such Holders
shall be responsible for all underwriting commissions and discounts in
connection therewith.
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Securities on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
10. Miscellaneous. (a) Amendments and Waivers. The
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Issuers have obtained the written consent of Holders of a majority
in aggregate principal amount of the Securities, the Exchange Securities and
the Private Exchange Securities, taken as a single class. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders whose
Securities, Exchange Securities or Private Exchange Securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of a majority in
aggregate principal amount of the Securities, the Exchange Securities and the
Private Exchange Securities being sold by such Holders pursuant to such
Registration Statement.
<PAGE> 16
16
(b) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail, telecopier or air courier guaranteeing next-day delivery:
(i) if to a Holder, at the most current address given by such
Holder to the Issuers in accordance with the provisions of this
Section 10(b), which address initially is, with respect to each
Holder, the address of such Holder maintained by the Registrar under
the Indenture, with a copy in like manner to Chase Securities Inc.;
(ii) if to the Initial Purchaser, initially at its address
set forth in the Purchase Agreement; and
(iii) if to the Issuers, initially at the address of SFG set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; one business
day after being delivered to a next-day air courier; five business days after
being deposited in the mail; and when receipt is acknowledged by the
recipient's telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be binding
upon the Issuers and their respective successors and assigns.
(d) Counterparts. This Agreement may be executed in any
number of counterparts (which may be delivered in original form or by
telecopier) and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Definition of Terms. For purposes of this Agreement, (a)
the term "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth
in Rule 405 under the Securities Act and (c) except where otherwise expressly
provided, the term "affiliate" has the meaning set forth in Rule 405 under the
Securities Act.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(h) Remedies. In the event of a breach by the Issuers or by
any Holder of any of their or its obligations under this Agreement, each Holder
or the Issuers, as the case may be, in addition to being entitled to exercise
all rights granted by law, including recovery of damages (other than the
recovery of damages for a breach by the Issuers of their obligations under
Section 1 or 2 for which liquidated damages have been paid pursuant to Section
3), will be entitled to specific performance of its rights under this
Agreement. The Issuers and each
<PAGE> 17
17
Holder agree that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by them or it of any of the provisions of
this Agreement and hereby further agree that, in the event of any action for
specific performance in respect of such breach, they or it shall waive the
defense that a remedy at law would be adequate.
(i) No Inconsistent Agreements. Each of the Issuers
represents, warrants and agrees that (i) it has not entered into, and it shall
not, on or after the date of this Agreement, enter into, any agreement that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof, (ii) it has not previously
entered into any agreement which remains in effect granting any registration
rights with respect to any of its debt securities to any person and (iii)
without limiting the generality of the foregoing, without the written consent
of the Holders of a majority in aggregate principal amount of the then
outstanding Transfer Restricted Securities, it shall not grant to any person
the right to request such Issuer to register any debt securities of such Issuer
under the Securities Act unless the rights so granted are not in conflict or
inconsistent with the provisions of this Agreement.
(j) No Piggyback on Registrations. None of the Issuers nor
any of its security holders (other than the Holders of Transfer Restricted
Securities in such capacity) shall have the right to include any securities of
such Issuer in any Shelf Registration or Registered Exchange Offer other than
Transfer Restricted Securities.
(k) Severability. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their reasonable best efforts to
find and employ an alternative means to achieve the same, or substantially the
same, result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
Please confirm that the foregoing correctly sets forth the
agreement among the Issuers and the Initial Purchaser.
Very truly yours,
SOUTHERN FOODS GROUP, L.P.,
by SFG Management Limited Liability
Company, its General Partner,
by /s/ PETE SCHENKEL
----------------------------
Name: Pete Schenkel
Title: President & Chief
Executive Officer
<PAGE> 18
18
SFG CAPITAL CORPORATION,
by /s/ PETE SCHENKEL
--------------------------------
Name: Pete Schenkel
Title: President & Chief
Executive Officer
Accepted:
CHASE SECURITIES INC.,
by /s/ JAMES C. NEARY
---------------------------------------
Authorized Signatory
<PAGE> 19
ANNEX A
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Securities received in
exchange for Securities where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Issuers have agreed that, for a period of 90 days after the
Expiration Date (as defined herein), they will make this Prospectus available
to any broker-dealer for use in connection with any such resale. See "Plan of
Distribution"
<PAGE> 20
ANNEX B
Each broker-dealer that receives Exchange Securities for its
own account in exchange for Securities, where such Securities were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution".
<PAGE> 21
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of Exchange
Securities received in exchange for Securities where such Securities were
acquired as a result of market-making activities or other trading activities.
The Issuers have agreed that, for a period of 90 days after the Expiration
Date, they will make this prospectus, as amended or supplemented, available to
any broker- dealer for use in connection with any such resale. In addition,
until _________________________, all dealers effecting transactions in the
Exchange Securities may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sale of
Exchange Securities by broker-dealers. Exchange Securities received by
broker-dealers for their own account pursuant to the Registered Exchange Offer
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Securities or a combination of such methods of resale,
at market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Securities. Any
broker-dealer that resells Exchange Securities that were received by it for its
own account pursuant to the Registered Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Securities may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Securities and any commission or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Issuers
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuers have agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one
counsel for the Holders of the Securities) other than commissions or
concessions of any broker-dealers and will indemnify the Holders of the
Securities (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
<PAGE> 22
ANNEX D
o CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it
is not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE> 1
EXHIBIT 10.1
STOCK PURCHASE AND MERGER AGREEMENT
Dated as of May 22, 1997
among
MID-AMERICA DAIRYMEN, INC.,
BORDEN/MEADOW GOLD DAIRIES HOLDINGS, INC.,
BDH TWO, INC.
and
BORDEN, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
THE STOCK PURCHASE AND MERGER . . . . . . . . . . . . . . . . . . . . . 2
1.1 Stock Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Surviving Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Certificate of Incorporation and By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.8 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE II
STATUS AND CONVERSION OF SECURITIES . . . . . . . . . . . . . . . . . . . . 6
2.1 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Stock Options and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 11
3.1 Representation and Warranties of Borden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Representations and Warranties of Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.3 Representations and Warranties of Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.4 Representations and Warranties of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.5 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.6 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE IV
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.1 Access; Information and Records; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.2 Conduct of the Businesses of Holdings Prior to the Closing Date . . . . . . . . . . . . . . . . . 49
4.3 Antitrust Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.4 Non-Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.5 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
4.6 Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
4.7 Termination of Affiliate Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
4.8 Further Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
4.9 Preparation of Returns and Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
4.10 No Shopping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4.11 USDA Compliance Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4.12 Post-Closing Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
4.13 Financing Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE V
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . 69
5.1 Conditions Precedent to Obligations of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 69
5.2 Conditions Precedent to Obligation of Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
5.3 Conditions Precedent to the Obligation of Holdings and Borden . . . . . . . . . . . . . . . . . . 72
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI
PROVISIONS AS TO TAXES . . . . . . . . . . . . . . . . . . . . . . 73
6.1 Access to Records Following Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
6.2 Section 338 Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
6.3 Post-Closing Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
6.4 Tax Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
6.5 Other Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
ARTICLE VII
LABOR MATTERS, EMPLOYEE
RELATIONS AND BENEFITS . . . . . . . . . . . . . . . . . . . . . . 86
7.1 Conduct Prior to the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
7.2 Continuity of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
7.3 Collective Bargaining Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
7.4 Comparable Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
7.5 Business Plan Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
7.6 Business Plan Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
7.7 Defined Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
7.8 Defined Contribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
7.9 Withdrawal Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
7.10 Post-Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
7.11 Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
7.12 Accrued Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
7.13 Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
7.14 Service Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.15 WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.16 COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7.17 No Rights Conferred on Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
ARTICLE VIII
ASSUMPTION OF CERTAIN OBLIGATIONS
AND LIABILITIES; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 99
8.1 Assumption and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
8.2 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 104
9.1 Termination and Abandonment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
9.2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
9.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
9.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
9.5 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
9.6 Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
9.7 Amendment and Modification; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
9.8 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
9.9 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
9.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
9.11 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
9.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
</TABLE>
-ii-
<PAGE> 4
SCHEDULES
<TABLE>
<S> <C>
Schedule 3.1(c) Consents and Approvals
Schedule 3.2(a)(ii) Jurisdictions
Schedule 3.2(c) Subsidiaries
Schedule 3.2(d)(i) Exceptions to Ownership
Schedule 3.2(d)(ii) Exceptions to Equity Interests
Schedule 3.2(e) Holdings Consents and Approvals
Schedule 3.2(f)(i) December 31, 1996 Financial Statements
Schedule 3.2(f)(ii) Exceptions to Consistent Application of GAAP
Schedule 3.2(f)(iii) Other Liabilities
Schedule 3.2(h) Exceptions to Absence of Changes
Schedule 3.2(j) Real Property Owned
Schedule 3.2(k) Real Property Leased
Schedule 3.2(m)(iv) Tax Deficiencies; Audits; Statutes of Limitations
Schedule 3.2(m)(v) Additional Tax Sharing Agreements
Schedule 3.2(m)(vi) Tax Elections and Special Tax Status
Schedule 3.2(n) Material Contracts
Schedule 3.2(o) Legal Proceedings
Schedule 3.2(p) Licenses, Permits and Related Approvals
Schedule 3.2(q)(i) Employee Matters
Schedule 3.2(r)(i) Patents and Trademarks
Schedule 3.2(r)(ii) Ownership and Use of Intellectual Property
Schedule 3.2(r)(iii) Claims Challenging Ownership and Use of Intellectual Property
Schedule 3.2(r)(iv) Infringing Use and Contrary Ownership Claims of Intellectual Property
Schedule 3.2(s)(ii) Material Business Plans
Schedule 3.2(v) Transactions with Affiliates
Schedule 3.2(w) Bank Accounts
Schedule 3.2(x) Product Warranty, Recall and Liability
Schedule 3.2(y) Losses of Significant Customers
Schedule 3.3(c) Parent Consents and Approvals
Schedule 3.3(f) Parent Debarment and Other Orders
Schedule 4.2 Permitted Actions
Schedule 4.5 Equipment
Schedule 4.7 Affiliate Relations
Schedule 6.2 Electing Subsidiaries
Schedule 7.3 Collective Bargaining Agreements
Schedule 7.13 Severance Benefits
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Master Services Agreement Amendment
Exhibit B Form of Trademark License Agreement
Exhibit C Form of Insurance Matters Agreement
Exhibit D Form of Meadow Gold Trademark License Agreement
</TABLE>
-iii-
<PAGE> 5
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Page
<S> <C>
Accounting Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Aggregate Earnings Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Antitrust Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Antitrust Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Antitrust Improvements Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Antitrust Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Applicable Antitrust Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Applicable Funding Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
BDH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
BMGD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Borden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 4
Borden Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Borden Indemnified Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Borden Indemnified Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Borden Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Borden Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Borden Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Borden, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Borden's Actuary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Business Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Business Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Clause (iv) Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Closing Date Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Closing Payment Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Closing Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Collective Bargaining Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Share Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Conclusive Earnings Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Contemplated Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Controlled Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
December 31, 1996 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Earliest Borden Antitrust Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Earnings Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Electing Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<CAPTION>
Term Page
<S> <C>
Employee Pension Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Establishment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Final Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Final Payment Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
FTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
GCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Governmental Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Health and Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Indemnified Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Indemnified Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Insurance Matters Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Interim Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Master Lease Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Master Services Agreement Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Meadow Gold Trademark License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Neutral Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Newco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Option Settlement Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Parcel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Parent Indemnified Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Parent Indemnified Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Parent Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Parent Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Parent Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Parent Termination Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Permitted Assignee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Post-Closing Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Post-Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Pre-Closing Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Preferred Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Real Estate Transfer Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Real Property Gains Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Related Transaction Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
-v-
<PAGE> 7
<TABLE>
<CAPTION>
Term Page
<S> <C>
Required Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Resolution Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Savings Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 338 Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 338 Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Short Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Stock Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Surviving Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Tax Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Tax Sharing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Terminated Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Total Transfer Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Trademark License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Transaction-Based Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Vacation Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
WARN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
</TABLE>
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<PAGE> 8
STOCK PURCHASE AND MERGER AGREEMENT
STOCK PURCHASE AND MERGER AGREEMENT dated as of May 22, 1997
among MID-AMERICA DAIRYMEN, INC., a Kansas cooperative marketing association
("Parent"), BORDEN/MEADOW GOLD DAIRIES HOLDINGS, INC., a Delaware corporation
("Holdings"), BDH TWO, INC., a Delaware corporation ("BDH"), and BORDEN, INC.,
a New Jersey corporation ("Borden, Inc."; together with BDH, "Borden").
W I T N E S S E T H :
WHEREAS, Borden owns 14,754,429 shares of Holdings' Common
Stock, par value $0.01 per share (the "Common Stock"), and 3,400,000 shares of
Holdings' Preferred Stock, par value $0.01 per share (the "Preferred Stock"),
and Parent desires to purchase (the "Stock Purchase") from Borden such shares
(the "Borden Shares") pursuant to this Agreement;
WHEREAS, immediately after the Stock Purchase, Parent intends
to effect the merger of a newly formed wholly owned subsidiary of Parent
(referred to herein as "Acquisition") with and into Holdings in accordance with
the General Corporation Law of the State of Delaware (the "GCL") and the
provisions of this Agreement (the "Merger"), pursuant to which the other
holders of shares of Common Stock shall receive the merger consideration set
forth herein and Holdings will become a wholly owned subsidiary of Parent;
NOW, THEREFORE, in consideration of the mutual terms,
conditions and other agreements set forth herein and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
<PAGE> 9
ARTICLE I
THE STOCK PURCHASE AND MERGER
1.1 Stock Purchase. (a) In consideration of Borden, Inc.
entering into this Agreement, on the date hereof, Parent shall pay to Borden,
Inc. by wire transfer in immediately available funds $40,000,000. Except as
provided in Section 9.11(b), such amount shall be non-refundable regardless of
whether or not any of the transactions contemplated by this Agreement is
consummated but, upon the consummation of the Stock Purchase, shall be credited
towards the amounts payable to Borden, Inc. pursuant to Section 1.1(b).
(b) Upon the terms and subject to the conditions of this
Agreement, at the Closing (as defined below) and prior to the Effective Time
(as defined below), Borden shall sell to Parent, and Parent shall purchase from
Borden, the Borden Shares. In consideration for the sale and transfer of the
Borden Shares and, in part, for the right to license certain trademarks from
Borden pursuant to the Trademark License Agreement (as defined herein), and
upon the terms and subject to the conditions of this Agreement, on the Closing
Date, Parent shall pay or cause to be paid to Borden by wire transfer in
immediately available funds (in full satisfaction of Parent's obligations to
Borden, Inc. and BDH Two, Inc. under this Section 1.1) (subject to the credit
described in Sections 1.1(a) and 4.3(f)), (x) for each share of Preferred Stock
(a "Preferred Share"), an amount equal to $25, plus the amount of accrued and
unpaid dividends on such share to and including the Closing Date, and (y) for
each share of Common
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<PAGE> 10
Stock (a "Common Share") owned by Borden, an amount equal to the Common Share
Consideration (as defined below). On the Closing Date, upon the terms and
subject to the conditions of this Agreement, Borden shall deliver to Parent
certificates representing the Borden Shares, duly endorsed, or accompanied by
stock powers duly executed, with all necessary stock transfer stamps attached
thereto and cancelled. The "Common Share Consideration" shall be determined in
accordance with the following formula:
CSC = $435,000,000 - ($25 x PS) - [(CSC x OPT) - ($5 x OPT)]
------------------------------------------------------------
CS
where CS = Number of Common Shares outstanding on the
Closing Date
CSC = Common Share Consideration
OPT = Number of Options outstanding on the Closing
Date
PS = Number of Preferred Shares outstanding on the
Closing Date
1.2 The Merger. At the Effective Time, and subject to the
terms and conditions of this Agreement and the GCL, Parent shall cause the
Merger of Acquisition with and into Holdings to occur, the separate corporate
existence of Acquisition shall thereupon cease, and Holdings shall be the
surviving corporation in the Merger. Holdings hereinafter sometimes is
referred to as the "Surviving Entity". Notwithstanding anything to the
contrary in this Agreement, but subject to Section 8.1(a) and the receipt of
Borden, Inc.'s prior written consent, which consent shall not be unreasonably
withheld, the Merger may be structured so that Acquisition is the Surviving
Entity, and Borden, Inc. and BDH
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<PAGE> 11
agree to enter into such amendment to this Agreement as shall be required to
effect such change to the structure of the Merger; provided that Borden, Inc.
may withhold its consent to any such change to the structure of the Merger if
such change would have an adverse tax or other consequence to Borden, Inc. or
any of its affiliates.
1.3 Surviving Entity. At the Effective Time, the Surviving
Entity shall continue its corporate existence under the laws of the State of
Delaware. The Merger shall have the effects set forth in the GCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers and franchises of a public
as well as of a private nature of Holdings and Acquisition shall vest in the
Surviving Entity, and all debts, liabilities and duties of Holdings and
Acquisition shall become the debts, liabilities and duties of the Surviving
Entity. The name of the Surviving Entity shall be such name as shall be set
forth in the Certificate of Merger (as defined below) by Parent, with the prior
written consent of Borden, Inc., which consent shall not be unreasonably
withheld if such name does not include the word "Borden" or any name similar
thereto or derivative thereof.
1.4 Closing. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 9.1, and subject to the satisfaction or waiver of the
conditions set forth in Article V, the closing of the Stock Purchase and the
Merger (the "Closing") will take place at 10:00 a.m. on the 28th day (or, if
such day is
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<PAGE> 12
not a business day, the immediately succeeding business day) following the date
on which the last to be satisfied or waived of the conditions set forth in
Article V hereof shall be satisfied or waived in accordance with this Agreement
(the "Closing Date"), at the offices of Simpson Thacher & Bartlett, New York,
New York, unless another date, time or place is agreed to in writing by the
parties hereto.
1.5 Effective Time. On the Closing Date, immediately after
the consummation of the Stock Purchase, Parent shall file, or shall cause the
filing of, a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware, and shall make or cause to be made
all other filings or recordings required by the GCL in connection with the
Merger. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware, or
at such later time as shall be specified in the Certificate of Merger with the
prior written consent of Borden, Inc. (the "Effective Time").
1.6 Certificate of Incorporation and By-Laws. (a) The
Certificate of Incorporation of Acquisition in effect at the Effective Time
shall be attached to the Certificate of Merger as an amendment to the
Certificate of Incorporation of Holdings, with the effect that such Certificate
of Incorporation shall become the Certificate of Incorporation of the Surviving
Entity, until thereafter amended as provided therein and under the GCL.
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<PAGE> 13
(b) The By-laws of Acquisition in effect at the Effective
Time shall be the By-laws of the Surviving Entity until thereafter amended in
accordance with applicable law.
1.7 Directors. The directors of Acquisition at the Effective
Time shall be the initial directors of the Surviving Entity, each to hold
office in accordance with the Certificate of Incorporation and By-laws of the
Surviving Entity and until his or her successor is duly elected and qualified.
1.8 Officers. The officers of Acquisition at the Effective
Time shall be the initial officers of the Surviving Entity, each to hold office
in accordance with the Certificate of Incorporation and By-laws of the
Surviving Entity and until his or her successor is duly appointed and
qualified.
ARTICLE II
STATUS AND CONVERSION OF SECURITIES
2.1 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Acquisition,
Holdings or the holders of any of the following securities:
(a) Each Common Share issued and outstanding immediately
prior to the Effective Time (other than Common Shares to be cancelled pursuant
to Section 2.1(b) hereof and Dissenting Shares (as hereinafter defined)) shall
be converted into the right to receive in cash an amount equal to the Common
Share Consideration (the "Merger Consideration"), without any interest thereon,
upon the surrender of the certificate representing such Common Share.
-6-
<PAGE> 14
(b) Each Share (as defined below) which is held in the
treasury of Holdings or its Subsidiaries (as defined below) or which is held by
Parent or any of its subsidiaries (including the Borden Shares purchased by
Parent pursuant to Section 1.1(b)) shall be cancelled and retired and no
payment shall be made with respect thereto. Preferred Shares and Common Shares
are herein together referred to as the "Shares".
(c) Each share of common stock of Acquisition issued and
outstanding immediately prior to the Effective Time shall be converted into one
share of common stock, par value $0.01 per share, of the Surviving Entity.
(d) Notwithstanding anything in this Agreement to the
contrary, Shares outstanding immediately prior to the Effective Time and held
by a holder who has not voted in favor of the Merger and who has demanded
appraisal for such Shares in accordance with the GCL, if the GCL provides for
appraisal rights for such Shares in the Merger ("Dissenting Shares"), shall not
be converted into a right to receive the Merger Consideration unless such
holder fails to perfect or withdraws or otherwise loses such holder's right to
appraisal. If, after the Effective Time, such holder fails to perfect or
withdraws or loses such holder's right to appraisal, such Dissenting Shares
shall be treated as if they had been converted as of the Effective Time into
the right to receive the Merger Consideration without interest thereon.
2.2 Stock Options and Related Matters. On the Closing Date,
immediately prior to the Effective Time, Holdings shall notify Parent of the
amount of, and Parent shall pay to Holdings,
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<PAGE> 15
the Option Settlement Amount (as defined below) and immediately thereafter each
holder of a then outstanding option (an "Option") to purchase Common Shares
granted under the 1996 Stock Purchase and Option Plan of Holdings (the "Option
Plan") will be entitled (whether such Option is immediately exercisable or not)
to receive in settlement thereof a cash payment from Holdings in an amount
equal to the excess of the Common Share Consideration (as determined pursuant
to Section 1.1(b)) over the exercise price of $5.00 per Share for each such
Option, multiplied by the number of Common Shares covered by such Option (the
"Option Settlement Amount"), net of any applicable withholding Taxes (as
defined below). Holdings, acting through its Board of Directors or a duly
authorized committee thereof, shall take all required action under each Option
and the Option Plan so that, at the Effective Time, any Options with respect to
which the holder thereof has not consented to cancellation in exchange for the
receipt of the Option Settlement Amount will be converted into, and thereafter
represent only the right to receive, the Option Settlement Amount. All such
Options shall be cancelled upon the payment of such cash in settlement thereof.
Immediately following the Effective Time, the Option Plan will be terminated
and no further stock awards, stock options or stock appreciation rights will be
granted thereunder subsequent to the Effective Time.
2.3 Exchange of Certificates. (a) Promptly upon the
surrender of any certificate representing Common Shares entitled to payment
pursuant to Section 2.1, Parent shall pay the holder of such certificate the
Merger Consideration multiplied by the
-8-
<PAGE> 16
number of Common Shares formerly represented by such certificate, in exchange
therefor, and such Share certificate shall forthwith be cancelled. Until so
surrendered and exchanged, each such certificate (other than certificates
representing Dissenting Shares or shares held by Parent, Acquisition or
Holdings, or any direct or indirect subsidiary thereof) shall represent solely
the right to receive the Merger Consideration. If the Merger Consideration (or
any portion thereof) is to be paid to a person other than the holder in whose
name the certificate representing Common Shares surrendered in exchange
therefor is registered, it shall be a condition of such exchange that the
certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such exchange shall pay to
Parent any transfer or other Taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the Common
Shares formerly represented by the certificate surrendered, or shall establish
to the satisfaction of Parent that such Tax has been paid or is not applicable.
Notwithstanding the foregoing, neither Parent nor any party hereto shall be
liable to a holder of Shares for any Merger Consideration delivered pursuant
hereto to a public official pursuant to applicable abandoned property laws.
(b) Promptly following the date which is six months after the
Effective Time, Parent shall return to the Surviving Entity all cash,
certificates and other instruments in its possession relating to the
transactions described in this Agreement, and Parent's duties under this
Section 2.3 shall
-9-
<PAGE> 17
terminate. Thereafter, each holder of a certificate formerly representing a
Common Share may surrender such certificate to the Surviving Entity and
(subject to applicable abandoned property, escheat and similar laws) receive in
exchange therefor the Merger Consideration, without any interest thereon, but
shall have no greater rights against the Surviving Entity than may be accorded
to general creditors of the Surviving Entity under Delaware law.
(c) The right of any holder of a certificate representing
Common Shares to receive the Merger Consideration shall be subject to and
reduced by the amount of any required Tax withholding obligation.
(d) Promptly after the Effective Time, Parent shall mail or
deliver to each record holder of certificates which immediately prior to the
Effective Time represented Common Shares a form of letter of transmittal and
instructions for use in surrendering such certificates and receiving the Merger
Consideration in exchange therefor.
(e) After the Effective Time, there shall be no transfers on
the stock transfer books of the Surviving Entity of any Common Shares. If,
after the Effective Time, certificates previously representing Common Shares
are presented to the Surviving Entity or Parent, they shall be cancelled and
exchanged for the Merger Consideration as provided in this Article II, subject
to applicable law in the case of Dissenting Shares.
(f) Notwithstanding any other provision in this Section 2.3
to the contrary, Parent shall cause the Merger Consideration to be paid in
immediately available funds on the
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<PAGE> 18
date of the Effective Time with respect to any certificates representing Common
Shares which are surrendered to Parent prior to or at the Effective Time, and
Parent will not be required to comply with Section 2.3(d) with respect to such
Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representation and Warranties of Borden. Borden
represents and warrants to Parent as follows:
(a) Due Organization and Power of Borden. Each of Borden,
Inc. and BDH is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder.
(b) Authorization and Validity of Agreement. The execution,
delivery and performance by Borden of this Agreement and the consummation by
them of the transactions contemplated hereby have been duly authorized by their
respective Boards of Directors, and no other corporate action on the part of
Borden is necessary for the execution, delivery and performance by Borden of
this Agreement and the consummation by them of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Borden and is a
legal, valid and binding obligation of Borden, enforceable against Borden in
accordance with its terms, except to the extent that its enforceability may be
limited by bankruptcy, insolvency,
-11-
<PAGE> 19
reorganization, moratorium or other laws relating or affecting creditors'
rights generally and by general equity principles.
(c) No Conflict. Except as set forth on Schedule 3.1(c)
hereto, except as would not have a Material Adverse Effect (as defined in
Section 3.2(a)) and except as would not prevent, materially hinder or
materially delay the ability of Borden to perform their obligations under this
Agreement or to consummate the transactions contemplated hereby, the execution,
delivery and performance by Borden of this Agreement and the consummation by
them of the transactions contemplated hereby: (i) will not violate any
provision of law, rule or regulation, order, judgment or decree applicable to
Borden; (ii) will not require any consent or approval of, or filing with or
notice to, any governmental or regulatory authority under any provision of law
applicable to Borden, except for the requirements of Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Antitrust Improvements Act"), and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and except for any consent, approval, filing or
notice requirements which become applicable solely as a result of the specific
regulatory status of Parent or its affiliates or which Parent or its affiliates
are otherwise required to obtain; (iii) will not violate any provision of the
Certificate of Incorporation or Bylaws of Borden; and (iv) will not require any
consent, approval or notice under, and will not conflict with, or result in the
breach or termination of, or constitute a default under, or result in the
acceleration of the performance by Borden under, any indenture,
-12-
<PAGE> 20
mortgage, deed of trust, lease, license, franchise, contract, agreement or
other instrument to which Borden is a party or by which any of them, or any of
their assets are bound or encumbered.
(d) Ownership of the Borden Shares. Borden is and will be on
the Closing Date the record and beneficial owner and holder of the Borden
Shares, free and clear of all liens, claims, charges, security interests,
options, other legal or equitable encumbrances, agreements, voting trusts,
proxies or other arrangements or restrictions whatsoever. All of the Borden
Shares have been duly authorized and validly issued and are fully paid and
nonassessable. Upon transfer of the Borden Shares to Parent on the Closing
Date in accordance with Section 1.1(b), Parent will receive good and marketable
title to the Borden Shares, free and clear of all liens, claims, charges,
security interests, options or other legal or equitable encumbrances.
3.2 Representations and Warranties of Holdings. Holdings
represents and warrants to Parent as follows:
(a) Due Organization of Holdings and Subsidiaries. Each of
Holdings and its Subsidiaries (as defined in Section 3.2(c)) is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization. Holdings has all requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder. Each of
Holdings and its Subsidiaries (i) has all requisite corporate power and
authority to own its properties and assets and to carry on its business as it
is now being conducted and (ii) is in good
-13-
<PAGE> 21
standing and is duly qualified to transact business in each jurisdiction set
forth on Schedule 3.2(a)(ii), which are all of the jurisdictions in which the
failure to so qualify would have a material adverse effect on the business or
financial condition of Holdings and its Subsidiaries taken as a whole (a
"Material Adverse Effect"). Complete and correct copies of Holdings'
Certificate of Incorporation and Bylaws, as amended to date, have been made
available to Parent.
(b) Authorization and Validity of Agreement. The execution,
delivery and performance by Holdings of this Agreement and the consummation by
it of the transactions contemplated hereby have been duly authorized by its
Board of Directors, and no other corporate action on the part of Holdings or
its stockholders is necessary for the execution, delivery and performance by
Holdings of this Agreement and the consummation by it of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Holdings and is a legal, valid and binding obligation of Holdings, enforceable
against Holdings in accordance with its terms, except to the extent that its
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting creditors' rights generally
and by general equity principles.
(c) Subsidiaries. Holdings has no entities in which it
directly or indirectly owns 50% or more of the effective voting power or equity
interest except as set forth in Schedule 3.2(c) hereto (the "Subsidiaries").
Complete and correct copies of the Certificate of Incorporation and Bylaws of
each Subsidiary
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<PAGE> 22
of Holdings, as amended to date, have been made available to Parent. None of
Holdings or its Subsidiaries is a party to any partnership agreement or joint
venture agreement with any other person.
(d) Capitalization. The authorized capital stock of Holdings
consists of 30,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock, of which 14,995,000 Common Shares and 3,400,000 Preferred Shares are
outstanding as of the date hereof. Except as set forth on Schedule 3.2(d)(i)
hereto, all of the outstanding shares of capital stock or other equity
interests of each of the Subsidiaries have been validly issued and are fully
paid and nonassessable and are owned by Holdings and/or one or more of its
Subsidiaries free and clear of all liens, claims, charges, security interests,
options or other legal or equitable encumbrances. Except as indicated in
Schedule 3.2(d)(ii) hereto, (i) there are no outstanding options, warrants or
other rights of any kind relating to the sale, issuance or voting of any shares
of capital stock of any class of, or other ownership interests in, Holdings or
of any of its Subsidiaries which have been issued, granted or entered into by
Holdings or any of its Subsidiaries or any securities convertible into or
evidencing the right to purchase any shares of capital stock of any class of,
or other ownership interests in, Holdings or any of its Subsidiaries; (ii) no
shares of the capital stock of Holdings or any of its Subsidiaries are reserved
for any purpose other than for the issuance of shares upon the exercise of the
Options; (iii) there are no preemptive or similar rights with respect to
-15-
<PAGE> 23
the issuance, sale or other transfer (whether present, past or future) of the
capital stock of Holdings or its Subsidiaries; and (iv) there are no agreements
or other obligations (contingent or otherwise) which may require Holdings or
its Subsidiaries to repurchase or otherwise acquire any shares of its capital
stock other than as described in Section 2.2. All dividends on the Preferred
Shares have been declared and paid on or as of the dates when such dividends
are required to be declared and paid in accordance with the terms of the
Preferred Shares.
(e) No Conflict. Except as set forth on Schedule 3.2(e)
hereto, except as specifically contemplated in this Agreement and except as
would not have a Material Adverse Effect, the execution, delivery and
performance by Holdings of this Agreement and the consummation by it of the
transactions contemplated hereby: (i) will not violate any provision of law,
rule or regulation, order, judgment or decree applicable to Holdings or any of
its Subsidiaries; (ii) will not require any consent or approval of, or filing
with or notice to, any governmental or regulatory authority under any provision
of law applicable to Holdings or its Subsidiaries, except for the Antitrust
Improvements Act and the Exchange Act and except for any consent, approval,
filing or notice requirements which become applicable solely as a result of the
specific regulatory status of Parent or its affiliates or which Parent or its
affiliates are otherwise required to obtain; (iii) will not violate any
provision of the Certificate of Incorporation or Bylaws of Holdings or any of
its Subsidiaries; (iv) will not require any
-16-
<PAGE> 24
consent, approval or notice under, and will not conflict with, or result in the
breach or termination of, or constitute a default under, or result in the
acceleration of the performance by Holdings or any of its Subsidiaries under,
any indenture, mortgage, deed of trust, lease, license, franchise, contract,
agreement or other instrument to which Holdings or any of its Subsidiaries is a
party or by which any of them, or any of their assets are bound or encumbered;
or (v) will not entitle any employee of Holdings or its Subsidiaries to
severance or other related payments, or create any other material change in
control related obligations to employees.
(f) Financial Statements. Attached as Schedule 3.2(f)(i) are
an unaudited balance sheet of Holdings and its Subsidiaries at December 31,
1996 and a statement of Holdings' and its Subsidiaries' earnings before income
taxes for the year ended December 31, 1996, together with the notes thereto
(collectively, the "Financial Statements"). The Financial Statements were
prepared in accordance with Holdings' accounting practices and present fairly
in all material respects the financial position and earnings before income
taxes of Holdings and its Subsidiaries at and for the year ended December 31,
1996. Set forth on Schedule 3.2(f)(ii) hereto are the material differences
between generally accepted accounting principles and Holdings' accounting
practices. Except as set forth on the Financial Statements or in Schedule
3.2(f)(iii), except for those that would not have a Material Adverse Effect and
except for liabilities and obligations incurred in the ordinary course of
-17-
<PAGE> 25
business since December 31, 1996, neither Holdings nor any of its Subsidiaries
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required to be set forth on the Financial Statements
under Holdings' accounting practices.
(g) Books and Records. The minute books of Holdings and each
of its Subsidiaries contain substantially accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the Boards
of Directors and the committees of the Boards of Directors of Holdings and each
of its Subsidiaries, and no meeting of any such stockholders, Board of
Directors or committee has been held in which substantive corporate action was
taken and for which minutes have not been prepared and are not contained in
such minute books. At the Closing, all of those books and records will be in
the possession of Holdings and its Subsidiaries.
(h) Absence of Material Adverse Change. Except as a result
of the execution and delivery of this Agreement or as expressly contemplated
hereby (including, without limitation, by clause (iii) of Section 4.6(a) or by
clause (C) of Section 4.6(d)(ii)) and except as set forth on Schedule 3.2(h),
from December 31, 1996 to the date of this Agreement, and from December 31,
1996 to the Closing Date, Holdings and its Subsidiaries have conducted or will
conduct business only in the ordinary course, and except as would not,
individually or in the aggregate, have a Material Adverse Effect, none of
Holdings or any of its Subsidiaries has or will have:
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(i) redeemed or purchased, directly or indirectly, any
shares of its capital stock or declared or paid any dividends or
distributions with respect to any shares of its capital stock, except
for dividends due during such period with respect to the Preferred
Shares, except for other dividends the amount of which is referred to
in clause (i) of Section 4.6(a) or clause (A) of Section 4.6(d)(ii)
and except for repurchases of Common Shares held by employees of
Holdings or its Subsidiaries pursuant to the respective Management
Stockholder's Agreements between Holdings and such employees;
(ii) except for issuances of Shares of Common Stock upon
the exercise of outstanding Options, issued, sold or transferred any
of its equity securities, securities convertible into its equity
securities or warrants, options or other rights to acquire its equity
securities, or any bonds or other securities issued by it;
(iii) borrowed or become liable as a guarantor for any
amount in excess of $1,000,000 in the aggregate, except for current
liabilities incurred in the ordinary course of business and
liabilities under contracts entered into in the ordinary course of
business;
(iv) discharged or satisfied any lien or encumbrance in
excess of $1,000,000, other than in the ordinary course of business;
(v) mortgaged, pledged or subjected to any lien, charge
or any other encumbrance, any of its properties or
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assets, except liens for current property taxes or assessments not yet
due and payable and those arising in the ordinary course of business;
(vi) sold, assigned or transferred any of its material
tangible assets, except in the ordinary course of business, or
canceled without reasonable consideration any material debts owing to
or held by it;
(vii) sold, assigned or transferred any patents,
trademarks, trade names, copyrights, trade secrets or other intangible
assets, other than any of the foregoing which is not material;
provided that neither Borden, Holdings nor any of its Subsidiaries has
sold, assigned or transferred, for use in connection with the Products
(as defined in the Trademark License Agreement (as defined below)) or
in connection with any of the other products of Holdings or its
Subsidiaries, any of the intangible assets subject to the Trademark
License Agreement or otherwise used in connection with the products of
Holdings or its Subsidiaries;
(viii) made or granted any bonus or any wage or salary
increase to any employee or group of employees other than in the
ordinary course of business in accordance with past practice, or made
or granted any increase in any employee benefit plan or arrangement,
or amended or terminated any existing employee benefit plan or
arrangement or adopted any new employee benefit plan or arrangement;
(ix) other than as reflected in Holdings' 1997 capital
budget (a copy of which has been furnished to
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Parent), made capital expenditures or commitments therefor that aggregate in
excess of $500,000;
(x) made any loans or advances to, or guarantees for
the benefit of, any person, including Borden and its affiliates (other
than loans or advances made to employees in the ordinary course or
made to Borden, Inc. and for which Holdings or its Subsidiaries are
entitled to repayment);
(xi) amended or otherwise altered any contracts or other
agreements to which it is a party or waived any rights or obligations
thereunder, except in the ordinary course of business in accordance
with past practice;
(xii) entered into any other transaction or agreement in
excess of $100,000 other than in the ordinary course of business; or
(xiii) suffered any material adverse change in the
financial condition or business of Holdings and its Subsidiaries taken
as a whole (except as may be disclosed in this Agreement or in the
Schedules hereto and except for changes affecting the economy
generally, the dairy industry generally or the dairy industry within
any of the jurisdictions in which Holdings or its Subsidiaries is
operating).
(i) Absence of Undisclosed Liabilities. As of the Closing,
none of Holdings or its Subsidiaries will have any obligations or liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise, whether due
or to become due and regardless of when or by whom asserted) arising out of
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transactions entered into prior to the Closing Date, or any action or inaction
prior to the Closing Date, except (i) obligations under Material Contracts (as
hereinafter defined) or under contracts and commitments entered into in the
ordinary course of business as permitted by Section 3.2(h), (ii) liabilities
reflected on the balance sheet of Holdings and its Subsidiaries at December 31,
1996 and the notes thereto, included in the Financial Statements (the "December
31, 1996 Balance Sheet"), (iii) liabilities which in the aggregate would not
have a Material Adverse Effect and (iv) obligations and liabilities otherwise
expressly disclosed (or within any materiality threshold contained in any other
representation) in this Agreement or the Schedules hereto.
(j) Real Property Ownership. Schedule 3.2(j) lists all real
property (by street address) owned by each of Holdings and its Subsidiaries as
of the date hereof. With respect to each parcel of real property (a "Parcel")
listed in Schedule 3.2(j), except as would not, individually or in the
aggregate, have a Material Adverse Effect:
(i) except as disclosed on Schedule 3.2(j) hereto, the
entity owning such Parcel has marketable title to such Parcel, free
and clear of all mortgages, pledges, security interests, encumbrances,
charges or other liens, easements and other restrictions, other than
(A) installments of special assessments not yet delinquent, (B) Taxes
not yet due and payable, or (C) encumbrances, encroachments and
recorded easements, covenants and restrictions, including
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exceptions listed on any title insurance policy, or deeds or other
documents of record relating to such Parcel, copies of which have been
delivered to Parent prior to the date hereof, which do not impair the
current use, occupancy or value of the property subject thereto;
(ii) except as disclosed on Schedule 3.2(j) hereto,
there are no pending or, to the knowledge of Holdings or its
Subsidiaries, threatened condemnation proceedings or litigation or
administrative actions relating to any Parcel;
(iii) except as disclosed on Schedule 3.2(j) hereto,
there are no subleases, licenses, concessions or other agreements,
written or oral, granting to any party the right of use or occupancy
of any portion of any Parcel;
(iv) except as disclosed on Schedule 3.2(j) hereto,
there are no outstanding options or rights of refusal to purchase any
Parcel, any portion thereof or interest therein;
(v) there are no parties (other than one or more of
Holdings and any of its Subsidiaries) in possession of any Parcel,
other than tenants under any leases disclosed on Schedule 3.2(j) who
are in possession of space to which they are entitled; and
(vi) Holdings and its Subsidiaries have sufficient title
to such easements or rights of way or other rights appurtenant to each Parcel
to access public roads or rights of way.
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(k) Real Property Leases. Schedule 3.2(k) contains a
complete and accurate list of all real property leased by Holdings and its
Subsidiaries as of the date hereof pursuant to any real property leases (the
"Leases"). Except as would not, individually or in the aggregate, have a
Material Adverse Effect, with respect to each Lease: (i) such Lease is pursuant
to a written Lease which has been executed and is in full force and effect;
(ii) neither Holdings or any of its Subsidiaries, as applicable, which is a
party to such Lease nor, to the knowledge of Holdings or its Subsidiaries, any
other party to such Lease, is in breach or default, and no event has occurred
which, with notice or lapse of time or both, would constitute such a breach or
default or permit termination, modification or acceleration, under such Lease;
(iii) such Lease will continue to be binding in accordance with its terms
following the Closing, except as may result from actions that may be taken by
Parent or its affiliates following the Closing; (iv) to Holdings or any of its
Subsidiaries' knowledge, no party to such Lease has repudiated any provision
thereof; and (v) to Holdings or its Subsidiaries' knowledge, there are no oral
agreements or delayed payment programs in effect as to such Lease.
(l) Condition of Properties. Except as would not,
individually or in the aggregate, have a Material Adverse Effect, (i) Holdings
and its Subsidiaries own or lease under valid leases all buildings, machinery,
equipment and other tangible assets used in or necessary for the conduct of
their business as presently conducted (except for assets and properties of
Borden
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and its affiliates (other than Holdings and its Subsidiaries) used to provide
services to Holdings and its Subsidiaries) and (ii) the buildings, fixtures and
equipment owned or leased by Holdings or its Subsidiaries are in sufficiently
good operating condition and repair to permit their use in the continuing
operations of Holdings or its Subsidiaries as such operations are presently
conducted, subject to normal wear and tear, and are not in need of maintenance
or repairs except for ordinary, routine maintenance.
(m) Tax Matters. (i) Certain Defined Terms. For purposes
of this Agreement, the following definitions shall apply:
(A) The term "Borden Corporation" shall mean one of the group
of corporations consisting of Holdings and its Subsidiaries. Any
reference to a Borden Corporation refers to that entity only and does
not refer to the group of corporations of which such Borden
Corporation is a member.
(B) The term "Group" shall mean, individually and
collectively, (1) Holdings, (2) its Subsidiaries and (3) any
individual, trust, corporation, partnership or any other entity as to
which Holdings or any of its Subsidiaries are liable for Taxes
incurred by such individual or entity either as a transferee, pursuant
to Treasury Regulations Section 1.1502-6 or pursuant to any other
provision of federal, territorial, state, local or foreign law or
regulations.
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(C) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to
tax that may become payable in respect thereof, imposed by any
federal, territorial, state, local or foreign government or any agency
or political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income
or profits taxes (including, but not limited to, federal income taxes
and state income taxes), real property gains taxes, payroll and
employee withholding taxes, unemployment insurance taxes, social
security taxes, sales and use taxes, ad valorem taxes, excise taxes,
franchise taxes, gross receipts taxes, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation,
governmental charges, and other obligations of the same or of a
similar nature to any of the foregoing, which the Borden Corporations
are required to pay, withhold or collect.
(D) The term "Returns" shall mean all reports, estimates,
declarations of estimated Tax, information statements and returns
relating to, or required to be filed in connection with, any Taxes,
including information returns or reports with respect to backup
withholding and other payments to third parties.
(ii) Returns Filed and Taxes Paid. All material Returns
required to be filed by or on behalf of the Borden Corporations have been duly
filed on a timely basis and such
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Returns are true, complete and correct in all material respects. All Taxes
shown to be payable on the Returns or on subsequent assessments with respect
thereto have been paid in full on a timely basis, and no other Taxes are
payable by the Borden Corporations with respect to items or periods covered by
such Returns (whether or not shown on or reportable on such Returns) or with
respect to any period prior to the date of this Agreement. Each of the Borden
Corporations has withheld and paid over all material Taxes required to have
been withheld and paid over, and complied with all information reporting and
backup withholding requirements, including maintenance of required records with
respect thereto, in connection with material amounts paid or owing to any
employee, creditor, independent contractor or other third party. There are no
liens on any of the assets of any of the Borden Corporations with respect to
Taxes, other than liens for Taxes not yet due and payable or for Taxes that a
member of the Group is contesting in good faith through appropriate proceedings
and for which appropriate reserves have been established.
(iii) Returns Furnished. Parent has been provided access
by Borden or Holdings to true and complete copies of (A) relevant portions of
any separate federal and state income or franchise tax Returns relating to the
Borden Corporations for periods ending on and after December 31, 1991;
provided, however, that no such Return will be provided if it relates to or
includes any corporation or group of corporations other than the Borden
Corporations.
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(iv) Tax Deficiencies; Audits; Statutes of Limitations.
Except as set forth on Schedule 3.2(m)(iv) and except as would not have a
Material Adverse Effect: (A) there is no audit by a governmental or Taxing
authority in process or pending with respect to the Returns of the Borden
Corporations; (B) no deficiencies exist or have been asserted (either in
writing or verbally, formally or informally) with respect to Taxes of the
Borden Corporations and none of the Borden Corporations has received notice
(either in writing or verbally, formally or informally) that it has not filed a
Return or paid Taxes required to be filed or paid by it; (C) the Borden
Corporations are neither parties to any action or proceeding for assessment or
collection of Taxes, nor has such event been asserted (either in writing or
verbally, formally or informally) against the Borden Corporations or any of
their assets; and (D) no waiver or extension of any statute of limitations is
in effect with respect to Taxes or Returns of the Borden Corporations.
(v) Tax Sharing. Except as set forth in Schedule
3.2(m)(v) and with respect to the tax sharing agreement dated as of January 1,
1996 between Borden Holdings, Inc. and Holdings (the "Tax Sharing Agreement"),
Holdings and its Subsidiaries are not parties to any tax sharing agreement and
have not assumed the liability for taxes of any other person under contract,
and, except as provided in this Agreement, any payments to be made by Holdings
to Borden, Inc. prior to the Closing Date with respect to Taxes for the period
ended on December 31, 1996 or for the Short Period and any accruals of amounts
with respect to Taxes
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<PAGE> 36
for the period ended on December 31, 1996 or for, only with respect to Taxes
other than income Taxes, the Short Period will be made in accordance with the
Tax Sharing Agreement.
(vi) Tax Elections and Special Tax Status. Except as set
forth in Schedule 3.2(m)(vi) or except as would not have a Material Adverse
Effect: (A) none of the Borden Corporations is a party to any safe harbor
lease within the meaning of Section 168(f)(8) of the Internal Revenue Code of
1986, as amended (the "Code"), as in effect prior to amendment by the Tax
Equity and Fiscal Responsibility Act of 1982; (B) none of the Borden
Corporations has entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a
nondeductible expense to the Borden Corporations pursuant to Section 280G of
the Code or an excise tax to the recipient of such payment pursuant to Section
4999 of the Code; (C) none of the Borden Corporations is a "consenting
corporation" under Section 341(f) of the Code; (D) none of the Borden
Corporations has participated in an international boycott as defined in Section
999 of the Code; (E) none of the Borden Corporations has agreed to make, nor is
any Borden Corporation required to make, any adjustment under Code Section
481(a) of the Code by reason of a change in accounting method or otherwise; (F)
none of the assets of any of the Borden Corporations is "tax exempt use
property" within the meaning of Section 168(h) of the Code; (G) Holdings has
not made and will not make a deemed dividend election under Treasury
Regulations Section 1.1502-32(f)(2) or a consent dividend election under
Section 565
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of the Code; (H) none of the Borden Corporations has had a permanent
establishment in any foreign country, as defined in any applicable tax treaty
or convention between the United States of America and such foreign country;
(I) none of the Borden Corporations is a party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes; and (J) none of the Borden
Corporations is or was "25-percent foreign owned" within the meaning of Section
6038A of the Code at any time during any taxable period which remains open
under the statute of limitations applicable for federal income tax purposes.
(n) Material Contracts. (i) Except as set forth on Schedule
3.2(n) hereto, except as would not, individually or in the aggregate, have a
Material Adverse Effect, except for agreements entered into in the ordinary
course of business or as permitted by Section 3.2(h) and except for licenses
of, and other agreements with respect to, Company Intellectual Property (as
defined in Section 3.2(r)) and Leases, as to which no representations or
warranties are made other than as set forth in Sections 3.2(r) and 3.2(k),
respectively, none of Holdings or its Subsidiaries is a party to or bound by,
nor are any of their assets affected by, as of the date of this Agreement, any:
(A) agreement or indenture relating to the borrowing of money
or to the mortgaging or pledging any of its assets;
(B) agreement with respect to the lending or investing of
funds;
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(C) guaranty of any obligation for borrowed money or
otherwise, other than endorsements made for collection in the ordinary
course of business;
(D) indemnification or other reimbursement obligations,
except for indemnities and other reimbursement obligations in the
ordinary course of business;
(E) license or royalty agreements involving more than
$100,000;
(F) lease or agreement under which it is lessee of or holds
or operates any personal property owned by any other party for which
the annual payment exceeds $100,000;
(G) lease or agreement under which it is lessor of or permits
any third party to hold or operate any property, real or personal,
owned or controlled by it for which the annual payment exceeds
$100,000;
(H) contract or group of related contracts with the same
party for the purchase or sale of products or services under which the
undelivered balance of such products and services has a selling price
in excess of $100,000;
(I) other contract or group of related contracts with the
same party continuing over a period of more than thirty days from the
date or dates thereof involving more than $100,000;
(J) contract which prohibits it from freely engaging in
business anywhere in the world;
(K) contract with distributors of its products involving
payments of more than $100,000 per annum;
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(L) contract with any officer, director, shareholder or other
affiliate;
(M) contract with any labor union or any bonus or any other
form of deferred compensation plan or any stock purchase, stock
option, or similar written plan or practice, or any severance
agreements;
(N) contract for the employment or retention of any officer,
employee or consultant on a full-time or part-time basis (except for
consultants in the ordinary course of business); or
(O) any other contracts not described above which involve the
payment by Holdings or its Subsidiaries of $100,000 or more in any 12
month period.
(ii) Except as specifically disclosed on Schedule 3.2(n)
and except as would not, individually or in the aggregate, have a Material
Adverse Effect: (A) each contract or commitment listed on Schedule 3.2(n) (the
"Material Contracts") is valid, binding and enforceable against Holdings or, if
a Subsidiary of Holdings is the party to such Material Contract, such
Subsidiary; (B) each of Holdings and its Subsidiaries has performed all
obligations under the Material Contracts required to be performed by it and
Holdings and its Subsidiaries have not received any claim of default under any
Material Contract; and (C) Holdings and its Subsidiaries do not have knowledge
of any breach or anticipated breach by any other party to any Material
Contract.
(iii) A true and correct copy of each Material Contract as
of the date of this Agreement (other than those which are not
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located at the executive offices of Holdings in Ogden, Utah or of Borden, Inc.
in Columbus, Ohio and those which are not written) has been supplied or made
available to Parent, together with all amendments, waivers or other changes
thereto.
(o) Legal Proceedings. Except as set forth on Schedule
3.2(o) and except as would not, individually or in the aggregate, have a
Material Adverse Effect:
(i) there are no actions, suits, proceedings (including
debarment proceedings) or orders pending or (to the knowledge of
Holdings and its Subsidiaries, after reasonable review) threatened or
(to the knowledge of Holdings and its Subsidiaries after reasonable
review) investigations pending or threatened against or affecting
Holdings and its Subsidiaries at law or in equity, or before or by any
federal, state, municipal, foreign or other governmental department,
commission, board, bureau, agency, court or instrumentality, domestic
or foreign ("Governmental Authority");
(ii) Holdings and its Subsidiaries are not subject to any
order (including debarment orders), writ, injunction, judgment or
decree of any court or any Governmental Authority;
(iii) there are no inquiries of any Governmental Authority
pending, or to the knowledge of Holdings and its Subsidiaries,
threatened (including inquiries as to the qualifications of Holdings
and its Subsidiaries to hold or receive any license or permit); and
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<PAGE> 41
(iv) neither Holdings nor any of its Subsidiaries is in
violation of any term of any judgment, decree, injunction, or order
entered by any Governmental Authority or court and outstanding against
Holdings or any of its Subsidiaries.
(p) Government Licenses, Permits and Related Approvals.
Except as set forth on Schedule 3.2(p) hereto and except as would not,
individually or in the aggregate, have a Material Adverse Effect:
(i) Holdings and its Subsidiaries own or possess all
permits, licenses, franchises, certificates, approvals and other
authorizations which are required under foreign, federal, state and
local laws and regulations by such entity in the conduct of its
business as it is presently conducted (collectively, the "Licenses and
Permits"), including, without limitation, all Licenses and Permits
required to operate each of Holdings and its Subsidiaries' dairies and
all Licenses and Permits required under current public health and
safety, worker health and safety and pollution or environmental
protection laws, including laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants or
hazardous or toxic materials or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of any pollutant, contaminant or
hazardous or toxic substance, material or waste or any regulation,
code, plan, order, decree, judgment or notice or demand letter
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<PAGE> 42
issued, entered, promulgated or approved thereunder ("Health and
Environmental Laws").
(ii) No loss of any License or Permit is pending, or, to
the knowledge of Holdings or its Subsidiaries, threatened or
reasonably foreseeable as a result of the transaction contemplated by
this Agreement or otherwise, except for normal expiration in
accordance with the terms thereof.
(iii) Holdings and its Subsidiaries have complied, and
are in compliance, in all material respects with all terms and
conditions of all required Licenses and Permits and with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any
applicable Health and Environmental Laws.
(iv) Holdings and its Subsidiaries have complied, and
are in compliance, in all material respects with all applicable laws
and regulations of all Governmental Authorities which affect the
businesses or any owned or leased properties of Holdings and its
Subsidiaries and to which Holdings and its Subsidiaries may be subject
(including, without limitation, all Health and Environmental Laws),
and no claims have been filed against Holdings and its Subsidiaries
alleging a violation of any such laws or regulations.
(v) Neither Holdings nor its Subsidiaries has received
any notice or claim to the effect that it is or may be liable to any
person as a result of a release or
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<PAGE> 43
threatened release of any hazardous or non-hazardous substance,
material or waste at any location nor has it filed any notice required
under applicable law of any such release or threatened release.
(vi) Neither Holdings nor any of its Subsidiaries is
presently subject to (A) any outstanding order from or agreement with
any Governmental Authority or person respecting environmental or
health matters under any Health and Environmental Laws or (B) any
outstanding claims, liens, judicial or administrative proceedings or
investigations arising under any Health and Environmental Laws.
(q) Employee Matters. (i) Schedule 3.2(q)(i) contains a
list of (A) any persons on leave of absence who are currently collecting
disability payments; and (B) all employment, consulting or similar compensation
agreements of Holdings or its Subsidiaries which may not be terminated by
Holdings or its Subsidiaries without penalty within thirty days after the
Closing.
(ii) Except as disclosed in this Agreement or the
Schedules hereto, except as would not have a Material Adverse Effect and except
for the provisions of the Management Stockholder's Agreements between Holdings
and certain of its or its Subsidiaries' employees, none of the employees of
Holdings and its Subsidiaries is subject to any non-compete, nondisclosure,
confidentiality, employment, consulting or similar agreement relating to or
affecting the present or proposed business activities of Holdings and its
Subsidiaries.
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(r) Intellectual Property. Schedule 3.2(r)(i) hereof lists
all United States, state and foreign patents and patent applications, United
States, state and foreign trademark and service mark registrations and
applications and United States, state and foreign copyright registrations and
applications therefor owned by or licensed to Holdings or any of its
Subsidiaries (herein collectively referred to as the "Company Intellectual
Property"). Except as set forth on Schedule 3.2(r)(ii) hereto and except as
would not have a Material Adverse Effect, Holdings and its Subsidiaries own or
have the right to use all listed patents, patent applications, trademark and
service mark registrations and applications, and copyright registrations and
applications and hold unexpired licenses or other rights to use all other
intellectual property necessary to the conduct of the business of Holdings and
its Subsidiaries. Except as set forth on Schedule 3.2(r)(iii) hereto and
except as would not have a Material Adverse Effect, there are no existing or,
to Holdings' or its Subsidiaries' knowledge, threatened claims of any third
party based on the use by, or challenging the ownership of, Holdings or any of
its Subsidiaries of any of the Company Intellectual Property and none of
Borden, Holdings or its Subsidiaries has received a notice of conflict between
the Company Intellectual Property and the asserted rights of others within the
last five years. Except as set forth on Schedule 3.2(r)(iv) hereto and except
as would not have a Material Adverse Effect, to Holdings' and its Subsidiaries'
knowledge, there is no infringing use or contrary claim of ownership by any
third person
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of the Company Intellectual Property and all other intellectual property
necessary to the conduct of the business of Holdings and its Subsidiaries as
presently conducted.
(s) Employee Benefit Plans. (i) For purposes of this
Agreement, "Business Plans" shall mean all "employee benefit plans" (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), including, without limitation, "multiemployer plans"
(within the meaning of Sections 3(37) and 4001(a)(3) of ERISA)), retirement,
savings, stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements (A) under which any employee or former
employee of Holdings or its Subsidiaries (collectively, the "Business
Employees") has any present or future right to benefits and (B) under which
Borden, Holdings or its Subsidiaries has any present or future liability.
(ii) Schedule 3.2(s)(ii) sets forth a list of (A) each
Business Plan that is an employee pension benefit plan, as defined in Section
3(2) of ERISA (an "Employee Pension Benefit Plan"), (B) each Business Plan that
is a multiemployer plan and (C) each other material Business Plan.
(iii) Except where a breach of the following, individually
or in the aggregate, would not have a Material Adverse Effect:
(A) each Business Plan sponsored by Borden, Holdings or its
Subsidiaries has been established and administered in
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accordance with its terms and in compliance with ERISA, the Code and
all other applicable laws, rules and regulations; provided, however,
that "compliance" shall not be achieved for purposes of this Section
3.2(s)(iii)(A) if an act or failure to act with respect to a Business
Plan has resulted in or could reasonably be expected to result in
unpaid excise taxes, penalties or fines under ERISA, the Code or other
applicable laws, rules or regulations;
(B) a favorable determination letter as to the qualification
under Section 401(a) or Section 505(c) of the Code of each Business
Plan designed or intended to be a plan qualified under such sections
has been issued by the Internal Revenue Service (the "IRS"), and
nothing has occurred, to Borden's knowledge, which would cause the
loss of such qualification or tax-exempt status;
(C) there are no actions, suits or claims to Borden's
knowledge (other than routine claims for benefits in the ordinary
course) that are pending, threatened, choate or inchoate with respect
to Business Employees covered by any Business Plan (including, without
limitation, claims by governmental regulatory agencies);
(D) no "prohibited transaction" (as defined in Section 4975
of the Code and for which no exemption exists under the Code) exists
with respect to any Business Plan;
(E) no "reportable event" (as defined in Section 4043 of
ERISA and the regulations thereunder and with respect to
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which the 30 day notice requirement has not been waived) exists with
respect to any Business Plan;
(F) each member of a controlled group of organizations
(within the meaning of Section 414(b), (c), (m) or (o) of the Code) of
which Borden, Holdings or any of its Subsidiaries is also a member
(the "Controlled Group") has paid all premiums (and interest charges
and penalties for late payment, if applicable) due the Pension Benefit
Guaranty Corporation (the "PBGC") with respect to each Employee
Pension Benefit Plan during the last five plan years; and as of the
Closing, all members of the Controlled Group will have made all
required premium payments to the PBGC that are due on or prior to such
date with respect to such plans; and none of Borden, Holdings, its
Subsidiaries or any Controlled Group member has engaged in a
transaction that has subjected them to liability under Section 4069 of
ERISA;
(G) true, correct and complete copies of the following have
been delivered to Parent: (I) each Business Plan (but excluding any
"multiemployer plans") listed on Schedule 3.2(s)(ii); (II) current
summary plan descriptions that are routinely delivered to the Business
Employees with respect to the Business Plans (but excluding any
"multiemployer plans") listed on Schedule 3.2(s)(ii); and (III) to the
extent applicable, the most recent determination letters issued by the
IRS with respect to each Pension Benefit Plan; and
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(H) no amounts have been contributed to any voluntary
employees' beneficiary association maintained by Borden, Holdings or
its Subsidiaries that was intended to fund any Business Plan providing
benefits other than disability income benefits.
(t) Insurance. As of the date of this Agreement, none of
Borden, Holdings or its Subsidiaries has received any notice of cancellation of
any insurance policy maintained in favor of Holdings or its Subsidiaries or
been denied insurance coverage, which, in either case, would have a Material
Adverse Effect.
(u) Brokers, Finders, etc. None of Borden, Holdings or its
Subsidiaries has employed, or is subject to any valid claim of, any broker,
finder, consultant or other intermediary in connection with the transactions
contemplated by this Agreement who might be or is entitled to a fee or
commission in connection with such transactions.
(v) Transactions with Affiliates. Except as set forth
herein, including, without limitation, as set forth in Article IV hereof, in
Schedule 3.2(v) hereto or as contemplated or permitted by Schedule 4.2 hereto,
or as set forth in the Financial Statements, Holdings and its Subsidiaries have
not engaged in any transaction, other than the movement of monetary assets,
outside the ordinary course of business consistent with past practice with
Borden or its affiliates (other than Holdings and its Subsidiaries) since
December 31, 1996, which was (i) material to the business of Holdings and its
Subsidiaries taken as a whole or (ii) undertaken in contemplation of the sale
of Holdings.
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(w) Bank Accounts. Schedule 3.2(w) lists all of the
concentration bank accounts of each of Holdings and its Subsidiaries. None of
Holdings or its Subsidiaries has granted a power of attorney to any person or
entity which will not be terminated as of the Closing Date.
(x) Product Warranty; Product Recall; Product Liability.
Except as set forth on Schedule 3.2(x) and except as would not, individually or
in the aggregate, have a Material Adverse Effect, (i) all products, and the
delivery thereof, processed, manufactured, distributed or sold by Holdings and
its Subsidiaries have been in conformity with all applicable contractual
commitments and all express or implied warranties, (ii) in the last year, none
of Holdings nor its Subsidiaries has recalled any products manufactured,
distributed or sold by it and (iii) none of Holdings nor its Subsidiaries has,
or at Closing will have, any liability to any person or entity relating to
damage to property, personal injury or death caused by or relating to products
processed, manufactured, distributed or sold by Holdings or its Subsidiaries
prior to the Closing, to the extent such damage to property, personal injury or
death arose or arises out of actions by or the inaction of Borden, Holdings or
its Subsidiaries prior to the Closing.
(y) No Losses of Significant Customers. Except as set forth
on Schedule 3.2(y), no customer of Holdings and its Subsidiaries which
accounted for more than $17,000,000 of Holdings and its Subsidiaries' gross
sales during the fiscal year of Holdings ended December 31, 1996 ceased
purchasing all dairy
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products of the types theretofore purchased by such customer from Holdings or
its Subsidiaries during the fiscal year of Holdings ended December 31, 1996.
Except as set forth on Schedule 3.2(y), no customer of Holdings and its
Subsidiaries which accounted for more than $4,000,000 of Holdings and its
Subsidiaries' gross sales during the fiscal year of Holdings ended December 31,
1996 has, during the period from January 1, 1997 through the date of this
Agreement, ceased purchasing all dairy products of the types theretofore
purchased by such customer from Holdings or its Subsidiaries during the fiscal
year of Holdings ended December 31, 1996.
3.3 Representations and Warranties of Parent. Parent
represents and warrants to Holdings and Borden as follows:
(a) Due Organization and Power. Parent is a cooperative
association duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has all requisite corporate
power and authority to enter into this Agreement and perform its obligations
hereunder. Complete and correct copies of the Certificate of Incorporation and
By-Laws of Parent, as amended to date, have been delivered to Holdings. At the
time of the Closing, Acquisition will be a duly organized corporation, limited
liability company or limited partnership, validly existing and in good standing
under the laws of Delaware, will have all requisite power and authority to
consummate the Merger and will not have engaged in any transaction or business,
except incident to its formation and the consummation of the Merger.
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(b) Authorization and Validity of Agreement. The execution,
delivery and performance by Parent of this Agreement and the consummation by
Parent of the transactions contemplated hereby have been, and, at the time of
the Closing, the performance by Acquisition of this Agreement and the
consummation by Acquisition of the transactions contemplated hereby will have
been, duly authorized by the Board of Directors of Parent and Acquisition, and
no other corporate action on the part of Parent or Acquisition is or will be
necessary for the execution, delivery and performance by Parent of this
Agreement and the consummation by Parent or Acquisition of the transactions
contemplated hereby. After the Stock Purchase, the Merger will be duly
authorized by Acquisition pursuant to Section 253 of the GCL, and no other
corporate action on the part of Acquisition, Holdings or their respective
stockholders will be necessary for the consummation of the Merger. This
Agreement has been duly executed and delivered by Parent and is a legal, valid
and binding obligation of Parent, enforceable against Parent in accordance with
its terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting creditors' rights generally and by general equity principles.
(c) No Conflict. Except as set forth in Schedule 3.3(c)
hereto and except for any consent, approval, filing or notice that would not,
if not given or made, or any violation, conflict, breach, termination, default
or acceleration which does not, materially impair the ability of Parent to
consummate the
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transactions contemplated hereby, the execution, delivery and performance by
Parent of this Agreement and the consummation by Parent of the transactions
contemplated hereby: (i) will not violate any provision of law, rule or
regulation, order, judgment or decree applicable to Parent; (ii) will not
require any consent or approval of, or filing or notice to, any Governmental
Authority under any provision of law applicable to Parent, except for the
requirements of the Antitrust Improvements Act and the Exchange Act and except
for any consent, approval, filing or notice requirements which become
applicable solely as a result of the specific regulatory status of Borden or
which Borden or any of its affiliates are otherwise required to obtain; (iii)
will not violate any provision of the Certificate of Incorporation or By-Laws
of Parent; and (iv) will not require any consent, approval or notice under, and
will not conflict with, or result in the breach or termination of, or
constitute a default under, or result in the acceleration of the performance by
Parent under, any indenture, mortgage, deed of trust, lease, license,
franchise, contract, agreement or other instrument to which Parent is a party
or by which it or any of its assets is bound or encumbered.
(d) Brokers, Finders, etc. Parent has not employed, nor is
subject to the valid claim of, any broker, finder, consultant or other
intermediary in connection with the transactions contemplated by this Agreement
who might be entitled to a fee or commission from Borden or Holdings in
connection with such transactions.
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(e) Available Funds. Parent, together with any Permitted
Assignees, will have sufficient funds available at the Closing to pay all
amounts payable pursuant to Articles I and II.
(f) USDA Suspension or Debarment. Except as set forth on
Schedule 3.3(f), neither Parent nor any of its affiliates has been suspended or
debarred from Federal procurement or non-procurement programs, no cause for any
such suspension or debarment of Parent exists and, to Parent's knowledge, no
cause for any such suspension or debarment of any of Parent's affiliates
exists.
3.4 Representations and Warranties of the Parties. Each
party hereto represents and warrants to the other that it is the explicit
intent of each party hereto that, except for the express representations and
warranties contained in this Article III, Borden is making no representation or
warranty whatsoever, express or implied, including but not limited to any
implied warranty or representation as to condition, merchantability or
suitability as to any of the properties or assets of Holdings and its
Subsidiaries and that Parent takes Holdings and its Subsidiaries "as is" and
"where is." It is understood that any cost estimates, projections or other
predictions, any data, any financial information or any memoranda or offering
materials or presentations provided or addressed to Parent are not and shall
not be deemed to be or to include representations or warranties of Borden.
3.5 Survival of Representations and Warranties. The
respective representations and warranties of Borden, Holdings and
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Parent contained in this Article III shall not survive the Closing, and no
party shall have any liability or obligation in connection with any such
representation or warranty following the Closing, except that the
representations and warranties contained in Sections 3.1(b), 3.1(d), 3.2(b),
3.3(b) and 3.4 shall survive the Closing.
3.6 Schedules and Exhibits. Disclosure of any fact or item
in any Schedule or Exhibit hereto referenced by a particular paragraph or
section in this Agreement shall, should the existence of the fact or item or
its contents be relevant to any other paragraph or section, be deemed to be
disclosed with respect to that other paragraph or section whether or not a
specific cross reference appears. Disclosure of any fact or item in any
Schedule or Exhibit hereto shall not necessarily mean that such item or fact
individually is material to the business or financial condition of any of
Holdings and its Subsidiaries individually or of Holdings and its Subsidiaries
taken as a whole.
ARTICLE IV
COVENANTS
4.1 Access; Information and Records; Confidentiality. (a)
During the period commencing on the date hereof and ending on the Closing Date,
Borden, Inc. shall, and Holdings shall and shall cause its Subsidiaries to,
upon reasonable request and notice, afford to Parent, its counsel, accountants
and other authorized representatives reasonable access during normal business
hours to the plants, properties, senior management,
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books and records of Holdings and its Subsidiaries, in order that Parent may
have the opportunity to make such reasonable investigations as it shall desire
to make of the affairs of Holdings and its Subsidiaries; provided that, any
contacts with such senior management shall be approved in advance by Borden.
Each of Borden, Inc. and Holdings will cause its officers, employees,
accountants and other agents to furnish to Parent such additional financial and
operating data and information with respect to Holdings and its Subsidiaries
(including information relating to the liabilities and obligations referred to
in Sections 8.1(a)(i) and 8.1(a)(iii)) as Parent may from time to time
reasonably request.
(b) (i) Prior to the Closing, Borden, Inc. shall deliver, or
shall cause Holdings to deliver, to Parent a statement setting forth, as of a
date not more than 10 days prior to the Closing Date, any changes that would be
required to Schedules 3.2(j), 3.2(k) and 3.2(m) if such Schedules were being
delivered for purposes of Sections 3.2(j), 3.2(k) and 3.2(m), respectively, as
of such date; provided that none of Borden or Holdings makes or will be deemed
to have made any representation or warranty with respect to such information
and only the representations and warranties contained in Article III hereof
shall have any legal effect.
(ii) Promptly after they become available following each
Accounting Period (as defined in Section 4.6) ending after the date hereof and
prior to the Closing Date, Holdings shall deliver to Parent a copy of Holdings'
and its Subsidiaries'
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balance sheet and statement of earnings before income taxes for such Accounting
Period to the extent that, and in such form as, such information is prepared in
the ordinary course of business; provided that none of Borden or Holdings makes
or will be deemed to have made any representation or warranty with respect to
such information and only the representations and warranties contained in
Article III hereof shall have any legal effect.
(c) Parent will hold, and will cause its respective
directors, officers, employees, accountants, counsel, financial advisors and
other representatives and affiliates to hold, any nonpublic information in
confidence to the extent required by, and in accordance with, the provisions of
the letter dated February 7, 1997, between Parent and Borden, Inc.
4.2 Conduct of the Businesses of Holdings Prior to the
Closing Date. Borden, Inc. and Holdings agree that, except as permitted,
required or specifically contemplated by this Agreement, including, without
limitation, those actions contemplated on Schedule 4.2 or in this Article IV,
or as otherwise consented to or approved in writing by Parent, during the
period commencing on the date hereof and ending at the Closing Date:
(a) the businesses of Holdings and its Subsidiaries shall be
conducted only in the ordinary course of business;
(b) neither Holdings nor any of its Subsidiaries will amend
its Certificate of Incorporation or By-Laws;
(c) Holdings and its Subsidiaries will use their reasonable
efforts to preserve intact their business
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organization, to keep available the services of their present officers
and key employees, and to preserve the good will of those having
business relationships with them; and
(d) neither Holdings nor any of its Subsidiaries will take
any other action which would result in the representation and warranty
contained in Section 3.2(h) being untrue at and as of the Closing
Date.
4.3 Antitrust Laws. (a) Each party hereto shall (i) take
promptly all actions necessary to make the filings required of it or any of its
affiliates under the applicable Antitrust Laws (as defined in Section 4.3(e)
hereof) in connection with this Agreement and the transactions contemplated
hereby, (ii) comply at the earliest practicable date with any request for
additional information or documentary material received by it or any of its
affiliates from the Federal Trade Commission (the "FTC") or the Antitrust
Division of the Department of Justice (the "Antitrust Division") and (iii)
cooperate with one another in connection with any filing under applicable
Antitrust Laws and in connection with resolving any investigation or other
inquiry concerning the transactions contemplated by this Agreement initiated by
any Antitrust Authority (as defined in Section 4.3(e) hereof).
(b) Each party hereto shall use all best efforts to resolve
such objections, if any, as may be asserted with respect to the transactions
contemplated by this Agreement under any Antitrust Law. Without limiting the
generality of the foregoing, "best efforts" shall include, without limitation:
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(i) in the case of each of Parent and Borden:
(A) filing with the appropriate Antitrust
Authorities no later than the business day following the date
hereof a Notification and Report Form with respect to the
transactions contemplated by this Agreement; and
(B) if Parent or Borden receives a second request
for information and documents from an Antitrust Authority,
substantially complying with such second request within 21
days following the date of its receipt thereof;
(ii) in the case of Parent only:
(A) (1) filing with the appropriate Antitrust
Authorities, and causing each of Parent's Affiliates and/or
Permitted Assignees and/or other Persons with whom Parent or
any of its Permitted Assignees intends to consummate any
transaction related to any of the assets or businesses of
Holdings or its Subsidiaries or related to any assets or
businesses of Parent, Parent's Affiliates and/or Permitted
Assignees, in either case in connection with, or in order to
permit the consummation of, the transactions contemplated
hereby (such Affiliates of Parent, Permitted Assignees and
other Persons, collectively, "Related Transaction Parties") to
file with the appropriate Antitrust Authorities, no later than
five business days following the date hereof a Notification
and Report Form with
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respect to any and all such transactions (including without
limitation any and all such transactions contemplated by
Parent's filing under Section 4.3(b)(i)(A)) for which such a
filing with the appropriate Antitrust Authorities is required
and (2) if Parent or Related Transaction Party receives a
second request for information and documents from an Antitrust
Authority, substantially complying (and causing each
applicable Related Transaction Party to substantially comply)
with such second request within 21 days following the date of
its receipt thereof; and
(B) taking any and all actions and doing any and all
other things necessary, proper or advisable to cause the
condition contained in Section 5.1(b)(ii) hereof to be
satisfied and to permit the Closing to occur as soon as
possible but in any event on or prior to the Earliest Borden
Antitrust Termination Date (as defined below) (it being
understood that, without limiting Parent's obligations
hereunder, the timing of the Closing shall be as set forth in
Section 1.4); and
(iii) in the case of Borden only, subject to Parent's
compliance with clauses (i) and (ii) above, not frustrating or
impeding Parent's strategy or negotiating positions with any Antitrust
Authority, except to the extent such strategy would cause Borden or
any of its Affiliates to take any action with respect to their assets
or businesses, other than actions required by this Agreement with
respect to
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Holdings and its Subsidiaries and their assets and businesses.
For purposes of this Agreement, the term "Earliest Borden Antitrust Termination
Date" shall mean, at any time, the earliest date when Borden would then be
permitted to terminate this Agreement pursuant to Section 9.1(a)(iii) hereof.
(c) If any administrative, judicial or legislative action or
proceeding is instituted (or threatened to be instituted) challenging the
transactions contemplated by this Agreement as violative of any Antitrust Law,
each party hereto shall cooperate with one another to contest and resist any
such action or proceeding, and to have vacated, lifted, reversed or overturned
any decree, judgment, injunction or other order (whether temporary, preliminary
or permanent) that is in effect and that restricts, prevents or prohibits
consummation of the transactions contemplated by this Agreement, including,
without limitation, by pursuing all reasonable avenues of administrative and
judicial appeal. Without limiting the generality of the foregoing, Parent's
obligations pursuant to Section 4.3(b)(ii)(B) above shall include litigating
against any Antitrust Authority or other person necessary, proper or advisable
in order that the condition contained in Section 5.1(b)(ii) hereof may be
satisfied and any and all objections raised by any Antitrust Authority will not
prevent the Closing from occurring on or prior to the Earliest Borden Antitrust
Termination Date (it being understood that, without limiting Parent's
obligations hereunder, the timing of the Closing shall be as set forth in
Section 1.4).
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(d) Each party hereto shall promptly inform the other parties
of any material communication made to, or received by such party from, any
Antitrust Authority or any other Governmental Authority regarding any of the
transactions contemplated hereby. In addition, and without limiting the
generality of the foregoing, Parent and Borden, Inc. each shall cause its
counsel to (i) afford to the other party's counsel the opportunity to receive
and to review for a reasonable period in advance of filing or submission to any
Antitrust Authority all forms, documents, letters, memoranda and other
materials proposed to be filed or submitted to any Antitrust Authority
regarding the transactions contemplated hereby, and give reasonable
consideration to any comments or proposals such counsel may make with respect
to any such forms, documents, letters, memoranda or other materials, (ii) give
reasonable advance notice to the other party's counsel of each meeting,
pre-arranged telephone call or telephone call initiated by a party or its
counsel with any Antitrust Authority regarding the transactions contemplated
hereby, so that such counsel may attend or otherwise participate therein, and
permit the other party's counsel to attend or otherwise participate therein,
and (iii) promptly inform the other party's counsel of the substance of each
other communication (written or oral, in person or by telephone) with any
Antitrust Authority regarding the transactions contemplated hereby.
(e) For purposes hereof, (i) "Antitrust Authorities" means
the FTC, the Antitrust Division and the attorneys general
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of the several states of the United States and (ii) "Antitrust Law" means the
Sherman Act, as amended, the Clayton Act, as amended, the Antitrust
Improvements Act, the Federal Trade Commission Act, as amended, and all other
federal and state statutes, rules, regulations, orders, decrees, administrative
and judicial doctrines, and other laws that are designed or intended to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade.
(f) Parent shall pay to Borden, Inc. by wire transfer in
immediately available funds $10,000,000 within one business day following the
satisfaction of the condition contained in Section 5.1(b)(ii). Except as
provided in Section 9.11(b), such amount shall be non-refundable regardless of
whether or not any of the transactions contemplated by this Agreement is
consummated but, upon the consummation of the Stock Purchase, shall be credited
towards the amounts payable to Borden, Inc. pursuant to Section 1.1(b).
4.4 Non-Solicitation. (a) Parent will not, from and after
the date hereof and for a period of three years following the earlier of the
termination of this Agreement and the Closing Date, without the prior written
approval of Borden, directly or indirectly, solicit, encourage, entice or
induce any person who is an employee of Borden or any of its Subsidiaries, at
the date hereof or at any time hereafter until the earlier of the termination
of this Agreement and the Closing Date, to terminate his or her employment with
Borden or any of its Subsidiaries; provided that the foregoing shall not
prohibit Parent from, after
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the Closing Date, soliciting, encouraging, enticing or inducing any such person
who is an employee of Holdings or its Subsidiaries on the Closing Date. Parent
agrees that any remedy at law for any breach by it of this Section 4.4(a) would
be inadequate, and Borden would be entitled to injunctive relief in such a
case. If it is ever held that the restriction placed on Parent by this Section
4.4(a) is too broad to permit enforcement of such restriction to its fullest
extent, Parent agrees that a court of competent jurisdiction may enforce such
restriction to the maximum extent permitted by law, and Parent hereby consents
and agrees that such scope may be judicially modified accordingly in any
proceeding brought to enforce such restriction.
(b) Borden will not, from and after the date hereof and for a
period of three years following the earlier of the termination of this
Agreement and the Closing Date, without the prior written approval of Parent,
directly or indirectly, solicit, encourage, entice or induce any person who is
an employee of Parent or any of its affiliates known to Borden at the date
hereof or at any time hereafter until the earlier of the termination of this
Agreement and the Closing Date and with whom Borden or its affiliates has had
contact in the course of the negotiation of the transactions contemplated
hereby, to terminate his or her employment with Parent or any of such
affiliates. In addition, Borden will not, for a period of three years
following the Closing Date, without the prior written approval of Parent,
directly or indirectly, solicit, encourage, entice or induce any person who is
an employee of Holdings or Subsidiaries at the
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Closing Date to terminate his or her employment with Parent or any of its
affiliates known to Borden, including Holdings or its Subsidiaries. Borden
agrees that any remedy at law for any breach by it of this Section 4.4(b) would
be inadequate, and Parent would be entitled to injunctive relief in such a
case. If it is ever held that the restriction placed on Borden by this Section
4.4(b) is too broad to permit enforcement of such restriction to its fullest
extent, Borden agrees that a court of competent jurisdiction may enforce such
restriction to the maximum extent permitted by law, and Borden hereby consents
and agrees that such scope may be judicially modified accordingly in any
proceeding brought to enforce such restriction.
4.5 Equipment. Borden, Inc. shall use its reasonable efforts
to obtain Bankers Leasing Corporation's consent to the assignment of that
portion of the Master Lease Agreement (the "Master Lease Agreement") between
Borden, Inc. and Bankers Leasing Corporation relating to the equipment subject
thereto that is used in the operation of Holdings' and its Subsidiaries'
business (the "Equipment"); provided that, in connection with any such
assignment, unless Borden, Inc. otherwise consents thereto in writing, Holdings
or its Subsidiary or Subsidiaries shall assume all of Borden, Inc.'s
obligations under the Master Lease Agreement with respect to such Equipment.
Upon reasonable request and notice, Parent shall, and shall cause its counsel,
accountants and other representatives to, cooperate with Borden, Inc. in
connection with obtaining such consent and in connection with any such
assignment, including without limitation by
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providing such financial and other information with respect to Parent and its
Subsidiaries as Borden, Inc. or Bankers Leasing Corporation may from time to
time reasonably request; provided that neither Parent nor any of its
Subsidiaries shall be required to pay any amount to Bankers Leasing Corporation
in order to obtain such consent from Bankers Leasing Corporation. If such
consent is not obtained prior to the 40th day after the date hereof, then,
subject to Borden's obligations under Section 6.5(a), Parent shall purchase or
cause the purchase of the Equipment on or prior to the Closing Date. Schedule
4.5 hereto sets forth a list of the Equipment as of the date hereof.
4.6 Earnings. (a) Holdings shall prepare and deliver to
Parent on the Closing Date a statement, prepared in accordance with Holdings'
accounting practices applied consistently (subject to normal year-end
adjustments) with Holdings' accounting practices used in the preparation of the
Financial Statements (the "Closing Date Statement"), of the Earnings (as
defined below) for the period from and including January 1, 1997 through the
close of business of the last full accounting period of Holdings (which
consists, for each fiscal quarter of Holdings, of two four-week periods
followed by one five-week period (each, an "Accounting Period")) preceding the
Closing for which Holdings has closed its accounting records in accordance with
its normal practices. If the Earnings set forth on the Closing Date Statement
exceed the sum of (i) the amount of dividends, if any (including, without
limitation, dividends on the Common Stock and any special or regular quarterly
dividends on the Preferred
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Stock), paid by Holdings during the period covered by the Closing Date
Statement (less the amount of any cash contributions received by Holdings
during such period), plus (ii) the amount of accrued and unpaid dividends on
the Preferred Stock as of the last day covered by such Closing Date Statement,
plus (iii) the aggregate amount of tax sharing payments (including advances
thereof) made by Holdings pursuant to the Tax Sharing Agreement for and during
the period covered by the Closing Date Statement (the amount of such excess, if
any, the "Closing Payment Amount"), then, on the Closing Date, Parent shall pay
to Borden, Inc. by intra-bank transfer at The Chase Manhattan Bank, New York,
New York (ABA #021000021) (Credit to Borden, Inc. 015-1-013521) cash in U.S.
dollars and in immediately available funds in an amount equal to the Closing
Payment Amount.
"Earnings" means the consolidated earnings before income taxes
(but net of all other Taxes) of Holdings and its Subsidiaries as reported by
Holdings using Holdings' accounting practices applied consistently (subject to
normal year-end adjustments) with Holdings' accounting practices used in the
preparation of the Financial Statements, determined without giving effect to
(i) any extraordinary charges or (ii) any fees or expenses incurred by Holdings
and its Subsidiaries in connection with the transactions contemplated by this
Agreement, but only to the extent such fees and expenses were incurred
specifically at the request of Parent or its affiliates or in connection with
Parent obtaining financing for the transactions contemplated by this Agreement.
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(b) Not later than 20 business days after Holdings would
close its accounting records in accordance with its normal practices (as in
effect prior to the Closing) for the full Accounting Period in which the
Closing occurs (such Accounting Period, the "Closing Period"), Parent shall, or
shall cause the Surviving Entity to, prepare and deliver to Borden, Inc. a
statement, prepared in accordance with the same accounting practices as are
used for purposes of the Closing Date Statement (the "Earnings Statement") of
the Earnings for the period from and including January 1, 1997 through the last
day of the Closing Period. The Earnings Statement shall include separate
calculations of (i) the Earnings for the period covered by the Closing Date
Statement, together with a reconciliation of any amounts that differ from the
amounts contained in the Closing Date Statement and a reasonably detailed
statement of the reasons for each such difference, (ii) the Earnings for each
full Accounting Period beginning immediately following the period covered by
the Closing Date Statement and ending before the Closing Period, (iii) the
Earnings for the Closing Period and (iv) the Earnings for the Closing Period,
multiplied by a fraction, the numerator of which is the number of days from and
including the first day of the Closing Period through the Closing Date and the
denominator of which is the number of days in the Closing Period.
(c) Borden, Inc. will have 20 business days to review the
Earnings Statement, together with the workpapers used in its preparation.
Parent shall make the books and records of
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Holdings, the Surviving Entity and the Subsidiaries available to Borden, Inc.
for purposes of its review of the Earnings Statement. Unless Borden, Inc.
delivers written notice to Parent on or prior to the 20th business day after
its receipt of the Earnings Statement of its objection to the Earnings
Statement, the parties hereto will be deemed to have accepted and agreed to the
Earnings Statement, and such agreement will be final and binding. If Borden,
Inc. so notifies Parent of its objection to the Earnings Statement and delivers
to Parent a reasonably detailed itemized basis for such objection, Parent shall
have 20 business days to prepare and deliver a revised Earnings Statement to
Borden, Inc. or to notify Borden, Inc. in writing that it does not intend to do
so. Thereafter, Parent and Borden, Inc. will, within 20 business days
following the delivery of such revised Earnings Statement or written notice
(the "Resolution Period"), attempt to resolve their differences. Any
resolution by Parent and Borden, Inc. during the Resolution Period as to any
disputed amounts will be final, binding and conclusive. If Parent and Borden,
Inc. do not resolve all disputed items by the end of the Resolution Period,
then all items remaining in dispute will be submitted within ten days after the
expiration of the Resolution Period to an independent accounting firm of
national reputation mutually acceptable to Parent and Borden, Inc. (the
"Neutral Auditors"). All fees and expenses relating to the work, if any, to be
performed by the Neutral Auditors will be borne equally by Parent and Borden,
Inc. The Neutral Auditors will deliver to Parent and Borden, Inc. a written
determination (such
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determination to include a worksheet setting forth all material calculations
used in arriving at such determination and to be based solely on information
provided to the Neutral Auditors by Parent and Borden, Inc.) of the disputed
items within 30 days of receipt of the disputed items, which determination will
be final, binding and conclusive. The final, binding and conclusive Earnings
Statement, which either is agreed upon by Parent and Borden, Inc. or is
delivered by the Neutral Auditors in accordance with this Section, will be the
"Conclusive Earnings Statement" and the date on which an Earnings Statement
becomes a Conclusive Earnings Statement will be the "Establishment Date".
(d) If the amount of Earnings set forth on the Conclusive
Earnings Statement is different from the amount of the amount of Earnings set
forth on the Closing Date Statement, Parent or Borden, Inc., as the case may
be, shall pay to the other, by wire transfer in immediately available funds on
the second business day following the Establishment Date, an amount in cash
equal to the difference between the Aggregate Earnings Payment (as defined
below) and the Closing Payment Amount (the amount of such difference is
referred to herein as the "Final Payment Amount"). For purposes of this
Agreement, "Aggregate Earnings Payment" means:
(i) the sum of (A) the Earnings for the period from and
including January 1, 1997 through the last day of the full Accounting
Period immediately preceding the Closing Period, plus (B) the Earnings
for the Closing Period, multiplied, in the case of this clause (B)
only, by a
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fraction, the numerator of which is the number of days from and
including the first day of the Closing Period through the Closing Date
and the denominator of which is the number of days in the Closing
Period; minus
(ii) the sum of (A) the amount of dividends, if any
(including, without limitation, dividends on the Common Stock and any
special or regular quarterly dividends on the Preferred Stock), paid
by Holdings during the period from and including January 1, 1997
through the Closing Date (less the amount of any cash contributions
received by Holdings during such period), plus (B) the amount of
accrued and unpaid dividends on the Preferred Stock as of the Closing
Date, plus (C) the aggregate amount of tax sharing payments (including
advances thereof) made by Holdings pursuant to the Tax Sharing
Agreement for and during the period covered by the Closing Date
Statement.
The Final Payment Amount payable by Parent or Borden, Inc. pursuant to this
Section 4.6(d) shall bear interest for the period from and including the
Closing Date to the date of payment (calculated on the basis of a 365-day year)
at the rate per annum equal to the prime rate publicly announced on the Closing
Date by The Chase Manhattan Bank in New York, New York minus 1%, which interest
shall be payable together with the payment of the Final Payment Amount.
4.7 Termination of Affiliate Relations. Except as
contemplated by this Agreement or as set forth on Schedule 4.7 hereto, on or
prior to the Closing Date, Holdings and its
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Subsidiaries shall have repaid all of their outstanding indebtedness (including
interest thereon) and satisfied all of their other liabilities owed to Borden
or Borden's affiliates (other than Holdings and its Subsidiaries) and Borden
and its affiliates (other than Holdings and its Subsidiaries) shall have repaid
all of their outstanding indebtedness (including interest thereon) and
satisfied all of their other liabilities owed to Holdings and its Subsidiaries.
All agreements between Holdings and its Subsidiaries and Borden and its
affiliates (other than agreements solely between Holdings and its Subsidiaries,
agreements contemplated by this Agreement and agreements listed on Schedule
4.7) shall be terminated as of the Closing, and all obligations and liabilities
thereunder shall have been satisfied.
4.8 Further Actions. (a) Subject to the terms and
conditions of this Agreement, and without limiting (or, with respect to the
matters covered by Section 4.3, expanding) the obligations of the parties
contained in Section 4.3, each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things necessary, proper or advisable to consummate
and make effective the transactions contemplated by this Agreement, including
using its reasonable best efforts: (i) to obtain, in addition to approvals
discussed in Section 4.3 hereof, any licenses, permits, consents, approvals,
authorizations, qualifications and orders of federal, state, local and foreign
Governmental Authorities and parties to contracts with Holdings or any of its
Subsidiaries as are required in connection with the
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consummation of the transactions contemplated hereby; (ii) to effect, in
addition to filings discussed in Section 4.3 hereof, all necessary
registrations and filings; (iii) to defend any lawsuits or other legal
proceedings, whether judicial or administrative, whether brought derivatively
or on behalf of third parties (including Governmental Authorities or
officials), challenging this Agreement or the consummation of the Stock
Purchase, the Merger or the other transactions contemplated hereby; (iv) in the
case of Parent, to obtain the funds necessary to consummate the transactions
contemplated by this Agreement on the Closing Date; and (v) to furnish to each
other such information and assistance and to consult with respect to the terms
of any registration, filing, application or undertaking as reasonably may be
requested in connection with the foregoing.
(b) Except as permitted in the Trademark License Agreement,
neither Holdings nor any of its Subsidiaries shall in any way use, after the
end of the three month period beginning on the Closing Date, any trademark,
tradename, brandmark, brandname, tradedress or logo owned or used in the
continuing business of Borden or any of its affiliates (collectively, the
"Borden Names"), or use any trademark, tradename, brandmark, brandname,
tradedress or logo which is likely to cause confusion with any Borden Name or
be associated with Borden or any of its affiliates, on or as of the Closing
Date. If this Section 4.8(b) is breached or threatened to be breached, Parent
expressly consents that in addition to any other remedy Borden and its
affiliates may have, Borden or such affiliate shall be entitled
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to apply for and receive injunctive relief in order to prevent the continuation
of any existing breach or the occurrence of any threatened breach.
(c) Promptly after the Closing, Borden, Inc. shall cause all
books of account, minute books, stock record books and other records of
Holdings and its Subsidiaries to be delivered to Holdings; provided that
Borden, Inc. may deliver copies of, or relevant extracts from, any such
documents which contain information with respect to Borden or affiliates of
Borden, Inc. other than Holdings or its Subsidiaries.
4.9 Preparation of Returns and Payment of Taxes. Holdings
shall prepare and timely file all Returns and amendments thereto required to be
filed by the Borden Corporations on or before the Closing Date. Parent shall
have a reasonable opportunity to review any such Returns to the extent that
such Returns do not include or relate to any corporation or group of
corporations other than the Borden Corporations. Borden and each of the Borden
Corporations shall pay and discharge all Taxes, assessments and governmental
charges upon or against it or any of its properties or assets, and all
liabilities at any time existing, before the same shall become delinquent and
before penalties accrue thereon prior to the Closing Date, except to the extent
and as long as: (a) the same are being contested in good faith and by
appropriate proceedings pursued diligently and in such a manner as not to cause
any Material Adverse Effect; and (b) Holdings shall have set aside on its books
reserves (segregated to the extent required by sound accounting practice)
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in the amount of the demanded principal imposition (together with interest and
penalties relating thereto, if any).
4.10 No Shopping. Until the earlier of the Closing and the
termination of this Agreement, Borden and Holdings and those acting on behalf
of them will not (and Borden will use its best efforts to cause its officers,
employees, shareholders, agents and representatives not to), directly or
indirectly, solicit, encourage or initiate any discussions with, or negotiate
with or provide any information to, any person or entity other than Parent and
Parent's officers, employees and agents concerning any merger, sale of material
assets or similar transaction involving Holdings and its Subsidiaries or any
sale of any capital stock of Holdings and its Subsidiaries (other than sales of
common stock pursuant to the exercise of outstanding Options). Without the
prior written consent of Parent during such period, neither Borden nor Holdings
will furnish to any person or entity (other than Parent) any non-public
information concerning Holdings and its Subsidiaries or their respective
businesses, financial affairs or prospects for the purpose of or with the
intent of permitting such person or entity to evaluate a possible acquisition
of any capital stock or (other than in the ordinary course of business) assets
of Holdings and its Subsidiaries.
4.11 USDA Compliance Agreement. Parent agrees that it will
assume the obligations of Borden, Inc. and/or Borden/Meadow Gold Dairies, Inc.
under the Compliance Agreement in Lieu of Debarment among Borden, Inc.,
Borden/Meadow Gold Dairies, Inc.
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and the Food and Consumer Service of the United States Department of
Agriculture if Parent is requested to assume such obligations by the Food and
Consumer Service pursuant to Section 7(a) of such Compliance Agreement.
4.12 Post-Closing Services. No later than 30 days after the
date of this Agreement, Parent shall notify Borden, Inc. in writing of the
services under the Master Customer Services Agreement currently in effect that
Parent desires to terminate as of the Closing Date (the "Terminated Services").
Unless Borden Services Company and Parent otherwise agree in writing prior to
the Closing Date, Borden, Inc. agrees to cause Borden Services Company to
terminate the Terminated Services effective as of the Closing Date.
4.13 Financing Best Efforts. Parent shall use all best
efforts to obtain the funds needed to permit the Closing to occur as soon as
possible but in any event no later than the Clause (iv) Termination Date (as
defined in Section 9.1). Without limiting the generality of the foregoing,
"best efforts" shall include, without limitation, taking any and all actions
and doing any and all other things necessary, proper or advisable to obtain
such funds and to permit the Closing to occur as soon as possible but in any
event on or prior to the Clause (iv) Termination Date.
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ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions Precedent to Obligations of Parties. The
respective obligations of each of the parties hereto hereunder are subject to
the satisfaction, at or prior to the Closing Date, of each of the following
conditions:
(a) No Injunction. At the Closing Date, there shall be no
injunction, restraining order or decree of any nature of any court or
Governmental Authority of competent jurisdiction that is in effect that
restrains or prohibits the consummation of the Stock Purchase or the Merger;
provided, however, that the parties invoking this condition shall use their
best efforts to have such injunction, order or decree vacated or denied.
(b) Regulatory Authorizations. All (i) consents, approvals,
authorizations and orders of federal and state Governmental Authorities as are
required to be obtained prior to the Closing in connection with the
transactions contemplated by this Agreement (the "Required Consents") shall
have been obtained, except for Required Consents the failure to obtain which,
individually or in the aggregate, would not have a Material Adverse Effect; and
(ii) applicable waiting periods specified under the Antitrust Improvements Act
with respect to the transactions contemplated by this Agreement shall have
lapsed or been terminated.
5.2 Conditions Precedent to Obligation of Parent. The
obligation of Parent to consummate the transactions contemplated
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by this Agreement is subject to the satisfaction at or prior to the Closing
Date of each of the following additional conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Borden, Inc. and Holdings contained in this
Agreement shall be true and accurate as of the Closing Date as if made at and
as of such date (except for changes permitted or contemplated by this Agreement
and except those representations and warranties that address matters only as of
a particular date or only with respect to a specific period of time, which need
only be true and accurate as of such date or with respect to such period),
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any exception contained therein for
matters that would or would not, as the case may be, have a Material Adverse
Effect), would not, individually or in the aggregate, have Material Adverse
Effect.
(b) Performance of Agreement. Each of Borden and Holdings
shall have performed in all material respects all obligations and agreements,
and complied in all material respects with all covenants and conditions,
contained in this Agreement to be performed or complied with by it prior to or
at the Closing Date.
(c) Absence of Material Adverse Change. Since the date of
this Agreement, there shall not have been any material adverse change,
individually or in the aggregate, in the financial condition or business of
Holdings and its Subsidiaries taken as a whole (except for changes affecting
the economy
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generally, the dairy industry generally or the dairy industry within any of the
jurisdictions in which Holdings or its Subsidiaries is operating).
(d) Certificate. Parent shall have received a certificate of
Holdings, dated the Closing Date, executed on behalf of Holdings by its
President or any Vice President, to the effect that the conditions specified in
paragraphs (a), (b) and (c) above have been satisfied.
(e) Delivery of the Borden Shares. Borden shall have
delivered to Parent certificates representing all of the Borden Shares owned by
such corporation, each of which shall have been duly endorsed or accompanied by
stock powers duly executed, with all necessary stock transfer stamps attached
thereto.
(f) Ancillary Agreements. Borden Services Company shall have
executed and delivered to Parent or Holdings the Amendment to the Master
Customer Services Agreement, substantially in the form of Exhibit A hereto (the
"Master Services Agreement Amendment"), Borden shall have executed and
delivered to Parent or Holdings the Trademark License Agreement, substantially
in the form of Exhibit B hereto (the "Trademark License Agreement"), Borden,
Inc. shall have executed and delivered to Parent the Insurance Matters
Agreement, substantially in the form of Exhibit C hereto (the "Insurance
Matters Agreement"), and Borden Foods Corporation or another affiliate of
Borden, Inc. shall have executed and delivered to Holdings or its subsidiary
the Trademark License Agreement,
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substantially in the form of Exhibit D hereto (the "Meadow Gold Trademark
License Agreement").
5.3 Conditions Precedent to the Obligation of Holdings and
Borden. The obligation of Holdings and Borden to consummate the transactions
contemplated by this Agreement is subject to the satisfaction at or prior to
the Closing Date of each of the following additional conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Parent contained in this Agreement shall be
true and accurate as of the Closing Date as if made at and as of such date
(except for changes permitted or contemplated by this Agreement and except
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time, which need
only be true and accurate as of such date or with respect to such period),
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any exception or threshold with respect
to materiality contained therein), would not, individually or in the aggregate,
prevent, materially hinder or materially delay the ability of Parent to perform
its obligations under this Agreement or to consummate the transactions
contemplated hereby.
(b) Performance of Agreements. Parent shall have performed
in all material respects all obligations and agreements, and complied in all
material respects with all covenants and conditions, contained in this
Agreement to be performed or complied with by it prior to or at the Closing
Date.
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(c) Certificate. Borden shall have received a certificate of
Parent, dated the Closing Date, executed on behalf of Parent by its President
or any Vice President, to the effect that the conditions specified in
paragraphs (a) and (b) above have been satisfied.
(d) PBGC Actions. The PBGC shall not have (i) threatened to
terminate or terminated any Employee Pension Benefit Plan, (ii) imposed any
lien on any assets of Borden or any of their affiliates or (iii) required any
agreement or guarantee by Borden or any of their affiliates of any obligations
in respect of pension plans of Borden or any of their affiliates as a condition
to withdrawing any threat to terminate any Employee Pension Benefit Plan.
(e) Ancillary Agreements. Parent or Holdings shall have
executed and delivered to Borden Services Company the Master Services Agreement
Amendment, to Borden, Inc. the Insurance Matters Agreement and to Borden the
Trademark License Agreement, and Holdings or its subsidiary shall have executed
and delivered to Borden Foods Corporation or another affiliate of Borden, Inc.
the Meadow Gold Trademark License Agreement.
ARTICLE VI
PROVISIONS AS TO TAXES
6.1 Access to Records Following Closing. Parent and Borden
agree that so long as any books, records and files retained by Borden relating
to the business of the Borden Corporations, or the books, records and files
delivered to the control of Parent pursuant to this Agreement to the extent
they
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relate to the operations of the Borden Corporations prior to the Closing Date,
remain in existence and available, each party (at its expense) shall have the
right upon prior notice to inspect and to make copies of the same at any time
during business hours for any proper purpose. Parent and Borden shall use
reasonable efforts not to destroy or allow the destruction of any such books,
records and files without first offering in writing to deliver them to the
other.
6.2 Section 338 Elections. (a) If requested by Parent,
Borden and Parent shall jointly make timely and irrevocable elections under
Section 338(h)(10) of the Code (the "Elections"), and, if permissible, similar
Elections under any applicable state or local income tax laws with respect to
Holdings and those Subsidiaries set forth on Schedule 6.2 ("Electing
Subsidiaries"). Borden, Parent and Holdings and the Electing Subsidiaries
shall report the transaction consistent with such Elections under Section
338(h)(10) of the Code or any similar state or local tax provision and agree
not to take any action that could cause such Elections to be invalid, and shall
take no position contrary thereto unless required to do so pursuant to a Final
Determination (as hereinafter defined). For purposes of this Agreement, "Final
Determination" shall mean final resolution by (i) a decision of the Tax Court
or judgment, decree, or other order by a court of competent jurisdiction, which
has become final and unappealable; (ii) IRS Form 870, 870-AD, 870-L, 870-L(AD),
870-P, 870-P(AD), 870-S, 870-S(AD) (or any successor forms thereto), on the
date of acceptance by or on
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behalf of the Internal Revenue Service, or by comparable agreement form under
the laws of other jurisdictions; except that a Form 870, 870-AD, 870-L,
870-L(AD), 870-P, 870-P(AD), 870-S, 870-S(AD) or comparable form that reserves
the right of the taxpayer to file a claim for refund and/or the right of the
taxing authority to assert a further deficiency shall not constitute a Final
Determination; (iii) a closing agreement or compromise under Sections 7121 or
7122 of Code or under corresponding provisions of any subsequently enacted
Federal tax laws, or comparable agreements under the laws of other
jurisdictions; (iv) any allowance of a refund or credit in respect of any
overpayment of Tax, including any related interest or penalties, but only after
the expiration of all periods during which such refund may be recovered
(including by the way of offset) by the Tax imposing jurisdiction; or (v) any
other final disposition by reason of the expiration of the applicable statute
of limitations or the expiration of the period during which a protest may be
filed.
(b) To the extent possible, Parent, Borden, Holdings and the
Electing Subsidiaries shall execute as of the Closing Date any and all forms
necessary to effectuate the Elections (including, without limitation, Internal
Revenue Service Form 8023 and any similar forms under applicable state and
local income tax laws (the "Section 338 Forms")). To the extent, however, that
any Section 338 Forms are not executed by the Closing Date, Parent, Borden,
Holdings and the Electing Subsidiaries shall prepare and complete each such
Section 338
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Form no later than 15 days prior to the date such Section 338 Form is required
to be filed. Parent, Borden, Holdings and each of the Electing Subsidiaries
each agree to cause the Section 338 Forms to be duly executed by an authorized
person for such entity and each shall duly and timely file the Section 338
Forms in accordance with applicable tax laws and the terms of this Agreement.
(c) As soon as practicable after the Closing Date, Parent
shall reasonably determine the fair market value of the assets of Holdings and
the Electing Subsidiaries and the allocation of the deemed sales price of the
assets of Holdings and the Electing Subsidiaries resulting from the Elections
(as required pursuant to Section 338(h)(10) of the Code and regulations
promulgated thereunder) among such assets (the "Section 338 Allocation").
Parent shall deliver to Borden a schedule setting forth the Section 338
Allocation within 120 days after the Closing. If the Section 338 Allocation
would have a material adverse effect on Borden as reasonably demonstrated to
Parent by Borden, then Borden shall be entitled to have Borden's comments
incorporated into the Allocation Schedule. Parent, Borden, Holdings and the
Electing Subsidiaries shall file all Returns consistently with the Section 338
Allocation.
(d) Borden shall be responsible for and shall pay any income,
franchise or similar Taxes arising as a result of any Section 338(h)(10)
Election or any comparable or resulting election under state law filed by
Parent or Borden. Notwithstanding the preceding sentence, Parent shall be
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responsible for and shall pay any income, franchise or similar Taxes imposed by
any state or local taxing authority as a result of any resulting mandatory
Section 338(g) election (or any comparable election under state law) if such
state or local taxing authority does not allow or respect a Section 338(h)(10)
Election (or any comparable or resulting election under state law) with respect
to the purchase and sale of the Borden Shares contemplated hereby.
6.3 Post-Closing Cooperation. (a) Borden, Parent and each
of the Borden Corporations shall reasonably cooperate, and shall cause their
respective affiliates, officers, employees, agents, auditors and other
representatives reasonably to cooperate, in preparing and filing all Returns,
including maintaining and making available to each other all records necessary
in connection with Taxes and in resolving all disputes and audits with respect
to all taxable periods relating to Taxes.
(b) Borden shall be responsible for and shall pay all Taxes
for the Borden Corporations that become due before or after the Closing Date
that are properly allocable under this Section to the period prior to and
including the Closing Date, except that the Borden Corporations and Parent, and
not Borden, shall be responsible for and shall pay either to Borden or to the
appropriate taxing authorities (a) the amounts accrued therefor in the
Financial Statements (including amounts accrued with respect to the Tax Sharing
Agreement notwithstanding the fact that such Tax Sharing Agreement has been
terminated pursuant to Section 6.5(d) hereof) but not paid on or before the
Closing
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Date, and (b) the amounts (other than income Taxes) accrued therefor but not
paid on or before the Closing Date which are reflected as expenses in
determining the Earnings for the period from and including January 1, 1997
through the last day of the Closing Period. In order to appropriately
apportion any of these Taxes relating to a period that includes (but that would
not, but for this section, close on) the Closing Date, the parties hereto will,
to the extent permitted by applicable law, elect with the relevant taxing
authorities to treat for all purposes the Closing Date as the last day of a
taxable period of Holdings, and such period shall be treated as a "Short
Period" and a "Pre-Closing Period" for purposes of this Agreement.
In any case where applicable law does not permit Holdings to
treat the Closing Date as the last day of a taxable period, then for purposes
of this Agreement, the Taxes attributable to the operations of Holdings or its
Subsidiaries for such Interim Period (as defined below) shall be (i) in the
case of any transaction-based Tax (such as sales, transfer and other similar
Taxes) ("Transaction-Based Taxes"), any such Tax attributable to a transaction
occurring in such Interim Period; (ii) in the case of Taxes other than
Transaction-Based Taxes that are not based on income or gross receipts, the
total amount of such Taxes for the period in question multiplied by a fraction,
the numerator of which is the number of days in the Interim Period, and the
denominator of which is the total number of days in the entire period in
question, and (iii) in the case of Taxes that are based on income or gross
receipts, the Taxes other than
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Transaction-Based Taxes that would be due with respect to the Interim Period,
if such Interim Period were a Short Period. "Interim Period" means with
respect to any Taxes imposed on Holdings or its Subsidiaries on a periodic
basis for which the Closing Date is not the last day of a Short Period, the
period of time beginning on the first day of the actual taxable period that
includes (but does not end on) the Closing Date and ending on and including the
Closing Date. An Interim Period shall be treated as a Pre-Closing Period for
purposes of this Agreement. "Post-Closing Period" means with respect to any
Taxes imposed on Holdings or its Subsidiaries on a periodic basis for which the
Closing Date is not the last day of a Short Period, the period of time
beginning on the day immediately following the Closing Date and ending on and
including the last day of the actual taxable period that includes (but does not
end on) the Closing Date. Any Taxes relating to a period that includes (but
does not end on) the Closing Date which are not attributed to the Interim
Period pursuant to this paragraph shall be attributed to the Post-Closing
Period.
(c) If in any period ending after the Closing Date Holdings
earns any credit or recognizes any loss which cannot be applied against its Tax
liability for such period, such loss or credit shall not be carried back to any
period prior to the Closing Date.
6.4 Tax Indemnification. (a) Borden's Indemnification.
From and after the Closing Date, Borden shall protect, defend and indemnify
Parent and its affiliates
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(including Holdings and its Subsidiaries) and each of their respective
officers, directors, employees, agents and other representatives (collectively,
the "Parent Indemnitees"), and hold each Parent Indemnitee harmless, from any
diminution in value, demand, damage, claim, action, cause of action,
deficiency, fine, liability, Tax or other loss or expense including, without
limitation, interest, penalties and attorneys' fees and expenses (collectively,
"Damages") arising out of or resulting from any and all Taxes which are (i)
imposed on Borden or any member (other than the Borden Corporations) of the
consolidated, unitary or combined group which includes or included any one or
more of the Borden Corporations that (a) Parent or any one or more of the
Borden Corporations pays or otherwise satisfies in whole or in part, or (b)
results in liens or encumbrances on any assets of any one or more of the Borden
Corporations or Parent, or (ii) imposed on any one or more of the Borden
Corporations in respect of its income, business, property or operations or for
which any one or more of the Borden Corporations may otherwise be liable (A)
for any taxable period ending prior to the Closing Date and for any Pre-Closing
Period, (B) resulting by reason of the several liability of any one or more of
the Borden Corporations pursuant to Treasury Regulations Section 1.1502-6 or
any analogous state, local or foreign law or regulation or by reason of any one
or more of the Borden Corporations having been a member of any consolidated,
combined or unitary group on or prior to the Closing Date, (C) resulting from
any one or more of the Borden Corporations ceasing to be a
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member of the affiliated group (within the meaning of Section 1504(a) of the
Code) that includes Borden, (D) attributable to any discharge of indebtedness
that may result from any capital contributions by Borden (or an affiliate of
Borden) prior to the Closing Date to any one or more of the Borden Corporations
of any intercompany indebtedness owed by such Borden Corporation or
Corporations to Borden (or an affiliate of Borden), or (E) resulting from the
making of the Elections except as provided in Section 6.2(d); provided,
however, that Borden's liability for Damages under the foregoing provisions of
this paragraph shall be reduced to the extent that, as of the time of the
payment of the indemnity claim by Borden, the Borden Corporations and/or Parent
have not satisfied the obligation, if any, imposed on them in the first
sentence of Section 6.3(b) hereof.
(b) Parent's Indemnification. Following the Closing Date,
Parent shall, and shall cause Holdings and each of its Subsidiaries to,
indemnify Borden and its affiliates and each of their respective officers,
directors, employees, and agents and hold them harmless from: (i) all liability
for Taxes of Holdings and any of its Subsidiaries for any period beginning
after the Closing Date and any Post-Closing Period; and (ii) all liability for
Taxes of Holdings or any of its Subsidiaries for the Pre-Closing Period to the
extent of the obligation imposed on the Borden Corporations to pay such Taxes
in the first sentence of Section 6.3(b) hereof.
(c) Tax Audits. With respect to any claim made by any taxing
authority relating to the Borden Corporations (a "Tax
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Claim") relating to any taxable period ending on or before the Closing Date,
Borden shall, at its expense, control all proceedings and may make all
decisions taken in connection with such Tax Claim (including selection of
counsel) and, without limiting the foregoing, may in its sole discretion pursue
or forego any and all administrative appeals, proceedings, hearings and
conferences with any taxing authority with respect thereto, and may, in its
sole discretion, either pay the Tax claimed and sue for a refund where
applicable law permits such refund suits or contest the Tax Claim in any
permissible manner, provided, however, that if the results of such proceeding
could reasonably be expected to have a Material Adverse Effect on the business,
financial condition or results of operations of Parent or the Borden
Corporations for any taxable period including or ending after the Closing Date,
there shall be no settlement or closing or other agreement with respect thereto
without the consent of Parent, which consent will not be unreasonably withheld.
Parent shall, at its expense, control all proceedings and make all decisions
taken in connection with any Tax Claim relating solely to Taxes of Holdings or
any of its Subsidiaries for any taxable period beginning after the Closing Date
(including selection of counsel) and, without limiting the foregoing, may in
its sole discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any taxing authority with respect
thereto, and may, in its sole discretion, either pay the Tax claimed and sue
for a refund where applicable law permits such refund suits or contest the Tax
Claim in any permissible
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manner; provided, however, that if the results of such proceeding could
reasonably be expected to have a Material Adverse Effect on the business,
financial condition or results of operations of Borden (or any member of the
group of which it is the common parent) for any taxable period including or
ending after the Closing Date, there shall be no settlement or closing or other
agreement with respect thereto without the consent of Borden, which consent
will not be unreasonably withheld.
With respect to any taxable period of the Borden Corporations
beginning before and ending after the Closing Date, Borden and Parent shall
jointly control the defense and settlement of any Tax audit or administrative
or court proceeding relating to any Tax covered by Section 6.4(a) or (b) and
each party shall cooperate with the other party at its own expense and there
shall be no settlement or closing or other agreement with respect thereto
without the consent of the other party, which consent will not be unreasonably
withheld.
In no case shall any of Parent, Holdings or any of Holdings'
Subsidiaries settle or otherwise compromise any Tax Claim relating to a
Pre-Closing Period without Borden's prior written consent. None of Borden,
Parent, Holdings or any of Holdings' Subsidiaries shall settle a Tax Claim
relating to a Post-Closing Period without Parent's prior written consent. In
the event that any party violates the provisions of this paragraph (relating to
the settlement of Tax Claims), such party shall not be entitled to any
indemnity payments with respect to
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any indemnifiable claim (relating to such Tax Claims) pursuant to this Section
6.4.
(d) Tax Refunds. Parent agrees to pay (and to cause each
Borden Corporation to pay) to Borden all refunds of any Taxes for which Borden
is liable under Sections 6.3 and 6.4 hereof, but only to the extent such refund
has not been specifically included as a receivable in the Financial Statements.
Borden agrees to pay to Parent all refunds of any Taxes for which Parent is
liable under Sections 6.3 and 6.4 hereof. The parties shall cooperate in order
to take all reasonably necessary steps to claim any such refund. Any such
refund received by a party (considering, for purposes of this sentence, Parent
and the Borden Corporations as one party and Borden as the other party) or its
affiliates for the account of the other party shall be paid to such other party
within thirty (30) days after such refund is received. For purposes of this
Agreement, a refund of Tax includes the application of an amount otherwise
refundable as a reduction of amounts owed or to be owed.
(e) Computation of Indemnifiable Losses. Subject to Section
6.5(c) hereof, any amount payable pursuant to this Section 6.4 shall be
decreased to the extent of (i) any net Tax benefit actually recognized and
utilized to offset or reduce the Tax liability of the indemnified party as a
result of the adjustment to Taxes giving rise to the indemnifiable loss and
(ii) any insurance proceeds received or receivable by the indemnified party in
respect of an indemnifiable loss. The
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indemnification provisions set forth in this Section 6.4 shall survive the
Closing until ninety days after the expiration of the applicable statute of
limitations (and any extensions thereof). Anything to the contrary
notwithstanding, the termination or expiration of any indemnification
obligation hereunder shall not affect any claims made in writing prior to such
expiration or termination.
6.5 Other Tax Matters. (a) Except for stock transfer taxes
and other Taxes referred to in Articles I and II hereof and except for any
Transfer Taxes, as hereinafter defined, imposed in connection with any purchase
by Parent or Parent's designee of the Equipment pursuant to Section 4.5, which
shall be paid by Borden, Inc., all Transfer Taxes incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by
Parent, and Borden and Parent shall cooperate in timely making all filings,
returns, reports and forms as may be required to comply with the provisions of
such tax laws. For purposes of this Agreement, (i) "Transfer Taxes" shall mean
transfer, documentary, sales, use, registration and other such taxes (including
all applicable Real Estate Transfer Taxes, as hereinafter defined, and Real
Property Gains Taxes, as hereinafter defined) and related fees (including any
penalties, interest and additions to tax) incurred with respect to such taxes,
(ii) "Real Estate Transfer Tax" shall mean the New York Real Estate Transfer
Tax and any other similar state or local taxes imposed by New York State or any
other state or local jurisdiction, and (iii) "Real Property Gains Tax" shall
mean any
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state or local taxes similar to the New York Real Property Gains Tax prior to
its repeal.
(b) There shall be no withholding pursuant to Section 1445 of
the Code; provided that Borden delivers to Parent at the Closing a certificate
complying with the Code and Treasury Regulations, in form and substance
satisfactory to Parent, duly executed and acknowledged, certifying that the
transactions contemplated hereby are exempt from withholding under Section 1445
of the Code.
(c) Borden and Parent agree to treat any amounts payable
pursuant to this Article VI as an adjustment to the purchase price of the
Borden Shares.
(d) Except as provided in Section 6.3(b), Borden shall cause
all tax allocation agreements or tax sharing agreements with respect to each of
the Borden Corporations (including without limitation the Tax Sharing
Agreement) to be terminated as of the Closing Date, and shall ensure that such
agreements are of no further force or effect as to any of the Borden
Corporations on and after the Closing Date and that there shall be no further
liabilities or obligations imposed on any of the Borden Corporations under any
such agreements.
ARTICLE VII
LABOR MATTERS, EMPLOYEE
RELATIONS AND BENEFITS
7.1 Conduct Prior to the Closing. Prior to the Closing,
Parent shall take no action to cause Borden, Holdings or their Subsidiaries to
terminate the employment of any Business
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Employee, and neither Borden, Holdings nor their Subsidiaries shall be under
any obligation to terminate any Business Employee prior to or at the Closing.
7.2 Continuity of Employment. The parties hereto intend that
there shall be continuity of employment with respect to all Business Employees;
provided that nothing contained herein to the contrary shall prohibit Parent,
Holdings or its Subsidiaries from terminating any non-union employee following
the Closing, and nothing contained herein to the contrary shall prohibit
Parent, Holdings or its Subsidiaries from terminating any union employee
following the Closing pursuant to the terms of an valid Collective Bargaining
Agreement (as defined in Section 7.3 below).
7.3 Collective Bargaining Agreements. Parent shall continue
to employ all Business Employees covered by any of the collective bargaining
agreements listed on Schedule 7.3 (the "Collective Bargaining Agreements") as
of the Closing. For each Collective Bargaining Agreement in effect as of the
Closing, Parent agrees to (a) recognize the union which is a party to such
Collective Bargaining Agreement as the exclusive collective bargaining
representative for the Business Employees covered under the terms of the
Collective Bargaining Agreement and (b) negotiate with the union over the terms
of a new collective bargaining agreement upon timely demand by the union.
Nothing contained herein to the contrary shall prohibit Parent, Holdings or its
Subsidiaries from terminating any Business Employee
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covered under an existing Collective Bargaining Agreement pursuant to the terms
of that agreement.
7.4 Comparable Benefits. For one year following the Closing,
Parent shall, or shall cause an affiliate to, offer employee benefits,
effective as of the Closing (including, but not limited to, health, welfare,
pension, vacation, savings and severance benefits) to the Business Employees
that are comparable in the aggregate to the employee benefits that are in
effect for such employees immediately prior to the Closing. Prior to Closing,
Parent and Borden shall mutually agree upon what employee benefits shall be
offered to non-union Business Employees during the one-year period following
the Closing, in order to provide comparable benefits within the meaning of this
Section 7.4. If the parties are unable to agree as to what employee benefits
offered by Parent are "comparable," the decision of an independent third-party
actuary (the selection of which shall be acceptable to both parties) shall be
binding. With respect to Business Employees who are covered by Collective
Bargaining Agreements, Parent agrees to negotiate with the certified bargaining
representative(s) for such Business Employees over the employee benefits to be
offered following the Closing.
7.5 Business Plan Participation. Except as expressly
provided in this Section 7.5 or except as otherwise required by applicable law,
Business Employees shall cease active participation in (and accrual of
additional benefits under) all Borden-sponsored Business Plans as of the
Closing.
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7.6 Business Plan Liabilities. Except as otherwise
specifically provided in this Article VII, Parent shall be responsible and
liable for all liabilities and obligations (a) relating to the participation of
the Business Employees under the Business Plans and the Parent Business Plans
before, on or after the Closing (including, but not limited to, medical, dental
and life insurance benefits for the benefit of Business Employees who are
receiving disability income payments under any Business Plan, but excluding
long-term disability income benefits payable to Business Employees for
long-term disability claims (i) in pay status prior to Closing or (ii)
converted directly from short-term disability claims in pay status prior to
Closing, without any intervening period between short-term disability status
and long-term disability status) and (b) in connection with the employment (or
termination of employment) of the Business Employees before, on or after the
Closing. Other than the liabilities and obligations expressly assumed by
Parent pursuant to this Agreement relating to the participation of Business
Employees in the Business Plans and in the Parent Business Plans (including,
without limitation, the liabilities and obligations assumed by Parent in the
immediately preceding sentence), Borden shall be responsible and liable for all
liabilities and obligations relating to the Business Plans accruing prior to
Closing. Parent shall have no liabilities or obligations under any Business
Plans that are welfare benefit plans (as defined in Section 3(1) of ERISA)
under which Business Employees have ceased active participation pursuant to
Section 7.5 of this Agreement,
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except that Parent shall be responsible and liable for all accruals or claims
relating to the participation of Business Employees for all periods of time
prior to such cessation with respect to such welfare benefit plans.
7.7 Defined Benefit Plan. (a) As of the Closing, Borden
shall cause the participation by the Business Employees in the Borden, Inc.
Employees Retirement Income Plan (the "Borden Pension Plan") to cease. Assets
shall be transferred in cash or other marketable assets as determined by Borden
(valued at their fair market value as of the date or dates of transfer) as soon
as practicable (but in no event later than nine months) after the Closing to
such defined benefit plan designated by Parent (the "Parent Pension Plan");
provided, however, that unless Parent agrees otherwise, all assets so
transferred shall be a pro rata portion of plan assets on hand at Closing in
approximately the same ratio that liabilities transferred bear to total plan
liabilities. The amount of assets to be transferred shall be equal to:
(i) the funded percentage of "current liability" under
the Borden Pension Plan of the Business Employees as of the Closing
(with assets valued at fair market value as of such date), using an
interest rate equal to the highest permissible rate under Section
412(l)(7) of the Code at the Closing. Current liability shall be
determined as of January 1, 1997 and actuarially rolled forward from
January 1, 1997 to the Closing, determined by an actuary retained by
Borden ("Borden's Actuary"), utilizing the actuarial methods
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and assumptions (other than the aforementioned interest rate) used for
determining the minimum funding requirements for the Borden Plan for
1996, minus
(ii) any benefit payments made to or in respect of a
Business Employee during the period from the Closing to the date of
transfer, plus
(iii) interest on the net amount described in clauses (i)
and (ii) above at the same interest rate used to determine the amount
in clause (i) above from the Closing Date to the date of transfer.
The foregoing method is accepted by the parties to this Agreement as a
reasonable basis on which to determine the present value of accrued benefits in
compliance with the provisions of Section 414(l) of the Code. Parent's actuary
may review Borden's Actuary's calculations for accuracy in the application of
the agreed actuarial methods, assumptions and interest rates specified in
clause (i) above as well as the calculations pursuant to clauses (ii) and (iii)
above. Should the actuaries be unable to agree upon the calculations, the
matter shall be submitted to an independent third- party actuary (the selection
of which shall be acceptable to both parties) for final resolution. Prior to
the transfer date, all benefit payments shall be made from the Borden Pension
Plan. In consideration of the transfer of assets described herein, the Parent
Pension Plan shall, as of the Closing, assume all liabilities in respect of
participants for whom assets are transferred.
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(b) Parent shall (i) give Borden written notice of the name
of the trustee of the Parent Pension Plan, accompanied by a copy of the most
recent favorable IRS determination letter for such plan received by Parent, as
promptly as possible after the Closing, but in any event prior to the date on
which such transfer is to occur; and (ii) as soon as practicable (but in no
event later than nine months) after the Closing, make all required filings and
submissions to appropriate Governmental Authorities. As soon as practicable
after the Closing, Borden shall cause the trustee of the Borden Pension Plan to
transfer to the trustee of the Parent Pension Plan the amount of assets
described in Section 7.7(a) above. Borden, Parent and each of the Borden
Corporations shall reasonably cooperate, and shall cause their respective
affiliates, officers, employees, agents and other representatives reasonably to
cooperate, in preparing and filing all returns, reports and other documents
with governmental regulatory agencies, including maintaining and making
available to each other all records necessary in connection with such filings
or reasonably necessary to resolve disputes or audits with respect to Business
Employees covered by Business Plans (other than those records that, absent a
specific judicial order or decree requiring disclosure, are privileged or that
otherwise may not be disclosed pursuant to contract, judicial order or other
similar circumstances).
7.8 Defined Contribution Plans. (a) As of the Closing,
Borden shall cause the active participation by the Business Employees in the
Borden, Inc. Retirement Savings Plan,
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the Borden, Inc. Union Savings Plan and the Borden, Inc. Associate Savings Plan
(collectively, the "Savings Plans") to cease. Borden shall (i) as of the
Closing cause the trustees of the Savings Plans to identify, in accordance with
the applicable spinoff provisions set forth under Section 414(l) of the Code,
the assets of the Savings Plans representing the full account balances of the
Business Employees for all periods of participation through the Closing
(including, as applicable, all employee contributions, employer contributions
and all earnings attributable thereto); and (ii) as soon as practicable (but in
no event later than nine months) after the Closing, make all required filings
and submissions to appropriate Governmental Authorities and all required
amendments to the Savings Plans and related trust agreements necessary to
provide for the transfer of assets described in this Section 7.8. The Savings
Plans shall be amended to provide that (i) there shall be no contributions
thereto with respect to the Business Employees for periods after the Closing
and (ii) all transferred employer contributions shall be fully vested.
(b) Parent shall (i) give Borden written notice of the name
of the trustee of the defined contribution plan designated by Parent to which
the assets and liabilities for benefits of the Savings Plans are to be
transferred (the "Parent Savings Plan"), accompanied by a copy of the most
recent favorable IRS determination letter for such plan received by Parent, as
promptly as possible after the Closing, but in any event prior to the date on
which such transfer is to occur; and (ii) as soon as
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practicable (but in no event later than nine months) after the Closing, make
all required filings and submissions to appropriate Governmental Authorities.
As soon as practicable after the Closing, and pursuant to the procedures set
forth below, Borden shall cause the trustees of the Savings Plans to transfer
to the trustee of the Parent Savings Plan the following amount (the "Total
Transfer Amount"): (A) the full account balances (in kind or in cash as
determined by Borden, and notes for any loans to the Business Employees) of all
Business Employees, whose account balances shall have been credited with
appropriate earnings and contributions, if any, attributable to the period
ending on the close of business on the day preceding the Closing, plus (B)
earnings on such account balances attributable to the period from the Closing
to the Transfer Date, reduced by (C) any benefit or withdrawal payments in
respect of the Business Employees prior to the Transfer Dates. The "Transfer
Date" shall be the first day of the month following a 15th day of a month by
which Parent has requested the transfer and Borden has received copies of the
applicable favorable IRS determination letters. On the Transfer Date, Borden
shall transfer 90% of its good faith estimate of the Total Transfer Amount.
Upon the completion of a calculation of the Total Transfer Amount by the
recordkeeper for the Savings Plans (such calculation to occur no later than 120
days after the Transfer Date and such calculation to be binding on Parent), the
Savings Plans shall transfer to the Parent Savings Plan an amount equal to the
difference between the Total Transfer Amount and any amounts previously
transferred to the Parent Savings Plan or, if
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applicable, the Parent Savings Plan shall transfer to the Savings Plans an
amount equal to the difference between any amounts previously transferred to
the Parent Savings Plan and the Total Transfer Amount. In consideration of the
transfer of assets hereunder, Parent shall, as of the Transfer Date, cause the
Parent Savings Plan to assume the liabilities for benefits payable to plan
participants and beneficiaries in respect of participants for whom assets
(including notes) are transferred.
(c) Periods of employment by the Business Employees with
Borden for which credit was given under the Savings Plans shall be taken into
account for all purposes under the Parent Savings Plan to the same extent they
were taken into account under the Savings Plans.
(d) Parent shall (i) permit repayment to the Parent Savings
Plan of the outstanding loans of the Business Employees (under the Savings
Plans) by way of regular paycheck deductions and (ii) take all steps required
to effectuate such repayment (including amending its plans).
(e) Any transfer of plan assets shall consist of (i) cash,
(ii) the loan balances described below in this Section 7.8(e) and (iii) fixed
investment contracts as determined by Borden (valued at their fair market value
as of the date or dates of transfer); provided, however, that unless Parent
agrees otherwise, all fixed investment contracts so transferred shall be a pro
rata portion of such contracts on hand at Closing in approximately the same
ratio as the account balances transferred bear to total account balances.
Should any outstanding loans of
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Business Employees (under the Savings Plans) be transferred to the trustee or
trustees of the Parent's Savings Plan, Borden shall cause such loans to be
transferred only with respect to such Business Employees who are identified in
writing to Parent by the Transfer Date as having executed new notes in favor of
Parent's Savings Plan.
7.9 Withdrawal Liability. As of the Closing, Parent shall
assume the liability for any pension withdrawal liability to the Central States
Southeast and Southwest Areas Pension Fund thereafter due resulting from
participation in the pension fund of employees or former employees of Holdings
or its Subsidiaries. Claims for multiemployer plan withdrawal liability
triggered by events occurring prior to the Closing shall be the responsibility
of Borden.
7.10 Post-Retirement Benefits. Subject to Sections 7.7 and
7.8 above, as of the Closing, no Business Employee shall be eligible to receive
"Post-Retirement Benefits" from Borden (including, but not limited to, pension,
retiree medical and retiree life benefits). To the extent that Business
Employees receive (or are eligible to receive) Post-Retirement Benefits from
Borden immediately prior to the Closing, such Business Employees shall receive
Post- Retirement Benefits from Parent following the Closing.
7.11 Welfare Plans. With respect to any Parent Business Plan
that is a "welfare benefit plan" (as defined in Section 3(1) of ERISA)
maintained for the benefit of Business Employees on and after the Closing,
Parent shall (a) cause there
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to be waived any pre-existing condition limitations and (b) give effect, in
determining any deductible and maximum out- of-pocket limitations, to claims
incurred and amounts paid by, and amounts reimbursed to, such employees with
respect to similar plans maintained by Borden immediately prior to the Closing.
7.12 Accrued Vacation. With respect to any accrued but
unused vacation time to which any Business Employee is entitled pursuant to the
vacation policy applicable to such employee immediately prior to the Closing
(the "Vacation Policy"), Parent shall allow such Business Employee to use such
accrued vacation; provided, however, that if Parent deems it necessary to
disallow such employee from taking such accrued vacation, Parent shall be
liable for and pay in cash to such employee an amount equal to such vacation
time in accordance with terms of the Vacation Policy; provided, further, that
Parent shall be liable for and pay in cash an amount equal to such accrued
vacation time to any Business Employee whose employment terminates for any
reason subsequent to the Closing; provided, further, that Parent shall be under
no obligation to recognize any unused vacation time accrued prior to the year
in which the Closing occurs.
7.13 Severance. Parent shall provide severance benefits in
accordance with Schedule 7.13 to Business Employees (who are either salaried or
non-union hourly employees) terminated within 12 months of the Closing under
the same terms as the Business Plans that are severance plans.
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7.14 Service Credit. With respect to the Business Employees,
Parent shall recognize all service with Borden for purposes of eligibility and
vesting under the Parent Business Plans.
7.15 WARN Act. Parent agrees to provide any required notice
under the Worker Adjustment and Retraining Notification Act ("WARN") and any
other applicable law and to otherwise comply with any such statute with respect
to any "plant closing" or "mass layoff" (as defined in WARN) or similar event
affecting employees and occurring on or after the Closing or arising as a
result of the transactions contemplated hereby.
7.16 COBRA. Parent agrees to provide any required notice
under the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended
("COBRA"), and any other applicable law on or after the Closing.
7.17 No Rights Conferred on Employees. Nothing herein,
expressed or implied, shall confer upon any employee or former employee of
Borden, Parent, Holdings and its Subsidiaries, or any of their affiliates
(including, without limitation, the Business Employees), any rights or remedies
(including, without limitation, any right to employment or continued employment
for any specified period) of any nature or kind whatsoever, under or by reason
of this Agreement.
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ARTICLE VIII
ASSUMPTION OF CERTAIN OBLIGATIONS
AND LIABILITIES; INDEMNIFICATION
8.1 Assumption and Indemnification. (a) Parent hereby
agrees to assume all obligations and liabilities of Borden and its affiliates
(collectively, the "Borden Indemnified Parties"), and to indemnify, defend and
hold the Borden Indemnified Parties harmless from and against and in respect of
any and all claims, losses, damages, expenses, obligations and liabilities
(including costs of collection, attorney's fees and other costs of defense)
incurred by them in respect of or arising out of:
(i) except for liabilities and obligations
expressly assumed by Borden under this Agreement, any liabilities or
obligations of or related to Holdings or any of its Subsidiaries,
whether arising prior to, on or after the Closing Date;
(ii) any breach (A) by Parent or the Surviving
Entity of any of its agreements or covenants contained in this
Agreement, the Master Customer Services Agreement, as amended by the
Master Services Agreement Amendment, the Insurance Matters Agreement,
the Trademark License Agreement or the Meadow Gold Trademark License
Agreement, or (B) by Parent of the representation and warranty
contained in Section 3.3(b); and
(iii) (A) any assignment of Parent's rights or obligations
pursuant to Section 9.6, any modification of any
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of the provisions of this Agreement, the Master Customer Services
Agreement, as amended by the Master Services Agreement Amendment, the
Trademark License Agreement or the Meadow Gold Trademark License
Agreement made in connection with such assignment and any filing,
notice, waiver, agreement, document or other action made or required
in connection with such assignment and (B) any change to the structure
of the Merger referred to in the last sentence of Section 1.2.
All such claims, losses, damages, expenses, obligations and liabilities are
collectively referred to as "Borden Indemnified Liabilities".
Notwithstanding any other provision of this Agreement, Parent
agrees that it shall have no cause of action against any Indemnified Party
under Section 107 of the Comprehensive Environmental Response, Compensation and
Liability Act, as the same has been or may be amended from time to time, or any
other cause of action with respect to chemicals in the soil or groundwater at,
near or from any property or facility owned or operated by any of Holdings and
its Subsidiaries.
(b) Borden, Inc. hereby agrees to assume all obligations and
liabilities of Parent, Holdings, the Surviving Entity and their affiliates
(collectively, the "Parent Indemnified Parties" and, together with the Borden
Indemnified Parties, the "Indemnified Parties"), and to indemnify, defend and
hold the Parent Indemnified Parties harmless from and against and in respect of
any and all claims, losses, damages, expenses,
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obligations and liabilities (including costs of collection, attorney's fees and
other costs of defense) incurred by them in respect of or arising out of:
(i) any demand for appraisal of Shares made by a holder
of Common Shares who has not voted in favor of the Merger, or any
other claim by a holder of Common Shares that such holder is entitled
to additional consideration as a holder of Common Shares as a result
of the transactions contemplated by this Agreement;
(ii) any breach (A) by Borden of any of their agreements
or covenants contained in this Agreement (but expressly excluding,
notwithstanding anything to the contrary that may be contained herein,
Sections 3.1 and 3.2 hereof, except as expressly provided in clause
(C), (D) or (E) below), (B) after the Closing, by Borden or their
affiliates of the Master Customer Services Agreement, as amended by
the Master Services Agreement Amendment, the Insurance Matters
Agreement, the Trademark License Agreement or the Meadow Gold
Trademark License Agreement, (C) by Borden of the representation and
warranty contained in Section 3.1(b) or 3.1(d), (D) by Holdings of the
representation and warranty contained in Section 3.2(b) or (E) by
Holdings of the representation and warranty contained in the second
sentence of Section 3.2(d) insofar as it pertains to Holdings' or its
Subsidiaries' ownership of all of the outstanding shares of capital
stock or other equity interests of each of the Subsidiaries;
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(iii) any claim by any holder of shares of Common Stock on
the date hereof that the original offer and sale by Holdings of shares
of its Common Stock to such holder violated applicable federal or
state securities laws;
(iv) any shares of capital stock or options outstanding
immediately prior to the Closing which are not taken into account in
determining the Common Share Consideration pursuant to Section 1.1 or
otherwise settled pursuant to Section 2.2; and
(v) any liability for long-term disability income
benefits payable to Business Employees, but only to the extent
retained by Borden after the Closing pursuant to Section 7.6(a) of
this Agreement.
All such claims, losses, damages, expenses, obligations and liabilities are
collectively referred to as "Parent Indemnified Liabilities" and, together with
the Borden Indemnified Liabilities, as "Indemnified Liabilities". Parent
hereby agrees, on behalf of each Parent Indemnified Party, that, if the
consideration to be paid to any holder of Dissenting Shares is less than the
Common Share Consideration, then Parent shall pay to Borden, Inc., in cash and
immediately available funds, an amount equal to the excess of the Common Share
Consideration over the amount required to be paid to such holder of a
Dissenting Share.
8.2 Procedure. If a claim by a third party (which term shall
include a holder of Dissenting Shares) is made against an Indemnified Party,
and if such party intends to seek indemnity
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with respect thereto under this Article VIII, such Indemnified Party shall
promptly notify the indemnifying party in writing of such claims setting forth
such claims in reasonable detail. The indemnifying party shall have 10 days
after receipt of such notice to undertake, conduct and control, through counsel
of its own choosing and at its own expense, the settlement or defense thereof,
and the Indemnified Party shall cooperate with it in connection therewith;
provided that the Indemnified Party may participate in such settlement or
defense through counsel chosen by such Indemnified Party if the fees and
expenses of such counsel shall be borne by such Indemnified Party. So long as
the indemnifying party is reasonably contesting any such claim in good faith,
the Indemnified Party shall not pay or settle any such claim. Notwithstanding
the foregoing, the Indemnified Party shall have the right to pay or settle any
such claim; provided that in such event it shall waive any right to indemnity
therefor by the indemnifying party. If the indemnifying party does not notify
the Indemnified Party within 10 days after the receipt of the Indemnified
Party's notice of a claim of indemnity hereunder that it elects to undertake
the defense thereof, the Indemnified Party shall have the right to contest,
settle or compromise the claim but shall not thereby waive any right to
indemnity therefor pursuant to this Agreement. The indemnifying party shall
not, except with the consent of the Indemnified Party, enter into any
settlement that does not include as an unconditional term thereof the giving by
the person or persons asserting such claim to all Indemnified Parties an
unconditional release from all liability
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with respect to such claim or consent to entry of any judgment.
Notwithstanding the foregoing, following the Closing, each party hereto will
afford to the other parties hereto, and cause its counsel and its accountants,
during normal business hours, reasonable access to the books, records and other
data with respect to Holdings and its Subsidiaries, to the extent that such
access may be reasonably required by such other parties to facilitate the
investigation, litigation and final disposition of any claims which may have
been or may be made against them in connection with Holdings and its
Subsidiaries.
ARTICLE IX
MISCELLANEOUS
9.1 Termination and Abandonment. (a) General. This
Agreement may be terminated and the transactions contemplated hereby may be
abandoned at any time, but not later than the Closing Date:
(i) by mutual written consent of Parent and Borden; or
(ii) by Parent or Borden if an injunction, restraining
order or decree of any nature of any Governmental Authority of
competent jurisdiction is issued that prohibits the consummation of
the Stock Purchase or the Merger and such injunction, restraining
order or decree is final and non-appealable; provided, however, that
the party seeking to terminate this Agreement pursuant to this clause
(ii) shall have used its best efforts to have such injunction, order
or decree vacated or denied; or
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(iii) by Borden at any time on or after the 110th day from
the date hereof if the conditions contained in Sections 5.1(a) and
5.1(b) hereof shall not have been satisfied with respect to all
matters under or with respect to Antitrust Laws, or the Closing
otherwise could not occur for any reason relating to Antitrust Laws;
provided that, if Parent has fulfilled its obligations under Section
4.3, such 110th day shall be extended by one additional day for each
day following the 21st day after receipt by Borden of a second request
for information and documents under the Antitrust Improvements Act and
the regulations thereunder in connection with the transactions
contemplated hereby that Borden shall not have substantially complied
with such second request; or
(iv) by Borden at any time on or after the Clause
(iv) Termination Date (as defined below) if the Closing shall
not have occurred by the Clause (iv) Termination Date; or
(v) by Borden if Borden shall not have received the
payment referred to in Section 4.3(f) on the date such payment becomes
due and payable under such Section 4.3(f); or
(vi) by Parent at any time after the 30th day following
receipt by Borden, Inc. of written notice from Parent (the "Parent
Termination Notice") that any of the conditions contained in Sections
5.2(a), 5.2(b) and 5.2(c) has not been satisfied unless on or prior to
such 30th day Borden, Inc. shall have caused each such condition to be
satisfied;
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provided that Parent shall not be permitted to deliver the Parent
Termination Notice or to terminate this Agreement pursuant to this
clause (vi) unless each of the conditions contained in Sections 5.1,
5.3(a), 5.3(b) and 5.3(d) shall have been satisfied or waived by
Borden and Parent otherwise is ready, willing and able to perform the
obligations to be performed by it at the Closing and to consummate the
transactions contemplated hereby.
For purposes of this Agreement, the "Clause (iv) Termination
Date" means the earlier of (i) the 28th day after the satisfaction of the
condition contained in Section 5.1(b)(ii) and (ii) the 138th day after the date
of this Agreement; provided that, if Parent has fulfilled its obligations under
Section 4.3, then the Clause (iv) Termination Date shall be extended by one
additional day for each day following the 21st day after receipt by Borden of a
second request for information and documents under the Antitrust Improvements
Act and the regulations thereunder in connection with the transactions
contemplated hereby that Borden shall not have substantially complied with such
second request.
(b) Procedure Upon Termination. (i) In the event of the
termination and abandonment of this Agreement, written notice thereof shall
promptly be given to the other parties hereto and this Agreement shall
terminate and the transactions contemplated hereby shall be abandoned without
further action by any of the parties hereto; provided, however, that nothing
herein shall relieve any party from liability for any breach hereof, except as
otherwise provided in Sections 9.1(b)(ii) and 9.1(b)(iii).
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(ii) If Borden shall terminate this Agreement at any time
when both of the Applicable Antitrust Conditions (as defined in the immediately
succeeding sentence) shall have been satisfied, then none of Parent, Borden or
Holdings shall have any further liability hereunder for breach of this
Agreement (other than for the payment by Parent to Borden of non-refundable
amounts due under this Agreement) and all non-refundable amounts paid by Parent
to Borden hereunder shall be retained by Borden (notwithstanding the provisions
of Section 9.11(b)). For purposes of this Agreement, "Applicable Antitrust
Conditions" means (A) Parent shall have complied in all respects with Section
4.3 hereof and (B) either (1) the condition set forth in Section 5.1(a) shall
not have been satisfied with respect to all matters under or with respect to
Antitrust Laws or (2) the condition set forth in Section 5.1(b) shall not have
been satisfied with respect to all matters under or with respect to Antitrust
Laws.
(iii) If Borden shall terminate this Agreement at any time
when all of the Applicable Funding Conditions (as defined in the immediately
succeeding sentence) shall have been satisfied, then none of Parent, Borden or
Holdings shall have any further liability hereunder for breach of this
Agreement (other than for the payment by Parent to Borden of non-refundable
amounts due under this Agreement) and all non-refundable amounts paid by Parent
to Borden hereunder shall be retained by Borden (notwithstanding the provisions
of Section 9.11(b)). For purposes of this Agreement, "Applicable Funding
Conditions" means (A) Parent shall have complied in all respects with Sections
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4.3(f) and 4.13 hereof, (B) all conditions contained in Section 5.1 hereof
shall have been satisfied, (C) the conditions contained in Sections 5.3(a) and
5.3(b) shall have been satisfied and (D) Parent shall be ready, willing and
able to consummate the Closing, including by satisfying all other conditions to
be satisfied by Parent at or prior to the Closing, except only that Parent is
unable to make the required payments under Articles I and II hereof because it
does not have the required funds.
(c) Survival of Certain Provisions. The respective
obligations of the parties hereto pursuant to Sections 4.1(c), 4.4 and this
Article IX shall survive any termination of this Agreement.
9.2 Fees and Expenses. Whether or not the transactions
contemplated hereby are consummated, each of the parties hereto shall pay its
own fees and expenses incident to the negotiation, preparation and execution of
this Agreement, including attorneys', accountants' and other advisors' fees and
the fees and expenses of any broker, finder or agent retained by such party in
connection with the transactions contemplated by the Agreement; provided,
however, that Borden shall pay all fees and expenses incurred by Holdings and
its Subsidiaries in connection with the transactions contemplated by this
Agreement except to the extent such fees and expenses were incurred
specifically at the request of Parent or its affiliates or in connection with
Parent obtaining financing for the transactions contemplated by this Agreement.
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9.3 Notices. All notices, requests, demands, waivers and
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if delivered
personally or mailed, certified or registered mail with postage prepaid, or
sent by telex, telegram or telecopy, as follows:
(a) if to Borden or, prior to the Closing, Holdings, to it
at:
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215
Attention: William F. Stoll, Jr., Esq., Senior
Vice President and General Counsel
Telecopy: 614-627-8374
with copies to:
Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019
Attention: Scott M. Stuart
Telecopy: 212-750-0003
-and-
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David J. Sorkin, Esq.
Telecopy: 212-455-2502
(b) if to Parent, to it at:
Mid-America Dairymen, Inc.
3253 East Chestnut Expressway
Springfield, Missouri 65802
Attention: Gerald L. Bos, Vice President and
Chief Financial Officer
Telecopy: 417-865-1093
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<PAGE> 117
with a copy to:
Mid-America Dairymen, Inc.
3253 East Chestnut Expressway
Springfield, Missouri 65802
Attention: David A. Giesler, Esq., Vice
President--Legal
Telecopy: 417-865-1093
or to such other person or address as a party shall specify by notice in
writing to the other parties. All such notices, requests, demands, waivers and
communications shall be deemed to have been received on the date of personal
delivery or on the third business day after the mailing thereof or, in the case
of notice by telecopier, when receipt thereof is confirmed by telephone.
9.4 Entire Agreement. This Agreement (including the Exhibits
hereto and the documents referred to herein) constitutes the entire agreement
between the parties hereto and supersedes all prior agreements and
understandings, oral and written, between the parties hereto with respect to
the subject matter hereof.
9.5 No Third Party Beneficiaries. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.6 Assignability. This Agreement shall not be assigned by
any of the parties hereto without the prior written
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consent of the other parties hereto. Notwithstanding the foregoing, Borden
shall not unreasonably withhold its consent to any of the following assignments
by Parent (each a "Contemplated Assignment"), unless (x) the Contemplated
Assignment would have an adverse tax or other consequence to Borden, Inc. or
any of its affiliates, or (ii) in the case of a Contemplated Assignment
referred to in clause (b) or (c) below, the request for consent to such
Contemplated Assignment is not received by Borden within five business days
after the date hereof:
(a) an assignment by Parent of all or any part of its rights
and obligations to a direct or indirect wholly owned subsidiary of
Parent;
(b) an assignment by Parent of all or any part of its rights
and obligations under this Agreement to Southern Foods Group, L.P. or
a direct or indirect wholly owned subsidiary of Southern Foods Group,
L.P.; or
(c) an assignment by Parent of its indirect right under this
Agreement to purchase all the outstanding shares of common stock of
Borden/Meadow Gold Dairies, Inc. ("BMGD") to a newly formed entity
controlled by Mr. Allen Meyer ("Newco"), provided that, as part of
such assignment, Parent directs Newco to pay, and Newco agrees to pay
the consideration to be paid by Newco for BMGD directly to Borden in
accordance with the provisions of Section 1.1;
provided that, with respect to each Contemplated Assignment, (i) the assignee
(to the extent Borden consents to a Contemplated Assignment as set forth
herein, a "Permitted Assignee") shall
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enter into a written agreement with Borden, in form and substance satisfactory
to Borden, pursuant to which the Permitted Assignee agrees to be bound by, and
to comply with, all of Parent's obligations under this Agreement (other than
those obligations which relate solely to Parent's rights under this Agreement
which have not been assigned to such Permitted Assignee) as if such Permitted
Assignee were "Parent" for purposes of this Agreement (it being understood
that, in connection with a Contemplated Assignment to Newco, Newco shall agree,
with respect to BMGD, to be bound by, and to comply with, all of Parent's
obligations relating to Holdings). No assignment permitted by this Section
9.6, including without limitation any Contemplated Assignment, shall relieve
Parent of any of its obligations under this Agreement, including without
limitation the obligations to pay to Borden the full amount of consideration
set forth in Section 1.1 hereof and to pay the Merger Consideration.
9.7 Amendment and Modification; Waiver. Subject to
applicable law, this Agreement may be amended, modified and supplemented by a
written instrument authorized and executed on behalf of the parties hereto at
any time prior to the Closing Date with respect to any of the terms contained
herein. No waiver by any party of any of the provisions hereof shall be
effective unless explicitly set forth in writing and executed by the party so
waiving. Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking
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such action of compliance with any representations, warranties, covenants, or
agreements contained herein, and in any documents delivered or to be delivered
pursuant to this Agreement and in connection with the Closing hereunder. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any other or subsequent breach.
9.8 Public Announcements. Unless otherwise required by law,
prior to the Closing Date, no news release or other public announcement
pertaining to the transactions contemplated by this Agreement will be made by
or on behalf of any party without the prior approval of the other party. Prior
to issuing a press release or other public announcement with respect to the
execution and delivery of this Agreement, Parent and Borden, Inc. shall agree
on the form of such press release or other public announcement.
9.9 Section Headings. The section headings contained in this
Agreement are inserted for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
9.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and
all of which together shall be deemed to be one and the same instrument.
9.11 Enforcement. (a) The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is
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accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware, this being in addition to any other remedy to
which they are entitled at law or in equity. In addition, each of the parties
hereto (i) consents to submit itself to the personal jurisdiction of the United
States District Court for the District of Delaware or any court of the State of
Delaware located in such district in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (ii)
agrees that it will not attempt to deny or defeat such personal jurisdiction or
venue by motion or other request for leave from any such court and (iii) agrees
that it will not bring any action relating to this Agreement or any of the
transactions contemplated by this Agreement in any court other than such courts
sitting in the State of Delaware.
(b) Notwithstanding any statement herein that an amount paid
by Parent to Borden is non-refundable, Parent shall be entitled, in the event
that this Agreement shall be terminated without the Closing having occurred, to
a refund of such amounts actually paid by Parent to Borden if and to the extent
that a court of competent jurisdiction determines in a final and non-appealable
judgment that Borden, Holdings or any of its Subsidiaries has breached this
Agreement and that the aggregate amount of such payments by Parent constitutes
all or a portion of Parent's damages for such breach; provided that Parent
shall not
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be entitled to any such refund if the provisions of Section 9.1(b)(ii) or
9.1(b)(iii) shall have been applicable to such termination of this Agreement.
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9.12 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.
MID-AMERICA DAIRYMEN, INC.
By:/s/ Gerald L. Bos
Name: Gerald L. Bos
Title: Vice President
BORDEN/MEADOW GOLD DAIRIES HOLDINGS, INC.
By:/s/ Anthony R. Ward
Name: Anthony R. Ward
Title: President and Chief
Executive Officer
BDH TWO, INC.
By:/s/ Phyllis R. Yeatman
Name: Phyllis R. Yeatman
Title: Assistant Secretary
BORDEN, INC.
By:/s/ C. Robert Kidder
Name: C. Robert Kidder
Title: President and Chief
Executive Officer
<PAGE> 1
EXHIBIT 10.2
Execution Copy
ASSIGNMENT AND ASSUMPTION AGREEMENT RELATING TO
STOCK PURCHASE AND MERGER AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made
and entered into this 4th day of September, 1997, by and between Mid-America
Dairymen, Inc., a Kansas corporative marketing association ("Assignor"), and
Southern Foods Group, L.P., a Delaware limited partnership ("Assignee").
WHEREAS, Assignor desires to assign to Assignee certain of Assignor's
rights and obligations under that certain Stock Purchase and Merger Agreement
(the "Purchase Agreement") dated as of May 22, 1997, among Assignor,
Borden/Meadow Gold Dairies Holdings, Inc, ("Holdings"), BDH Two, Inc. and
Borden, Inc. (collectively, "Borden"), relating to the proposed license of
certain trademarks from Borden to Assignor; and
WHEREAS, Assignee desires to assume such rights and obligations of
Assignor under the Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and undertakings of the parties herein contained, it is agreed as follows:
1. ASSIGNMENT. Effective 2:00 p.m. on September 4, 1997 (the
"Effective Time"), Assignor hereby assigns to Assignee (the "Assignment") all
of Assignor's right, title and interest under the Purchase Agreement with
respect to the Trademark License Agreement as defined in, and attached as
Exhibit B to, the Purchase Agreement (as amended, the "Borden Trademark License
Agreement").
2. ASSUMPTION. As of the Effective Time, Assignee hereby accepts
the assignment of such right, title and interest with respect to the Borden
Trademark License Agreement and agrees to assume all obligations relating
thereto (the "Assumption"). As part of the Assumption, Assignee hereby (i)
agrees to execute the Borden Trademark License Agreement at the Closing of the
Purchase Agreement, (ii) assumes and agrees to pay, perform and discharge the
duties of the Assignor under the Borden Trademark License Agreement, when and
as the same become due, including, but not limited to, payment to Borden on
behalf of Assignor of a portion of the consideration due to Borden under the
Purchase Agreement, which payment shall be equal to $55,000,000, the appraised
fair value of the trademarks assigned under the Borden Trademark License
Agreement as determined by an independent appraisal of such marks obtained by
Assignor in connection with the transactions contemplated by the Purchase
Agreement (the "Partial Payment of the Purchase Price").
3. COVENANTS. In connection with the Assignment and Assumption,
Assignee hereby agrees to:
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(a) at the Closing of the Purchase Agreement, execute the Meadow
Gold Trademark License Agreement as defined in, and attached
as Exhibit D to, the Purchase Agreement;
(b) execute the Milk Products Sublicense Agreement in the form
attached hereto as EXHIBIT A; and
(c) execute the Milk Products Trademark License Agreement in the
form attached hereto as EXHIBIT B.
4. ACKNOWLEDGMENT PURSUANT TO PURCHASE AGREEMENT. Pursuant to
Section 9.6 of the Purchase Agreement, Assignor and Assignee hereby agree with
Borden as follows:
(a) Assignee hereby agrees to be bound by, and to comply with, all
of Assignor's obligations under the Purchase Agreement
relating to, or arising out of, the execution of the Borden
Trademark License Agreement; and
(b) Assignor hereby agrees that this Agreement shall not relieve
Assignor of any of its obligations under the Purchase
Agreement, and that Assignor shall be bound by the Borden
Trademark License Agreement and obligated to Borden under the
Borden Trademark License Agreement as if it were Licensee under
the Borden Trademark License Agreement.
5. BINDING. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, legal
representatives and assigns.
6. GOVERNING LAW. This Agreement shall be governed by, and
construed and interpreted in accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed by its duly authorized officer as of the day and year first above
written.
ASSIGNOR:
MID-AMERICA DAIRYMEN, INC.
By: /s/ GERALD L. BOS
--------------------------------------
Gerald L. Bos,
Corporate Vice President - Finance
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<PAGE> 3
ASSIGNEE:
SOUTHERN FOODS GROUP, L.P.
BY SFG MANAGEMENT LIMITED
LIABILITY COMPANY, ITS GENERAL
PARTNER
BY: /s/ PATRICK K. FORD
--------------------------------------------
Patrick K. Ford, Assistant Secretary
Pursuant to Section 9.6 of the Purchase Agreement, Borden, Inc., BDH Two, Inc.,
and Holdings execute this Agreement for the limited purpose of consenting (the
"Consent") to this Agreement and the other terms and conditions set forth
herein. This Consent shall include, but not be limited to, (i) consent to the
substitution of Assignee as the Licensee under the Borden Trademark License
Agreement, and (ii) consent to the receipt of the Partial Payment of the
Purchase Price from the Assignee which shall be applied toward the Assignor's
obligations under the Purchase Agreement.
BORDEN, INC.
By: /s/ R.R. HALSEY
----------------------------------
Name: R.R. Halsey
--------------------------------
Its: VP - Corporate Development
---------------------------------
BDH TWO, INC.
By: /s/ R.R. HALSEY
----------------------------------
Name: R.R. Halsey
--------------------------------
Its: Attorney in Fact
---------------------------------
BORDEN/MEADOW GOLD DAIRIES HOLDINGS, INC.
By: /s/ ANTHONY R. WARD
----------------------------------
Name: Anthony R. Ward
--------------------------------
Its: President/CEO
---------------------------------
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EXHIBIT 10.3
- --------------------------------------------------------------------------------
EXECUTION COPY
SOUTHERN FOODS GROUP, L.P.
MID-AMERICA DAIRYMEN, INC.
$250,000,000
Credit Agreement
September 4, 1997
The Lenders Party Hereto
The Chase Manhattan Bank
as Administrative Agent
CHASE SECURITIES INC.
AS ARRANGER
- --------------------------------------------------------------------------------
CHASE
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I
Definitions
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.02. Classification of Loans and Borrowings . . . . . . . . . . . . . . . . 27
SECTION 1.03. Terms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 1.04. Accounting Terms; GAAP . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 1.05. Liability of General Partner . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE II
The Credits
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.02. Loans and Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.03. Requests for Borrowings . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.04. Swingline Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.05. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.06. Funding of Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.07. Interest Elections . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 2.08. Termination and Reduction of Commitments . . . . . . . . . . . . . . . 37
SECTION 2.09. Repayment of Loans; Evidence of Debt . . . . . . . . . . . . . . . . . 38
SECTION 2.10. Amortization of Term Loans . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 2.11. Prepayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 2.12. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 2.13. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 2.14. Alternate Rate of Interest . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 2.15. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 2.16. Break Funding Payments . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 2.17. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-Offs . . . . . . 48
SECTION 2.19. Mitigation Obligations; Replacement of Lenders . . . . . . . . . . . . 49
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 3.02. Authorization; Enforceability . . . . . . . . . . . . . . . . . . . . . 50
SECTION 3.03. Governmental Approvals; No Conflicts . . . . . . . . . . . . . . . . . 50
SECTION 3.04. Financial Condition; No Material Adverse Change . . . . . . . . . . . . 51
SECTION 3.05. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
<PAGE> 3
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SECTION 3.06. Litigation and Environmental Matters . . . . . . . . . . . . . . . . . 52
SECTION 3.07. Compliance with Laws and Agreements . . . . . . . . . . . . . . . . . . 52
SECTION 3.08 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 3.09. Investment and Holding Company Status . . . . . . . . . . . . . . . . . 53
SECTION 3.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 3.11. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 3.12. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 3.13. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 3.14. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 3.15. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 3.16. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 3.17. Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 3.18. Federal Reserve Regulations . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 3.19. Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 3.20. Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 3.21. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE IV
Conditions
SECTION 4.01. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 4.02. Each Credit Event . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE V
Affirmative Covenants
SECTION 5.01. Financial Statements and Other Information . . . . . . . . . . . . . . 64
SECTION 5.02. Notices of Material Events . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 5.03. Information Regarding Collateral . . . . . . . . . . . . . . . . . . . 66
SECTION 5.04. Existence; Conduct of Business . . . . . . . . . . . . . . . . . . . . 66
SECTION 5.05. Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 5.06. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 5.07. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 5.08. Casualty and Condemnation . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 5.09. Books and Records, Inspection and Audit Rights . . . . . . . . . . . . 70
SECTION 5.10. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 5.11. Use of Proceeds and Letters of Credit . . . . . . . . . . . . . . . . . 70
SECTION 5.12. Additional Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 5.13 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 5.14. Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 5.15. Concentration and Disbursement Accounts . . . . . . . . . . . . . . . . 72
SECTION 5.16. Maintenance of Registrations of Pledge . . . . . . . . . . . . . . . . 72
</TABLE>
<PAGE> 4
3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness; Certain Equity Securities . . . . . . . . . . . . . . . . 72
SECTION 6.02. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 6.03. Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions . . . . . . . 75
SECTION 6.05. Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 6.06. Sale and Lease-Back Transactions . . . . . . . . . . . . . . . . . . . 76
SECTION 6.07. Hedging Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness . . . . . . . . . 77
SECTION 6.09. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . 77
SECTION 6.10. Restrictive Agreements . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 6.11. Amendment of Material Documents . . . . . . . . . . . . . . . . . . . . 78
SECTION 6.12. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 6.13. Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 6.14. Consolidated Interest Expense Coverage Ratio . . . . . . . . . . . . . 80
SECTION 6.15. Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 6.16. Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 6.17. Consolidated Partner Equity . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 6.18. Take or Pay Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 6.19. Partnership Elections . . . . . . . . . . . . . . . . . . . . . . . . . 81
ARTICLE VII
Events of Default . . . . . . . . . . . . . . 82
ARTICLE VIII
The Administrative Agent . . . . . . . . . . . . . 84
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 9.02. Waivers; Amendments . . . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 9.03. Expenses; Indemnity; Damage Waiver . . . . . . . . . . . . . . . . 88
</TABLE>
<PAGE> 5
4
<TABLE>
<S> <C> <C>
SECTION 9.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 9.05. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
SECTION 9.06. Counterparts; Integration; Effectiveness . . . . . . . . . . . . . 92
SECTION 9.07. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 9.08. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 9.09. Governing Law; Jurisdiction; Consent
to Service of Process . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 9.10. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 9.11. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 9.12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 9.13. Interest Rate Limitation . . . . . . . . . . . . . . . . . . . . . 94
SECTION 9.14. Waiver of Defenses . . . . . . . . . . . . . . . . . . . . . . . . 94
</TABLE>
SCHEDULES:
Schedule 1.01(a) -- Contributed Business
Schedule 1.01(b) -- Mortgaged Real Properties
Schedule 1.01(c) -- Mortgaged Leasehold Properties
Schedule 1.01(d) -- Refinanced Indebtedness
Schedule 2.01 -- Commitments
Schedule 3.03 -- Conflicting Agreements
Schedule 3.05(a) -- Holdover Tenancies
Schedule 3.05(c) -- Owned and Leased Property
Schedule 3.06 -- Disclosed Matters
Schedule 3.07 -- Zoning Matters
Schedule 3.13 -- Subsidiaries
Schedule 3.14 -- Insurance
Schedule 3.19 -- Ownership of the Borrower and the General Partner
Schedule 3.21 -- Leases
Schedule 4.01 -- Local Counsel
Schedule 5.13 -- Post-Closing Matters
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.04 -- Investments, Loans, Advances, Guarantees and
Acquisitions
Schedule 6.10 -- Existing Restrictions
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B-1 -- Form of Opinion of Strasburger & Price, L.L.P.
Exhibit B-2 -- Form of Opinion of Coudert Brothers
Exhibit B-3 -- Form of Opinion of David A. Geisler, Esq.
Exhibit B-4 -- Form of Opinion of Local Counsel
Exhibit C -- Form of Guarantee Agreement
Exhibit D -- Form of Indemnity, Subrogation and Contribution Agreement
Exhibit E-1 -- Form of Real Property Mortgage
Exhibit E-2 -- Form of Leasehold Property Mortgage
Exhibit E-3 -- Form of Real Property Deed of Trust
<PAGE> 6
5
Exhibit E-4 -- Form of Leasehold Property Deed of Trust
Exhibit F -- Form of Pledge Agreement
Exhibit G -- Form of Security Agreement
<PAGE> 7
CREDIT AGREEMENT dated as of September 4, 1997, among
SOUTHERN FOODS GROUP, L.P., a limited partnership organized under
the laws of the State of Delaware (the "Borrower"), MID-AMERICA
DAIRYMEN, INC., a Kansas corporation ("Mid-Am" or the "Initial
Borrower"), the LENDERS party hereto and THE CHASE MANHATTAN
BANK, as Administrative Agent.
Pursuant to the Stock Purchase and Merger Agreement dated as of May 22,
1997, among the Initial Borrower, Borden Holdings (such term and each other
capitalized term used but not defined in this preamble having the meaning
assigned to such term in Article I) and Borden, (a) AcquisitionCo will acquire
all the outstanding preferred stock and common stock of Borden Holdings owned
by Borden, (b) AcquisitionCo will be merged with and into Borden Holdings and,
as a result of such merger, Borden Holdings will become a wholly owned
subsidiary of Mid-Am, and (c) Borden Holdings and its subsidiaries (other than
BMGD and Borden Investments) will be merged with and into Mid-Am.
In connection with the Acquisition, (a) Mid-Am will contribute the
assets and liabilities that were held by Borden Holdings and its subsidiaries
(other than the capital stock, assets and liabilities of BMGD and Borden
Investments) immediately prior to the Acquisition to the Borrower in exchange
for (i) the assumption by the Borrower of the Initial Borrower's obligations
under this Agreement and (ii) the issuance by the Borrower of the New Preferred
Interests and (b) the Borrower and SFG Capital will issue the Subordinated Debt
in a public offering or Rule 144A placement.
Each of the Initial Borrower and the Borrower has requested the Lenders
to extend credit in the form of (a) Tranche A Term Loans on the Effective Date,
in an aggregate principal amount of $90,000,000, (b) Tranche B Term Loans on
the Effective Date, in an aggregate principal amount of $100,000,000, and (c)
Revolving Loans at any time and from time to time from and including the
Effective Date and prior to the Revolving Credit Maturity Date, in an aggregate
principal amount at any time outstanding not in excess of $60,000,000. The
Borrower has requested the Swingline Lender to extend credit, at any time and
from time to time from and including the Effective Date and prior to the
Revolving Credit Maturity Date, in the form of Swingline Loans, in an aggregate
principal amount at any time outstanding not in excess of $10,000,000. The
Borrower has requested the Issuing Bank to issue letters of credit, in an
aggregate face amount at any time outstanding not in excess of $5,000,000, to
support payment obligations incurred in the ordinary course of business by the
Borrower and the Subsidiaries.
The Term Loans, together with up to $15,000,000 of Revolving Loans, will
be made by the Lenders to the Initial Borrower on the Effective Date, and the
proceeds of such Loans, together with other available funds of the Initial
Borrower, will be used by the Initial Borrower solely (a) to pay $435,000,000
in cash to Borden in connection with the Acquisition, (b) to pay related fees
and expenses and (c) with respect to a portion of the Revolving Loans made on
the Effective Date, for general corporate purposes. Immediately after (a) the
making of the Term Loans and the applicable portion of the Revolving Loans on
the Effective Date and (b) the consummation of the Mid-Am Contribution, the
Borrower shall assume the obligations of the Initial Borrower under this
Agreement and thereafter the Initial Borrower shall have no further
<PAGE> 8
2
rights or obligations under the Loan Documents with respect to Borrowings
received by it on the Effective Date, provided that, after the Effective Date,
the Initial Borrower shall remain liable (a) with respect to the
representations and warranties made by it hereunder on the Effective Date and
(b) with respect to certain affirmative covenants made by it hereunder. The
proceeds of the Revolving Loans (other than the Revolving Loans used for the
purposes specified in the first sentence of this paragraph) and the Swingline
Loan are to be used by the Borrower for general corporate purposes of the
Borrower and the Subsidiaries.
The Lenders and the Swingline Lenders are willing to extend such credit
to the Initial Borrower and the Borrower, and the Issuing Bank is willing to
issue letters of credit of the account of the Borrower, in each case on the
terms and subject to the conditions set forth herein. Accordingly, the parties
hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Acquisition" means the acquisition on the Effective Date, pursuant to
the Stock Purchase Agreement, by AcquisitionCo from Borden of all the
outstanding preferred stock and common stock of Borden Holdings for an
aggregate cash consideration of $380,000,000.
"AcquisitionCo" means Mid-Am Acquisition Co., a Delaware corporation
that is a wholly owned subsidiary of the Initial Borrower.
"Acquisition Documents" means the Borden Trademark Documents, the
Capital Contribution Agreement, the Equipment Sub-lease Documents, the Loan
Documents, the Meadow Gold Trademark Acquisition Agreement, the Mid-Am
Contribution Agreement, the Milk Products Agreement and the Stock Purchase
Agreement.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity
as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire in
a form supplied by the Administrative Agent.
<PAGE> 9
3
"Affiliate" means, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect
on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a
change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Revolving Lender, the
percentage of the total Revolving Commitments represented by such Lender's
Revolving Commitment. If the Revolving Commitments have terminated or expired,
the Applicable Percentages shall be determined based upon the Revolving
Commitments most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day (a) with respect to any Tranche B
Term Loan, the applicable Tranche B Rate, and (b) with respect to any ABR Loan
or Eurodollar Loan that is a Revolving Loan or a Tranche A Term Loan, or with
respect to the commitment fees payable hereunder, as the case may be, the
applicable rate per annum set forth below under the caption "ABR Spread",
"Eurodollar Spread" or "Commitment Fee Rate", as the case may be, based upon
the Leverage Ratio for the period of four consecutive fiscal quarters of the
Borrower most recently ended on or before the date of determination, provided
that until the third day after the delivery to the Administrative Agent,
pursuant to Section 5.01(b), of the Borrower's consolidated financial
statements for the Borrower's first full fiscal quarter ending after the
Effective Date, the "Applicable Rate" for purposes of clause (b) above shall be
the applicable rate per annum set forth below in Category 1:
<TABLE>
<CAPTION>
====================================================================================================
ABR Eurodollar Commitment Fee
--- ---------- --------------
Leverage Ratio: Spread Spread Rate
--------------- ------ ------ ----
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Category 1
Greater than or equal to 5.0 to 1.00 1.25% 2.50% 0.50%
- ----------------------------------------------------------------------------------------------------
Category 2
Less than 5.0 to 1.00 but greater
than or equal to 4.25 to 1.00 1.00% 2.25% 0.45%
- ----------------------------------------------------------------------------------------------------
Category 3
Less than 4.25 to 1.00 but greater
than or equal to 3.5 to 1.00 0.75% 2.00% 0.40%
- ----------------------------------------------------------------------------------------------------
Category 4
Less than 3.5 to 1.00 0.50% 1.75% 0.35%
====================================================================================================
</TABLE>
For purposes of the foregoing, (a) the Leverage Ratio as described above
shall be determined as of the end of each fiscal quarter of the Borrower's
fiscal year based upon the Borrower's consolidated financial statements
delivered pursuant to Section 5.01(a) or (b), and
<PAGE> 10
4
(b) each change in the Applicable Rate resulting from a change in the Leverage
Ratio shall be effective during the period from and including the third day
(such day, the "Applicable Rate Determination Date") after the date of delivery
to the Administrative Agent of such consolidated financial statements
indicating such change and ending on the date immediately preceding the
effective date of the next such change, provided that such Leverage Ratio shall
be deemed to be in Category 1 (i) at any time that an Event of Default has
occurred and is continuing or (ii) if the Borrower fails to deliver the
consolidated financial statements required to be delivered by it pursuant to
Section 5.01(a) or (b), during the period from the expiration of the time for
delivery thereof until such consolidated financial statements are delivered.
Notwithstanding anything to the contrary set forth above, in the event that any
financial statements delivered pursuant to Section 5.01(a) or (b) at any time
indicate that the Leverage Ratio is greater than or equal to 5.50 to 1.00, the
ABR Spread or Eurodollar Spread that would otherwise be in effect shall be
increased by 0.25% per annum.
"Applicable Rate Determination Date" has the meaning assigned to such
term in the definition of the term "Applicable Rate".
"Approved Fund" means, with respect to any Lender that is a fund that
invests in bank loans, any other fund that invests in bank loans and is managed
by the same investment advisor as such Lender or by an Affiliate of such
investment advisor.
"Assessment Rate" means, for any day, the annual assessment rate in
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States, provided that if, as a result of
any change in any law, rule or regulation, it is no longer possible to
determine the Assessment Rate as aforesaid, then the Assessment Rate shall be
such annual rate as shall be determined by the Administrative Agent to be
representative of the cost of such insurance to the Lenders.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an assignee (with the consent of any party whose consent
is required by Section 9.04), and accepted by the Administrative Agent, in the
form of Exhibit A or any other form approved by the Administrative Agent.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"BMGD" means Borden/Meadow Gold Dairies, Inc., a Delaware corporation
(to be renamed BMGD, Inc. in connection with the Transactions), that is a
wholly owned subsidiary of Borden Holdings.
"Board" means the Board of Governors of the Federal Reserve System of
the United States of America.
"Borden" means (a) Borden, Inc., a New Jersey corporation, and (b) BDH
Two, Inc., a Delaware corporation.
<PAGE> 11
5
"Borden Dairies Sale" means the sale immediately following the
Acquisition by BMGD to Milk Products of all the assets relating to the dairy
operations of BMGD pursuant to the Milk Products Agreement.
"Borden Holdings" means Borden/Meadow Gold Dairies Holdings, Inc., a
Delaware corporation.
"Borden Investments" means Borden/Meadow Gold Dairies Investments, Inc.,
a Delaware corporation (to be renamed Meadow Gold Dairies Investments, Inc. in
connection with the Transactions).
"Borden Trademark Assignment Agreement" means the Assignment and
Assumption Agreement dated as of September 4, 1997, between the Borrower and
the Initial Borrower, relating to the assignment by the Initial Borrower to the
Borrower of its rights under the Stock Purchase Agreement with respect to the
Borden Trademark License Agreement.
"Borden Trademark Documents" means the Borden Trademark Assignment
Agreement and the Borden Trademark License Agreement.
"Borden Trademark License Agreement" means the Trademark License
Agreement dated as of September 4, 1997, between Borden and the Borrower.
"Borrower" means Southern Foods Group, L.P., a limited partnership
organized under the laws of the State of Delaware.
"Borrowing" means (a) Loans of the same Class and Type, made, converted
or continued on the same date and, in the case of Eurodollar Loans, as to which
a single Interest Period is in effect, or (b) a Swingline Loan.
"Borrowing Request" means a request by the Borrower for a Borrowing in
accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by law to
remain closed, provided that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.
"Capital Contribution" means the contribution by Mid-Am Capital to the
Borrower of an aggregate amount of $45,000,000 in cash in consideration for the
issuance by the Borrower of the Mid-Am Capital New Preferred Interests pursuant
to the Capital Contribution Agreement.
"Capital Contribution Agreement" means the Capital Contribution
Agreement dated as of September 4, 1997, between Mid-Am Capital and the
Borrower, relating to the Capital Contribution.
<PAGE> 12
6
"Capital Expenditures" means, for any period, (a) the additions to
property, plant and equipment and other capital expenditures of the Borrower
and its consolidated Subsidiaries that are (or would be) set forth in a
consolidated statement of cash flows of the Borrower for such period prepared
in accordance with GAAP and (b) Capital Lease Obligations incurred by the
Borrower and its consolidated Subsidiaries during such period.
"Capital Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination
thereof, which obligations are required to be classified and accounted for as
capital leases on a balance sheet of such Person under GAAP, and the amount of
such obligations shall be the capitalized amount thereof determined in
accordance with GAAP.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. Section 9601 et seq.
"Change in Control" means (a) the Initial Borrower shall cease to own or
control, directly or indirectly, beneficially or of record, at least 50% of the
aggregate economic or voting equity ownership of the Borrower or the General
Partner, free and clear of all Liens; (b) if at any time (i) any Permitted
Holder shall cease to own or control, directly or indirectly, beneficially or
of record, at least 50% of the aggregate economic or voting equity ownership of
the Borrower or the General Partner, free and clear of all Liens and (ii) the
Initial Borrower shall not own or control, directly or indirectly, beneficially
or of record, at least 50.1% of such aggregate economic or voting equity
ownership; (c) the occupation of a majority of the seats (other than vacant
seats) on the Representative Committee of the General Partner by Persons who
are neither (i) nominated by the Members of the General Partner nor (ii)
appointed by Representatives so nominated; or (d) the acquisition of direct or
indirect Control of the Borrower or the General Partner by any Person or group
other than one or more Permitted Holders or the Initial Borrower; provided,
however, that any merger, consolidation or contribution of one or more of the
Initial Borrower, Associated Milk Products, Inc., Milk Marketing Inc. and
Western Dairymen Cooperative Inc. shall not be deemed to constitute a "Change
in Control".
"Change in Law" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender or the Issuing
Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender
or by such Lender's or the Issuing Bank's holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Class", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans,
Tranche A Term Loans, Tranche B Term Loans or Swingline Loans and, when used in
reference to any Commitment, refers to whether such Commitment is a Revolving
Commitment, Tranche A Commitment or Tranche B Commitment.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
<PAGE> 13
7
"Collateral" means any and all "Collateral", as defined in any
applicable Security Document.
"Commitment" means a Revolving Commitment, Tranche A Commitment or
Tranche B Commitment, or any combination thereof (as the context requires).
"Consolidated Cash Flow Available for Fixed Charges" means for any
period, (a) the sum of (i) Consolidated EBITDA for such period and (ii)
Consolidated Lease Expense for such period (excluding interest expense, if any,
associated with Capital Lease Obligations) minus (b) the sum of (i) Capital
Expenditures for such period and (ii) income taxes paid in cash for such
period, each such component determined on a consolidated basis for the Borrower
and the Subsidiaries in accordance with GAAP.
"Consolidated Current Assets" means at any date of determination, all
assets (other than cash and cash-equivalents) that would, in accordance with
GAAP, be classified on a consolidated balance sheet of the Borrower and the
Subsidiaries as current assets at such date of determination.
"Consolidated Current Liabilities" means at any date of determination,
all liabilities (other than, without duplication (a) the current portion of
long-term Indebtedness and (b) outstanding Swingline Loans and Revolving Loans)
that would, in accordance with GAAP, be classified on a consolidated balance
sheet of the Borrower and the Subsidiaries as current liabilities at such date
of determination.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for
such period, plus, without duplication and to the extent deducted from revenues
in determining Consolidated Net Income, the sum of (a) the aggregate amount of
Consolidated Interest Expense for such period, (b) the aggregate amount of
letter of credit fees paid during such period, (c) the aggregate amount of
income tax expense for such period, (d) all amounts attributable to
depreciation and amortization for such period, (e) all extraordinary charges
during such period and (f) all other non-cash charges, and minus, without
duplication and to the extent added to revenues in determining Consolidated Net
Income for such period, all extraordinary gains during such period, all as
determined on a consolidated basis with respect to the Borrower and the
Subsidiaries in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the interest
expense, both expensed and capitalized (including the interest component in
respect of Capital Lease Obligations), accrued or paid by the Borrower and the
Subsidiaries during such period, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense Coverage Ratio" means, for any period,
the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated
Interest Expense for such period.
"Consolidated Lease Expense" means, for any period, all payment
obligations of the Borrower and the Subsidiaries during such period under
agreements for the lease, hire or use of any real or personal property,
including Capital Lease Obligations and obligations in the nature of operating
leases (including the interest expense, if any, associated therewith), as
determined on a consolidated basis for the Borrower and the Subsidiaries in
accordance with GAAP.
<PAGE> 14
8
"Consolidated Net Income" means, for any period, net income or loss of
the Borrower and the Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP, provided that there shall be excluded (a) the
income of any Person in which any other Person (other than the Borrower or any
of the Subsidiaries or any director holding qualifying shares in compliance
with applicable law) has a joint interest, except to the extent of the amount
of dividends or other distributions actually paid to the Borrower or any of the
Subsidiaries by such Person during such period, (b) the loss of any Person in
which any other Person (other than the Borrower or any of the Subsidiaries or
any director holding qualifying shares in compliance with applicable law) has a
joint interest, except to the extent of the aggregate investment of the
Borrower or any of the Subsidiaries in such Person during such period, and (c)
the income (or loss) of any Person accrued prior to the date it becomes a
Subsidiary or is merged into or consolidated with the Borrower or any of the
Subsidiaries or the date that Person's assets are acquired by the Borrower or
any of the Subsidiaries.
"Consolidated Partner Equity" means, as at any date of determination,
the consolidated partners' equity of the Borrower and its consolidated
subsidiaries, as determined on a consolidated basis in accordance with GAAP.
"Contributed Business" means the assets and liabilities that were held,
prior to the Acquisition, by Borden Holdings and its subsidiaries (other than
the capital stock, assets and liabilities of BMGD and Borden Investments), all
as set forth on Schedule 1.01(a).
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
The terms "Controlling" and "Controlled" have meanings correlative thereto.
"Credit Event" has the meaning assigned to such term in Section 4.01.
"Default" means any event or condition that constitutes an Event of
Default or that upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings disclosed
on Schedule 3.06.
"dollars" or "$" refers to lawful money of the United States of America.
"Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by or with any Governmental
Authority, relating in any way to the environment, preservation or reclamation
of natural resources, the handling, treatment, storage, disposal, Release or
threatened Release of any Hazardous Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, natural resource damage, costs of
environmental investigation,
<PAGE> 15
9
monitoring or remediation, administrative oversight costs, fines, penalties or
indemnities), directly or indirectly resulting from or based upon (a) violation
of any Environmental Law, (b) the generation, use, handling, transportation,
storage, treatment or disposal of any Hazardous Materials, (c) exposure to any
Hazardous Materials, (d) the Release or threatened Release of any Hazardous
Materials into the environment or (e) any contract, agreement or other
consensual arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.
"Environmental Permit" means any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from any
Governmental Authority pursuant to any Environmental Law.
"Equipment Assignment" means the assignment by Borden to the Initial
Borrower, pursuant to the Assignment of Borden's right to use certain equipment
that is used in the operation of Borden Holdings' business under the Master
Lease Agreement.
"Equipment Sub-lease" means the grant by the Initial Borrower to the
Borrower of a sub-lease of the equipment used as of the date hereof pursuant to
the Master Lease Agreement in connection with the operation of the Contributed
Business.
"Equipment Sub-lease Documents" means the Master Lease Agreement and the
Equipment Sub-lease.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a Plan
(other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate
of any notice, or the receipt by any Multiemployer Plan from the Borrower or
any ERISA Affiliate of any notice, concerning the imposition of Withdrawal
Liability or a determination that a Multiemployer Plan is, or is expected to
be, insolvent or in reorganization, within the meaning of Title IV of ERISA.
<PAGE> 16
10
"Eurodollar", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article VII.
"Excess Cash Flow" means, for any period, the sum (without duplication)
of:
(a) the Consolidated Net Income for such period, adjusted to
exclude any gains or losses attributable to Prepayment Events; plus
(b) depreciation, amortization and other non-cash charges or
losses deducted in determining the Consolidated Net Income for such
period; plus
(c) aggregate principal amount of Capital Lease Obligations and
other Indebtedness incurred during such period to finance Capital
Expenditures, to the extent that mandatory principal payments in respect
of such Indebtedness would not be excluded from clause (f) below when
made; minus
(d) any non-cash gains included in determining Consolidated Net
Income for such period; minus
(e) Capital Expenditures for such period; minus
(f) the aggregate principal amount of Indebtedness repaid or
prepaid by the Borrower and its consolidated Subsidiaries during such
period, excluding (i) Indebtedness in respect of Revolving Loans and
Letters of Credit, (ii) Term Loans prepaid pursuant to Section 2.11(b),
(c), (d) or (e), (iii) repayments or prepayments of Indebtedness
financed by incurring other Indebtedness, to the extent that mandatory
principal payments in respect of such other Indebtedness would, pursuant
to this clause (f), be deducted in determining Excess Cash Flow when
made and (iv) Indebtedness referred to in clauses (iii), (iv) and (vii)
of Section 6.01(a).
"Excluded Taxes" means, with respect to the Administrative Agent, any
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) in the case of a
Foreign Lender (other than an assignee pursuant to a request by the Borrower
under Section 2.19), any withholding tax that is imposed on amounts payable to
such Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement (or designates a new lending office), except to the extent that such
Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from the Borrower with respect to such withholding tax pursuant to
Section 2.17(a), and (c) any withholding tax that is attributable to such
Foreign Lender's failure to comply with Section 2.17(e).
<PAGE> 17
11
"Existing Preferred Interests" means the $84,947,000 in original stated
value of Series A Preferred Capital Interests that are registered in the name
of the Initial Borrower on the date hereof.
"Federal Funds Effective Rate" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or controller of the Borrower.
"Financing Transactions" means (a) the execution, delivery and
performance by each Initial Loan Party of the Loan Documents to which it is to
be a party, the borrowing of Loans, the use of the proceeds thereof and the
issuance of Letters of Credit hereunder, (b) the execution, delivery and
performance by each of the Borrower and SFG Capital of the Subordinated Debt
Documents to which each of the Borrower and SFG Capital will be parties, the
issuance of the Subordinated Debt and the use of the proceeds thereof and (c)
the Capital Contribution.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (a)
Consolidated Cash Flow Available for Fixed Charges for such period to (b) Fixed
Charges for such period.
"Fixed Charges" means, for any period, the sum of (a) Consolidated Lease
Expense (excluding interest expense, if any, associated with Capital Lease
Obligations) for such period, (b) Consolidated Interest Expense for such
period, (c) scheduled principal payments of Indebtedness made by the Borrower
or any Subsidiary to any person other than the Borrower or any wholly owned
Subsidiary of the Borrower during such period and (d) Permitted Tax
Distributions made during such period.
"Foreign Lender" means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is organized under the
laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United
States of America.
"General Partner" means SFG Management, the general partner of the
Borrower.
<PAGE> 18
12
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state
or local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay
such Indebtedness or other obligation or (d) as an account party in respect of
any letter of credit or letter of guaranty issued to support such Indebtedness
or obligation, provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business.
"Guarantee Agreement" means the Guarantee Agreement, substantially in
the form of Exhibit C, made by the Subsidiary Loan Parties in favor of the
Administrative Agent for the benefit of the Secured Parties.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos-containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law, including any material listed as a hazardous substance under
Section 101(14) of CERCLA.
"Hedging Agreement" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging
arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as
<PAGE> 19
13
an account party in respect of letters of credit and letters of guaranty and
(j) all obligations, contingent or otherwise, of such Person in respect of
bankers' acceptances. The Indebtedness of any Person shall include the
Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Indemnity, Subrogation and Contribution Agreement" means the Indemnity,
Subrogation and Contribution Agreement, substantially in the form of Exhibit D,
among the Borrower, the Subsidiary Loan Parties and the Administrative Agent.
"Information Memorandum" means the Confidential Information Memorandum
dated July 1997, relating to the Initial Borrower, the Borrower and the
Transactions.
"Initial Borrower" means Mid-America Dairymen, Inc., a Kansas
corporation that owns on the date hereof, directly or indirectly, 50% of the
common voting partnership interests of the Borrower.
"Initial Loan Parties" means the Initial Borrower and the Loan Parties.
"Interest Election Request" means a request by the Borrower to convert
or continue a Revolving Borrowing or Term Borrowing in accordance with Section
2.07.
"Interest Payment Date" means (a) with respect to any ABR Loan (other
than a Swingline Loan), the last Business Day of each March, June, September
and December, (b) with respect to any Eurodollar Loan, the last day of the
Interest Period applicable to the Borrowing of which such Loan is a part and,
in the case of a Eurodollar Borrowing with an Interest Period of more than
three months' duration, each Business Day prior to the last day of such
Interest Period that occurs at intervals of three months' duration after the
first day of such Interest Period, and (c) with respect to any Swingline Loan,
the day that such Loan is required to be repaid.
"Interest Period" means, with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect, provided that (i) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (ii) any Interest
Period that commences on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the last calendar month
of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period. For purposes hereof, the date of a
Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
<PAGE> 20
14
"Issuing Bank" means The Chase Manhattan Bank, in its capacity as the
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 2.05(i). The Issuing Bank may, in its discretion, arrange
for one or more Letters of Credit to be issued by Affiliates of the Issuing
Bank, in which case the term "Issuing Bank" shall include any such Affiliate
with respect to Letters of Credit issued by such Affiliate.
"LC Availability Period" means the period from and including the
Effective Date to but excluding the earlier of (a) the date that is five
Business Days prior to the Revolving Maturity Date and (b) the date of
termination of the Revolving Commitments.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to a
Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on
behalf of the Borrower at such time. The LC Exposure of any Revolving Lender
at any time shall be its Applicable Percentage of the total LC Exposure at such
time.
"Lenders" means the Persons listed on Schedule 2.01 and any other Person
that shall have become a party hereto pursuant to an Assignment and Acceptance,
other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Acceptance. Unless the context otherwise requires, the term
"Lenders" includes the Swingline Lender.
"Letter of Credit" means any letter of credit issued pursuant to this
Agreement.
"Leverage Ratio" means, with respect to any period, the ratio of (a)
Total Debt as of the last day of such period to (b) Consolidated EBITDA for
such period, all determined on a consolidated basis in accordance with GAAP.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Dow Jones Service (or
on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is
not available at such time for any reason, then the "LIBO Rate" with respect to
such Eurodollar Borrowing for such Interest Period shall be the rate at which
dollar deposits of $5,000,000 and for a maturity comparable to such Interest
Period are offered by the principal London office of the Administrative Agent
in immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, hypothecation, encumbrance, charge or security interest
in, on or of such asset, (b) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or title retention
<PAGE> 21
15
agreement (or any financing lease having substantially the same economic effect
as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.
"Loan Documents" means this Agreement, the Letters of Credit, the
Guarantee Agreement, the Indemnity, Subrogation and Contribution Agreement and
the Security Documents.
"Loan Parties" means the Borrower and the Subsidiary Loan Parties.
"Loans" means the loans made by the Lenders to the Borrower pursuant to
this Agreement.
"Margin Stock" has the meaning assigned to such term in Regulation U.
"Master Lease Agreement" means the Master Leasing Agreement dated as of
September 4, between the Initial Borrower and BLC Corporation, a Utah
corporation.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, liabilities (including contingent liabilities), operations,
condition (financial or otherwise), prospects or material agreements, of the
Borrower or any of the Subsidiaries, (b) the ability of any Initial Loan Party
to perform any of its obligations under any Loan Document or (c) the rights of
or benefits available to the Lenders under any Loan Document.
"Material Indebtedness" means Indebtedness (other than the Loans and
Letters of Credit), or obligations in respect of one or more Hedging
Agreements, of any one or more of the Borrower and the Subsidiaries in an
aggregate principal amount exceeding $5,000,000. For purposes of determining
the amount of Material Indebtedness at any time, the "principal amount" of the
obligations of the Borrower or any Subsidiary in respect of any Hedging
Agreement at such time shall be the maximum aggregate amount (giving effect to
any netting agreements) that the Borrower or such Subsidiary would be required
to pay if such Hedging Agreement were terminated at such time.
"Meadow Gold Trademark Acquisition" means the acquisition by the
Borrower from Borden Investments of certain trademarks pursuant to the Meadow
Gold Trademark Acquisition Agreement.
"Meadow Gold Trademark Acquisition Agreement" means the Asset Purchase
Agreement dated as of September 4, 1997, between Borden Investments, the
Initial Borrower and the Borrower.
"Member" has the meaning assigned to such term in the SFG Management
Agreement.
"Mid-Am Capital" means Mid-Am Capital, L.L.C., a limited liability
company organized under the laws of the State of Delaware.
"Mid-Am Capital New Preferred Interests" means (a) the $15,000,000 in
stated value of Series C Preferred Capital Interests issued by the Borrower to
Mid-Am Capital on the date
<PAGE> 22
16
hereof and (b) the $30,000,000 in stated value of Series D Preferred Capital
Interests issued by the Borrower to Mid-Am Capital on the date hereof.
"Mid-Am Contribution" means the contribution by the Initial Borrower to
the Borrower of the Contributed Business pursuant to the Contribution
Agreement.
"Mid-Am Contribution Agreement" means the Capital Contribution,
Assignment and Assumption Agreement dated as of September 4, 1997, between the
Initial Borrower and the Borrower relating to the Mid-Am Contribution.
"Mid-Am New Preferred Interests" means the $90,000,000 in stated value
of Series B Preferred Capital Interests issued by the Borrower to Mid-Am on the
date hereof.
"Milk Products" means Milk Products LLC, a limited liability company
organized under the laws of the State of Delaware.
"Milk Products Agreement" means the Asset Purchase Agreement dated as of
September 4, 1997, between Mid-Am and Milk Products relating to the Borden
Dairies Sale.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means a mortgage, deed of trust, assignment of leases and
rents, leasehold mortgage or other security document, substantially in the form
of Exhibit E, granting a Lien on any Mortgaged Property to secure the
Obligations. Each Mortgage shall be satisfactory in form and substance to the
Administrative Agent.
"Mortgaged Property" means, initially, each parcel of real property and
the improvements thereto owned or leased by a Loan Party and identified on
Schedule 1.01(b) (in the case of real property) and on Schedule 1.01(c) (in the
case of leasehold property), and includes each other parcel of real property
and improvements thereto with respect to which a Mortgage is granted pursuant
to Section 5.12 or 5.13.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any event (a) the cash proceeds
received in respect of such event, including (i) any cash received in respect
of any non-cash proceeds, but only as and when received, (ii) in the case of a
casualty, insurance proceeds, and (iii) in the case of a condemnation or
similar event, condemnation awards and similar payments, net of (b) the sum of
(i) all reasonable fees and out-of-pocket expenses paid by the Borrower and the
Subsidiaries to third parties (other than Affiliates) in connection with such
event, (ii) in the case of a sale, transfer, or other disposition of an asset
(including pursuant to a sale and leaseback transaction or a casualty or other
insured damage or condemnation or similar proceeding), the amount of all
payments required to be made by the Borrower and the Subsidiaries as a result
of such event to repay Indebtedness (other than Loans) permitted by Section
6.01 and secured by such asset or otherwise subject to mandatory prepayment as
a result of such event and (iii) the amount of all taxes paid (or reasonably
estimated to be payable) by the Borrower and the Subsidiaries, and the amount
of any reserves established by the Borrower and the Subsidiaries
<PAGE> 23
17
to fund contingent liabilities reasonably estimated to be payable, in each case
during the year that such event occurred or the next succeeding year and that
are directly attributable to such event (as determined reasonably and in good
faith by the chief financial officer of the Borrower).
"New Preferred Interests" means (a) the Mid-Am New Preferred Interests
and (b) the Mid-Am Capital New Preferred Interests.
"Obligations" has the meaning assigned to such term in the Security
Agreement.
"Other Taxes" means any and all current or future stamp, recordation,
transfer, documentary taxes, excise, property or similar taxes, charges or
similar levies (as well as any interest, penalties or additions relating to
such other taxes) arising from any payment made under any Loan Document or from
the execution, delivery or enforcement of, or otherwise with respect to, any
Loan Document.
"Partnership Agreement" means the Second Amended and Restated Agreement
of Limited Partnership of the Borrower, dated as of September 3, 1997, between
the Initial Borrower, the Borrower and Mr. Pete Schenkel.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"Perfection Certificate" means a certificate in the form of Annex 1 to
the Security Agreement or any other form approved by the Administrative Agent.
"Permitted Acquisition" means any non-hostile acquisition of assets
located in the United States from, or capital stock or other equity interests
(other than Margin Stock) in, any Person so long as (a) immediately after
giving effect thereto, no Default or Event of Default shall have occurred and
be continuing or would result therefrom, (b) all transactions related thereto
shall be consummated in accordance with applicable laws, (c) in the case of any
acquisition of capital stock of other equity interests in any Person, such
acquisition is an acquisition of 100% of the capital stock or other equity
interests of such Person, (d) in the case of an acquisition of assets, such
assets are to be used, and in the case of an acquisition of capital stock or
other equity interests, the Person so acquired is engaged, in the same line of
business as the Borrower, (e) neither the Borrower nor any of its subsidiaries
shall assume or otherwise become liable for any Indebtedness in connection with
such acquisition, except for Indebtedness permitted by Section 6.01, and (f)
simultaneously with any such acquisition, the Administrative Agent for the
benefit of the Secured Parties shall be granted a first-priority security
interest in all real and personal property (including capital stock and other
securities or interests, subject to customary and reasonable permitted
encumbrances) acquired by the Borrower as part of such acquisition, and the
Borrower shall, and shall cause any applicable subsidiary to, execute any
documents (including supplements to the Guarantee Agreement, the Security
Agreement, the Pledge Agreement and the Indemnity, Subrogation and Contribution
Agreement, if applicable), financing statements, agreements and instruments,
and take all action (including filing financing statements and obtaining and
providing consents, title insurance, surveys and legal opinions) that may be
required under applicable law or as the Administrative Agent may request, in
order to grant, preserve, protect and perfect such
<PAGE> 24
18
security interest; provided, however, that a Permitted Acquisition shall not be
deemed to constitute a Capital Expenditure.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are
being contested in compliance with Section 5.05;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the ordinary
course of business and securing obligations that are not overdue by more
than 30 days or are being contested in compliance with Section 5.05;
(c) pledges and deposits made in the ordinary course of business
in compliance with workers' compensation, unemployment insurance and
other social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature, in each case in the
ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute
an Event of Default under clause (k) of Article VII;
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do
not materially detract from the value of the affected property or
interfere with the ordinary conduct of business of the Borrower or any
Subsidiary;
(g) any interest of a landlord in or to property of the tenant
imposed by law, arising in the ordinary course of business and securing
lease obligations that are not overdue by more than 60 days or are being
contested in compliance with Section 5.05, or any possessory rights of a
lessee to the leased property under the provisions of any lease
permitted by the terms of this Agreement; and
(h) Liens of a collection bank arising in the ordinary course of
business under Section 4-208 of the Uniform Commercial Code in effect
in the relevant jurisdiction,
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Holder" means Mr. Pete Schenkel (or any corporation, limited
liability company or partnership owned by Mr. Pete Schenkel or members of his
immediate family) or any other Person that is designated as a Permitted Holder
by the Borrower with the written consent of each Lender.
<PAGE> 25
19
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America), in
each case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from
the date of acquisition thereof and having, at such date of acquisition,
the highest credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances
and time deposits maturing within 180 days from the date of acquisition
thereof issued or guaranteed by or placed with, and money market deposit
accounts issued or offered by, any domestic office of any commercial
bank organized under the laws of the United States of America or any
State thereof that has a combined capital and surplus and undivided
profits of not less than $500,000,000; and
(d) fully collateralized repurchase agreements with a term of not
more than 30 days for securities described in clause (a) above and
entered into with a financial institution satisfying the criteria
described in clause (c) above.
"Permitted Tax Distribution" means a direct or indirect distribution to
Mr. Pete Schenkel (or any taxable successors to all or a part of Mr. Schenkel's
direct or indirect partnership interests in the Borrower, Mr. Schenkel, as a
holder of a direct or indirect partnership interest in the Borrower, or any
taxable successor(s) to all or part of his direct or indirect partnership
interest in the Borrower hereinafter referred to as an "Eligible Partner") with
respect to the Eligible Partner's direct or indirect partnership interests in
the Borrower (including such Eligible Partner's direct or indirect interests in
SFG Management) to enable such Eligible Partner to pay Federal, state and local
Income Taxes (including quarterly estimated Income Taxes) with respect to the
Borrower's net income or any segment or division thereof allocable to such
Eligible Partner. For the purposes of this definition:
(a) "Income Taxes" means all Federal, state and local taxes,
fees, assessments or charges of any kind, imposed on, or determined with
reference to, net income of the Borrower or any division or segment
thereof, or any allocable portion thereof, including without limitation
any self-employment or similar tax imposed with respect to an Eligible
Partner's allocable share of net income or any division or segment
thereof, and "Income Tax" means any one of such Income Taxes.
(b) The amount payable as Permitted Tax Distributions in any
applicable fiscal year shall equal the greater of (1) the product of (i)
the sum of (A) the highest marginal Federal tax rate (taking into
account deductions or credits for state and local taxes) applicable to
the Eligible Partner (at either individual or corporate rates, as
applicable) with respect to the Borrower's taxable income directly or
indirectly allocable to such Eligible Partner with respect to such
applicable fiscal year, (B) the highest state tax rate (taking into
account deductions or credits for local taxes) applicable to the
Eligible
<PAGE> 26
20
Partner (at either individual or corporate rates, as applicable) with
respect to the Borrower's taxable income directly or indirectly
allocable to such Eligible Partner with respect to such applicable
fiscal year and (C) the highest local tax rate applicable to the
Eligible Partner (at either individual or corporate rates, as
applicable) with respect to the Borrower's taxable income directly or
indirectly allocable to such Eligible Partner with respect to such
applicable fiscal year, multiplied by (ii) the Borrower's taxable income
directly or indirectly allocable to such Eligible Partner with respect
to such fiscal year; or (2) the product of (i) the sum of (A) the
highest Federal alternative minimum tax rate (taking into account
deductions or credits for state and local taxes) applicable to the
Eligible Partner (at either individual or corporate rates, as
applicable) with respect to the Borrower's alternative minimum taxable
income directly or indirectly allocable to such Eligible Partner with
respect to such applicable fiscal year, (B) the highest state tax rate
(taking into account deductions or credits for local taxes) applicable
to the Eligible Partner (at either individual or corporate rates, as
applicable) with respect to the Borrower's taxable income or alternative
minimum taxable income, as applicable, directly or indirectly allocable
to such Eligible Partner with respect to such applicable fiscal year and
(C) the highest local tax rate applicable to the Eligible Partner (at
either individual or corporate rates, as applicable) with respect to the
Borrower's taxable income or alternative minimum taxable income, as
applicable, directly or indirectly allocable to such Eligible Partner
with respect to such applicable fiscal year, multiplied by (ii) the
Borrower's taxable income or alternative minimum taxable income, as
applicable, directly or indirectly allocable to such Eligible Partner
with respect to such fiscal year. The Permitted Tax Distributions for
each applicable fiscal year shall be appropriately adjusted to reflect
(i) any tax losses of the Borrower arising in any prior fiscal year
(assuming that any such losses are carried forward and used to offset
the Borrower's taxable income in the applicable fiscal year) and (ii)
the Borrower's payment of any withholding taxes that would give rise to
a credit or other tax benefit to the Borrower (or the Eligible Partner).
(c) Payments or distributions in connection with Permitted Tax
Distributions related to payments of estimated Federal income tax shall
be payable in quarterly installments with respect to the applicable
fiscal year, in each case no more than five days prior to the Federal
estimated tax due dates applicable to the Eligible Partner. Such
quarterly installments shall be based upon the Borrower's then good
faith estimate of its taxable income (or alternative minimum taxable
income, as applicable) directly or indirectly allocable to the Eligible
Partner (as calculated in the manner described in paragraph (b) above),
subject to appropriate adjustment to reflect over and under payment of
any prior quarterly periods during the applicable fiscal year, and in
each quarter shall be no greater than the applicable estimated tax
payment to be paid by such Eligible Partner to the applicable
Governmental Authority.
(d) Payments or distributions in connection with the Permitted
Tax Distribution related to the filing of extensions of time for filing
Income Tax returns for a fiscal year shall be payable in each case no
more than five days prior to the applicable date on which such payment
of Income Tax is due, shall be based on the Borrower's then good faith
estimate of its taxable income (or alternative minimum taxable income,
as applicable) directly or indirectly allocable to the Eligible Partner
for such fiscal year,
<PAGE> 27
21
and shall be no greater than the applicable tax payment to be paid by
such Eligible Partner to the applicable Governmental Authority.
(e) The aggregate amount of such Permitted Tax Distributions
paid during the applicable fiscal year shall be based upon the
Borrower's taxable income (or alternative minimum taxable income, as
applicable) directly or indirectly allocable to the Eligible Partner
with respect to such applicable fiscal year as shown on the Borrower's
filed Federal Income Tax return for such fiscal year, or if such return
is not filed when the financial statements referred to in Section
5.01(a) for such fiscal year are delivered, the Borrower's then good
faith estimate of the amount of its taxable income (or alternative
minimum taxable income, as applicable), taking into account any
separately stated items, for such fiscal year. In the event that the
Borrower files an amended Income Tax return (or upon the Borrower's
filing of its original return for the applicable fiscal year if the
Permitted Tax Distribution was based upon the Borrower's good faith
estimate of its taxable income or alternative minimum taxable income, as
applicable) that is inconsistent with its calculation of its taxable
income (or alternative minimum taxable income, as applicable) for any
such fiscal year(s), or in the event that a Governmental Authority
determines that information reflected in any of the Borrower's tax
returns for such fiscal year is inaccurate or incomplete, then the
Borrower shall make a proper adjustment (including any penalties,
interest or other charges related to the adjustment or correction of
information reflected in such return(s) or the filing of such tax
return(s)) to the amount payable as a Permitted Tax Distribution for
such fiscal year(s). According to whether such adjustments to the
amounts payable as Permitted Tax Distributions for the applicable year
are positive or negative with respect to the Eligible Partner, the
Borrower shall, as applicable, either promptly pay to the Eligible
Partner as a distribution as needed to fund payments to a Governmental
Authority by such Eligible Partner, or shall require the Eligible
Partner to promptly pay to it, the amount of any such adjustment (and no
further Permitted Tax Distributions shall be paid until the Eligible
Partner has repaid any such excess to the Borrower). Payments or
distributions to the Eligible Partner upon the Eligible Partner filing
original Income Tax returns for a fiscal year shall be payable in each
case no more than five days prior to the applicable date on which the
Income Tax payment is due in connection with such return filing, and
shall be no greater than the applicable tax payment to be paid by such
Eligible Partner to the applicable Governmental Authority.
(f) In the event that the aggregate amount of Permitted Tax
Distributions actually distributed in respect of any fiscal year exceeds
the amounts determined as indicated in paragraph (e) above for such
fiscal year, the Eligible Partner shall promptly repay any such excess
to the Borrower (and no further Permitted Tax Distributions shall be
paid until the Eligible Partner has repaid any such excess to the
Borrower).
(g) For all periods from and after the inception of the Borrower
as a partnership, the amount of the aggregate Permitted Tax
Distributions made with respect to the direct or indirect partnership
interests held by an Eligible Partner for each fiscal year shall be
appropriately adjusted in the current fiscal year or in future fiscal
years, regardless of whether such Eligible Partner has held, or now or
in the future holds a direct or indirect partnership interest in the
Borrower (to allow additional Permitted
<PAGE> 28
22
Tax Distributions for the benefit of such Eligible Partner in the case
of tax increases or in the case of tax decreases by the Eligible Partner
paying any tax decrease to the Borrower) to reflect any adjustments in
income tax (or alternative minimum tax) liabilities as a result of
adjustments made for any reason to items of income, gain, loss,
deduction or credit of the Borrower, or adjustments made in the Eligible
Partner's allocable shares of such items (regardless of whether
occurring as a result of the Borrower's filing of an amended return or
as a result of an examination or audit by a Governmental Authority).
For the period up to and including Mr. Schenkel's purchase of Mr. Allen
Meyer's direct or indirect partnership interests in the Borrower, the
term "Eligible Partner" shall also include Mr. Allen Meyer as a former
holder of a partnership interest in the Borrower.
(h) In the event that, for any reason, all or any portion of a
Permitted Tax Distribution cannot be distributed to an Eligible Partner,
such deficiency in Permitted Tax Distribution shall be distributed to
such Eligible Partner in any subsequent fiscal year.
"Person" means any natural person, corporation, limited liability
company, trust, joint venture, association, company, partnership, limited
partnership, Governmental Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower
or any ERISA Affiliate is (or, if such plan were terminated, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Pledge Agreement" means the Pledge Agreement, substantially in the form
of Exhibit F, among the Borrower, Mr. Pete Schenkel, SFG Management, the
Subsidiaries party thereto and the Administrative Agent for the benefit of the
Secured Parties.
"Prepayment Event" means:
(a) any sale, transfer or other disposition (including pursuant
to a sale and leaseback transaction) of any property or asset of the
Borrower or any Subsidiary, other than (i) dispositions described in
clauses (a) and (b) of Section 6.05 and (ii) other dispositions
resulting in aggregate Net Proceeds not exceeding $1,000,000 during any
fiscal year of the Borrower;
(b) any casualty or other insured damage to, or any taking under
power of eminent domain or by condemnation or similar proceeding of, any
property or asset of the Borrower or any Subsidiary;
(c) the issuance by the Borrower or any Subsidiary of any equity
securities, or the receipt by the Borrower or any Subsidiary of any
capital contribution, other than any such issuance of equity securities
to, or receipt of any such capital contribution from, the Borrower or a
Subsidiary; or
<PAGE> 29
23
(d) the incurrence by the Borrower or any Subsidiary of any
Indebtedness, other than Indebtedness permitted by Section 6.01(a).
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by The Chase Manhattan Bank as its prime rate in effect at
its principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as
being effective.
"Refinanced Indebtedness" means the Indebtedness of the Borrower set
forth on Schedule 1.01(d).
"Register" has the meaning set forth in Section 9.04(c).
"Regulation G" means Regulation G of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" means Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation X" means Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the environment.
"Representative" has the meaning assigned to such term in the SFG
Management Agreement.
"Representative Committee" has the meaning assigned to such term in the
SFG Management Agreement.
"Required Lenders" means, at any time, Lenders having Revolving
Exposures, Term Loans and unused Commitments representing more than 50% of the
sum of the total Revolving Exposures, outstanding Term Loans and unused
Commitments at such time.
"Restricted Payment" means any dividend or other distribution (whether
in cash, securities or other property) with respect to any shares of any class
of capital stock or partnership interests or other equity interest of any class
in the Borrower or any Subsidiary, or any payment (whether in cash, securities
or other property), including any sinking fund or similar deposit, on account
of the purchase, redemption, retirement, acquisition, cancelation or
termination of any such shares of capital stock or partnership interests or
other equity interests in the Borrower or any Subsidiary or any option, warrant
or other right to acquire any such
<PAGE> 30
24
shares of capital stock or partnership interests or other equity interests in
the Borrower or any Subsidiary.
"Revolving Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Revolving Maturity Date and
the date of termination of the Revolving Commitments.
"Revolving Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make Revolving Loans and to acquire
participations in Letters of Credit and Swingline Loans hereunder, expressed as
an amount representing the maximum aggregate amount of such Lender's Revolving
Exposure hereunder, as such commitment may be (a) reduced from time to time
pursuant to Section 2.08 and (b) reduced or increased from time to time
pursuant to assignments by or to such Lender pursuant to Section 2.19(b) or
9.04. The initial amount of each Lender's Revolving Commitment is set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such
Lender shall have assumed its Revolving Commitment, as applicable. The initial
aggregate amount of the Lenders' Revolving Commitments is $60,000,000.
"Revolving Exposure" means, with respect to any Lender at any time, the
sum of the outstanding principal amount of such Lender's Revolving Loans and
its LC Exposure and Swingline Exposure at such time.
"Revolving Lender" means a Lender with a Revolving Commitment or, if the
Revolving Commitments have terminated or expired, a Lender with Revolving
Exposure.
"Revolving Loan" means a Loan made pursuant to Section 2.01(c).
"Revolving Maturity Date" means September 4, 2004.
"S&P" means Standard & Poor's.
"Secured Parties" has the meaning assigned to such term in the Security
Agreement.
"Security Agreement" means the Security Agreement, substantially in the
form of Exhibit G, among the Borrower, the Subsidiary Loan Parties and the
Administrative Agent for the benefit of the Secured Parties.
"Security Documents" means the Security Agreement, the Pledge Agreement,
the Mortgages and each other security agreement or other instrument or document
executed and delivered pursuant to Section 5.12 or 5.13 to secure any of the
Obligations.
"Series A Preferred Capital Interests" means the Series A 10% Payment-
in-Kind Preferred Limited Partner Interests of the Borrower.
"Series B Preferred Capital Interests" means the Series B 10%
Payment-in-Kind Preferred Limited Partner Interests of the Borrower.
<PAGE> 31
25
"Series C Preferred Capital Interests" means the Series C 10%
Payment-in-Kind Preferred Limited Partner Interests of the Borrower.
"Series D Preferred Capital Interests" means the Series D 9-1/2%
Preferred Limited Partner Interests of the Borrower.
"Series E Preferred Capital Interests" means the Series E 10% Payment-
in-Kind Preferred Limited Partner Interests of the Borrower.
"SFG Capital" means SFG Capital Corporation, a Delaware corporation that
is on the date hereof a wholly owned subsidiary of the Borrower.
"SFG Management" means SFG Management Limited Liability Company, a
limited liability company organized under the laws of the State of Delaware.
"SFG Management Agreement" means the Second Amended and Restated Limited
Liability Company Agreement dated as of September 3, 1997, between the Initial
Borrower and Mr. Pete Schenkel.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject (a) with
respect to the Base CD Rate, for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months
and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of the
Board). Such reserve percentages shall include those imposed pursuant to such
Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency
funding and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Lender under such Regulation D or any comparable regulation. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"Stock Purchase Agreement" means the Stock Purchase and Merger Agreement
dated as of May 22, 1997, among the Initial Borrower, Borden Holdings and
Borden relating to the Acquisition.
"Subordinated Debt" means the 9 7/8% Senior Subordinated Debt due 2007
to be issued by the Borrower and SFG Capital on or prior to the Effective Date
in the aggregate principal amount of not less than $150,000,000 and the
Indebtedness represented thereby.
"Subordinated Debt Documents" means the indenture under which the
Subordinated Debt is issued and all other instruments, agreements and other
documents evidencing or governing the Subordinated Debt or providing for any
right in respect thereof.
"subsidiary" means, with respect to any Person (the "parent") at any
date, any corporation, limited liability company, partnership, limited
partnership, association or other
<PAGE> 32
26
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements
were prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, limited partnership,
association or other entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, controlled or held,
or (b) that is, as of such date, otherwise Controlled, by the parent or one or
more subsidiaries of the parent or by the parent and one or more subsidiaries
of the parent.
"Subsidiary" means any subsidiary of the Borrower. For purposes of the
representations and warranties made herein on the Effective Date and for the
purposes of Article IV, the term "Subsidiary" includes each of Borden Holdings
and its subsidiaries.
"Subsidiary Loan Party" means any Subsidiary that is not a Foreign
Subsidiary.
"Swingline Exposure" means, at any time, the aggregate principal amount
of all Swingline Loans outstanding at such time. The Swingline Exposure of any
Lender at any time shall be its Applicable Percentage of the total Swingline
Exposure at such time.
"Swingline Lender" means The Chase Manhattan Bank, in its capacity as
lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
"Taxes" means any and all current or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority (and any interest, penalties or additions relating thereto).
"Term Commitments" means a Tranche A Commitment or Tranche B Commitment
or any combination thereof (as the context requires).
"Term Loans" means Tranche A Term Loans and Tranche B Term Loans.
"Three-Month Secondary CD Rate" means, for any day, the secondary market
rate for three-month certificates of deposit reported as being in effect on
such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or
such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day is not a Business Day, on the next preceding Business
Day) by the Administrative Agent from three negotiable certificate of deposit
dealers of recognized standing selected by it.
"Total Debt" means, as of any date of determination, without
duplication, the aggregate principal amount of Indebtedness of the Borrower and
the Subsidiaries outstanding as
<PAGE> 33
27
of such date, determined on a consolidated basis in accordance with GAAP (other
than Indebtedness of the type referred to in clause (i) of the definition of
the term "Indebtedness", except to the extent of any unreimbursed drawings
thereunder).
"Tranche A Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make a Tranche A Term Loan hereunder on
the Effective Date, expressed as an amount representing the maximum principal
amount of the Tranche A Term Loan to be made by such Lender hereunder, as such
commitment may be (a) reduced from time to time pursuant to Section 2.08 and
(b) reduced or increased from time to time pursuant to assignments by or to
such Lender pursuant to Section 9.04. The initial amount of each Lender's
Tranche A Commitment is set forth on Schedule 2.01, or in the Assignment and
Acceptance pursuant to which such Lender shall have assumed its Tranche A
Commitment, as applicable. The initial aggregate amount of the Lenders'
Tranche A Commitments is $90,000,000.
"Tranche A Lender" means a Lender with a Tranche A Commitment or an
outstanding Tranche A Term Loan.
"Tranche A Maturity Date" means September 4, 2004.
"Tranche A Term Loan" means a Loan made pursuant to Section 2.01(a).
"Tranche B Commitment" means, with respect to each Lender, the
commitment, if any, of such Lender to make a Tranche B Term Loan hereunder on
the Effective Date, expressed as an amount representing the maximum principal
amount of the Tranche B Term Loan to be made by such Lender hereunder, as such
commitment may be (a) reduced from time to time pursuant to Section 2.08 and
(b) reduced or increased from time to time pursuant to assignments by or to
such Lender pursuant to Section 9.04. The initial amount of each Lender's
Tranche B Commitment is set forth on Schedule 2.01, or in the Assignment and
Acceptance pursuant to which such Lender shall have assumed its Tranche A
Commitment, as applicable. The initial aggregate amount of the Lenders'
Tranche B Commitments is $100,000,000.
"Tranche B Lender" means a Lender with a Tranche B Commitment or an
outstanding Tranche B Term Loan.
"Tranche B Maturity Date" means March 4, 2006.
"Tranche B Rate" means, subject to the last sentence of the definition
of the term "Applicable Rate", (a) 1.75% per annum, in the case of an ABR Loan
or (b) 3.00% per annum, in the case of a Eurodollar Loan.
"Tranche B Term Loan" means a Loan made pursuant to Section 2.01(b).
"Transactions" means the Acquisition, the Financing Transactions, the
Mid-Am Contribution, the issuance of the New Preferred Interests, the
consummation of the Meadow Gold Trademark Acquisition, the execution of the
Borden Trademark Documents, the
<PAGE> 34
28
consummation of the Borden Dairies Sale and the execution of the Equipment Sub-
lease Documents.
"Type", when used in reference to any Loan or Borrowing, refers to
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the
Alternate Base Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes of
this Agreement, Loans may be classified and referred to by Class (e.g., a
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
(e.g. a "Eurodollar Revolving Loan"). Borrowings also may be classified and
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
"Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including"
shall be deemed to be followed by the phrase "without limitation". The word
"will" shall be construed to have the same meaning and effect as the word
"shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth
herein), (b) any reference herein to any Person shall be construed to include
such Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time, provided
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have
been withdrawn or such provision amended in accordance herewith.
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SECTION 1.05. Liability of General Partner. The liability of the
General Partner with respect to the Obligations of the Borrower under this
Agreement and the other Loan Documents shall be limited to the Collateral
pledged by the General Partner to the Secured Parties under the Pledge
Agreement.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions set
forth herein, each Lender agrees (a) to make a Tranche A Term Loan to the
Initial Borrower on the Effective Date in a principal amount not exceeding its
Tranche A Commitment, (b) to make a Tranche B Term Loan to the Initial Borrower
on the Effective Date in a principal amount not exceeding its Tranche B
Commitment, (c) to make Revolving Loans to the Initial Borrower on the
Effective Date in a principal amount not to exceed such Lender's Applicable
Percentage of $15,000,000 and (d) to make Revolving Loans to the Borrower from
time to time during the Revolving Availability Period in an aggregate principal
amount that will not result in such Lender's Revolving Exposure exceeding such
Lender's Revolving Commitment. Within the foregoing limits and subject to the
terms and conditions set forth herein, the Borrower may borrow, prepay and
reborrow Revolving Loans. Amounts repaid in respect of Term Loans may not be
reborrowed. On the Effective Date, immediately after the making of the Term
Loans and the Revolving Loans referred to in clauses (a), (b) and (c) above by
the Lenders to the Initial Borrower, and the consummation of the Mid-Am
Contribution, the Borrower shall assume the obligations of the Initial Borrower
under this Agreement and thereafter the Initial Borrower shall have no further
rights or obligations under the Loan Documents with respect to Borrowings
received by it on the Effective Date, provided that, after the Effective Date,
the Initial Borrower shall remain liable (a) with respect to the
representations and warranties made by it hereunder on the Effective Date and
(b) with respect to the affirmative covenants made by it pursuant to Sections
5.11 and 5.13.
SECTION 2.02. Loans and Borrowings. (a) Each Loan (other than a
Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the
same Class and Type made by the Lenders ratably in accordance with their
respective Commitments of the applicable Class. The failure of any Lender to
make any Loan required to be made by it shall not relieve any other Lender of
its obligations hereunder, provided that the Commitments of the Lenders are
several and no Lender shall be responsible for any other Lender's failure to
make Loans as required.
(b) Subject to Section 2.14, each Revolving Borrowing and Term
Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the
Initial Borrower (in the case of any Borrowing to be made on the Effective
Date) or the Borrower (in the case of any other Borrowing) may request in
accordance herewith. Notwithstanding anything to the contrary contained
herein, all Borrowings made on the Effective Date shall be ABR Borrowings.
Each Swingline Loan shall be an ABR Loan. Each Lender at its option may make
any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of
such Lender to make such Loan, provided that any exercise of such option shall
not affect the obligation of the Borrower to repay such Loan in accordance with
the terms of this Agreement.
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(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $5,000,000, in each case with respect
to Borrowings made after the Effective Date. At the time that each ABR
Revolving Borrowing is made, such Borrowing shall be in an aggregate amount
that is an integral multiple of $500,000 and not less than $1,000,000, in each
case with respect to Borrowings made after the Effective Date, provided that an
ABR Revolving Borrowing may be in an aggregate amount that is equal to the
entire unused balance of the total Revolving Commitments or that is required to
finance the reimbursement of an LC Disbursement as contemplated by Section
2.05(e). Each Swingline Loan shall be in an amount that is an integral
multiple of $100,000 and not less than $100,000. Borrowings of more than one
Type and Class may be outstanding at the same time, provided that there shall
not at any time be more than a total of six Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Revolving Maturity Date, Tranche A Maturity Date or Tranche B Maturity
Date, as applicable.
SECTION 2.03. Requests for Borrowings. To request a Revolving
Borrowing or Term Borrowing, the Initial Borrower (in the case of any Borrowing
made on the Effective Date) or the Borrower (in the case of any Borrowing to be
made after the Effective Date) shall notify the Administrative Agent of such
request by telephone (a) in the case of a Eurodollar Borrowing, not later than
11:00 a.m., New York City time, three Business Days before the date of the
proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00
a.m., New York City time, one Business Day before the date of the proposed
Borrowing, provided that any such notice of an ABR Revolving Borrowing to
finance the reimbursement of an LC Disbursement as contemplated by Section
2.05(e) may be given not later than 10:00 a.m., New York City time, on the date
of the proposed Borrowing. Each such telephonic Borrowing Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form approved by the
Administrative Agent and signed by the Initial Borrower (in the case of any
Borrowing made on the Effective Date) or the Borrower (in the case of any
Borrowing to be made after the Effective Date). Each such telephonic and
written Borrowing Request (in the case of any Borrowing to be made after the
Effective Date) shall specify the following information in compliance with
Section 2.02:
(i) whether the requested Borrowing is to be a Revolving
Borrowing, Tranche A Term Borrowing or Tranche B Term Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
(iv) subject to the second sentence of Section 2.02(b), whether
such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
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(v) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(vi) the location and number of the Initial Borrower's (in the
case of any Borrowing to be made on the Effective Date) or the
Borrower's (in the case of any Borrowing to be made after the Effective
Date) account to which funds are to be disbursed, which shall comply
with the requirements of Section 2.06.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Initial Borrower or the
Borrower, as the case may be, shall be deemed to have selected an Interest
Period of one month's duration. Promptly following receipt of a Borrowing
Request in accordance with this Section, the Administrative Agent shall advise
each Lender of the details thereof and of the amount of such Lender's Loan to
be made as part of the requested Borrowing.
SECTION 2.04. Swingline Loans. (a) Subject to the terms and
conditions set forth herein, the Swingline Lender agrees to make Swingline
Loans to the Borrower from time to time during the Revolving Availability
Period, in an aggregate principal amount at any time outstanding that will not
result in (i) the aggregate principal amount of outstanding Swingline Loans
exceeding $10,000,000 or (ii) the sum of the total Revolving Exposures
exceeding the total Revolving Commitments, provided that the Swingline Lender
shall not be required to make a Swingline Loan to refinance an outstanding
Swingline Loan. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow
Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the
Administrative Agent of such request by telephone (confirmed by telecopy), not
later than 12:00 noon, New York City time, on the day of a proposed Swingline
Loan. Each such notice shall be irrevocable and shall specify the requested
date (which shall be a Business Day) and amount of the requested Swingline
Loan. The Administrative Agent will promptly advise the Swingline Lender of
any such notice received from the Borrower. The Swingline Lender shall make
each Swingline Loan available to the Borrower by means of a credit to the
general deposit account of the Borrower with the Swingline Lender (or, in the
case of a Swingline Loan made to finance the reimbursement of an LC
Disbursement as provided in Section 2.05(e), by remittance to the Issuing Bank)
by 3:00 p.m., New York City time, on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 10:00 a.m., New York City time, on any
Business Day require the Revolving Lenders to acquire participations on such
Business Day in all or a portion of the Swingline Loans outstanding. Such
notice shall specify the aggregate amount of Swingline Loans in which Revolving
Lenders will participate. Promptly upon receipt of such notice, the
Administrative Agent will give notice thereof to each Revolving Lender,
specifying in such notice such Lender's Applicable Percentage of such Swingline
Loan or Loans. Each Revolving Lender hereby absolutely and unconditionally
agrees, upon receipt of notice as provided above, promptly to pay to the
Administrative Agent, for the account of the Swingline Lender, such
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Lender's Applicable Percentage of such Swingline Loan or Loans. Each Revolving
Lender acknowledges and agrees that its obligation to acquire participations in
Swingline Loans pursuant to this paragraph is absolute and unconditional and
shall not be affected by any circumstance whatsoever, including the occurrence
and continuance of a Default or reduction or termination of the Commitments,
and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever. Each Revolving Lender shall comply with
its obligation under this paragraph by wire transfer of immediately available
funds, in the same manner as provided in Section 2.06 with respect to Loans
made by such Lender (and Section 2.06 shall apply, mutatis mutandis, to the
payment obligations of the Revolving Lenders), and the Administrative Agent
shall promptly pay to the Swingline Lender the amounts so received by it from
the Revolving Lenders. The Administrative Agent shall notify the Borrower of
any participations in any Swingline Loan acquired pursuant to this paragraph,
and thereafter payments in respect of such Swingline Loan shall be made to the
Administrative Agent and not to the Swingline Lender. Any amounts received by
the Swingline Lender from the Borrower (or other party on behalf of the
Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender
of the proceeds of a sale of participations therein shall be promptly remitted
to the Administrative Agent; any such amounts received by the Administrative
Agent shall be promptly remitted by the Administrative Agent to the Revolving
Lenders that shall have made their payments pursuant to this paragraph and to
the Swingline Lender, as their interests may appear. The purchase of
participations in a Swingline Loan pursuant to this paragraph shall not relieve
the Borrower of any default in the payment thereof. Notwithstanding the
foregoing, a Revolving Lender shall not have any obligation to acquire a
participation in a Swingline Loan pursuant to this paragraph if an Event of
Default shall have occurred and be continuing at the time such Swingline Loan
was made and a Lender shall have notified the Swingline Lender in writing, at
least one Business Day prior to the time such Swingline Loan was made, that
such Event of Default has occurred and that such Lender will not acquire
participations in Swingline Loans made while such Event of Default is
continuing.
SECTION 2.05. Letters of Credit. (a) General. Subject to the terms
and conditions set forth herein, the Borrower may request the issuance of
Letters of Credit for its own account, in a form reasonably acceptable to the
Administrative Agent and the Issuing Bank, at any time and from time to time
during the LC Availability Period. In the event of any inconsistency between
the terms and conditions of this Agreement and the terms and conditions of any
form of letter of credit application or other agreement submitted by the
Borrower to, or entered into by the Borrower with, the Issuing Bank relating to
any Letter of Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the
Issuing Bank and the Administrative Agent (reasonably in advance of the
requested date of issuance, amendment, renewal or extension) a notice
requesting the issuance of a Letter of Credit, or identifying the Letter of
Credit to be amended, renewed or extended, and specifying the date of issuance,
amendment, renewal or extension (which shall be a Business Day), the date on
which such Letter of Credit is to expire (which shall comply with paragraph (c)
of this Section), the amount of such Letter of Credit, the name and address of
the beneficiary thereof and such other information as shall be necessary to
prepare, amend, renew
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or extend such Letter of Credit. If requested by the Issuing Bank, the
Borrower also shall submit a letter of credit application on the Issuing Bank's
standard form in connection with any request for a Letter of Credit. A Letter
of Credit shall be issued, amended, renewed or extended only if (and upon
issuance, amendment, renewal or extension of each Letter of Credit the Borrower
shall be deemed to represent and warrant that), after giving effect to such
issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed
$5,000,000 and (ii) the total Revolving Exposures shall not exceed the total
Revolving Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or prior to
the close of business on the earlier of (i) the date one year after the date of
the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Revolving Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Revolving Lender, and each Revolving Lender hereby
acquires from the Issuing Bank, a participation in such Letter of Credit equal
to such Lender's Applicable Percentage of the aggregate amount available to be
drawn under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Revolving Lender hereby absolutely and unconditionally agrees
to pay to the Administrative Agent, for the account of the Issuing Bank, such
Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank
and not reimbursed by the Borrower on the date due as provided in paragraph (e)
of this Section, or of any reimbursement payment required to be refunded to the
Borrower for any reason. Each Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall not be affected by
any circumstance whatsoever, including any amendment, renewal or extension of
any Letter of Credit or the occurrence and continuance of a Default or
reduction or termination of the Commitments, and that each such payment shall
be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement
in respect of a Letter of Credit, the Borrower shall reimburse such LC
Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of
such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or,
if such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt, provided that
the Borrower may, subject to the conditions to borrowing set forth herein,
request in accordance with Section 2.03 or 2.04 that such payment be financed
with an ABR Revolving Borrowing or Swingline Loan in an equivalent amount and,
to the extent so financed, the Borrower's obligation to make such payment shall
be discharged and replaced by the resulting ABR Revolving Borrowing or
Swingline Loan. If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Revolving Lender of the applicable LC
Disbursement, the payment then due from the Borrower in respect thereof and
such Lender's Applicable Percentage thereof. Promptly following receipt of
such notice, each
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Revolving Lender shall pay to the Administrative Agent its Applicable
Percentage of the payment then due from the Borrower, in the same manner as
provided in Section 2.06 with respect to Loans made by such Lender (and Section
2.06 shall apply, mutatis mutandis, to the payment obligations of the Revolving
Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank
the amounts so received by it from the Revolving Lenders. Promptly following
receipt by the Administrative Agent of any payment from the Borrower pursuant
to this paragraph, the Administrative Agent shall distribute such payment to
the Issuing Bank or, to the extent that Revolving Lenders have made payments
pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders
and the Issuing Bank as their interests may appear. Any payment made by a
Revolving Lender pursuant to this paragraph to reimburse the Issuing Bank for
any LC Disbursement (other than the funding of ABR Revolving Loans or a
Swingline Loan as contemplated above) shall not constitute a Loan and shall not
relieve the Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of,
or provide a right of setoff against, the Borrower's obligations hereunder.
None of the Administrative Agent, the Lenders or the Issuing Bank, nor any of
their Related Parties, shall have any liability or responsibility by reason of
or in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of
the Issuing Bank, provided that the foregoing shall not be construed to excuse
the Issuing Bank from liability to the Borrower to the extent of any direct
damages (as opposed to consequential damages, claims in respect of which are
hereby waived by the Borrower to the extent permitted by applicable law)
suffered by the Borrower that are caused by the Issuing Bank's failure to
exercise care when determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof. The parties hereto
expressly agree that, in the absence of gross negligence or wilful misconduct
on the part of the Issuing Bank (as finally determined by a court of competent
jurisdiction), the Issuing Bank shall be deemed to have exercised care in each
such determination. In furtherance of the foregoing and without limiting the
generality thereof, the parties agree that, with respect to documents presented
that appear on their face to be in substantial compliance with the terms of a
Letter of Credit, the Issuing Bank may, in its sole discretion, either accept
and make payment upon such documents without responsibility for further
investigation, unless it has received written notice to the contrary, or refuse
to accept and make payment upon such documents if such documents are not in
strict compliance with the terms of such Letter of Credit.
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(g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder, provided that any failure to give or
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Revolving Lenders with respect to any such
LC Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Revolving Loans,
provided that, if the Borrower fails to reimburse such LC Disbursement when due
pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued on and after the date of payment by
any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the
Issuing Bank shall be for the account of such Lender to the extent of such
payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be replaced
at any time by written agreement among the Borrower, the Administrative Agent,
the replaced Issuing Bank and the successor Issuing Bank. The Administrative
Agent shall notify the Lenders of any such replacement of the Issuing Bank. At
the time any such replacement shall become effective, the Borrower shall pay
all unpaid fees accrued for the account of the replaced Issuing Bank pursuant
to Section 2.12(b). From and after the effective date of any such replacement,
(i) the successor Issuing Bank shall have all the rights and obligations of the
Issuing Bank under this Agreement with respect to Letters of Credit to be
issued thereafter and (ii) references herein to the term "Issuing Bank" shall
be deemed to refer to such successor or to any previous Issuing Bank, or to
such successor and all previous Issuing Banks, as the context shall require.
After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank
shall remain a party hereto and shall continue to have all the rights and
obligations of an Issuing Bank under this Agreement with respect to Letters of
Credit issued by it prior to such replacement, but shall not be required to
issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be
continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or Revolving Lenders with LC Exposure representing greater
than 50% of the total LC Exposure demanding the deposit of cash collateral
pursuant to this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the
benefit of the Lenders, an amount in cash equal to the LC Exposure as of such
date plus any accrued and unpaid interest thereon, provided that the obligation
to deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other
notice of any kind, upon the occurrence of any Event of Default with respect to
the Borrower described in clause (h) or (i) of Article VII. Each such deposit
shall be held by the Administrative Agent as collateral for the payment and
performance of the obligations of the Borrower under this Agreement. The
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account. Other than any interest
earned on the investment of such deposits, which investments shall be
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made at the option and sole discretion of the Administrative Agent and at the
Borrower's risk and expense, such deposits shall not bear interest. Interest
or profits, if any, on such investments shall accumulate in such account.
Moneys in such account shall be applied by the Administrative Agent to
reimburse the Issuing Bank for LC Disbursements for which it has not been
reimbursed and, to the extent not so applied, shall be held for the
satisfaction of the reimbursement obligations of the Borrower for the LC
Exposure at such time or, if the maturity of the Loans has been accelerated
(but subject to the consent of Revolving Lenders with LC Exposure representing
greater than 50% of the total LC Exposure), be applied to satisfy other
obligations of the Borrower under this Agreement. If the Borrower is required
to provide an amount of cash collateral hereunder as a result of the occurrence
of an Event of Default, such amount (to the extent not applied as aforesaid)
shall be returned to the Borrower within three Business Days after all Events
of Default have been cured or waived.
SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer
of immediately available funds by 12:00 noon, New York City time, to the
account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders, provided that Swingline Loans shall be made
as provided in Section 2.04. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in
like funds, to an account of the Borrower maintained with the Administrative
Agent in New York City and designated by the Borrower in the applicable
Borrowing Request, provided that ABR Revolving Loans made to finance the
reimbursement of an LC Disbursement as provided in Section 2.05(e) shall be
remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Initial
Borrower (in the case of any Borrowing made on the Effective Date) or the
Borrower (in the case of any Borrowing made after the Effective Date) a
corresponding amount. In such event, if a Lender has not in fact made its
share of the applicable Borrowing available to the Administrative Agent, then
the applicable Lender and the Initial Borrower (in the case of any Borrowing
made on the Effective Date) or the Borrower (in the case of any Borrowing made
after the Effective Date) severally agree to pay to the Administrative Agent
forthwith on demand such corresponding amount with interest thereon, for each
day from and including the date such amount is made available to the Initial
Borrower (in the case of any Borrowing made on the Effective Date) or the
Borrower (in the case of any Borrowing to be made after the Effective Date) to
but excluding the date of payment to the Administrative Agent, at (i) in the
case of such Lender, the Federal Funds Effective Rate or, if such Rate is
unavailable or if such Rate is insufficient to provide adequate compensation to
the Administrative Agent, a rate reasonably determined by the Administrative
Agent in accordance with banking industry rules on interbank compensation or
(ii) in the case of the Initial Borrower (in the case of any Borrowing made on
the Effective Date) or the Borrower (in the case of any Borrowing made after
the Effective Date), the interest rate applicable to ABR Loans. If such Lender
pays such amount to the Administrative Agent, then such amount shall constitute
such Lender's Loan included in such Borrowing.
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SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing and
Term Borrowing initially shall be of the Type specified in the applicable
Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an
initial Interest Period as specified in such Borrowing Request. Thereafter,
the Borrower may elect to convert such Borrowing to a different Type or to
continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect
Interest Periods therefor, all as provided in this Section. The Borrower may
elect different options with respect to different portions of the affected
Borrowing, in which case each such portion shall be allocated ratably among the
Lenders holding the Loans comprising such Borrowing, and the Loans comprising
each such portion shall be considered a separate Borrowing. This Section shall
not apply to Swingline Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that
a Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall specify
the following information in compliance with Section 2.02 and paragraph (f) of
this Section:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing
or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of
such Lender's portion of each resulting Borrowing.
<PAGE> 44
38
(e) If the Borrower fails to deliver a timely Interest Election Request
with respect to a Eurodollar Borrowing prior to the end of the Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein,
at the end of such Interest Period such Borrowing shall be converted to an ABR
Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the
request of the Required Lenders, so notifies the Borrower, then, so long as an
Event of Default is continuing (i) no outstanding Borrowing may be converted to
or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
(f) A Borrowing of any Class may not be converted to or continued as a
Eurodollar Borrowing if after giving effect thereto (i) the Interest Period
therefor would commence before and end after a date on which any principal of
the Loans of such Class is scheduled to be repaid and (ii) the sum of the
aggregate principal amount of outstanding Eurodollar Borrowings of such Class
with Interest Periods ending on or prior to such scheduled repayment date plus
the aggregate principal amount of outstanding ABR Borrowings of such Class
would be less than the aggregate principal amount of Loans of such Class
required to be repaid on such scheduled repayment date.
SECTION 2.08. Termination and Reduction of Commitments. (a) Unless
previously terminated, (i) the Tranche A Commitments and Tranche B Commitments
shall terminate at 5:00 p.m., New York City time, on the Effective Date and
(ii) the Revolving Commitments shall terminate on the Revolving Maturity Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments of any Class, provided that (i) each reduction of the
Commitments of any Class shall be in an amount that is an integral multiple of
$1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not
terminate or reduce the Revolving Commitments if, after giving effect to any
concurrent prepayment of the Revolving Loans in accordance with Section 2.11,
the sum of the Revolving Exposures would exceed the total Revolving
Commitments.
(c) The Borrower shall notify the Administrative Agent of any election
to terminate or reduce the Commitments under paragraph (b) of this Section at
least three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any such notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower
pursuant to this Section shall be irrevocable, provided that a notice of
termination of the Revolving Commitments delivered by the Borrower may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Administrative Agent on or prior to the specified effective date) if
such condition is not satisfied. Any termination or reduction of the
Commitments of any Class shall be permanent. Each reduction of the Commitments
of any Class shall be made ratably among the Lenders in accordance with their
respective Commitments of such Class.
SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay (i) to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Revolving Loan
of such Lender on the Revolving Maturity Date, (ii) to the Administrative Agent
for the account of each Lender the then unpaid
<PAGE> 45
39
principal amount of each Term Loan of such Lender as provided in Section 2.10
and (iii) to the Swingline Lender the then unpaid principal amount of each
Swingline Loan on the earlier of the Revolving Maturity Date and the first date
after such Swingline Loan is made that is the 20th or last day of a calendar
month and is at least two Business Days after such Swingline Loan is made,
provided that on each date that a Revolving Borrowing is made, the Borrower
shall repay all Swingline Loans then outstanding.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Class and Type thereof
and the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein, provided that the failure of any
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by it be
evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 9.04) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and
its registered assigns).
SECTION 2.10. Amortization of Term Loans. (a) Subject to adjustment
pursuant to paragraph (d) of this Section, the Borrower shall repay Tranche A
Term Borrowings on each date set forth below in the aggregate principal amount
set forth opposite such date:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
March 31, 1998 $1,250,000
June 30, 1998 1,250,000
September 30, 1998 1,250,000
December 31, 1998 1,250,000
March 31, 1999 2,500,000
June 30, 1999 2,500,000
September 30, 1999 2,500,000
</TABLE>
<PAGE> 46
40
<TABLE>
<S> <C>
December 31, 1999 2,500,000
March 31, 2000 2,500,000
June 30, 2000 2,500,000
September 30, 2000 2,500,000
December 31, 2000 2,500,000
March 31, 2001 3,125,000
June 30, 2001 3,125,000
September 30, 2001 3,125,000
December 31, 2001 3,125,000
March 31, 2002 3,750,000
June 30, 2002 3,750,000
September 30, 2002 3,750,000
December 31, 2002 3,750,000
March 31, 2003 4,375,000
June 30, 2003 4,375,000
September 30, 2003 4,375,000
December 31, 2003 4,375,000
March 31, 2004 7,000,000
June 30, 2004 7,000,000
Tranche A Maturity Date 6,000,000
</TABLE>
(b) Subject to adjustment pursuant to paragraph (d) of this Section,
the Borrower shall repay Tranche B Term Borrowings on each date set forth below
in the aggregate principal amount set forth opposite such date:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
March 31, 1998 $ 250,000
June 30, 1998 250,000
September 30, 1998 250,000
December 31, 1998 250,000
March 31, 1999 250,000
June 30, 1999 250,000
September 30, 1999 250,000
December 31, 1999 250,000
March 31, 2000 250,000
June 30, 2000 250,000
September 30, 2000 250,000
December 31, 2000 250,000
</TABLE>
<PAGE> 47
41
<TABLE>
<S> <C>
March 31, 2001 250,000
June 30, 2001 250,000
September 30, 2001 250,000
December 31, 2001 250,000
March 31, 2002 250,000
June 30, 2002 250,000
September 30, 2002 250,000
December 31, 2002 250,000
March 31, 2003 250,000
June 30, 2003 250,000
September 30, 2003 250,000
December 31, 2003 250,000
March 31, 2004 1,000,000
June 30, 2004 1,000,000
September 30, 2004 1,000,000
December 31, 2004 1,000,000
March 31, 2005 7,500,000
June 30, 2005 7,500,000
September 30, 2005 7,500,000
December 31, 2005 7,500,000
Tranche B Maturity Date 60,000,000
</TABLE>
(c) To the extent not previously paid, (i) all Tranche A Term Loans
shall be due and payable on the Tranche A Maturity Date and (ii) all Tranche B
Term Loans shall be due and payable on the Tranche B Maturity Date.
(d) If the initial aggregate amount of the Lenders' Term Commitments of
either Class exceeds the aggregate principal amount of Term Loans of such Class
that are made on the Effective Date, then the scheduled repayments of Term
Borrowings of such Class to be made pursuant to this Section shall be reduced
ratably by an aggregate amount equal to such excess. Any prepayment of a Term
Borrowing of either Class shall be applied to reduce the subsequent scheduled
repayments of the Term Borrowings of such Class to be made pursuant to this
Section ratably, provided that any prepayment made pursuant to Section 2.11(a)
shall be applied to reduce the subsequent scheduled repayments of the Term
Borrowings of such Class to be made pursuant to this Section in the order of
maturity and provided further that any prepayment made pursuant to Section
2.11(d) shall be applied to reduce the subsequent scheduled repayments of the
Term Borrowings of such Class to be made pursuant to this Section in the
inverse order of maturity.
(e) Prior to any repayment of any Term Borrowings of either Class
hereunder, the Borrower shall select the Borrowing or Borrowings of the
applicable Class to be repaid and shall notify the Administrative Agent by
telephone (confirmed by telecopy) of such selection not later than 11:00 a.m.,
New York City time, three Business Days before the scheduled date
<PAGE> 48
42
of such repayment, provided that each repayment of Term Borrowings of either
Class shall be applied to repay any outstanding ABR Term Borrowings of such
Class before any other Borrowings of such Class. Each repayment of a Borrowing
shall be applied ratably to the Loans included in the repaid Borrowing.
Repayments of Term Borrowings shall be accompanied by accrued interest on the
amount repaid.
SECTION 2.11. Prepayment of Loans. (a) The Borrower shall have the
right at any time and from time to time to prepay any Borrowing in whole or in
part, subject to the requirements of this Section.
(b) In the event and on each occasion that any Net Proceeds are
received by or on behalf of the Borrower or any Subsidiary in respect of any
Prepayment Event described in paragraph (a) or (b) of the definition of the
term "Prepayment Event", the Borrower shall, immediately after such Net
Proceeds are received, prepay Term Borrowings in an aggregate amount equal to
such Net Proceeds, provided that, if the Borrower shall deliver a certificate
of a Financial Officer to the Administrative Agent at the time of any
Prepayment Event described in paragraph (a) of the definition of the term
"Prepayment Event", setting forth the Borrower's intent to reinvest the
proceeds of such sale, transfer or other disposition in other assets of the
business of the Borrower and the Subsidiaries within 270 days of receipt of
such proceeds and no Default shall have occurred and shall be continuing at the
time of such certificate or at the proposed time of the application of such
proceeds, such proceeds shall not constitute Net Proceeds, except to the extent
not so used within such 270-day period, at which time such proceeds shall be
deemed to be Net Proceeds.
(c) In the event and on each occasion that any Net Proceeds are
received by or on behalf of the Borrower or any Subsidiary in respect of any
Prepayment Event described in paragraph (c) of the definition of the term
"Prepayment Event", the Borrower shall, immediately after such Net Proceeds are
received, prepay Term Borrowings in an aggregate amount equal to 50% of such
Net Proceeds.
(d) In the event and on each occasion that any Net Proceeds are
received by or on behalf of the Borrower or any Subsidiary in respect of any
Prepayment Event described in paragraph (d) of the definition of the term
"Prepayment Event", the Borrower shall, immediately after such Net Proceeds are
received, prepay Term Borrowings in an aggregate amount equal to such Net
Proceeds.
(e) Following the end of each fiscal year of the Borrower, commencing
with the fiscal year ending December 31, 1998, the Borrower shall prepay Term
Borrowings in an aggregate amount equal to 75% of Excess Cash Flow for such
fiscal year. Each prepayment pursuant to this paragraph shall be made on or
before the date that is three days after the date on which financial statements
are delivered pursuant to Section 5.01 with respect to the fiscal year for
which Excess Cash Flow is being calculated (and in any event within 90 days
after the end of such fiscal year).
(f) The Borrower shall repay or prepay Revolving Borrowings and shall
refrain from making additional Revolving Borrowings to the extent necessary in
order that there shall be three periods (each of which shall be for at least 14
consecutive days) in each fiscal year during which the Revolving Exposure shall
not exceed $20,000,000 (each such period, a
<PAGE> 49
43
"Clean-Down Period"); provided, however, that the foregoing provisions shall
not (i) preclude any Revolving Borrowings contemplated by Section 2.05(e)
during any Clean-Down Period so long as the proceeds of such Revolving
Borrowings are promptly paid by the Administrative Agent to the Issuing Bank in
respect of amounts outstanding under any LC Disbursement or (ii) require any
reduction of the LC Exposure.
(g) Prior to any optional or mandatory prepayment of Borrowings
hereunder, the Borrower shall select the Borrowing or Borrowings to be prepaid
and shall specify such selection in the notice of such prepayment pursuant to
paragraph (h) of this Section, provided that each prepayment of Borrowings of
any Class shall be applied to prepay ABR Borrowings of such Class before any
other Borrowings of such Class. In the event of any optional or mandatory
prepayment of Term Borrowings made at a time when Term Borrowings of both
Classes remain outstanding, the Borrower shall select Term Borrowings to be
prepaid so that the aggregate amount of such prepayment is allocated between
the Tranche A Term Borrowings and Tranche B Term Borrowings pro rata based on
the aggregate principal amount of outstanding Borrowings of each such Class (a
"Pro Rata Allocation"), provided that if such prepayment is a mandatory
prepayment pursuant to paragraph (b), (c), (d) or (e) of this Section, any
Tranche B Lender may elect, to the extent Tranche A Term Loans remain
outstanding on the prepayment date, by notice to the Administrative Agent by
telephone (confirmed by telecopy) at least one Business Day prior to the
prepayment date, to decline all or any portion of any prepayment of its Tranche
B Term Loans pursuant to this Section, in which case the aggregate amount of
the prepayment that would have been applied to prepay Tranche B Term Borrowings
but was so declined shall be applied to prepay Tranche A Term Borrowings and
provided further that if such prepayment is a voluntary prepayment pursuant to
paragraph (a) of this Section, the Borrower may, in its sole discretion, (i)
select Term Borrowings to be prepaid so that the amount of such prepayment
allocated to the Tranche A Term Borrowings is greater than the amount that
would be allocated to the Tranche A Term Borrowings under a Pro Rata Allocation
and (ii) elect, by prior written notice given to the Administrative Agent and
the Tranche B Lenders, to afford the Tranche B Lenders the right to decline to
accept such prepayment, in which case the Tranche B Lenders will be entitled to
decline all or any portion of such prepayment to the same extent, and subject
to the same procedures that are applicable to mandatory prepayments.
(h) The Borrower shall notify the Administrative Agent (and, in the
case of prepayment of a Swingline Loan, the Swingline Lender) by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment, (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment or (iii) in the case of
prepayment of a Swingline Loan, not later than 12:00 noon, New York City time,
on the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date, the principal amount of each Borrowing or portion
thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably
detailed calculation of the amount of such prepayment, provided that, if a
notice of optional prepayment is given in connection with a conditional notice
of termination of the Revolving Commitments as contemplated by Section 2.08,
then such notice of prepayment may be revoked if such notice of termination is
revoked in accordance with Section 2.08. Promptly following receipt of any
such notice (other than a notice relating solely to Swingline Loans), the
Administrative Agent shall advise the Lenders of the contents thereof.
<PAGE> 50
44
Each partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided
in Section 2.02, except as necessary to apply fully the required amount of a
mandatory prepayment. Subject to Section 2.11(g), each prepayment of a
Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing. Prepayments shall be accompanied by accrued interest to the extent
required by Section 2.13.
SECTION 2.12. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the Applicable Rate on the average daily unused amount of the
Revolving Commitment of such Lender during the period from and including the
Effective Date to but excluding the date on which such Commitment terminates.
Accrued commitment fees shall be payable in arrears on the last day of March,
June, September and December of each year and on the date on which the
Revolving Commitments terminate, commencing on the first such date to occur
after the date hereof. All commitment fees shall be computed on the basis of a
year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). For purposes of
computing commitment fees with respect to Revolving Commitments, a Revolving
Commitment of a Lender shall be deemed to be used to the extent of the
outstanding Revolving Loans and LC Exposure of such Lender (and the Swingline
Exposure of such Lender shall be disregarded for such purpose).
(b) The Borrower agrees to pay (i) to the Administrative Agent for the
account of each Revolving Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate as interest on Eurodollar Revolving Loans on the average daily amount of
such Lender's LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date on which such Lender's
Revolving Commitment terminates and the date on which such Lender ceases to
have any LC Exposure, and (ii) to the Issuing Bank a fronting fee which shall
accrue at the rate of 1/4 of 1% per annum on the average daily amount of the LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but
excluding the later of the date of termination of the Revolving Commitments and
the date on which there ceases to be any LC Exposure, as well as the Issuing
Bank's standard fees with respect to the issuance, amendment, renewal or
extension of any Letter of Credit or processing of drawings thereunder.
Participation fees and fronting fees accrued through and including the last day
of March, June, September and December of each year shall be payable on the
third Business Day following such last day, commencing on the first such date
to occur after the Effective Date, provided that all such fees shall be payable
on the date on which the Revolving Commitments terminate and any such fees
accruing after the date on which the Revolving Commitments terminate shall be
payable on demand. Any other fees payable to the Issuing Bank pursuant to this
paragraph shall be payable within 10 days after demand. All participation fees
and fronting fees shall be computed on the basis of a year of 360 days and
shall be payable for the actual number of days elapsed (including the first day
but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
<PAGE> 51
45
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances.
SECTION 2.13. Interest. (a) The Loans comprising each ABR Borrowing
(including each Swingline Loan) shall bear interest at the Alternate Base Rate
plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest
at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing
plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus
the rate otherwise applicable to such Loan as provided in the preceding
paragraphs of this Section or (ii) in the case of any other amount, 2% plus the
rate applicable to ABR Revolving Loans as provided in paragraph (a) of this
Section.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Revolving Commitments, provided that (i) interest accrued
pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in
the event of any repayment or prepayment of any Loan (other than a prepayment
of an ABR Revolving Loan prior to the end of the Revolving Availability
Period), accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (iii) in the event of
any conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a year of
360 days, except that interest computed by reference to the Alternate Base Rate
at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate
or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.14. Alternate Rate of Interest. If prior to the commencement
of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable
means do not exist for ascertaining the Adjusted LIBO Rate for such
Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders
that the Adjusted LIBO Rate for such Interest Period will not adequately
and fairly reflect the
<PAGE> 52
46
cost to such Lenders (or Lender) of making or maintaining their Loans
(or its Loan) included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.15. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing
Bank; or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit
or to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts (on an after-tax basis) as will compensate such
Lender or the Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the
rate of return on such Lender's or the Issuing Bank's capital or on the capital
of such Lender's or the Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made by, or participations in
Letters of Credit held by, such Lender, or the Letters of Credit issued by the
Issuing Bank, to a level below that which such Lender or the Issuing Bank or
such Lender's or the Issuing Bank's holding company could have achieved but for
such Change in Law (taking into consideration such Lender's or the Issuing
Bank's policies and the policies of such Lender's or the Issuing Bank's holding
company with respect to capital adequacy), then from time to time the Borrower
will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts (on an after-tax basis) as will compensate such
Lender or the Issuing Bank or such Lender's or the Issuing Bank's holding
company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or
its holding company, as the case may be, as specified in paragraph (a) or (b)
of this Section shall be delivered to the Borrower
<PAGE> 53
47
and shall be conclusive absent manifest error. The Borrower shall pay such
Lender or the Issuing Bank, as the case may be, the amount shown as due on any
such certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation, provided
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 270 days prior to the date that such Lender or the Issuing Bank, as
the case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor and provided further that, if the
Change in Law giving rise to such increased costs or reductions is retroactive,
then the 270-day period referred to above shall be extended to include the
period of retroactive effect thereof.
SECTION 2.16. Break Funding Payments. In the event of (a) the payment
of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan or Term Loan on the date specified in any
notice delivered pursuant hereto (regardless of whether such notice may be
revoked under Section 2.11(h) and is revoked in accordance therewith), or (d)
the assignment of any Eurodollar Loan other than on the last day of the
Interest Period applicable thereto as a result of a request by the Borrower
pursuant to Section 2.19, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurodollar Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest that would have accrued on the
principal amount of such Loan had such event not occurred, at the Adjusted LIBO
Rate that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount of
interest that would accrue on such principal amount for such period at the
interest rate that such Lender would bid were it to bid, at the commencement of
such period, for dollar deposits of a comparable amount and period from other
banks in the Eurodollar market. A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate within 10 days after receipt thereof.
SECTION 2.17. Taxes. (a) Any and all payments by or on account of any
obligation of the Borrower hereunder or under any other Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes, provided that if the Borrower shall be required to deduct any
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
the Administrative Agent, Lender or Issuing Bank (as the case may be) receives
an amount equal to the sum it would have received had no such deductions been
made, (ii) the Borrower shall
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make such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each Lender
and the Issuing Bank, within 10 days after written demand therefor, for the
full amount of any Indemnified Taxes or Other Taxes paid by the Administrative
Agent, such Lender or the Issuing Bank, as the case may be, on or with respect
to any payment by or on account of any obligation of the Borrower hereunder or
under any other Loan Document (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this Section)
and any penalties, interest and reasonable expenses arising therefrom or with
respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability
delivered to the Borrower by a Lender or the Issuing Bank, or by the
Administrative Agent on its own behalf or on behalf of a Lender or the Issuing
Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy
of the return reporting such payment or other evidence of such payment
reasonably satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement, shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed
by applicable law or reasonably requested by the Borrower as will permit such
payments to be made without withholding or at a reduced rate. Without
limitation of the foregoing, properly completed and executed copies of United
States Internal Revenue Service Form W-8 (or successor form) certifying to such
Lender's entitlement to a complete exemption from United States withholding tax
on payments of interest to be made under this Agreement and under any note
delivered to such Lender, together with (i) a certificate to the effect that
such Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the
Code and (ii) such other documentation prescribed by applicable law or
reasonably requested by the Borrower, shall satisfy the requirements of this
Section 2.17(e) with respect to any Lender that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Code.
SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-
Offs. (a) The Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest,
fees or reimbursement of LC Disbursements, or of amounts payable under Section
2.15, 2.16 or 2.17, or otherwise) prior to 12:00 noon, New York City time, on
the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day
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49
for purposes of calculating interest thereon. All such payments shall be made
to the Administrative Agent c/o The Loan and Agency Service Group at its
offices at One Chase Manhattan Plaza, 8th Floor, New York, New York 10081,
except payments to be made directly to the Issuing Bank or Swingline Lender as
expressly provided herein and except that payments pursuant to Sections 2.15,
2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto and
payments pursuant to other Loan Documents shall be made to the Persons
specified therein. The Administrative Agent shall distribute any such payments
received by it for the account of any other Person to the appropriate recipient
promptly following receipt thereof. If any payment under any Loan Document
shall be due on a day that is not a Business Day, the date for payment shall be
extended to the next succeeding Business Day, and, in the case of any payment
accruing interest, interest thereon shall be payable for the period of such
extension. All payments under each Loan Document shall be made in dollars.
(b) If at any time insufficient funds are received by and available to
the Administrative Agent to pay fully all amounts of principal, unreimbursed LC
Disbursements, interest and fees then due hereunder, such funds shall be
applied (i) first, towards payment of interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, towards payment of
principal and unreimbursed LC Disbursements then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal and
unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans, Term Loans or participations in LC
Disbursements or Swingline Loans resulting in such Lender receiving payment of
a greater proportion of the aggregate amount of its Revolving Loans, Term Loans
and participations in LC Disbursements and Swingline Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Revolving Loans, Term Loans and participations in LC
Disbursements and Swingline Loans of other Lenders to the extent necessary so
that the benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Revolving Loans, Term Loans and participations in LC
Disbursements and Swingline Loans, provided that (i) if any such participations
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment
made by the Borrower pursuant to and in accordance with the express terms of
this Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participations
in LC Disbursements to any assignee or participant, other than to the Borrower,
any Subsidiary or any Affiliate thereof (as to which the provisions of this
paragraph shall apply). The Borrower consents to the foregoing and agrees, to
the extent it may effectively do so under applicable law, that any Lender
acquiring a participation pursuant to the foregoing arrangements may exercise
against the Borrower rights of set-off and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of the Borrower
in the amount of such participation.
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50
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing
Bank, as the case may be, the amount due. In such event, if the Borrower has
not in fact made such payment, then each of the Lenders or the Issuing Bank, as
the case may be, severally agrees to repay to the Administrative Agent
forthwith on demand the amount so distributed to such Lender or Issuing Bank
with interest thereon, for each day from and including the date such amount is
distributed to it to but excluding the date of payment to the Administrative
Agent, at the Federal Funds Effective Rate or, if such Rate is unavailable or
if such Rate is insufficient to provide adequate compensation to the
Administrative Agent, a rate reasonably determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by
it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b), 2.18(d) or 9.03(c),
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
obligations under such Sections until all such unsatisfied obligations are
fully paid.
SECTION 2.19. Mitigation Obligations; Replacement of Lenders. (a) If
any Lender requests compensation under Section 2.15, or if the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.17, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the
reasonable judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as the
case may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender. The Borrower hereby agrees to pay all reasonable costs and expenses
incurred by any Lender in connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.15, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and
the Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be
another Lender, if a Lender accepts such assignment), provided that (i) the
Borrower shall have received the prior written consent of the Administrative
Agent (and, if a Revolving Commitment is being assigned, the Issuing Bank and
Swingline Lender), which consent shall not unreasonably be withheld, (ii) such
Lender shall have received payment of an amount equal to the outstanding
principal of its Loans and participations in LC Disbursements and Swingline
Loans, accrued interest thereon, accrued fees and all other amounts payable to
it hereunder, from the assignee (to the extent of such outstanding principal
and accrued interest and fees) or the Borrower (in the case of all other
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amounts) and (iii) in the case of any such assignment resulting from a claim
for compensation under Section 2.15 or payments required to be made pursuant to
Section 2.17, such assignment will result in a reduction in such compensation
or payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply.
ARTICLE III
Representations and Warranties
Each of the Initial Borrower (with respect to Sections 3.01, 3.02, 3.03,
3.06, 3.09, 3.12, 3.18 and 3.19 only and with respect to itself and not the
Borrower and the Subsidiaries) and the Borrower represents and warrants to the
Lenders that:
SECTION 3.01. Organization; Powers. Each of the Initial Borrower, the
Borrower and the Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, has all
requisite power and authority to carry on its business as now conducted and,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required.
SECTION 3.02. Authorization; Enforceability. The Transactions to be
entered into by each Initial Loan Party are within such Initial Loan Party's
corporate or partnership powers and have been duly authorized by all necessary
corporate or partnership and, if required, stockholder or partner action. This
Agreement has been duly executed and delivered by or on behalf of each of the
Initial Borrower and the Borrower and constitutes, and each other Acquisition
Document to which any Loan Party is to be a party, when executed and delivered
by such Loan Party, will constitute, a legal, valid and binding obligation of
the Initial Borrower, the Borrower or such Loan Party (as the case may be),
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and subject to general principles of equity, regardless of
whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions
(a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except such as have been
obtained or made and are in full force and effect and except filings necessary
to perfect Liens created under the Loan Documents, (b) will not violate any
applicable law or regulation or the charter, by-laws or other organizational
documents of the Initial Borrower, the Borrower or any of the Subsidiaries or
any order of any Governmental Authority, (c) except as set forth on Schedule
3.03, will not violate or result in a default under any indenture, agreement
(including any Acquisition Document) or other instrument binding upon the
Initial Borrower, the Borrower or any of the Subsidiaries or its assets, or
give rise to a right thereunder to require any payment to be made by the
Initial Borrower, the Borrower or any of the Subsidiaries, and (d) will not
result in the creation or imposition of any Lien on any asset of the Initial
Borrower, the Borrower or any of the Subsidiaries, except Liens created under
the Loan Documents.
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SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The
Borrower has heretofore furnished to the Lenders its balance sheet and related
statements of income, partners' equity and cash flows (i) as of and for the two
fiscal years ended December 31, 1996, reported on by Price Waterhouse LLP,
independent public accountants, and (ii) as of and for the fiscal quarter and
the portion of the fiscal year ended June 30, 1997, certified by its chief
financial officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of
the Borrower as of such dates and for such periods in accordance with GAAP,
subject to normal year-end audit adjustments and the absence of footnotes in
the case of the statements referred to in clause (ii) above.
(b) The Borrower has heretofore furnished to the Lenders its pro forma
consolidated balance sheet as of June 30, 1997, prepared giving effect to the
Transactions as if the Transactions had occurred on such date. Such pro forma
consolidated balance sheet (i) has been prepared in good faith based on the
same assumptions used to prepare the pro forma financial statements included in
the Information Memorandum (which assumptions are believed by the Borrower to
be reasonable), (ii) is based on the best information available to the Borrower
after due inquiry, (iii) accurately reflects all adjustments necessary to give
effect to the Transactions and (iv) presents fairly, in all material respects,
the pro forma financial position of the Borrower and its consolidated
Subsidiaries as of June 30, 1997 as if the Transactions had occurred on such
date.
(c) Except as disclosed in the financial statements referred to above
or the notes thereto or in the Information Memorandum and except for the
Disclosed Matters, after giving effect to the Transactions, neither the
Borrower nor any of the Subsidiaries has, as of the Effective Date, any
material contingent liabilities, unusual long-term commitments or unrealized
losses.
(d) Since December 31, 1996, there has been no material adverse change
in the business, assets, liabilities (including contingent liabilities),
operations, condition (financial or otherwise), prospects or material
agreements of the Borrower and the Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of the Borrower and the
Subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property material to its business (including its Mortgaged
Properties), except for (i) minor defects in title that do not interfere with
its ability to conduct its business as currently conducted or to utilize such
properties for their intended purposes and (ii) the Borrower's leasehold
interest in the property set forth on Schedule 3.05(a) that the Borrower or
such Subsidiary occupies as a hold-over tenant.
(b) Each of the Borrower and the Subsidiaries owns, or is licensed to
use, all trademarks, tradenames, copyrights, patents and other intellectual
property material to its business, and the use thereof by the Borrower and the
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
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(c) Schedule 3.05(c) sets forth the address of each real property that
is owned or leased by the Borrower or any of the Subsidiaries as of the
Effective Date after giving effect to the Transactions.
(d) As of the Effective Date, neither the Borrower nor any of the
Subsidiaries has received notice of, or has knowledge of, any pending or
contemplated condemnation proceeding affecting any Mortgaged Property or any
sale or disposition thereof in lieu of condemnation. Neither any Mortgaged
Property nor any interest therein is subject to any right of first refusal,
option or other contractual right to purchase such Mortgaged Property or
interest therein.
SECTION 3.06. Litigation and Environmental Matters. (a) There are no
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Initial Borrower or the
Borrower, threatened against or affecting the Initial Borrower, the Borrower or
any of the Subsidiaries (i) as to which there is a reasonable possibility of an
adverse determination and that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect (other than the Disclosed Matters) or (ii) that involve any of the
Acquisition Documents or the Transactions.
(b) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. (a) Each of the
Borrower and the Subsidiaries is in compliance with all laws, regulations and
orders of any Governmental Authority applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. No Default has
occurred and is continuing.
(b) Except as set forth on Schedule 3.07, each of the Borrower
and the Subsidiaries is in compliance with the laws, regulations, restrictions
and ordinances of any Governmental Authority applicable to the Mortgaged
Property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.08. Environmental Matters. (a) Each of the Borrower and the
Subsidiaries has obtained all Environmental Permits with respect to the
facilities and properties owned, leased or operated by the Initial Borrower,
the Borrower and the Subsidiaries (the "Properties") and the Borrower and the
Subsidiaries are in compliance with all Environmental Laws and all
Environmental Permits except to the extent that such failure to obtain any
Environmental Permits and noncompliance with Environmental Laws could not
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect.
(b) There have been no Releases or to the best knowledge of any of the
Borrower or the Subsidiaries, threatened Releases at, from, under or, proximate
to the Properties or otherwise in connection with the operations of the
Borrower or the Subsidiaries, which
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Releases or threatened Releases could reasonably be expected, individually or
in the aggregate, to result in a Material Adverse Effect.
(c) None of the Borrower or any of the Subsidiaries has received any
notice of an Environmental Liability in connection with (i) the Properties,
(ii) the operations of the Borrower or the Subsidiaries or (iii) any Person
whose liabilities for environmental matters, the Borrower or the Subsidiaries
has retained or assumed, in whole or in part, contractually, by operation of
law or otherwise that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect, nor, to the best knowledge of
the Borrower and the Subsidiaries, is any such Environmental Liability being
threatened.
(d) Hazardous Materials have not been transported, generated, treated,
stored or disposed of, from, at, on or under any of the Properties in violation
of, or in any manner or to a location that could give rise to liability under,
any Environmental Law, except to the extent that such violations or
liabilities, individually or in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect.
SECTION 3.09. Investment and Holding Company Status. Neither the
Initial Borrower, the Borrower nor any of the Subsidiaries is (a) an
"investment company" as defined in, or subject to regulation under, the
Investment Company Act of 1940 or (b) a "holding company" as defined in, or
subject to regulation under, the Public Utility Holding Company Act of 1935.
SECTION 3.10. Taxes. Each of the Borrower and the Subsidiaries has
timely filed or caused to be filed all Tax returns and reports required to have
been filed and has paid or caused to be paid all Taxes required to have been
paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent
that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect. Each of the Borrower and SFG Management is, and all
times has been, qualified as a partnership for Federal income tax purposes.
SECTION 3.11. ERISA. (a) No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events
for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan, based on the assumptions
presently used for purposes of Statement of Financial Accounting Standards No.
87 (the "FAS 87 Assumptions" and applying in all cases the interest rate
applicable as of the Effective Date), did not, as of the date of the most
recent financial statements reflecting such amounts, exceed by more than
$1,000,000 the fair market value of the assets of such Plan, and the present
value of all accumulated benefit obligations of all underfunded Plans based on
the FAS 87 Assumptions did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $5,000,000 the fair
market value of the assets of all such underfunded Plans. The representations
and warranties contained in this Section 3.11(a) with respect to ERISA Events
involving ERISA Affiliates and with respect to Plans of ERISA Affiliates are
made to the knowledge of the Borrower.
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(b) Upon the consummation of the Transactions contemplated by the
Acquisition Documents, (i) the present value of all accumulated benefit
obligations of all Plans based on the FAS 87 Assumptions will not exceed by
more than $1,000,000 the fair market value of the assets of all such Plans and
(ii) the annual contribution obligations of the Borrower and the Subsidiaries
to or in respect of such Plans will not increase by more than $500,000 for each
fiscal year until December 31, 2000, over the annual contribution obligations
of the Borrower and the Subsidiaries in effect immediately prior to the
consummation of the Transactions (assuming, for this purpose, that (A) the fair
market value of the assets transferred to the Plans upon consummation of the
Transactions contemplated by the Acquisition Documents do not decrease below
the fair market value of the allocable portion of the assets held under the
Plans from which assets are transferred to the Plans as of June 30, 1997 and
(B) the annual investment return on the Plans' assets from and after June 30,
1997 is at least 7%). The Borrower has no knowledge of any adverse change in
the fair market value of such assets since June 30, 1997.
SECTION 3.12. Disclosure. The Borrower has disclosed to the Lenders
all agreements, instruments and corporate, partnership or other restrictions to
which the Borrower or any of the Subsidiaries is subject, and all other matters
known to any of them, that, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect. Neither the Information
Memorandum nor any of the other reports, financial statements, certificates or
other information furnished by or on behalf of any Initial Loan Party to the
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or any other Acquisition Document or delivered hereunder or
thereunder (as modified or supplemented by other information so furnished prior
to the time when this representation is being made or deemed made) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.
SECTION 3.13. Subsidiaries. Schedule 3.13 sets forth the name of, and
the ownership interest of the Borrower in, each Subsidiary and identifies each
Subsidiary that is a Subsidiary Loan Party, in each case as of the Effective
Date.
SECTION 3.14. Insurance. Schedule 3.14 sets forth a description of all
insurance maintained by or on behalf of the Borrower and the Subsidiaries as of
the Effective Date. As of the Effective Date, all premiums in respect of such
insurance have been paid.
SECTION 3.15. Labor Matters. As of the Effective Date, there are no
strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending
or, to the knowledge of the Borrower, threatened. The hours worked by and
payments made to employees of the Borrower and the Subsidiaries 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. All payments due from
the Borrower or any Subsidiary, or for which any claim may be made against the
Borrower or any Subsidiary, on account of wages and employee health and welfare
insurance and other benefits, have been paid or accrued as a liability on the
books of the Borrower or such Subsidiary. The consummation of the Transactions
will not give rise to any
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right of termination or right of renegotiation on the part of any union under
any collective bargaining agreement to which the Borrower or any Subsidiary is
bound.
SECTION 3.16. Solvency. Immediately after the consummation of the
Transactions to occur on the Effective Date and immediately following the
making of each Loan made on the Effective Date and after giving effect to the
application of the proceeds of such Loans, (a) the fair value of the assets of
each Loan Party, at a fair valuation, will exceed its debts and liabilities,
subordinated, contingent or otherwise; (b) the present fair saleable value of
the property of each Loan Party will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) each Loan Party will be able to pay its debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) each Loan Party will not have
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted
following the Effective Date.
SECTION 3.17. Security Documents. (a) The Pledge Agreement is
effective to create in favor of the Administrative Agent, for the ratable
benefit of the Secured Parties, a legal, valid and enforceable security
interest in the Collateral (as defined in the Pledge Agreement) and, when the
Collateral is delivered to the Administrative Agent and duly endorsed, the
Pledge Agreement shall constitute a fully perfected first priority Lien on, and
security interest in, all right, title and interest of the pledgor thereunder
in such Collateral, in each case prior and superior in right to any other
person, other than with respect to Liens that are permitted by Section 6.02.
The pledge of the Collateral will not violate any provision of the Partnership
Agreement or the SFG Management Agreement, and no provision of such Agreements
would by its terms restrict or limit the right of the Administrative Agent to
sell, transfer or otherwise dispose of the Collateral.
(b) The Security Agreement is effective to create in favor of the
Administrative Agent, for the ratable benefit of the Secured Parties, a legal,
valid and enforceable security interest in the Collateral (as defined in the
Security Agreement) and, when financing statements in appropriate form are
filed in the offices specified on Schedule 6 to the Perfection Certificate, the
Security Agreement shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the grantors thereunder in such
Collateral (other than the Intellectual Property (as defined in the Security
Agreement in which a security interest may be perfected by filing, recording or
registering a security agreement, financing statement or analogous documents in
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable)), in each case prior and superior in right to any other
person, other than with respect to Liens that are permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the Loan Parties in the Intellectual Property
(as defined in the Security Agreement) in which a security interest may be
perfected by filing, recording or registering a security agreement, financing
statement or analogous document in the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, in each case prior
and superior in right to any other person (it being understood that subsequent
recordings in the United States Patent and Trademark Office
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and the United States Copyright Office may be necessary to perfect a lien on
registered trademarks, trademark applications and copyrights acquired by the
Loan Parties after the date hereof).
(d) The Mortgages are effective to create, subject to the exceptions
listed in each title insurance policy covering such Mortgage, in favor of the
Administrative Agent, for the ratable benefit of the Secured Parties, a legal,
valid and enforceable Lien on all of the Loan Parties' right, title and
interest in and to the Mortgaged Properties thereunder and the proceeds
thereof, and when the Mortgages are filed in the offices specified on Schedules
1.01(b) and 1.01(c), the Mortgages shall constitute a Lien on, and security
interest in, all right, title and interest of the Loan Parties in such
Mortgaged Properties and the proceeds thereof, in each case prior and superior
in right to any other person, other than with respect to the rights of persons
pursuant to Liens expressly permitted by Section 6.02.
SECTION 3.18. Federal Reserve Regulations. (a) Neither the Borrower nor
any of the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of buying or
carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will be
used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, for any purpose that entails a violation of, or that is
inconsistent with, the provisions of the Regulations of the Board, including
Regulation G, U or X.
SECTION 3.19. Ownership. The partners of the Borrower and the
respective equity interests of such partners in the Borrower are as of the
Effective Date as set forth on Schedule 3.19. The members of the General
Partner and the respective equity interests of such members in the General
Partner are as of the Effective Date as set forth on Schedule 3.19.
SECTION 3.20. Mortgaged Properties. (a) The Borrower and the
Subsidiaries have good and marketable title to an indefeasible fee estate in
each Mortgaged Property set forth on Schedule 1.01(b), subject only to Liens
permitted by Section 6.02 and the exceptions and encumbrances referred to on
Schedule B to the title insurance policy being issued to insure the lien of
each Mortgage. The Borrower and the Subsidiaries are lawfully seized and in
possession of, and have a valid and subsisting leasehold estate in, that
portion of the Mortgaged Property set forth on Schedule 1.01(c) and demised
under the applicable lease, subject only to Liens permitted by Section 6.02.
Such Liens, exceptions and encumbrances do not materially interfere with the
current use, enjoyment or operation of the Mortgaged Properties.
(b) Each Mortgaged Property is served by all water, gas, electric,
septic, storm and sanitary sewage facilities and other utility facilities
sufficient to serve the current use and operation of the Mortgaged Property and
the Improvements (as defined in the Mortgage) are located within the Mortgaged
Property. There is vehicular access to each Mortgaged Property that is
provided by either a public right-of-way abutting and contiguous with the Land
(as defined in the Mortgage) or valid recorded unsubordinated easements.
(c) Without the written consent of the Administrative Agent, no
Improvements will be materially altered or demolished or removed in whole or in
part by the Borrower or any of the Subsidiaries unless such alteration,
demolition or removal will not (i) materially diminish the
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utility of the Mortgaged Property for the operation of the business conducted
by the Borrower or any of the Subsidiaries or (ii) result in a reduction of the
value of the Mortgaged Property below the value immediately preceding such
alteration, demolition or removal. Neither the Borrower nor any of the
Subsidiaries will erect any additions to the existing Improvements or other
structures on any Mortgaged Property that will materially interfere with the
operations conducted thereon on the date hereof, without the written consent of
the Administrative Agent. Neither the Borrower nor any of the Subsidiaries
will commit or suffer waste with respect to the Mortgaged Properties. The
Borrower and the Subsidiaries will maintain and operate the Mortgaged
Properties in good repair, working order and condition, with the exception of
reasonable wear and tear.
SECTION 3.21. Leases. (a) Except as set forth on Schedule 3.21, there
are no Leases (as defined in each Mortgage) affecting a material portion of any
Mortgaged Property. Each Lease is in full force and effect, and, except as set
forth on Schedule 3.21, neither the Borrower nor any of the Subsidiaries has
given or received any uncured or unwaived notice of default with respect to any
material obligation under any Lease.
(b) Without the Administrative Agent's written consent, neither the
Borrower nor any of the Subsidiaries will modify, amend, terminate or consent
to the cancelation or surrender of any Lease or consent to an assignment of any
tenant's interest in any Lease or to a subletting thereof covering a material
portion of the Mortgaged Property if such modification, amendment, termination
or consent would be adverse in any material respect to the interests of the
Lenders, the value of the Mortgaged Property or the Lien created by the
Mortgage.
ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the Lenders to make
Loans and of the Issuing Bank to issue Letters of Credit hereunder (each, a
"Credit Event") shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have
received from each party hereto either (i) a counterpart of this
Agreement signed on behalf of such party or (ii) written evidence
satisfactory to the Administrative Agent (which may include telecopy
transmission of a signed signature page of this Agreement) that such
party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) of each of (i) Strasburger & Price,
L.L.P., counsel for the Borrower, substantially in the form of Exhibit
B-1, (ii) Coudert Brothers, special counsel for the Borrower,
substantially in the form of Exhibit B-2, (iii) David A. Geisler, Esq.,
special counsel for the Initial Borrower, substantially in the form of
Exhibit B-3, (iv) each local counsel listed on Schedule 4.01,
substantially in the form of Exhibit B-4, and (v) Richards, Layton &
Finger, Delaware counsel for the Borrower and the General Partner, in
form
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59
satisfactory to the Lenders, and, in the case of each such opinion
required by this paragraph, covering such other matters relating to the
Initial Loan Parties, the Acquisition Documents or the Transactions as
the Required Lenders shall reasonably request. Each of the Initial
Borrower and the Borrower hereby requests such counsel to deliver such
opinions.
(c) The Administrative Agent shall have received such documents
and certificates as the Administrative Agent or its counsel may
reasonably request relating to the organization, existence and good
standing (or equivalent) of each Initial Loan Party and the General
Partner, the authorization of the Transactions and any other legal
matters relating to the Initial Loan Parties, the Acquisition Documents
or the Transactions, all in form and substance satisfactory to the
Administrative Agent and its counsel.
(d) The Administrative Agent shall have received, with respect
to each of the Initial Borrower and the Borrower, a certificate, dated
the Effective Date and signed by the President, a Vice President or a
Financial Officer of each of the Initial Borrower and the Borrower,
respectively, confirming compliance with the conditions set forth in
Sections 4.02(a) and (b).
(e) The Administrative Agent shall have received all fees and
other amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by any Initial
Loan Party hereunder or under any other Loan Document.
(f) The Administrative Agent shall have received (i)
counterparts of the Pledge Agreement signed on behalf of Mr. Pete
Schenkel, the General Partner, the Borrower and each Subsidiary Loan
Party, (ii) stock certificates representing all the outstanding shares
of capital stock of each Subsidiary owned by or on behalf of the
Borrower as of the Effective Date after giving effect to the
Transactions (except that stock certificates representing shares of
common stock of a Foreign Subsidiary may be limited to 65% of the
outstanding shares of common stock of such Foreign Subsidiary), (iii)
any other relevant documentation relating to the transfer of all
outstanding partnership interests in the Borrower other than those
interests owned by or on behalf of Mid-Am or its subsidiaries, and (iv)
stock powers and instruments of transfer, endorsed in blank, with
respect to such stock certificates, interests and promissory notes, as
applicable. In connection with the Pledge Agreement, each of the
Borrower, the General Partner and Mr. Pete Schenkel shall have (A)
acknowledged the pledge of the partnership interests in the Borrower and
that the Lenders are not assuming any liability of the Borrower, the
General Partner or Mr. Pete Schenkel, as the case may be, as a result
thereof and (B) agreed not to amend the Partnership Agreement in any
manner that could cause the Lenders to assume or incur any such
liability.
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60
(g) The Administrative Agent shall have received counterparts of
the Security Agreement signed on behalf of the Borrower and each
Subsidiary Loan Party, together with the following:
(i) all documents and instruments, including Uniform
Commercial Code financing statements, required by law or
reasonably requested by the Administrative Agent to be filed,
registered or recorded to create or perfect the Liens intended to
be created under the Security Agreement; and
(ii) a completed Perfection Certificate dated the
Effective Date and signed by an executive officer or Financial
Officer of the Borrower, together with all attachments
contemplated thereby, including the results of a search of the
Uniform Commercial Code (or equivalent) filings made with respect
to the Loan Parties in the jurisdictions contemplated by the
Perfection Certificate and copies of the financing statements (or
similar documents) disclosed by such search and evidence
reasonably satisfactory to the Administrative Agent that the
Liens indicated by such financing statements (or similar
documents) are permitted by Section 6.02 or have been released.
(h) The Administrative Agent shall have received (i)
counterparts of a Mortgage with respect to each Mortgaged Property
executed on behalf of the record owner of such Mortgaged Property, (ii)
commitments to issue policies of title insurance issued by a nationally
recognized title insurance company, insuring the Lien of each such
Mortgage as a valid first Lien on the Mortgaged Property described
therein, free of any other Liens except as permitted by Section 6.02, in
form and substance reasonably acceptable to the Administrative Agent,
together with such endorsements, coinsurance and reinsurance as the
Administrative Agent or the Required Lenders may reasonably request and
(iii) such surveys and abstracts as may be required pursuant to such
Mortgages or as the Administrative Agent or the Required Lenders may
reasonably request.
(i) The Administrative Agent shall have received (i)
counterparts of the Guarantee Agreement executed on behalf of each
Subsidiary Loan Party and (ii) counterparts of the Indemnity,
Subrogation and Contribution Agreement executed on behalf of the
Borrower and each Subsidiary Loan Party and each of the Guarantee
Agreement and the Indemnity, Subrogation and Contribution Agreement
shall be in full force and effect.
(j) The Administrative Agent shall have received evidence
satisfactory to it that the insurance required by Section 5.07 is in
effect.
(k) The Borrower and/or SFG Capital shall have received gross
cash proceeds of not less than $150,000,000 from the issuance of the
Subordinated Debt in a public offering or in a Rule 144A private
placement. The terms and conditions of the Subordinated Debt (including
terms and conditions relating to the interest rate, fees, amortization,
maturity, subordination, covenants, events of default and remedies)
shall be reasonably satisfactory in all respects to the Lenders (it
being understood and agreed
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that the Subordinated Debt shall not mature prior to the tenth
anniversary of the Effective Date).
(l) The Lenders shall be reasonably satisfied with (i) terms of
the Acquisition Documents and any waivers or amendments thereto, (ii)
the partnership and legal structure and capitalization of the Borrower
and the Subsidiaries after giving effect to the Transactions and (iii)
all legal, tax and accounting matters relating to the Transactions.
(m) The Lenders shall be reasonably satisfied as to the amount
and nature of any Environmental Liabilities and employee health and
safety exposures to which the Borrower and the Subsidiaries may be
subject, and the plans of the Borrower with respect thereto, after
giving effect to the Transactions and the consummation of the other
transactions contemplated hereby.
(n) The Administrative Agent shall be reasonably satisfied with
the sufficiency of amounts available under this Agreement to meet the
ongoing working capital requirements of the Borrower and the
Subsidiaries following the Transactions and the consummation of the
other transactions contemplated hereby.
(o) All material consents and approvals required to be obtained
from and all registrations and filings with any Governmental Authority
or other Person in connection with the Acquisition and the other
Transactions shall have been obtained or made, all applicable waiting
periods and appeal periods shall have expired, in each case without the
imposition of any burdensome conditions and there shall be no action by
any Governmental Authority, actual or threatened, that has a reasonable
likelihood of restraining, preventing or imposing burdensome conditions
on the Transactions or the other transactions contemplated hereby. The
Acquisition and the Mid-Am Contribution shall have been, or
substantially simultaneously with the first Credit Event shall be,
consummated in accordance with the Acquisition Documents and applicable
law, without any amendment to or waiver of any material terms or
conditions of the Acquisition Documents not approved by the Lenders.
The Administrative Agent shall have received executed copies of the
Acquisition Documents and all certificates, opinions and other documents
delivered thereunder, certified by a Financial Officer as complete and
correct.
(p) The Lenders shall have received a pro forma consolidated
balance sheet of the Borrower as of the Effective Date, reflecting all
pro forma adjustments as if the Transactions had been consummated on
such date, and such pro forma consolidated balance sheet shall be
consistent in all material respects with the forecasts and other
information previously provided to the Lenders.
(q) After giving effect to the Transactions, the Borrower and
the Subsidiaries shall have outstanding no Indebtedness or preferred
interests other than (i) Indebtedness under the Loan Documents, (ii) the
New Preferred Interests, (iii) the Existing Preferred Interests, (iv)
the Subordinated Debt in an aggregate principal amount not to exceed
$150,000,000 and (v) other Indebtedness that is permitted under Section
6.01. The Lenders shall be reasonably satisfied in all respects with
the terms and conditions
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(including terms and conditions relating to interest or dividend rates,
fees, amortization, maturity, redemption, subordination, covenants,
events of default and remedies) of all Indebtedness and preferred
interests that will remain outstanding after giving effect to the
Transactions.
(r) The Administrative Agent shall have received a solvency
letter, in form and substance reasonably satisfactory to the
Administrative Agent, from an independent evaluation firm satisfactory
to the Administrative Agent, together with such other evidence
reasonably requested by the Lenders, with respect to the solvency of the
Loan Parties on a consolidated basis after giving effect to the
Transactions and the consummation of the other transactions contemplated
hereby.
(s) The Administrative Agent shall have received a Borrowing
Request executed by the Initial Borrower.
(t) There shall have been no material adverse change in the
business, assets, liabilities (including contingent liabilities),
operations, condition (financial or otherwise), prospects or material
agreements of the Borrower, the Subsidiaries or the Contributed Business
since December 31, 1996.
(u) The aggregate amount of fees and expenses (including
underwriting discounts and commissions) payable or otherwise borne by
the Borrower and the Subsidiaries in connection with the Transactions
shall not exceed $17,000,000.
(v) The Borrower shall have received net cash proceeds of not
less than $45,000,000 from the Capital Contribution prior to or
simultaneously with the first Credit Event.
(w) The New Preferred Interests shall have been issued or shall
be issued simultaneously with the first Credit Event in accordance with
applicable law and in accordance with the Partnership Agreement.
(x) The Lenders shall be reasonably satisfied in all respects
with the terms and conditions of the New Preferred Interests and the
Existing Preferred Interests.
(y) The Meadow Gold Trademark Acquisition and the Borden Dairies
Sale shall have been consummated or shall be consummated simultaneously
with the first Credit Event.
(z) The Equipment Sub-lease Documents shall have been executed
or shall be executed simultaneously with the consummation of the other
Transactions.
(aa) There shall be no litigation or administrative proceeding
that would reasonably be expected to have a material adverse effect on
the business, assets, liabilities, operations, properties, condition
(financial or otherwise), prospects or material agreements of or
relating to (i) the Borrower and the Subsidiaries, taken as a whole,
(ii) the Contributed Business, or (iii) the ability of the parties to
consummate the Transactions or the other transactions contemplated
hereby.
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(bb) The Lenders shall be reasonably satisfied in all respects
with (i) the tax position and the contingent tax and other liabilities
of the Borrower, the Subsidiaries and the Contributed Business, and (ii)
any tax sharing arrangements among the Borrower, the Subsidiaries or any
of their respective Affiliates after giving effect to the Transactions
and the other transactions contemplated hereby, and with the plans of
the Borrower with respect thereto.
(cc) The Administrative Agent shall be reasonably satisfied that
(i) the aggregate liability of the Borrower in respect of contributions
that the PBGC may require to be made to benefit plans that relate to the
Contributed Business will not exceed $5,000,000, (ii) no such
contributions (or payments in respect of such contributions) will be
required to be made by the Borrower prior to a date 90 days after the
Effective Date and (iii) the aggregate pension underfunding (which means
the excess of accumulated benefit obligations over the fair market value
of assets) based on the FAS 87 Assumptions being assumed by the Borrower
in connection with the acquisition of the Contributed Business by the
Borrower shall not exceed a present value of $5,000,000.
(dd) The Administrative Agent shall be reasonably satisfied with
any arrangements for the retention of existing management of the
Borrower and the Contributed Business after giving effect to the
Transactions.
(ee) The Administrative Agent shall have received such
information, satisfactory in form and substance to the Administrative
Agent, regarding the value of the real property, personal property and
other assets of the Borrower, the Subsidiaries, and the Contributed
Business after giving effect to the Transactions as shall be reasonably
requested by the Administrative Agent.
(ff) Substantially simultaneously with or prior to the first
Credit Event, (i) the Refinanced Indebtedness shall have been prepaid or
repaid in full, (ii) all commitments to lend under the Refinanced
Indebtedness shall have been permanently terminated, (iii) all
obligations under or relating to the Refinanced Indebtedness and all
security interests related thereto shall have been discharged and (iv)
the Administrative Agent shall have received satisfactory evidence of
such repayment, termination and discharge.
(gg) The Lenders shall have received (i) the audited balance
sheets and related statements of income, partners' equity and cash flows
of the Borrower as of and for the two fiscal years ended December 31,
1996, (ii) the audited balance sheets and related statements of income,
divisional equity and cash flows of Meadow Gold Dairy Operations as of
and for the two fiscal years ended December 31, 1996, (iii) the
unaudited balance sheet and related statement of income, partners'
equity and cash flows of the Borrower as of and for the six-month period
ended June 30, 1997, and the unaudited statement of income and cash
flows of the Borrower for the six-month period ended June 30, 1996, and
(iv) the unaudited balance sheet and related statement of income,
divisional equity and cash flows of Meadow Gold Dairy Operations as of
and for the six-month period ended June 30, 1997, and the unaudited
statement of income and cash flows of Meadow Gold Dairy Operations for
the six-month period ended June 30, 1996 (and in the case of clauses
(iii) and (iv), to the extent available, as of and
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for each month preceding the Effective Date since June 30, 1997), which
audited and unaudited financial statements shall be in a form and scope
satisfactory to the Lenders and shall not be materially inconsistent
with the financial statements and forecasts previously provided to the
Lenders.
(hh) The Administrative Agent shall have received (i) a
certificate of one Member of the General Partner dated the Effective
Date and certifying (A) that attached thereto is a true and complete
copy of the Partnership Agreement as amended and as in effect on the
Effective Date, (B) that the Partnership Agreement has not been amended
since the date of the last amendment thereto and (C) as to the
incumbency and specimen signature of each Member of the General Partner
executing this Agreement or any other document delivered in connection
herewith on behalf of the Borrower; (ii) a certificate of another Member
as to the incumbency and specimen signature of the Members executing the
certificate pursuant to clause (i) above; and (iii) such other documents
as any of the Administrative Agent, Lenders or counsel for the
Administrative Agent may reasonably request.
(ii) The Administrative Agent shall have received a duly
executed copy of the SFG Management Agreement, and the provisions of
such agreement shall be reasonably satisfactory in all respects to the
Lenders.
(jj) The Administrative Agent shall have received a duly
executed copy of the Certificate of Registration of Pledge in form
satisfactory to the Administrative Agent.
(kk) The Administrative Agent shall have received a duly
executed copy of a letter agreement by the Initial Borrower to the
Lenders relating to the prohibition of the creation of Liens on its
partnership interests in the Borrower.
The Administrative Agent shall notify the Initial Borrower, the Borrower and
the Lenders of the Effective Date, and such notice shall be conclusive and
binding. Notwithstanding the foregoing, the obligations of the Lenders to make
Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or
waived pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time,
on September 18, 1997 (and, in the event such conditions are not so satisfied
or waived, the Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to make
a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue,
amend, renew or extend any Letter of Credit, is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of the Initial Borrower
(with respect to the first Credit Event only) and each Loan Party set
forth in the Loan Documents shall be true and correct on and as of the
date of such Borrowing or the date of issuance, amendment, renewal or
extension of such Letter of Credit, as applicable.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, no Default shall have occurred and be
continuing.
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Each Borrowing and each issuance, amendment, renewal or extension of a Letter
of Credit shall be deemed to constitute a representation and warranty by the
Initial Borrower (with respect to the first Credit Event only) and the Borrower
on the date thereof as to the matters specified in paragraphs (a) and (b) of
this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the principal
of and interest on each Loan and all fees payable hereunder shall have been
paid in full and all Letters of Credit shall have expired or terminated and all
LC Disbursements shall have been reimbursed, each of the Initial Borrower (with
respect to Sections 5.11 and 5.13 only) and the Borrower covenants and agrees
with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The Borrower
will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of the
Borrower, its audited consolidated balance sheet and related statements
of income, partners' equity and cash flows as of the end of and for such
year, setting forth in each case in comparative form the figures for the
previous fiscal year, all reported on by Price Waterhouse LLP or other
independent public accountants of recognized national standing (without
a "going concern" or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the effect
that such consolidated financial statements present fairly in all
material respects the financial condition and results of operations of
the Borrower and its consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year of the Borrower, its consolidated
balance sheet and related statements of income, partners' equity and
cash flows as of the end of and for such fiscal quarter and the then
elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of
(or, in the case of the balance sheet, as of the end of) the previous
fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and
results of operations of the Borrower and its consolidated Subsidiaries
on a consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments and the absence of
footnotes;
(c) within 30 days after the end of each of the first two fiscal
months of each fiscal quarter of the Borrower, its consolidated balance
sheet and related statements of income, partners' equity and cash flows
as of the end of and for such fiscal month and the then elapsed portion
of the fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and
results of operations of the Borrower and its consolidated Subsidiaries
on a consolidated basis in
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accordance with GAAP consistently applied, subject to normal year-end
audit adjustments and the absence of footnotes;
(d) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the
Borrower (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action
taken or proposed to be taken with respect thereto, (ii) setting forth
reasonably detailed calculations demonstrating compliance with Sections
6.12, 6.13, 6.14, 6.15, 6.16 and 6.17 and (iii) stating whether any
change in GAAP or in the application thereof has occurred since the date
of the Borrower's audited financial statements referred to in Section
3.04 and, if any such change has occurred, specifying the effect of such
change on the financial statements accompanying such certificate;
(e) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any
Default (which certificate may be limited to the extent required by
accounting rules or guidelines);
(f) at least 30 days prior to the commencement of each fiscal
year of the Borrower, a detailed consolidated budget for such fiscal
year (including a projected consolidated balance sheet and related
statements of projected income and cash flow as of the end of and for
such fiscal year) and, promptly when available, any significant
revisions of such budget;
(g) promptly after the same become publicly available, copies of
all periodic and other reports, proxy statements and other materials
filed by the Borrower or any Subsidiary with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of
the functions of said Commission, or with any national securities
exchange, or distributed by the Borrower to its partners generally, as
the case may be;
(h) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of the Borrower or any Subsidiary, or compliance with the
terms of any Acquisition Document, as the Administrative Agent or any
Lender may reasonably request;
(i) within 90 days after the end of each fiscal year, a statement
prepared by independent public accountants of recognized national
standing, or such other Person approved by the Administrative Agent,
setting forth the computation of any Permitted Tax Distributions made
during such fiscal year, including distributions (or repayments) for
adjustments to Permitted Tax Distributions made during previous years;
and
(j) within 90 days after the end of each fiscal year, copies of
the Borrower's filed income tax returns for such fiscal year (and any
amendments to any previously filed income tax returns that were filed
during such fiscal year) or, if the Borrower has not filed such tax
returns with the applicable Governmental Authorities within 90 days
after the end of the applicable fiscal year, copies of the Borrower's
filed requests for an
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extension to file its income tax return accompanied by a statement
setting forth the computation, based on the Borrower's then good faith
estimates, of the Borrower's taxable income for such fiscal year, and
the Borrower shall then furnish to the Administrative Agent and each
Lender copies of such tax returns no more than five days after the
Borrower has filed such tax returns with the applicable Governmental
Authorities.
SECTION 5.02. Notices of Material Events. The Borrower will furnish to
the Administrative Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding
by or before any arbitrator or Governmental Authority against or
affecting the Borrower or any Affiliate thereof or the General Partner
that, if adversely determined, could reasonably be expected to result in
a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Borrower and the Subsidiaries in
an aggregate amount exceeding $500,000; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth
the details of the event or development requiring such notice and any action
taken or proposed to be taken with respect thereto.
SECTION 5.03. Information Regarding Collateral. (a) The Borrower will
furnish to the Administrative Agent prompt written notice of any change (i) in
any Loan Party's corporate or partnership name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of any Loan Party's chief executive office,
its principal place of business, any office in which it maintains books or
records relating to Collateral owned by it or any office or facility at which
Collateral owned by it is located (including the establishment of any such new
office or facility), (iii) in any Loan Party's identity or corporate or
partnership structure or (iv) in any Loan Party's Federal Taxpayer
Identification Number. The Borrower agrees not to effect or permit any change
referred to in the preceding sentence unless all filings have been made under
the Uniform Commercial Code or otherwise that are required in order for the
Administrative Agent to continue at all times following such change to have a
valid, legal and perfected security interest in all the Collateral. The
Borrower also agrees promptly to notify the Administrative Agent if any
material portion of the Collateral is damaged or destroyed.
(b) Each year, at the time of delivery of annual financial statements
with respect to the preceding fiscal year pursuant to clause (a) of Section
5.01, the Borrower shall deliver to the Administrative Agent a certificate of a
Financial Officer of the Borrower (i) setting forth the information required
pursuant to Section 2 of the Perfection Certificate or confirming that there
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has been no change in such information since the date of the Perfection
Certificate delivered on the Effective Date or the date of the most recent
certificate delivered pursuant to this Section and (ii) certifying that all
Uniform Commercial Code financing statements (including fixture filings, as
applicable) or other appropriate filings, recordings or registrations,
including all refilings, rerecordings and reregistrations, containing a
description of the Collateral have been filed of record in each governmental,
municipal or other appropriate office in each jurisdiction identified pursuant
to clause (i) above to the extent necessary to protect and perfect the security
interests under the Security Agreement for a period of not less than 18 months
after the date of such certificate (except as noted therein with respect to any
continuation statements to be filed within such period).
SECTION 5.04. Existence; Conduct of Business. The Borrower will, and
will cause each of the Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges, franchises, patents,
copyrights, trademarks and trade names material to the conduct of its business,
provided that the foregoing shall not prohibit any merger, consolidation,
liquidation or dissolution permitted under Section 6.03.
SECTION 5.05. Payment of Obligations. The Borrower will, and will
cause each of the Subsidiaries to, pay its Indebtedness and other obligations,
including Tax liabilities, before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance
with GAAP, (c) such contest effectively suspends collection of the contested
obligation and the enforcement of any Lien securing such obligation and (d) the
failure to make payment pending such contest could not reasonably be expected
to result in a Material Adverse Effect.
SECTION 5.06. Maintenance of Properties. The Borrower will, and will
cause each of the Subsidiaries to, keep and maintain all property material to
the conduct of its business in good working order and condition, ordinary wear
and tear excepted.
SECTION 5.07. Insurance. (a) The Borrower will, and will cause each
of the Subsidiaries to, maintain, with financially sound and reputable
insurance companies (i) insurance (including insurance against claims and
liabilities arising out of the manufacture or distribution of any products)
with respect to its properties and business against such casualties and
contingencies and of such types and in such amounts as are customarily
maintained by companies in the same or similar business operating in the same
or similar locations and (ii) such other insurance as may be required by law.
(b) Fire and extended coverage policies (and any policies required to
be maintained pursuant to paragraph (c) below) maintained with respect to any
Collateral shall be endorsed or otherwise amended to include (i) a non-
contributing mortgage clause (regarding improvements to real property) and
lenders' loss payable clause (regarding personal property), in each case in
favor of the Administrative Agent or its designee, (ii) a provision to the
effect that neither the Borrower, the Administrative Agent nor any other party
shall be a coinsurer and (iii) such other provisions as the Administrative
Agent may reasonably require from time to time to protect the interests of the
Lenders. Commercial general liability policies shall be endorsed to name the
Administrative Agent as an additional insured. Business interruption policies
shall name the
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Administrative Agent as loss payee. Each such policy referred to in this
paragraph also shall provide that it shall not be canceled, modified or not
renewed (i) by reason of nonpayment of premium except upon not less than 10
days' prior written notice thereof by the insurer to the Administrative Agent
(giving the Administrative Agent the right to cure defaults in the payment of
premiums) or (ii) for any other reason except upon not less than 30 days' prior
written notice thereof by the insurer to the Administrative Agent. The
Borrower shall deliver to the Administrative Agent, prior to the cancelation,
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 the Administrative Agent) together with evidence satisfactory to
the Administrative Agent of payment of the premium therefor.
(c) If at any time the area in which any Mortgaged Property is located
is designated (i) "flood hazard area" in any Flood Insurance Rate Map
published by the Federal Emergency Management Agency (or any successor agency),
the Borrower shall obtain flood insurance in such total amount as the
Administrative Agent or the Required Lenders may from time to time reasonably
require, and otherwise comply with the National Flood Insurance Program as set
forth in the Flood Disaster Protection Act of 1973, as amended from time to
time.
SECTION 5.08. Casualty and Condemnation. (a) The Borrower will
furnish to the Administrative Agent and the Lenders prompt written notice of
any casualty or other insured damage to or any commencement of action or
proceeding under power of eminent domain, condemnation or similar proceeding
for the taking of (i) any portion of any Collateral (excluding any property,
improvements or assets included in the definition of the term "Mortgaged
Property") or (ii) any portion of Mortgaged Property.
(b) If any event described in Section 5.08(a)(i) results in Net
Proceeds (whether in the form of insurance proceeds, condemnation award or
otherwise), the Administrative Agent is authorized to collect such Net Proceeds
and, if received by the Borrower or any Subsidiary, such Net Proceeds shall be
paid over to the Administrative Agent, provided that (i) if the aggregate Net
Proceeds in respect of such event (other than proceeds of business interruption
insurance, if any) are less than $2,000,000, such Net Proceeds shall be paid
over to the Borrower unless a Default has occurred and is continuing and (ii)
all proceeds of business interruption insurance, if any, shall be paid over to
the Borrower unless a Default has occurred and is continuing. Any Net Proceeds
paid over to the Administrative Agent as provided in this paragraph shall be
applied to prepay Term Borrowings as provided in Section 2.11(b).
(c) If any event described in Section 5.08(a)(ii) results in Net
Proceeds (whether in the form of insurance proceeds, condemnation award or
otherwise), all such Net Proceeds retained by or paid over to the
Administrative Agent shall be applied by the Administrative Agent to the
payment of the cost of restoring or replacing the Mortgaged Property so
damaged, destroyed or taken or the cost of the portion or portions of the
Mortgaged Property not so taken (the "Work"), and such Net Proceeds shall be
paid over from time to time to the Borrower or the applicable Subsidiary, as
the case may be, as and to the extent that the Work (or the location
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and acquisition of any replacement of the Mortgaged Property) progresses for
the payment thereof, subject to each of the following conditions:
(i) the Borrower or such Subsidiary, as applicable, must
promptly commence the restoration process or the location, acquisition
and replacement process in connection with the Mortgaged Property;
(ii) the Work shall be in the charge of an independent
architect or engineer, and before the commencement of any Work, other
than temporary work to protect property or prevent interference with
business, the Administrative Agent shall have received the plans,
specifications and general contract for the Work from the Borrower or
such Subsidiary, as applicable. The plans and specifications shall
provide that, upon completion of such Work, the improvements shall (A)
be in compliance with all requirements of applicable Governmental
Authorities and (B) be at least equal in value and general utility to
the improvements that were on such Mortgaged Property (or that were on
the Mortgaged Property that has been replaced, if applicable) prior to
the casualty or condemnation, and in the case of a condemnation, subject
to the effect of such condemnation;
(iii) except as provided in clause (iv) below, each request for
payment shall be made upon seven days' prior notice to the
Administrative Agent and shall be accompanied by a certificate of such
architect or engineer, certifying that (A) all the completed Work has
been performed in substantial compliance with the plans, specifications
and general contract and (B) the sum requested is justly required to
reimburse the Borrower or such Subsidiary, as applicable, for payments
to, or is justly due to, the contractor, subcontractors, materialmen,
laborers, engineers, architects or other persons providing services or
materials for the Work (providing a brief description of such services
or materials, as applicable) and, when added to all sums previously paid
out by the Administrative Agent, does not exceed the value of the Work
done to the date of such certificate;
(iv) each request for payment in connection with the
acquisition of a replacement Mortgaged Property shall be made upon 30
days' prior notice to the Administrative Agent and, in connection
therewith, (A) each such request shall be accompanied by a copy of the
sales contract or other document governing the acquisition of the
replacement property by the Borrower or such Subsidiary, as applicable,
and a certificate of the Borrower or such Subsidiary, as applicable,
stating that the sum requested represents the sales price under such
contract or document and the related reasonable transaction fees and
expenses (including brokerage fees) and setting forth in sufficient
detail the various components of such requested sum and (B) the Borrower
or such Subsidiary, as applicable, shall (I) in addition to any other
items required to be delivered under this Section, provide the
Administrative Agent with such opinions, documents, certificates,
surveys, title insurance policies and other insurance policies as it may
reasonably request and (II) take such other actions as the
Administrative Agent may reasonably deem necessary or appropriate
(including actions with respect to the delivery to the Administrative
Agent of a first priority Mortgage with respect to such real property);
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(v) upon the request of the Administrative Agent, the Borrower
or such Subsidiary, as applicable, shall provide the Administrative
Agent with (A) waivers of lien satisfactory to the Administrative Agent
covering that part of the Work for which payment or reimbursement is
being requested and (B) if required by the Administrative Agent, a
search prepared by a title company or licensed abstractor or other
evidence satisfactory to the Administrative Agent that there has not
been filed with respect to such Mortgaged Property any mechanics' or
other lien or instrument for the retention of title in respect of any
part of the Work not discharged of record or bonded to the reasonable
satisfaction of the Administrative Agent;
(vi) there shall be no Default or Event of Default that has
occurred and is continuing;
(vii) the request for any payment after the Work has been
completed shall be accompanied by a copy of any certificate or
certificates required by law to render the occupancy of the improvements
being rebuilt, repaired or restored legal; and
(viii) after commencing the Work, the Borrower or such
Subsidiary, as applicable, shall continue to perform the Work diligently
and in good faith to completion in accordance with the approved plans,
specifications and general contract,
provided that nothing in this paragraph (c) shall prevent the Administrative
Agent from applying at any time all or any part of the Net Proceeds received in
an event described in Section 5.08(a)(ii) to (i) the curing of any Event of
Default or (ii) the payment of any of the obligations outstanding under this
Agreement after the occurrence and during the continuance of an Event of
Default. If any Net Proceeds paid over to or retained by the Administrative
Agent as provided in this paragraph continue to be held on the date that is 365
days after the receipt of such Net Proceeds, then such Net Proceeds shall be
applied to prepay Term Borrowings as provided in Section 2.11(b).
SECTION 5.09. Books and Records; Inspection and Audit Rights. The
Borrower will, and will cause each of the Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. The
Borrower will, and will cause each of the Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.
SECTION 5.10. Compliance with Laws. The Borrower will, and will cause
each of the Subsidiaries to, comply with all laws, rules, regulations and
orders of any Governmental Authority applicable to it or its property,
including Environmental Laws and Environmental Permits, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.11. Use of Proceeds and Letters of Credit. The Initial
Borrower will use the proceeds of the Term Loans, together with a portion of
the proceeds of the Revolving Loans, to be made on the Effective Date only for
the purposes set forth in the preamble to this
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Agreement. The Borrower will use the proceeds of the Revolving Loans (other
than the Revolving Loans referred to in the immediately preceding sentence),
and will request the issuance of Letters of Credit, only for the purposes set
forth in the preamble to this Agreement. No part of the proceeds of any Loan
will be used, whether directly or indirectly, for any purpose that entails a
violation of any of the Regulations of the Board, including Regulations G, U
and X.
SECTION 5.12. Additional Subsidiaries. If any additional Subsidiary is
formed or acquired after the Effective Date, the Borrower will notify the
Administrative Agent and the Lenders thereof and (a) if such Subsidiary is a
Subsidiary Loan Party, the Borrower will cause such Subsidiary to become a
party to the Guarantee Agreement, the Indemnity, Subrogation and Contribution
Agreement and each applicable Security Document in the manner provided therein
within three Business Days after such Subsidiary is formed or acquired and
promptly take such actions to create and perfect Liens on such Subsidiary's
assets to secure the Obligations as the Administrative Agent or the Required
Lenders shall reasonably request and (b) if any shares of capital stock or
Indebtedness of such Subsidiary are owned by or on behalf of any Loan Party,
the Borrower will cause such shares and promissory notes evidencing such
Indebtedness to be pledged pursuant to the Pledge Agreement within three
Business Days after such Subsidiary is formed or acquired (except that, if such
Subsidiary is a Foreign Subsidiary, shares of common stock of such Subsidiary
to be pledged pursuant to the Pledge Agreement may be limited to 65% of the
outstanding shares of common stock of such Subsidiary).
SECTION 5.13. Further Assurances. (a) Each of the Initial Borrower
and the Borrower will, and will cause each Subsidiary Loan Party to, execute
any and all further documents, financing statements, agreements and
instruments, and take all such further actions (including the filing and
recording of financing statements, fixture filings, mortgages, deeds of trust
and other documents), that may be required under any applicable law, or which
the Administrative Agent or the Required Lenders may reasonably request, to
effectuate the transactions contemplated by the Loan Documents or to grant,
preserve, protect or perfect the Liens created or intended to be created by the
Security Documents or the validity or priority of any such Lien, all at the
expense of the Initial Loan Parties. The Borrower also agrees to provide to
the Administrative Agent, from time to time upon request, evidence reasonably
satisfactory to the Administrative Agent as to the perfection and priority of
the Liens created or intended to be created by the Security Documents.
(b) If any material assets (including any real property or improvements
thereto or any interest therein) are acquired by the Borrower or any Subsidiary
Loan Party after the Effective Date (other than assets constituting Collateral
under the Security Agreement that become subject to the Lien of the Security
Agreement upon acquisition thereof), the Borrower will notify the
Administrative Agent and the Lenders thereof, and, if requested by the
Administrative Agent or the Required Lenders, the Borrower will cause such
assets to be subjected to a Lien securing the Obligations and will take, and
cause the Subsidiary Loan Parties to take, such actions as shall be necessary
or reasonably requested by the Administrative Agent to grant and perfect such
Liens, including actions described in paragraph (a) of this Section, all at the
expense of the Loan Parties.
(c) On or before each date set forth opposite the applicable Mortgaged
Property on Schedule 5.13, (i) the Borrower will execute, or will cause to be
executed, a Mortgage and a title insurance policy, as applicable, with respect
to each Mortgaged Property set forth on
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Schedule 5.13 and (ii) the Administrative Agent shall have received (A)
originals or copies, certified or otherwise identified to the satisfaction of
the Administrative Agent, of each such title insurance policy, (B) counterparts
of each such Mortgage duly executed on behalf of the record owner of the
applicable Mortgaged Property, and (C) such as-built surveys and abstracts with
respect to such Mortgaged Property as may be required pursuant to each such
title insurance policy or Mortgage, in each case, in form and substance
satisfactory to the Administrative Agent.
(d) As soon as practicable following the Effective Date, the Borrower
shall cause an environmental consultant to obtain supplemental environmental
quality samples (the scope of such sampling shall be reasonably satisfactory to
the Administrative Agent) from the Borrower's Delta, Colorado facility and the
Borrower shall submit the written results of such samples to the Administrative
Agent as soon as practicable thereafter, but in no event later than November 1,
1997. The scope of such supplemental sampling shall be to provide to the
Administrative Agent information necessary to determine whether the properties
located at 124 West 4th Street, Delta, Colorado and 441 Palmer Street, Delta,
Colorado shall become subject to Liens under the Security Documents.
SECTION 5.14. Interest Rate Protection. As promptly as practicable,
and in any event within 60 days after the Effective Date, the Borrower will
enter into with one or more Lenders, and thereafter for a period of not less
than three years will maintain in effect, one or more interest rate protection
agreements on such terms as shall be reasonably satisfactory to the
Administrative Agent, the effect of which shall be to fix or limit the interest
cost to the Borrower with respect to at least 15% of the outstanding Term
Loans.
SECTION 5.15. Concentration and Disbursement Accounts. As promptly as
practicable but in any event within 90 days after the Effective Date, the
Borrower shall arrange and thereafter maintain with a financial institution
that is a Lender one or more accounts to be used by the Borrower and the
Subsidiaries as their principal concentration and disbursement accounts and
shall not, and shall not permit any Subsidiary to, maintain any bank accounts
with respect to its material business or operations with any person that is
not, a Lender.
SECTION 5.16. Maintenance of Registration of Pledge. The Borrower
shall maintain evidence, reasonably satisfactory to the Administrative Agent,
of the registration of the security interests in the Pledged Interests (as
defined in the Pledge Agreement) in favor of the Collateral Agent for the
ratable benefit of the Secured Parties until the security interests in such
Pledged Interests shall have been terminated or released in accordance with the
terms of the Pledge Agreement.
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full
and all Letters of Credit have expired or terminated and all LC Disbursements
shall have been reimbursed, the Borrower covenants and agrees with the Lenders
that:
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SECTION 6.01. Indebtedness; Certain Equity Securities. (a) The
Borrower will not, and will not permit any Subsidiary to, create, incur, assume
or permit to exist any Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
(ii) the Subordinated Debt;
(iii) Indebtedness existing on the date hereof and set forth on
Schedule 6.01 and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount
thereof or result in an earlier maturity date or decreased weighted
average life thereof;
(iv) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary, provided that
Indebtedness of any Subsidiary that is not a Loan Party to the Borrower
or any Subsidiary Loan Party shall be subject to Section 6.04;
(v) Guarantees by the Borrower of Indebtedness of any Subsidiary
and by any Subsidiary of Indebtedness of the Borrower or any other
Subsidiary, provided that Guarantees by the Borrower or any Subsidiary
Loan Party of Indebtedness of any Subsidiary that is not a Loan Party
shall be subject to Section 6.04;
(vi) Indebtedness of the Borrower or any Subsidiary incurred to
finance the acquisition, construction or improvement of any fixed or
capital assets, including Capital Lease Obligations and any Indebtedness
assumed in connection with the acquisition of any such assets or secured
by a Lien on any such assets prior to the acquisition thereof, and
extensions, renewals and replacements of any such Indebtedness that do
not increase the outstanding principal amount thereof or result in an
earlier maturity date or decreased weighted average life thereof,
provided that (A) such Indebtedness is incurred prior to or within 90
days after such acquisition or the completion of such construction or
improvement and (B) the aggregate principal amount of Indebtedness
permitted by this clause (vi) shall not exceed $10,000,000 at any time
outstanding;
(vii) Indebtedness of any Person that becomes a Subsidiary after
the date hereof, provided that (A) such Indebtedness exists at the time
such Person becomes a Subsidiary and is not created in contemplation of
or in connection with such Person becoming a Subsidiary and (B) the
aggregate principal amount of Indebtedness permitted by this clause
(vii) shall not exceed $5,000,000 at any time outstanding;
(viii) Indebtedness of the Borrower created under Hedging
Agreements entered into pursuant to Section 5.14 and permitted under
Section 6.07;
(ix) other unsecured Indebtedness in addition to that permitted
by clauses (i) through (viii) above in an aggregate principal amount not
exceeding $10,000,000 at any time outstanding, provided that the
aggregate principal amount of Indebtedness of the
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Borrower's Subsidiaries permitted by this clause (ix) shall not exceed
$5,000,000 at any time outstanding; and
(x) extensions, renewals or refinancings of Indebtedness under
clause (ii) above so long as (A) such Indebtedness ("Refinancing
Indebtedness") is in an aggregate principal amount not greater than the
aggregate principal amount of the Indebtedness being extended, renewed
or refinanced plus the amount of any premiums required to be paid
thereon and fees and expenses associated therewith, (B) such Refinancing
Indebtedness has a later or equal final maturity and a longer or equal
weighted average life than the Indebtedness being extended, renewed or
refinanced, (C) the interest rate applicable to such Refinancing
Indebtedness is a market interest rate (as determined in good faith by
the management of each of the Borrower or SFG Capital, as the case may
be, as of the time of such extension, renewal or refinancing), (D) such
Refinancing Indebtedness is subordinated to the Obligations to the same
extent as the Indebtedness being extended, renewed or refinanced and (E)
at the time and after giving effect to such extension, renewal or
refinancing, no Default or Event of Default shall have occurred and be
continuing.
(b) The Borrower will not, and will not permit any Subsidiary to, issue
any preferred partner interest or preferred stock, as the case may be, or be or
become (except to the extent permitted by Section 6.08) liable in respect of
any obligation (contingent or otherwise) to purchase, redeem, retire, acquire
or make any other payment in respect of any partnership interest or shares of
capital stock of the Borrower or any Subsidiary, as the case may be, or any
option, warrant or other right to acquire any such partnership interest or
shares of capital stock other than the issuance of the New Preferred Interests
and any Series E Preferred Capital Interests.
SECTION 6.02. Liens. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any
property or asset now owned or hereafter acquired by it, or assign or sell any
income or revenues (including accounts receivable) or rights in respect of any
thereof, except:
(a) Liens created under the Loan Documents;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the date hereof and set forth on Schedule 6.02,
provided that (i) such Lien shall not apply to any other property or
asset of the Borrower or any Subsidiary and (ii) such Lien shall secure
only those obligations that it secures on the date hereof and
extensions, renewals and replacements thereof that are permitted under
Section 6.01 and do not increase the outstanding principal amount
thereof;
(d) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on any
property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary, provided that
(i) such Lien is not created in contemplation of or in connection with
such acquisition or such Person becoming a Subsidiary, as the case
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may be, (ii) such Lien shall not apply to any other property or assets
of the Borrower or any Subsidiary and (iii) such Lien shall secure only
those obligations that it secures on the date of such acquisition or the
date such Person becomes a Subsidiary, as the case may be, and
extensions, renewals and replacements thereof that are permitted under
Section 6.01 and do not increase the outstanding principal amount
thereof;
(e) Liens on fixed or capital assets acquired, constructed or
improved by the Borrower or any Subsidiary, provided that (i) such
security interests secure Indebtedness permitted by clause (vi) of
Section 6.01(a), (ii) such security interests and the Indebtedness
secured thereby are incurred prior to or within 90 days after such
acquisition or the completion of such construction or improvement, (iii)
the Indebtedness secured thereby does not exceed the cost of acquiring,
constructing or improving such fixed or capital assets and (iv) such
security interests shall not apply to any other property or assets of
the Borrower or any Subsidiary; and
(f) Liens (other than those permitted by clauses (a) through (e)
above) securing liabilities permitted hereunder in an aggregate amount
not exceeding $5,000,000 at any time outstanding.
SECTION 6.03. Fundamental Changes. (a) The Borrower will not, and will
not permit any Subsidiary to, merge into or consolidate with any other Person,
or permit any other Person to merge into or consolidate with it, or liquidate
or dissolve, except that, if at the time thereof and immediately after giving
effect thereto no Default shall have occurred and be continuing (i) any
Subsidiary may merge into the Borrower in a transaction in which the Borrower
is the surviving entity, (ii) any Subsidiary may merge into any Subsidiary Loan
Party in a transaction in which the surviving entity is a Subsidiary Loan
Party, (iii) any Subsidiary that is not a Loan Party may merge into any
Subsidiary that is not a Loan Party and (iv) any Subsidiary may liquidate or
dissolve if the Borrower determines in good faith that such liquidation or
dissolution is in the best interests of the Borrower and is not materially
disadvantageous to the Lenders, provided that any such merger involving a
Person that is not a wholly owned Subsidiary immediately prior to such merger
shall not be permitted unless also permitted by Section 6.04.
(b) The Borrower will not, and will not permit any of the Subsidiaries
to, engage to any material extent in any business other than businesses of the
type conducted by the Borrower and the Subsidiaries on the date of execution of
this Agreement and businesses reasonably related thereto.
SECTION 6.04. Investments, Loans, Advances, Guarantees and
Acquisitions. The Borrower will not, and will not permit any of the
Subsidiaries to, purchase, hold or acquire (including pursuant to any merger
with any Person that was not a wholly owned Subsidiary prior to such merger)
any capital stock, evidences of indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing) of, make or
permit to exist any loans or advances to, Guarantee any obligations of, or make
or permit to exist any
<PAGE> 83
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investment or any other interest in, any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any
other Person constituting a business unit, except:
(a) the acquisition of the Contributed Business, the Meadow Gold
Trademark Acquisition and other purchases and acquisitions contemplated
by the Acquisition Documents;
(b) Permitted Investments;
(c) investments existing on the date hereof and set forth on
Schedule 6.04, to the extent such investments would not be permitted
under any other clause of this Section;
(d) investments by the Borrower in the capital stock of the
Subsidiaries, provided that (i) any such shares of capital stock shall
be pledged pursuant to the Pledge Agreement (subject to the limitations
applicable to common stock of a Foreign Subsidiary referred to in
Section 5.12) and (ii) the amount of investments by the Borrower in
Subsidiaries that are not Loan Parties shall not exceed $2,500,000 in
the aggregate at any time outstanding;
(e) loans or advances made by the Borrower to any Subsidiary and
made by any Subsidiary to the Borrower or any other Subsidiary, provided
that (i) any such loans and advances made by a Loan Party shall be
evidenced by a promissory note pledged pursuant to the Pledge Agreement
and (ii) the amount of all such loans and advances by Loan Parties to
Subsidiaries that are not Loan Parties shall not exceed $2,500,000 in
the aggregate at any time outstanding;
(f) Guarantees constituting Indebtedness permitted by Section
6.01, provided that the amount of Indebtedness that is (i) outstanding
with respect to Subsidiaries that are not Loan Parties and (ii)
Guaranteed by any Loan Party shall not exceed $2,500,000 in the
aggregate at any time outstanding;
(g) Hedging Agreements permitted under Section 6.07;
(h) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes
with, customers and suppliers, in each case in the ordinary course of
business;
(i) the acquisition of assets from, or capital stock or other
equity interests in, any Person in connection with a Permitted
Acquisition for an aggregate consideration of not more than $10,000,000
for any one Permitted Acquisition and not more than $40,000,000 for all
Permitted Acquisitions during the term of this Agreement; and
(j) investments (other than those permitted by clauses (a)
through (i) above) in an aggregate amount not to exceed $5,000,000 at
any time outstanding.
<PAGE> 84
78
SECTION 6.05. Asset Sales. The Borrower will not, and will not permit
any of the Subsidiaries to, sell, transfer, lease or otherwise dispose of any
asset, including capital stock or partnership or other ownership interests, nor
will the Borrower permit any of the Subsidiaries to issue any additional shares
of its capital stock or partnership or other ownership interests in such
Subsidiary, except:
(a) sales of inventory, used or surplus equipment and Permitted
Investments in the ordinary course of business;
(b) sales, transfers and dispositions to the Borrower or a
Subsidiary, provided that any such sales, transfers or dispositions
involving a Subsidiary that is not a Loan Party shall be made in
compliance with Section 6.09; and
(c) sales, transfers and dispositions of assets (other than
capital stock or partnership or other ownership interests of a
Subsidiary) that are not permitted by any other clause of this Section,
provided that the aggregate fair market value of all assets sold,
transferred or otherwise disposed of in reliance upon this clause (c)
shall not exceed $5,000,000 during any fiscal year of the Borrower,
provided that all sales, transfers, leases and other dispositions permitted
hereby shall be made for fair value and, in the case of sales, transfers,
leases and other dispositions in excess of $2,000,000, shall be for
consideration at least 50% of which is cash.
SECTION 6.06. Sale and Lease-Back Transactions. The Borrower will not,
and will not permit any of the Subsidiaries to, enter into any arrangement,
directly or indirectly, with any Person whereby the Borrower or any Subsidiary
shall sell or transfer any property, real or personal, used or useful in its
business, whether now owned or hereafter acquired, and thereafter rent or lease
such property or other property which it intends to use for substantially the
same purpose or purposes as the property being sold or transferred, provided
that the Borrower and the Subsidiaries may enter into any such transaction to
the extent the Capital Lease Obligation and Liens associated therewith would be
permitted by Sections 6.01(a)(vi) and 6.02(e).
SECTION 6.07. Hedging Agreements. The Borrower will not, and will not
permit any of the Subsidiaries to, enter into any Hedging Agreement, other than
(a) Hedging Agreements required by Section 5.14 and (b) Hedging Agreements
entered into in the ordinary course of business to hedge or mitigate risks to
which the Borrower or any Subsidiary is exposed in the conduct of its business
or the management of its liabilities.
SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness.
(a) The Borrower will not, and will not permit any Subsidiary to, declare or
make, or agree to pay or make, directly or indirectly, any Restricted Payment,
except (i) Subsidiaries may declare and pay dividends ratably with respect to
their capital stock, (ii) the Borrower may make distributions in kind, in lieu
of cash, in accordance with the terms of the Partnership Agreement, with
respect to each series of the New Preferred Interests, the Existing Preferred
Interests and the Series E Preferred Capital Interests, (iii) the Borrower may
make cash distributions (provided that such distributions will be treated, for
the purposes of Sections 6.13, 6.14 and 6.16, as cash interest expenses for the
four-fiscal-quarter period ended immediately
<PAGE> 85
79
prior to the date of the applicable distribution) with respect to (A) the
initial $15,000,000 in stated value of the Series D Preferred Capital Interests
held by Mid-Am Capital, provided that as of the end of the fiscal quarter ended
immediately prior to such distributions and after giving pro forma effect to
such distributions, the Consolidated Interest Expense Coverage Ratio shall be
greater than 2.25 to 1.00 and (B) the remainder of the Series D Preferred
Capital Interests (including preferred limited partnership interests issued
after the Effective Date with respect to the Series D Preferred Capital
Interests issued prior to such date), provided that, as of the end of the
fiscal quarter ended immediately prior to such distributions and after giving
pro forma effect to such distributions, the Consolidated Interest Expense
Coverage Ratio shall be greater than 2.40 to 1.00, and (iv) the Borrower may
make Permitted Tax Distributions.
(b) The Borrower will not, and will not permit any Subsidiary to, make
or agree to pay or make, directly or indirectly, any payment or other
distribution (whether in cash securities or other property) of or in respect of
principal of or interest on any Indebtedness, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancelation or termination of any Indebtedness,
except:
(i) payment of Indebtedness created under the Loan Documents;
(ii) payment of regularly scheduled interest and principal
payments as and when due in respect of any Indebtedness, other than
payments in respect of the Subordinated Debt prohibited by the
subordination provisions thereof; and
(iii) refinancings of Indebtedness to the extent permitted by
Section 6.01.
SECTION 6.09. Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase, lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions in the ordinary course of business that are
at prices and on terms and conditions not materially less favorable to the
Borrower or such Subsidiary than could be obtained on an arm's-length basis
from unrelated third parties, provided that, in the case of arrangements for
the purchase or sale of milk or other dairy products from an Affiliate in the
ordinary course of business, such arrangements, purchases and sales will be
considered in the aggregate, (b) transactions between or among the Borrower and
the Subsidiary Loan Parties not involving any other Affiliate, (c) any
Restricted Payment permitted by Section 6.08 and (d) the Borrower may pay fees
under the SFG Management Agreement incurred in connection with the payment of
(i) franchise taxes and other fees required by the General Partner to maintain
its existence as a limited liability company or corporation, as the case may
be, and (ii) the operating costs of the General Partner that are attributable
to the governance of the Borrower in an aggregate amount of up to $100,000 per
fiscal year.
SECTION 6.10. Restrictive Agreements. The Borrower will not, and will
not permit any Subsidiary to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrower or any Subsidiary to
create, incur or permit to exist any Lien upon any of its property or assets,
or (b) the ability of any Subsidiary to pay dividends or other distributions
<PAGE> 86
80
with respect to any shares of its capital stock or to make or repay loans or
advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness
of the Borrower or any other Subsidiary, provided that (i) the foregoing shall
not apply to restrictions and conditions imposed by law or by any Loan Document
or Subordinated Debt Document, (ii) the foregoing shall not apply to
restrictions and conditions existing on the date hereof identified on Schedule
6.10 (but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or condition), (iii)
the foregoing shall not apply to customary restrictions and conditions
contained in agreements relating to the sale of a Subsidiary pending such sale,
provided such restrictions and conditions apply only to the Subsidiary that is
to be sold and such sale is permitted hereunder, (iv) paragraph (a) of the
foregoing shall not apply to restrictions or conditions imposed by any
agreement relating to secured Indebtedness permitted by this Agreement if such
restrictions or conditions apply only to the property or assets securing such
Indebtedness and (v) paragraph (a) of the foregoing shall not apply to
customary provisions in leases and other contracts restricting the assignment
thereof.
SECTION 6.11. Amendment of Material Documents. The Borrower will not,
and will not permit any Subsidiary to, amend, modify or waive any of its rights
under (a) any Subordinated Debt Document, (b) its certificate of incorporation,
by-laws or other organizational documents, (c) the Partnership Agreement or (d)
any of the Acquisition Documents, if any such amendment, modification or waiver
could reasonably be expected to result in a Material Adverse Effect.
SECTION 6.12. Capital Expenditures. The Borrower will not permit the
aggregate amount of Capital Expenditures made by the Borrower and the
Subsidiaries in any fiscal year to exceed the lesser of (a) $35,000,000 and (b)
the sum of (i) the amount (the "Base Amount") set forth below opposite such
fiscal year and (ii) the excess of (A) the unused amount of permitted Capital
Expenditures for the immediately preceding fiscal year over (B) an amount equal
to unused Capital Expenditures carried forward to such preceding fiscal year.
<TABLE>
<CAPTION>
Base
Fiscal Year Amount
----------- ------
<S> <C>
1997 $24,000,000
1998 $29,000,000
1999 $30,000,000
2000 $30,500,000
2001 $31,500,000
2002 $32,000,000
2003 $33,000,000
2004 $33,500,000
2005 $34,500,000
2006 $35,000,000
</TABLE>
<PAGE> 87
81
SECTION 6.13. Leverage Ratio. The Borrower will not permit the
Leverage Ratio for any four-fiscal-quarter period ending during any period set
forth below to be in excess of the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
December 31, 1997 6.00 to 1.00
March 31, 1998 5.90 to 1.00
June 30, 1998 5.80 to 1.00
September 30, 1998 5.70 to 1.00
December 31, 1998 5.60 to 1.00
March 31, 1999 5.60 to 1.00
June 30, 1999 5.50 to 1.00
September 30, 1999 5.40 to 1.00
December 31, 1999 5.30 to 1.00
March 31, 2000 5.20 to 1.00
June 30, 2000 5.10 to 1.00
September 30, 2000 5.00 to 1.00
December 31, 2000 4.80 to 1.00
March 31, 2001 4.70 to 1.00
June 30, 2001 4.60 to 1.00
September 30, 2001 4.50 to 1.00
December 31, 2001 4.30 to 1.00
March 31, 2002 4.20 to 1.00
June 30, 2002 4.10 to 1.00
September 30, 2002 4.00 to 1.00
December 31, 2002 3.90 to 1.00
March 31, 2003 3.80 to 1.00
June 30, 2003 3.70 to 1.00
September 30, 2003 3.50 to 1.00
December 31, 2003 3.50 to 1.00
March 31, 2004 3.50 to 1.00
June 30, 2004 3.50 to 1.00
September 30, 2004 3.50 to 1.00
December 31, 2004 3.50 to 1.00
March 31, 2005 3.50 to 1.00
June 30, 2005 3.50 to 1.00
September 30, 2005 3.50 to 1.00
December 31, 2005 3.50 to 1.00
</TABLE>
<PAGE> 88
82
<TABLE>
<S> <C>
March 31, 2006 3.50 to 1.00
June 30, 2006 3.50 to 1.00
September 30, 2006 3.50 to 1.00
December 31, 2006 3.50 to 1.00
</TABLE>
SECTION 6.14. Consolidated Interest Expense Coverage Ratio. The
Borrower will not permit the Consolidated Interest Expense Coverage Ratio for
any four-fiscal-quarter period ending during any period set forth below to be
less than the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
December 31, 1997 1.70 to 1.00
March 31, 1998 1.70 to 1.00
June 30, 1998 1.70 to 1.00
September 30, 1998 1.70 to 1.00
December 31, 1998 1.70 to 1.00
March 31, 1999 1.70 to 1.00
June 30, 1999 1.70 to 1.00
September 30, 1999 1.80 to 1.00
December 31, 1999 1.80 to 1.00
March 31, 2000 1.80 to 1.00
June 30, 2000 1.90 to 1.00
September 30, 2000 1.90 to 1.00
December 31, 2000 2.00 to 1.00
March 31, 2001 2.00 to 1.00
June 30, 2001 2.00 to 1.00
September 30, 2001 2.10 to 1.00
December 31, 2001 2.10 to 1.00
March 31, 2002 2.20 to 1.00
June 30, 2002 2.20 to 1.00
September 30, 2002 2.30 to 1.00
December 31, 2002 2.30 to 1.00
March 31, 2003 2.50 to 1.00
June 30, 2003 2.50 to 1.00
September 30, 2003 2.50 to 1.00
December 31, 2003 2.50 to 1.00
March 31, 2004 2.75 to 1.00
June 30, 2004 2.75 to 1.00
September 30, 2004 2.75 to 1.00
December 31, 2004 2.75 to 1.00
</TABLE>
<PAGE> 89
83
<TABLE>
<S> <C>
March 31, 2005 3.00 to 1.00
June 30, 2005 3.00 to 1.00
September 30, 2005 3.00 to 1.00
December 31, 2005 3.00 to 1.00
March 31, 2006 3.00 to 1.00
June 30, 2006 3.00 to 1.00
September 30, 2006 3.00 to 1.00
December 31, 2006 3.00 to 1.00
</TABLE>
SECTION 6.15. Current Ratio. The Borrower will not permit on the last
day of any fiscal quarter the ratio of (a) Consolidated Current Assets to (b)
Consolidated Current Liabilities to be less than 0.85 to 1.00.
SECTION 6.16. Fixed Charge Coverage Ratio. The Borrower will not
permit the Fixed Charge Coverage Ratio for any period of four consecutive
fiscal quarters ending on December 31, March 31, June 30 and September 30 of
any year, beginning on December 31, 1997, to be less than 1.00 to 1.00.
SECTION 6.17 Consolidated Partner Equity. The Borrower will not permit
Consolidated Partner Equity as of the end of each fiscal year (beginning with
the fiscal year ended December 31, 1997) to be less than the Minimum
Consolidated Partner Equity. The "Minimum Consolidated Partner Equity" as of
the end of each fiscal year shall be the sum, without duplication, of (a) the
Initial Amount, (b) 50% of Consolidated Net Income for such fiscal year for
which Consolidated Net Income is a positive number, (c) 100% of the Net
Proceeds of any primary offering of equity securities consummated by the
Borrower or any of the Subsidiaries received in such fiscal year and (d) 100%
of any capital contribution made to the Borrower in such fiscal year by any
partner. The "Initial Amount" for the fiscal year ended December 31, 1997
shall be $132,000,000, and for each fiscal year thereafter shall be an amount
equal to the Minimum Consolidated Partner Equity for the fiscal year prior to
such fiscal year.
SECTION 6.18. Take or Pay Contracts. The Borrower will not, and will
not permit any of the Subsidiaries to, enter into or be a party to any
arrangement for the purchase of materials, supplies, other property or services
if such arrangement by its express terms requires that payment be made by the
Borrower or such Subsidiary regardless of whether or not such materials,
supplies, other properties or services are delivered or furnished to it.
SECTION 6.19. Partnership Elections. Neither the Borrower nor the
General Partner will at any time in the future file an election to be treated
as a corporation for Federal income tax purposes.
<PAGE> 90
84
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan or
any reimbursement obligation in respect of any LC Disbursement when and
as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or
any fee or any other amount (other than an amount referred to in clause
(a) of this Article) payable under this Agreement or any other Loan
Document, when and as the same shall become due and payable, and such
failure shall continue unremedied for a period of three Business Days;
(c) any representation or warranty made or deemed made by or on
behalf of the Initial Borrower, the Borrower or any Subsidiary in or in
connection with any Loan Document or any amendment or modification
thereof or waiver thereunder, or in any report, certificate, financial
statement or other document furnished pursuant to or in connection with
any Loan Document or any amendment or modification thereof or waiver
thereunder, shall prove to have been incorrect in any material respect
when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.02 or 5.04 (with respect
to the existence of the Borrower) or in Article VI or the Initial
Borrower shall fail to observe or perform any covenant, condition or
agreement contained in Section 5.11;
(e) any Initial Loan Party shall fail to observe or perform any
covenant, condition or agreement contained in any Loan Document (other
than those specified in clause (a), (b) or (d) of this Article), and
such failure shall continue unremedied for a period of 30 days after
notice thereof from the Administrative Agent to the Borrower (which
notice will be given at the request of any Lender);
(f) the Borrower or any Subsidiary shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect
of any Material Indebtedness, when and as the same shall become due and
payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any Material Indebtedness or any
trustee or agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity,
provided that this clause (g) shall not apply to secured Indebtedness
that is permitted by Section 6.01 and that becomes
<PAGE> 91
85
due as a result of the voluntary sale or transfer of the property or
assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of the Borrower or any
Subsidiary or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect or (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Borrower or any Subsidiary or for a substantial part of
its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered;
(i) the Borrower or any Subsidiary shall (i) voluntarily commence
any proceeding or file any petition seeking liquidation, reorganization
or other relief under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect, (ii)
consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in clause (h)
of this Article, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar
official for the Borrower or any Subsidiary or for a substantial part of
its assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing;
(j) the Borrower or any Subsidiary shall become unable, admit in
writing its inability or fail generally to pay its debts as they become
due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $500,000 shall be rendered against the
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to attach or levy upon any assets
of the Borrower or any Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in liability
of the Borrower and the Subsidiaries in an aggregate amount exceeding
(i) $500,000 in any year or (ii) $1,000,000 for all periods;
(m) any Lien purported to be created under any Security Document
shall cease to be, or shall be asserted by any Loan Party or any other
party thereto not to be, a valid and perfected Lien on any Collateral,
with the priority required by the applicable Security Document, except
(i) as a result of the sale or other disposition of the applicable
Collateral in a transaction permitted under the Loan Documents or (ii)
as a result of the Administrative Agent's failure to maintain possession
of any stock certificates, promissory notes or other instruments
delivered to it under the Pledge Agreement;
<PAGE> 92
86
(n) the Borrower or any holder of a partnership interest in the
Borrower shall create, or shall permit any of its subsidiaries (as
applicable) to create, or enter into any agreement to create (i) any
Lien on or security interest in, or any pledge of, partnership interests
in the Borrower other than to secure the obligations of the Borrower
under the Loan Documents or (ii) any prohibition of or restriction in
any way on the creation or assumption of any Lien on or security
interest in, or any pledge of, partnership interests in the Borrower,
including any such Lien, security interest or pledge to secure the
obligations of the Borrower under the Loan Documents;
(o) (i) any Loan Document shall, at any time, cease to be in full
force and effect (unless released by the Administrative Agent, at the
direction of the Required Lenders or as otherwise permitted under this
Agreement) or shall be declared null and void, or the validity or
enforceability in any material respect thereof shall be contested by any
Loan Party or (ii) any Lien purported to be created under any Security
Document shall cease to be a valid and perfected Lien on any material
amount of Collateral or shall be asserted by any Loan Party not to be a
valid and perfected Lien on any Collateral, in each case with the
priority required by the applicable Security Document, except (A) as a
result of the sale or other disposition of the applicable Collateral in
a transaction permitted under the Loan Documents or (B) as a result of
the Administrative Agent's failure to timely file any required
continuation statements or to maintain possession of any stock
certificates, promissory notes or other instruments delivered to it
under the Pledge Agreement; or
(p) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either
or both of the following actions, at the same or different times: (i)
terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Loans then outstanding to be due and payable
in whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower; and in case of any event with respect to the Borrower described
in clause (h) or (i) of this Article, the Commitments shall automatically
terminate and the principal of the Loans then outstanding, together with
accrued interest thereon and all fees and other obligations of the Borrower
accrued hereunder, shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower.
<PAGE> 93
87
ARTICLE VIII
The Administrative Agent
Each of the Lenders and the Issuing Bank hereby irrevocably appoints the
Administrative Agent as its agent (including as the Collateral Agent (as
defined in the Security Agreement) under the Security Documents) and authorizes
the Administrative Agent to take such actions on its behalf and to exercise
such powers as are delegated to the Administrative Agent by the terms of the
Loan Documents, together with such actions and powers as are reasonably
incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Initial Borrower, the Borrower or any
Subsidiary or other Affiliate thereof as if it were not the Administrative
Agent hereunder.
The Administrative Agent shall not have any duties or obligations except
those expressly set forth in the Loan Documents. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any
duty to take any discretionary action or exercise any discretionary powers,
except discretionary rights and powers expressly contemplated by the Loan
Documents that the Administrative Agent is required to exercise in writing by
the Required Lenders (or such other number or percentage of the Lenders as
shall be necessary under the circumstances as provided in Section 9.02), and
(c) except as expressly set forth in the Loan Documents, the Administrative
Agent shall not have any duty to disclose, and shall not be liable for the
failure to disclose, any information relating to the Initial Borrower, the
Borrower or any of the Subsidiaries that is communicated to or obtained by the
bank serving as Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken
by it with the consent or at the request of the Required Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.02) or in the absence of its own gross
negligence or wilful misconduct. The Administrative Agent shall not be deemed
to have knowledge of any Default unless and until written notice thereof is
given to the Administrative Agent by the Borrower or a Lender, and the
Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into (a) any statement, warranty or representation made in or in
connection with any Loan Document, (b) the contents of any certificate, report
or other document delivered thereunder or in connection therewith, (c) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth in any Loan Document, (d) the validity, enforceability,
effectiveness or genuineness of any Loan Document or any other agreement,
instrument or document, or (v) the satisfaction of any condition set forth in
Article IV or elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate,
consent, statement, instrument, document or
<PAGE> 94
88
other writing believed by it to be genuine and to have been signed or sent by
the proper Person. The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon. The
Administrative Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and, as
between the Administrative Agent and the other Lenders, shall not be liable for
any action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and exercise
its rights and powers by or through any one or more sub-agents appointed by the
Administrative Agent. Each of the Administrative Agent and any such sub-agent
may perform any and all its duties and exercise its rights and powers through
its Related Parties. The exculpatory provisions of the preceding paragraphs
shall apply to any such sub-agent and to the Related Parties of each of the
Administrative Agent and any such sub-agent, and shall apply to their
respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor to the
Administrative Agent as provided in this paragraph, the Administrative Agent
may resign at any time by notifying the Lenders, the Issuing Bank and the
Borrower. Upon any such resignation, the Required Lenders shall have the
right, in consultation with the Borrower, to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative
Agent gives notice of its resignation, then the retiring Administrative Agent
may, on behalf of the Lenders and the Issuing Bank, appoint a successor
Administrative Agent that shall be a bank with an office in New York, New York,
or an Affiliate of any such bank. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Administrative Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it shall from time
to time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement, any other Loan Document or
related agreement or any document furnished hereunder or thereunder.
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ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 3114 South Haskell, Dallas,
Texas 75223, Attention of Mr. Pat Ford (Telecopy No. (214) 821-1686);
(b) if to the Administrative Agent, the Issuing Bank or the
Swingline Lender, to The Chase Manhattan Bank, Loan and Agency Services
Group, One Chase Manhattan Plaza, 8th Floor, New York, New York 10081,
Attention of Janet Belden (Telecopy No. (212) 552-5658), with a copy to
The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017,
Attention of William Murray (Telecopy No. (212) 344-0246); and
(c) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
Administrative Agent, the Issuing Bank or any Lender in exercising any right or
power hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power,
or any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent, the
Issuing Bank and the Lenders hereunder and under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of any Loan Document or consent to
any departure by any Loan Party therefrom shall in any event be effective
unless the same shall be permitted by paragraph (b) of this Section, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. Without limiting the generality of the foregoing,
the making of a Loan or issuance of a Letter of Credit shall not be construed
as a waiver of any Default, regardless of whether the Administrative Agent, any
Lender or the Issuing Bank may have had notice or knowledge of such Default at
the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders or, in the case of any
other Loan Document, pursuant to an agreement or agreements in writing entered
into by the Administrative Agent and the Loan Party or Loan Parties that are
parties thereto, in each case with the consent of the Required Lenders,
provided that no such
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agreement shall (i) increase the Commitment of any Lender without the written
consent of such Lender, (ii) reduce the principal amount of any Loan or LC
Disbursement or reduce the rate of interest thereon, or reduce any fees payable
hereunder, without the written consent of each Lender affected thereby, (iii)
postpone the scheduled date of payment of the principal amount of any Loan or
LC Disbursement, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any Commitment, without the written consent of
each Lender affected thereby, (iv) change Section 2.18(b) or (c) in a manner
that would alter the pro rata sharing of payments required thereby, without the
written consent of each Lender, (v) change any of the provisions of this
Section or the definition of the term "Required Lenders" or any other provision
of any Loan Document specifying the number or percentage of Lenders (or Lenders
of any Class) required to waive, amend or modify any rights thereunder or make
any determination or grant any consent thereunder, without the written consent
of each Lender (or each Lender of such Class, as the case may be), (vi) release
any Subsidiary Loan Party from its Guarantee under the Guarantee Agreement
(except as expressly provided in the Guarantee Agreement), or limit its
liability in respect of such Guarantee, without the written consent of each
Lender, (vii) release all or any substantial part of the Collateral from the
Liens of the Security Documents, without the written consent of each Lender,
(viii) change any provisions of any Loan Document in a manner that by its terms
adversely affects the rights in respect of payments due to Lenders holding
Loans of any Class differently than those holding Loans of any other Class,
without the written consent of Lenders holding a majority in interest of the
outstanding Loans and unused Commitments of each affected Class or (ix) change
the rights of the Tranche B Lenders to decline mandatory prepayments as
provided in Section 2.11, without the written consent of Tranche B Lenders
holding a majority of the outstanding Tranche B Loans, and provided further
that (i) no such agreement shall amend, modify or otherwise affect the rights
or duties of the Administrative Agent, the Issuing Bank or the Swingline Lender
without the prior written consent of the Administrative Agent, the Issuing Bank
or the Swingline Lender, as the case may be, and (ii) any waiver, amendment or
modification of this Agreement that by its terms affects the rights or duties
under this Agreement of the Revolving Lenders (but not the Tranche A Lenders
and Tranche B Lenders), the Tranche A Lenders (but not the Revolving Lenders
and Tranche B Lenders) or the Tranche B Lenders (but not the Revolving Lenders
and Tranche A Lenders) may be effected by an agreement or agreements in writing
entered into by the Borrower and requisite percentage in interest of the
affected Class of Lenders.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower
shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including the reasonable fees, charges
and disbursements of counsel for the Administrative Agent, in connection with
the syndication of the credit facilities provided for herein, the preparation
and administration of the Loan Documents or any amendments, modifications or
waivers of the provisions thereof (whether or not the transactions contemplated
hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket
expenses incurred by the Issuing Bank in connection with the issuance,
amendment, renewal or extension of any Letter of Credit or any demand for
payment thereunder and (iii) all out-of-pocket expenses incurred by the
Administrative Agent, the Issuing Bank or any Lender, including documentary
taxes associated with this Agreement and the fees, charges and disbursements of
any counsel for the Administrative Agent, the Issuing Bank or any Lender, in
connection with the enforcement or protection of its rights in connection with
the Loan Documents, including its rights under this Section, or in connection
with the Loans made or
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Letters of Credit issued hereunder, including all such out-of-pocket expenses
incurred during any workout, restructuring or negotiations in respect of such
Loans or Letters of Credit.
(b) The Borrower shall indemnify the Administrative Agent, the Issuing
Bank and each Lender, and each Related Party of any of the foregoing Persons
(each such Person being called an "Indemnitee") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the fees, charges and disbursements of any counsel
for any Indemnitee, incurred by or asserted against any Indemnitee arising out
of, in connection with, or as a result of (i) the execution or delivery of any
Acquisition Document or any other agreement or instrument contemplated hereby,
the performance by the parties to the Acquisition Documents of their respective
obligations thereunder or the consummation of the Transactions or any other
transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use
of the proceeds therefrom (including any refusal by the Issuing Bank to honor a
demand for payment under a Letter of Credit if the documents presented in
connection with such demand do not strictly comply with the terms of such
Letter of Credit), (iii) any actual or alleged presence or Release of Hazardous
Materials on, under or from any Mortgaged Property or any other property
currently or formerly owned or operated by the Borrower or any of the
Subsidiaries, or any Environmental Liability related in any way to the Borrower
or any of the Subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto, provided that such indemnity shall not, as
to any Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses resulted from the gross negligence or
wilful misconduct of such Indemnitee or any Affiliate of such Indemnitee (or of
any officer, director, employee, advisor or agent of such Indemnitee or any
such Indemnitee's Affiliates).
(c) To the extent that the Borrower fails to pay any amount required to
be paid by it to the Administrative Agent, the Issuing Bank or the Swingline
Lender under paragraph (a) or (b) of this Section, each Lender severally agrees
to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender,
as the case may be, such Lender's pro rata share (determined as of the time
that the applicable unreimbursed expense or indemnity payment is sought) of
such unpaid amount, provided that the unreimbursed expense or indemnified loss,
claim, damage, liability or related expense, as the case may be, was incurred
by or asserted against the Administrative Agent, the Issuing Bank or the
Swingline Lender in its capacity as such. For purposes hereof, a Lender's "pro
rata share" shall be determined based upon its share of the sum of the total
Revolving Exposures, outstanding Term Loans and unused Commitments at the time.
(d) To the extent permitted by applicable law, the Borrower shall not
assert, and hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable promptly after
written demand therefor.
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SECTION 9.04. Successors and Assigns. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), except that,
except as provided in Section 2.01, neither the Initial Borrower nor the
Borrower may assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit) and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent,
the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim
under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion of
its rights and obligations under this Agreement (including all or a portion of
its Commitment and the Loans at the time owing to it), provided that (i) except
in the case of an assignment to a Lender or an Affiliate of, or an Approved
Fund with respect to, a Lender, each of the Borrower and the Administrative
Agent (and, in the case of an assignment of all or a portion of a Revolving
Commitment or any Lender's obligations in respect of its LC Exposure or
Swingline Exposure, the Issuing Bank and the Swingline Lender) must give their
prior written consent to such assignment (which consent shall not be
unreasonably withheld), (ii) except in the case of an assignment to a Lender or
an Affiliate of, or an Approved Fund with respect to, a Lender or an assignment
of the entire remaining amount of the assigning Lender's Commitment or Loans,
the amount of the Commitment or Loans of the assigning Lender subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $5,000,000 unless each of the Borrower and the Administrative
Agent otherwise consent, (iii) each partial assignment shall be made as an
assignment of a proportionate part of all the assigning Lender's rights and
obligations under this Agreement, except that this clause (iii) shall not be
construed to prohibit the assignment of a proportionate part of all the
assigning Lender's rights and obligations in respect of one Class of
Commitments or Loans, (iv) the parties to each assignment shall execute and
deliver to the Administrative Agent an Assignment and Acceptance, together with
a processing and recordation fee of $3,500, and (v) the assignee, if it shall
not be a Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire, and provided further that any consent of the Borrower otherwise
required under this paragraph shall not be required if an Event of Default
under clause (h) or (i) of Article VII has occurred and is continuing. Subject
to acceptance and recording thereof pursuant to paragraph (d) of this Section,
from and after the effective date specified in each Assignment and Acceptance
the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of the assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Sections
2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights
or obligations under this Agreement that does not comply with this paragraph
shall be treated for purposes of this Agreement as a sale by
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such Lender of a participation in such rights and obligations in accordance
with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries
in the Register shall be conclusive, and the Borrower, the Administrative
Agent, the Issuing Bank and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower, the Issuing Bank
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Initial Borrower, the
Borrower, the Administrative Agent, the Issuing Bank or the Swingline Lender,
sell participations to one or more banks or other entities (a "Participant") in
all or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it),
provided that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (iii) the Initial
Borrower, the Borrower, the Administrative Agent, the Issuing Bank and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce the Loan
Documents and to approve any amendment, modification or waiver of any provision
of the Loan Documents, provided that such agreement or instrument may provide
that such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
9.02(b) that affects such Participant. Subject to paragraph (f) of this
Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 9.08 as though it were a Lender, provided
such Participant agrees to be subject to Section 2.18(c) as though it were a
Lender.
(f) A Participant shall not be entitled to receive any greater payment
under Section 2.15 or 2.17 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is
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made with the Borrower's prior written consent. A Participant that would be a
Foreign Lender if it were a Lender shall not be entitled to the benefits of
Section 2.17 unless the Borrower is notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Borrower, to
comply with Section 2.17(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest, provided that no such pledge or assignment
of a security interest shall release a Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party
hereto.
SECTION 9.05. Survival. All covenants, agreements, representations and
warranties made by the Initial Loan Parties in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent, the Issuing
Bank or any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of
Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in
full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Letters of Credit and the Commitments or the termination of this
Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which
when taken together shall constitute a single contract. This Agreement, the
other Loan Document and any separate letter agreements with respect to fees
payable to the Administrative Agent constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all
previous agreements and understandings, oral or written, relating to the
subject matter hereof. Except as provided in Section 4.01, this Agreement
shall become effective when it shall have been executed by the Administrative
Agent and when the Administrative Agent shall have received counterparts hereof
that, when taken together, bear the signatures of each of the other parties
hereto, and thereafter shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Delivery of an
executed counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular
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provision in a particular jurisdiction shall not invalidate such provision in
any other jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default specified in
clause (a), (b), (h) or (i) of Article VII shall have occurred and be
continuing or if the Loans shall have been declared due and payable, each
Lender and each of its Affiliates is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other obligations at any time owing by such Lender or
Affiliate to or for the credit or the account of the Borrower against any of
and all the obligations of the Borrower now or hereafter existing under this
Agreement held by such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement and although such obligations may be
unmatured. The rights of each Lender under this Section are in addition to
other rights and remedies (including other rights of setoff) that such Lender
may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
Process. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
(b) Each of the Initial Borrower and the Borrower hereby irrevocably
and unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to any Loan Document, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement or any other Loan Document
shall affect any right that the Administrative Agent, the Issuing Bank or any
Lender may otherwise have to bring any action or proceeding relating to this
Agreement or any other Loan Document against the Initial Borrower, the Borrower
or its properties in the courts of any jurisdiction.
(c) Each of the Initial Borrower and the Borrower hereby irrevocably
and unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement or any other Loan Document in any court referred to in paragraph
(b) of this Section. Each of the parties hereto hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
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SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative Agent, the
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates' directors, officers, employees and agents, including
accountants, legal counsel and other advisors or to any other Person employed
or retained by such Lender who is engaged by such Lender in evaluating,
approving, structuring or administering the Loans and who are subject to this
Section (it being understood that the Persons to whom such disclosure is made
will be informed of the confidential nature of such Information and instructed
to keep such Information confidential), (b) to the extent requested by any
regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement, (e) in connection with the exercise of any remedies
hereunder or any suit, action or proceeding relating to this Agreement or any
other Loan Document or the enforcement of rights hereunder or thereunder, (f)
subject to an agreement containing provisions substantially the same as those
of this Section, to any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement, (g) to the National Association of Insurance Commissioners or any
similar organization or any nationally recognized rating agency that requires
access to information about such Lender's investment portfolio in connection
with ratings issued with respect to such Lender, (h) with the consent of the
Borrower or (i) to the extent such Information (A) becomes publicly available
other than as a result of a breach of this Section or (B) becomes available to
the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential
basis from a source other than the Borrower, provided that the Administrative
Agent, the Issuing Bank or the applicable Lender to whom such Information
becomes available did not have actual knowledge that the party making such
Information available was subject to a confidentiality agreement, if any, with
the Borrower with respect to such Information. For the purposes of this
Section, "Information" means all information received from the Borrower
relating to the Borrower or its business, other than any such information that
is available to the Administrative Agent, the Issuing Bank or any Lender on a
nonconfidential basis prior to disclosure by the Borrower, provided that, in
the case of information received from the Borrower after the date hereof, such
information is clearly identified at the time of delivery as confidential. Any
Person required to maintain the
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confidentiality of Information as provided in this Section shall be considered
to have complied with its obligation to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information.
SECTION 9.13. Interest Rate Limitation. Notwithstanding anything
herein to the contrary, if at any time the interest rate applicable to any
Loan, together with all fees, charges and other amounts that are treated as
interest on such Loan under applicable law (collectively, the "Charges"), shall
exceed the maximum lawful rate (the "Maximum Rate") that may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan in
accordance with applicable law, the rate of interest payable in respect of such
Loan hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan but were not payable as a
result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated
amount, together with interest thereon at the Federal Funds Effective Rate to
the date of repayment, shall have been received by such Lender.
SECTION 9.14. Waiver of Defenses. To the fullest extent permitted by
applicable law, (a) the obligations of the Borrower hereunder shall not be
reduced, limited, impaired, discharged or otherwise affected (i) if any
representation or warranty made or deemed made by or on behalf of the Initial
Borrower in or in connection with any Loan Document or any amendment or
modification thereof or waiver thereunder, or in any report, certificate,
financial statement or other document furnished pursuant to or in connection
with any Loan Document or any amendment or modification thereof or waiver
thereunder, shall prove to have been incorrect in any respect when made or
deemed made, (ii) if the Initial Borrower shall fail to observe or perform any
covenant, condition or agreement contained in any Loan Document or any
amendment or modification thereof or waiver thereunder, (iii) by the failure of
the Administrative Agent or any Lender to assert any claim or demand or to
enforce or exercise any right or remedy against the Initial Borrower under the
provisions of the Credit Agreement, any other Loan Document or otherwise, (iv)
by any rescission, waiver, amendment or modification of, or any release from
any of the terms or provisions of this Agreement, any other Loan Document or
any other agreement or (v) by any other act or omission of the Initial
Borrower, the Administrative Agent or any Lender that may or might in any
manner or to any extent operate as a reduction, limitation, impairment,
discharge or have any other effect on the obligations of the Borrower as a
matter of law or equity (other than the indefeasible payment in full in cash of
the Obligations) and (b) the Borrower waives any right to require that any
resort be had by the Administrative Agent or any Lender to the assets of the
Initial Borrower for the repayment of the Obligations.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
<PAGE> 104
98
MID-AMERICA DAIRYMEN, INC.,
by /s/ GERALD L. BOS
-----------------------------------------
Name: Gerald L. Bos
Title: Corporate Vice President - Finance
SOUTHERN FOODS GROUP, L.P.,
by SFG Management Limited Liability,
its sole General Partner,
by /s/ PATRICK K. FORD
--------------------------------------
Name: Patrick K. Ford
Title: Assistant Secretary
<PAGE> 105
THE CHASE MANHATTAN BANK,
by
/s/ ROBERT ANASTASIO
-----------------------------------------
Name: Robert Anastasio
Title: Vice President
<PAGE> 1
EXHIBIT 10.4
CAPITAL CONTRIBUTION, ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS CAPITAL CONTRIBUTION, ASSIGNMENT AND ASSUMPTION AGREEMENT (this
"Agreement") is entered into as of the 4th day of September, 1997, by and
between Mid-America Dairymen, Inc., a Kansas cooperative marketing association
("Transferor"), and Southern Foods Group, L.P., a Delaware limited partnership
(the "Partnership"). Defined terms used but not defined in this Agreement
shall have the meaning ascribed thereto in the Second Amended and Restated
Agreement of Limited Partnership of the Partnership dated as of September 3,
1997.
WHEREAS, Transferor wishes to contribute to the Partnership, as a
capital contribution (the "Meadow Gold Dairies Contribution"), certain assets
acquired and held by Transferor as more fully described on Exhibit "A" hereto
(the "Assets"), relating to the dairy business of Borden/Meadow Gold Dairies
Holdings, Inc. ("Holdings") and its subsidiaries (other than the assets of
Borden/Meadow Gold Dairies, Inc. and Borden/Meadow Gold Dairies Investments,
Inc.) (the "Business"), subject to the assumption by the Partnership of all
liabilities and obligations of Transferor associated therewith, in exchange for
the issuance to Transferor of Series B 10% Payment-in-Kind Preferred Limited
Partner Interests (the "Series B Preferred Interests"); and
WHEREAS, the parties agree that the Transferor's contribution to the
capital of the Partnership is being made in exchange for the issuance of Series
B Preferred Interests in the original stated amount of $90,000,000; and
WHEREAS, Transferor and the Partnership wish to execute and deliver
this instrument for the purpose of (i) transferring to and vesting in the
Partnership all of Transferor's right, title and interest in and to the
Business and all of the Assets generally, (ii) confirming the assignment by
Transferor and the assumption by the Partnership of the liabilities associated
with the Business and the Assets, and (iii) documenting the issuance of Series
B Preferred Interests in exchange for the transfer of the Assets and the
assumption of the liabilities associated therewith;
NOW, THEREFORE, the parties hereto agree as follows:
1. Assignment of Assets.
(a) Transferor does hereby convey, transfer, assign, set
over to and vest in the Partnership, its successors and assigns forever
as of 3:00 p.m. on September 4, 1997 (the "Effective Time"), all of
Transferor's right, title and interest, legal or equitable, in, to and
under the Assets.
(b) The contribution of the Assets by Transferor to the
Partnership is intended to constitute a contribution of property by
Transferor to the Partnership in exchange for an interest in the
Partnership in accordance with the provisions of Section 721 of the
Internal
1
<PAGE> 2
Revenue Code of 1986, as amended. To the extent that any contract,
agreement, instrument, arrangement, lease, sublease, permit, license,
certificate, chose in action, indenture, purchase order, and other
commitment, oral or written, transferred to the Partnership pursuant
to the foregoing provisions of this Section 1 (the "Contracts") shall
be unassignable, this Agreement shall not constitute an assignment
thereof and to the extent that the assignment of any such Contract
shall require the consent of another party thereto or any governmental
agency, this Agreement shall not constitute an assignment of the same,
unless or until such consent is obtained, if an attempted assignment
without such consent of such other party or governmental agency would
constitute a breach thereof, or a violation of law or regulations
thereunder or in any material way affect the rights of Transferor
thereunder. If such consent is not obtained where an attempted
assignment without consent would be ineffective or would affect
Transferor's rights thereunder so that the Partnership would not in
its reasonable judgment receive all such rights, Transferor shall
cooperate with the Partnership in any reasonable arrangement designed
to provide for the Partnership, and its successors and assigns, the
benefits under any such Contract which is not assigned hereby without
such arrangement causing a breach or violation thereof.
Notwithstanding the preceding, this Agreement constitutes (i) an
assignment as between Transferor and the Partnership of all of
Transferor's right, title and interest in and to all Contracts and
(ii) the consent of Transferor to substitute the Partnership in the
place of Transferor on all such Contracts. In addition, in the event
Transferor is unable to secure a novation of any Contract as of the
date hereof, Transferor hereby sells, assigns, transfers and delivers
to the Partnership all of Transferor's benefits under any agreements
constituting the Contracts including, but not limited to, all payments
due Transferor under such agreements after the date hereof.
2. Assumption of Liabilities. The Partnership, for itself, its
successors and assigns, does hereby assume the transfer to it of, and agrees to
perform according to their terms and comply with, all of the liabilities,
claims, duties, costs, expenses, indebtedness and obligations, known and
unknown, whether absolute, accrued, contingent or otherwise, of every kind and
description, to the extent relating to, associated with or arising out of the
Assets or the Business or the conduct thereof as of the Effective Time (the
"Liabilities"), including, without limitation, the following:
(a) all liabilities, obligations and indebtedness under
the terms of that certain $250,000,000 Credit Agreement dated as of
September 4, 1997 between Transferor and The Chase Manhattan Bank, as
administrative agent and the lenders named therein, providing for Term
Loans in an aggregate principal amount of $190 million and a Revolving
Credit Facility in an aggregate principal amount of up to $60 million
(the "Credit Agreement") and the related mortgages, deeds of trust,
security agreements, financing statements, and other collateral
documents provided for in the Credit Agreement;
(b) all liabilities and obligations under or in
connection with the Assets;
(c) all liabilities and obligations under or in
connection with unfulfilled purchase orders or sales commitments of
the Business existing as of the Effective Time;
2
<PAGE> 3
(d) all liabilities and obligations under or in
connection with the returns of products sold as part of the Business
as of the Effective Time;
(e) All liabilities of the Business under the terms of
that certain Compliance Agreement in Lieu of Debarment dated October
18, 1996, among Borden, Inc., Borden/Meadow Gold Dairies, Inc. and the
Food and Consumer Service of the United States Department of
Agriculture; and
(f) all liabilities and obligations relating to
litigation identified in Schedule L-1.
Notwithstanding the foregoing, the Liabilities shall not include any
liabilities and obligations of Transferor or its subsidiaries or affiliates
that are not related to the Assets or the Business. Liabilities that are
non-recourse according to their terms or that are non-recourse to the
Transferor remain non-recourse against the Partnership.
Notwithstanding anything contained in this Agreement to the contrary,
the Partnership acknowledges and agrees that its assumption of the liabilities,
obligations and indebtedness of Transferor under the terms of the Credit
Agreement and the collateral documents provided for therein shall be absolute
and unconditional whether or not the Credit Agreement or any collateral
documents provided for therein are legal, valid and binding obligations of
Transferor. The Partnership's liability under the Credit Agreement is solely
against the assets of the Partnership, and no Partner shall have any personal
liability for the payment of indebtedness owed under the Credit Agreement.
3. Other Agreements Evidencing the Meadow Gold Dairies
Contribution. Transferor and the Partnership acknowledge that certain other
documents between them, specifically those listed on Exhibit "B" to this
Agreement (the "Other Documents"), also transfer assets or liabilities relating
to the Business and are a part of the Meadow Gold Dairies Contribution.
4. Series B Preferred Interests. At the time the assignment of
the Assets to the Partnership becomes effective pursuant to the provisions
hereof, Transferor shall receive NINETY MILLION DOLLARS ($90,000,000) in stated
amount of Series B Preferred Interests in the Partnership, and in recognition
thereof, Transferor's Capital Account with respect to the Series B Preferred
Interests shall be credited with the sum of NINETY MILLION DOLLARS
($90,000,000).
5. Further Measures. Transferor, for itself, its successors and
assigns, hereby covenants that, from time to time after the delivery of this
instrument, at the Partnership's request and without further consideration,
Transferor will do, execute, acknowledge and deliver, or will cause to be done,
executed, acknowledged and delivered, all and every such further acts,
conveyances, transfers, assignments, powers of attorney and assurances as the
Partnership reasonably may require more effectively to convey, transfer to and
vest in the Partnership, and to put the Partnership in possession of, any of
the Assets. Without in any way limiting the generality of the covenants
provided for in the immediately preceding sentence, Transferor hereby agrees to
promptly transfer and convey to the defined benefit plan established by the
Partnership for the employees of the Business, all assets if
3
<PAGE> 4
any, received by Transferor from Borden, Inc. relating to employees of the
Business who were participants in the Borden Employees' Retirement Income Plan
and shall request that the trustees of the Borden Retirement Savings Plan, the
Borden Union Savings Plan and the Borden Associate Savings Plan (collectively,
"the Savings Plans") to transfer to the trustees of the defined contribution
plan established by the Partnership for the employees of the Business the
following amount: (a) the full account balances of all employees of the
Business, whose account balances shall be accredited with appropriate earnings
and contributions if any, attributable to the period ending on the close of
business on the day immediately preceding the date hereof, plus (b) earnings on
such account balances attributable to the period from the date hereof to the
Transfer Date (as defined in that certain Stock Purchase and Merger Agreement
dated as of May 22, 1997, among Transferor, Borden/Meadow Gold Dairies
Holdings, Inc., and BDH Two and Borden, Inc.), reduced by (c) any benefit or
with withdrawal payments in respect of the employees of the Business prior to
the Transfer Date. The Partnership, for itself, its successors and assigns,
hereby covenants that, from time to time after the delivery of this instrument,
at Transferor's request and without further consideration, the Partnership will
do, execute, acknowledge and deliver, or will cause to be done, executed,
acknowledged, and delivered, all and every such further acts, conveyances,
transfers, assignments, powers of attorney and assurances as Transferor
reasonably may require more effectively to convey, transfer to and vest in the
Partnership the Assets.
6. Warranties. Transferor and the Partnership each represents
and warrants to the other that the execution, delivery and performance of this
Agreement by it has been duly authorized by all necessary corporate or
partnership action on its part and that this Agreement has been duly executed
and delivered by it and constitutes the valid and binding agreement of it in
accordance with its terms. ALL SALES, TRANSFERS, CONVEYANCES, ASSIGNMENTS AND
DELIVERIES MADE OR TO BE MADE HEREUNDER WILL BE MADE WITHOUT REPRESENTATION OR
WARRANTY (EXCEPT AS SET FORTH IN THIS PARAGRAPH 6) OF ANY KIND (INCLUDING,
WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY OF TITLE). ALL ASSETS,
RIGHTS AND BUSINESS SOLD, TRANSFERRED, CONVEYED, ASSIGNED AND DELIVERED
HEREUNDER ARE SOLD, TRANSFERRED, CONVEYED, ASSIGNED AND DELIVERED "AS IS,"AND
TRANSFEROR AND THE PARTNERSHIP EACH EXPRESSLY DISCLAIMS ANY WARRANTIES OF
CONDITION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE. This
Agreement is made, however, with full rights of substitution and subrogation of
the Partnership in, to and under all covenants, warranties and other rights of
indemnification by others heretofore given or made with respect to any of the
Assets, subject to Paragraph 1(b). Each party hereto hereby waives compliance
with the bulk sales law or any similar law in any applicable jurisdiction in
respect of the transactions contemplated by this Agreement.
7. Sales Taxes and Recording Fees. The parties agree that the
Partnership shall pay all sales, use and similar taxes arising out of the
sales, transfers, conveyances, assignments and deliveries made or to be made
hereunder, and shall pay all documentary, filing and recording fees required in
connection therewith.
4
<PAGE> 5
8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which,
together, shall constitute one and the same instrument.
9. Severability. If any provision of this Agreement or the
application of such provision shall be held by a court of competent
jurisdiction to be unenforceable, the remaining provisions of this Agreement
shall remain in full force and effect.
10. Captions. The captions herein are for convenience only and
shall not be considered a part of this Agreement for any purpose, including,
without limitation, the construction or interpretation of any provision hereof.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONTROLLED, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN THAT STATE, WITHOUT REGARD TO CONFLICTS
OF LAW PRINCIPLES.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be signed on its behalf by a duly authorized officer as of the date first
written above.
MID-AMERICA DAIRYMEN, INC.
By: /s/ GERALD L. BOS
----------------------------------
Its: CFO
------------------------------
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, General Partner
By: /s/ PETE SCHENKEL
------------------------------
Its: President
--------------------------
5
<PAGE> 6
This Agreement is being executed by Pete Schenkel for the purpose of
consenting to the issuance of $90 million in stated amount of Series B 10%
Payment-in-Kind Preferred Limited Partner Interests in the Partnership to the
Transferor as a Preferred Limited Partner holding such Preferred Limited
Partner Interests.
/s/ PETE SCHENKEL
--------------------------------------------
Pete Schenkel, as a Common Limited Partner
6
<PAGE> 7
EXHIBIT "A"
Assets
All of the assets, rights and property of every kind, character and
description, whether tangible or intangible, whether real, personal or mixed,
whether accrued or contingent, and wherever located, constituting part of,
principally utilized in or principally related to the Business as it shall
exist on the Effective Time, including the assets of the Business as reflected
on the July 26, 1997 Balance Sheet of Meadow Gold Dairies attached hereto (the
"Balance Sheet") and including, without limitation, the following:
(a) all cash and cash equivalents of the Business on hand and in
banks or other financial institutions as of the Effective Time
(including checks held in lock boxes or not yet cashed);
(b) notes and accounts receivable principally relating to the
Business;
(c) all raw materials, supplies, work-in process, finished goods
and other materials included in the inventory of the Business;
(d) all real property and buildings and improvements thereon
utilized in or relating to the Business, including, without
limitation, all real property and buildings and improvements
thereon listed or described in Schedule A-1 hereto;
(e) all real estate leases and leasehold improvements utilized in
or relating to the Business, including, without limitation, all
real estate leases and leasehold improvements listed or
described in Schedule A- 2 hereto;
(f) all machinery, equipment, vehicles, furniture and other
personal property utilized in or relating to the Business,
including, without limitation, all machinery, equipment,
vehicles, furniture and other personal property listed or
described in Schedule A-3 hereto;
(g) all personal property leases utilized in or relating to the
Business, including, without limitation, all personal property
leases described in Schedule A-4 hereto;
(h) all contracts, licenses, agreements or understandings utilized
in or relating to the Business, including, without limitation,
all contracts, agreements or understandings listed or described
in Schedule A-5 hereto;
(i) all of Transferor's rights, claims or causes of action against
third parties relating to the Assets or the Business arising
out of transactions occurring prior to the Effective Time;
Exhibit A - Page 1
<PAGE> 8
(j) all United States and foreign trademarks, and trade names,
service marks, patents, know-how, copyrights and other similar
proprietary intellectual property rights (including any
registration or any of the foregoing or applications for
registration thereof ) in each case owned by or licensed to
Holdings and its subsidiaries (other than Borden/Meadow Gold
Dairies, Inc. and Borden/Meadow Gold Dairies Investments,
Inc.);
(k) all permits, licenses and other governmental authorizations
which pertain to the Business;
(l) all computer software and data used by the Business;
(m) all of the goodwill associated with the Business or the Assets;
and
(n) all books and records relating to the Assets or the Business,
whether in hard copy or computer format, used by the Business,
including without limitation, sales and promotional literature,
manuals, and data, sales and purchase correspondence, list of
present and former suppliers, list of present and former
customers, personnel and employee records, and any information
relating to taxes imposed on the Business or the Assets.
Notwithstanding the foregoing, the Assets shall not include any assets, rights
or properties that are not utilized in or related to the Business.
Exhibit A - Page 2
<PAGE> 9
EXHIBIT "B"
Other Documents
1. Assignment and Assumption Agreement Relating to Stock Purchase and
Merger Agreement, dated September 4, 1997, between Mid-Am and the
Partnership.
2. Assignment and Assumption Agreement Relating to Master Customer
Services Agreement and Insurance Matters Agreement, dated as of the
Closing Date, between Mid-Am and the Partnership.
3. Sublease Agreement, dated as of the Closing Date, between Mid-Am and
the Partnership.
4. Telephone Equipment Sublease Agreement, dated as of the Closing Date,
between the Partnership and Mid-Am.
5. Trade Payables/Receivables Reconciliation Agreement between Borden
Foods Corporation and the Partnership.
Exhibit B - Page 1
<PAGE> 1
EXHIBIT 10.5
Execution Copy
CAPITAL CONTRIBUTION AGREEMENT
THIS CAPITAL CONTRIBUTION AGREEMENT (this "Agreement") is entered into
this 4th day of September, 1997, to be effective as of 3:00 p.m. on
September 3, 1997 (the "Effective Time"), by and between Mid-Am Capital,
L.L.C., a Delaware limited liability company ("Transferor"); and Southern Foods
Group, L.P., a Delaware limited partnership (the "Partnership"). Defined terms
used but not defined in this Agreement shall have the meaning ascribed thereto
in the Second Amended and Restated Agreement of Limited Partnership of the
Partnership dated of even date herewith.
WHEREAS, Transferor wishes to contribute to the Partnership, as a capital
contribution, the sum of FORTY FIVE MILLION DOLLARS ($45,000,000), in exchange
for the issuance to Transferor of FIFTEEN MILLION DOLLARS ($15,000,000) in
stated amount of Series C 10% Payment-in-Kind Preferred Limited Partner
Interests ("Series C Preferred Interests") and THIRTY MILLION DOLLARS
($30,000,000) in stated amount of Series D 9 1/2% Preferred Limited Partner
Interests ("Series D Preferred Interests") in the Partnership; and
WHEREAS, the parties agree that the Transferor's contribution to the
capital of the Partnership is being made as a Series C Preferred Limited
Partner Contribution in the amount of FIFTEEN MILLION DOLLARS ($15,000,000),
and as a Series D Preferred Limited Partner Contribution in the amount of
THIRTY MILLION DOLLARS ($30,000,000); and
WHEREAS, the parties further desire that the Capital Account of the
Transferor as a result of the capital contribution by Transferor described
herein shall reflect a Series C Preferred Interest as of the Effective Date in
the amount of FIFTEEN MILLION DOLLARS ($15,000,000) and a Series D Preferred
Interest as of the Effective Date in the amount of THIRTY MILLION DOLLARS
($30,000,000); and
WHEREAS, Transferor and the Partnership wish to execute and deliver this
instrument for the purpose of (i) the Partnership acknowledging the receipt of
Transferor's Capital Contribution, and (ii) documenting the Series C Preferred
Interests and the Series D Preferred Interests issued in exchange for the
Capital Contribution;
NOW, THEREFORE, the parties hereto agree as follows:
1. Series C Preferred Interests and Series D Preferred Interests. For and
in consideration of the Capital Contribution, by Transferor to the Partnership,
in the sum of FORTY FIVE MILLION DOLLARS ($45,000,000) Transferor shall receive
Preferred Limited Partner Interests in the Partnership, consisting of, FIFTEEN
MILLION DOLLARS ($15,000,000) in stated amount of Series C Preferred Interests
and THIRTY MILLION DOLLARS ($30,000,000) in stated amount of Series D Preferred
Interests, and in recognition thereof, Transferor shall be credited with a
Preferred Limited Partner Capital Account having an initial balance of FORTY
FIVE DOLLARS MILLION DOLLARS ($45,000,000).
2. GOVERNING LAW. THIS AGREEMENT SHALL BE CONTROLLED, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN THAT STATE, WITHOUT REGARD TO CONFLICTS
OF LAW PRINCIPLES.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
signed on its behalf by a duly authorized officer as of the date first written
above to be effective as of the Effective Time.
1
<PAGE> 2
MID-AM CAPITAL, L.L.C.
By: /s/ GERALD L. BOS
-------------------------------------------
Its: CEO and Treasurer
--------------------------------------
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability Company,
General Partner
By: /s/ PETE SCHENKEL
--------------------------------------
Its: President and CEO
----------------------------------
2
<PAGE> 3
This Agreement is being executed by Pete Schenkel and Mid-America
Dairymen, Inc. for purposes of consenting (a) to the issuance of the Series C
Preferred Interests and the Series D Preferred Interests in the Partnership as
provided for herein, and (b) to the admission of the Transferor as a Preferred
Limited Partner holding the Preferred Limited Partner Interests in the
Partnership specified herein.
/s/ PETE SCHENKEL
----------------------------------------------
Pete Schenkel, as a Common Limited Partner
MID-AMERICA DAIRYMEN, INC., in its capacity
as a Common Limited Partner and as a Preferred
Limited Partner
By: /s/ GERALD L. BOS
-------------------------------------------
Its: Vice President\CFO
---------------------------------------
3
<PAGE> 1
EXHIBIT 10.6
EXECUTION COPY
SUBLEASE AGREEMENT
SUBLEASE AGREEMENT, made this 4th day of September, 1997, by and
between MID-AMERICA DAIRYMEN, INC., a Kansas corporation with its principal
place of business at 3253 East Chestnut Expressway, Springfield, Missouri 65802
(hereinafter referred "Sublessor"), and SOUTHERN FOODS GROUP, L.P., a Delaware
limited partnership with its principal place of business at 3114 South Haskell,
Dallas, Texas 75223 (hereinafter referred "Sublessee").
W I T N E S S E T H:
WHEREAS, Sublessor and BLC Corporation (hereinafter referred "BLC")
entered into a Master Leasing Agreement dated as of August 15, 1997
(hereinafter, as amended and supplemented from time to time to also include all
Individual Leasing Records (as defined in the Lease), amendments, supplements,
exhibits and addenda executed pursuant thereto, the "Lease"); and,
WHEREAS, BLC has agreed to permit Sublessor to (i) sublease to Milk
Products, LLC, a Delaware limited liability company, under a separate Sublease
Agreement, certain equipment leased under the Lease, and (ii) sublease certain
equipment leased under the Lease, as hereinafter specified, to Sublessee under
this Sublease Agreement, on the terms and conditions set forth herein;
1. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor the equipment listed on Exhibit A attached hereto and
made a part hereof (herein called the "Subleased Equipment"), which Subleased
Equipment has been leased by BLC to Sublessor under the Lease. Sublessee
acknowledges receipt of a true copy of the Lease, together with all applicable
Schedules attached thereto.
2. BLC is the owner of the Subleased Equipment, and neither
Sublessor nor Sublessee has any right, title, interest or equity in the
Subleased Equipment whatsoever, except, in the case of Sublessor, for
Sublessor's rights to use the Subleased Equipment under, and subject to all of
the terms of, the Lease, and except, in the case of Sublessee, for Sublessee's
right to use the Subleased Equipment on the terms herein set forth.
3. This Sublease Agreement and the rights of Sublessor and
Sublessee hereunder shall be subject and subordinate in all respects to the
terms, conditions and provisions of the Lease, and to the rights of BLC
thereunder, and no provision of this Sublease Agreement shall be deemed to
a. impair any right, title or interest, under the Lease
or applicable law, of BLC in and to the Subleased
Equipment;
b. amend or waive any provision of the Lease;
1
<PAGE> 2
c. impair, limit or release any right of BLC, or any
obligation, accrued and executory, of Sublessor to
BLC under the Lease; or
d. permit Sublessee to make or consent to any use of the
Subleased Equipment in a manner inconsistent with the
terms and provisions of the Lease.
4. Sublessee shall make all payments of rent for the Subleased
Equipment in the amounts provided for in the Lease with respect to the
Subleased Equipment, and all other payments with respect to the Subleased
Equipment as provided in the Lease, directly to BLC. Notwithstanding the
subleasing of the Subleased Equipment, and, without limiting the generality of
the provisions of paragraph 3(c) above, Sublessor shall at all times be and
remain primarily and not secondarily liable to BLC for the payment and
performance of all accrued and executory obligations of Sublessor under the
Lease with respect to the Subleased Equipment.
5. The sublease term of the Subleased Equipment shall not exceed
the remaining lease term of the Subleased Equipment under the Lease, as of the
date hereof.
6. The Subleased Equipment will at all times be used in the
business and garaged as indicated on the lease supplements to the Lease.
7. This Sublease Agreement shall be binding upon, and inure to
the benefit of, Sublessor, Sublessee, and their respective successors and
assigns.
8. This Sublease Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, Sublessor and Sublessee have caused this Sublease
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
MID-AMERICA DAIRYMEN, INC.
"Sublessor"
By /s/ GERALD L. BOS
---------------------------------------
Its Vice President
--------------------------------------
SOUTHERN FOODS GROUP, L.P.
"Sublessee"
By: SFG Management Limited Liability
Company, its sole General Partner
By /s/ PETE SCHENKEL
-------------------------------
Its President and CEO
------------------------------
2
<PAGE> 3
EXHIBIT A
SUBLEASED EQUIPMENT
See Exhibit A-1 attached hereto for list of used motor vehicles, and
see Exhibit A-2 attached hereto for list of used other equipment.
<PAGE> 4
8/19/97
-----------------------------------------------------------------------------
MASTER LEASING AGREEMENT
Dated as of August 15, 1997
Between
BLC Corporation,
as Lessor
and
Mid-America Dairymen, Inc.,
as Lessee
-----------------------------------------------------------------------------
<PAGE> 5
TABLE OF CONTENTS
(Master Leasing Agreement)
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Agreement for Lease of Equipment; Unconditional Obligation. . 4
3. Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. Use of Equipment . . . . . . . . . . . . . . . . . . . . . . 6
7. Improvements and Repair of Equipment . . . . . . . . . . . . 7
8. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 7
9. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 8
10. Sale or Disposition of Equipment; Adjustment of Rent . . . . 9
11. Loss or Destruction of the Equipment . . . . . . . . . . . . 11
12. Surrender of Equipment . . . . . . . . . . . . . . . . . . . 11
13. Events of Default . . . . . . . . . . . . . . . . . . . . . 11
14. Rights of Lessor upon Default of Lessee . . . . . . . . . . . 12
15. Equipment To Be and Remain Personal Property . . . . . . . . 13
16. Termination . . . . . . . . . . . . . . . . . . . . . . . . 13
17. Purchase of Equipment; Extended Term . . . . . . . . . . . . 14
18. Finance Lease Status . . . . . . . . . . . . . . . . . . . . 14
19. Disclaimer of Warranties . . . . . . . . . . . . . . . . . . 15
20. Assignment by Lessor . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
i
<PAGE> 6
<TABLE>
<S> <C> <C>
21. Leasing of Components . . . . . . . . . . . . . . . . . . . . . 16
22. Rebuilds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
23. Reports and Certificates . . . . . . . . . . . . . . . . . . . . 17
24. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 17
- Signature Lines . . . . . . . . . . . . . . . . . . . . . . 18
- Lessee Certification; Notice of Tax Ownership . . . . . . . 19
- Exhibit A - List of Used Equipment
</TABLE>
ii
<PAGE> 7
MASTER LEASING AGREEMENT
Master Leasing Agreement, dated as of August 15, 1997, by and between BLC
Corporation of Foster City, California (herein called "Lessor") and Mid-America
Dairymen, Inc. (herein called "Lessee").
In consideration of the mutual covenants hereinafter contained, Lessor and
Lessee agree as follows:
1. Definitions. As herein used:
(a) "Acquisition Cost" of Equipment is an amount equal to the sum of the
vendor's delivered price, dealer's delivery and handling charges, the cost of
any original equipment which may be added, excise tax on the Equipment, any
sales and use taxes, expenses of installation and freight, and other expenses
required to effect delivery of the Equipment to Lessee, less purchase discounts
obtained. Notwithstanding the foregoing, in the case of Used Equipment, the
Acquisition Cost of such Equipment is an amount equal to the fair market value
of such Equipment on August 31, 1997, as stated in Exhibit A hereto plus any
applicable sales and use and excise taxes thereon.
(b) The "Aggregate Amortization" of any Equipment is an amount equal to
the sum total of the Monthly Amortization Figures for each of the months for
which Rent for the Equipment has been paid.
(c) The "Base Amount" means, as to any Equipment sold one (1) year from
the last day of the month in which its lease term commences, the Acquisition
Cost of such Equipment, and as to any Equipment sold more than one (1) year
after the last day of the month in which its lease term commences, the
Unamortized Value of such Equipment at the termination of its lease term. As to
any Motor Vehicle purchased or sold by Lessee pursuant to the provisions of
Sections 11 or 15 prior to one (1) year from the commencement of the lease
term for such Motor Vehicle, "Base Amount" shall mean the then Unamortized
Value of such Motor Vehicle.
(d) "Basic Term" shall mean as to any item of Equipment the amortization
period for such Equipment, selected by Lessee and approved by Lessor, as stated
in the applicable Individual Leasing Record. Lessee shall select amortization
periods based on the following table:
Type of Equipment No. of Months
----------------- -------------
Equipment listed in Subsection 1(f) 36-120
Notwithstanding anything to the contrary contained herein, the Basic Term
for the Used Equipment shall commence on September 1, 1997 and the Basic Term
for each unit of Used Equipment shall be the number of months remaining in the
original Basic Term for such unit of Used Equipment as of August 31, 1997 under
the Master Leasing Agreement, dated as of June 1, 1990, by and between BLC
Corporation, as Lessor, and Borden, Inc., as Lessee.
All other Equipment shall have a Basic Term as approved by Lessor.
In determining the Basic Term of Equipment, the anticipated useful life of
such Equipment as it will be used by Lessee shall be considered, and upon
request, Lessee will furnish Lessor with information with respect thereto.
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<PAGE> 8
(e) (1) "Contingent Rent" shall mean the amount by which the proceeds of
sale of any unit of Equipment pursuant to Section 10 of this Master Leasing
Agreement are less than they would have been because of abuse, damage,
extraordinary wear and tear or excessive usage or because the Equipment has not
been maintained in accordance with the provisions of Sections 6 and 7 hereof. In
the event Lessor and Lessee cannot agree on the amount of Contingent Rent due,
if any, they shall utilize the appraisal procedure provided for in Section 10,
with the consequences set forth therein.
(2) If the sale proceeds of any unit of Equipment transmitted to
Lessor are less than the Unguaranteed Residual, Lessee shall, in addition, be
obligated to pay, and shall pay to Lessor, the amount (if any) of Contingent
Rent with respect to such Equipment as is then determined in accordance with
Subsection 1(e)(1), provided, however, that the amount of any Contingent Rent
will not be greater than the amount by which the Unguaranteed Residual exceeds
such proceeds of sale.
(f) "Equipment" means the following types of property owned or to be
owned by Lessor and leased by Lessor to Lessee or ordered by Lessor for lease
to Lessee as provided herein:
(i) New or used vehicles, including, but not limited to, passenger
cars, light, medium and heavy trucks, tractors, trailers, vans, and buses;
related equipment attached to such vehicles;
(ii) certain units of used equipment previously leased by Borden,
Inc. for its dairy operations from Lessor, as further described in Exhibit
A hereto (for purposes of this Subsection, Exhibit A-1 shall list the
units of used Motor Vehicles and Exhibit A-2 shall list the units of used
Other Equipment) (any such used units of Equipment may be referred to
herein as "Used Equipment"); and
(iii) any other property agreed upon by Lessor and Lessee.
The Equipment listed in Subsections 1(f)(i) and (iii) above may be
referred to herein as "New Equipment."
(g) "Expected Residual" for any Equipment shall be the amount selected by
the Lessee and approved by the Lessor in the applicable Individual Leasing
Record. The execution of an Individual Leasing Record shall represent the
agreement of Lessor and Lessee that the Expected Residual stated therein is not
greater than a reasonable estimate of the expected fair market value for such
Equipment at the end of the applicable Basic Term; provided that the Expected
Residual for any Equipment shall not exceed 20% of the Acquisition Cost.
Notwithstanding anything to the contrary contained herein, the Expected
Residual for each unit of Used Equipment shall be the dollar amount as set
forth in Exhibit A hereto.
(h) "Extended Term" shall have the meaning specified in Subsection 17(b)
hereof.
(i) "Individual Leasing Record" is a record with respect to Equipment
dated the date of the delivery of the Equipment to Lessee and setting forth a
full description of the Equipment, its Acquisition Cost, the location and such
other details as the parties may agree. With respect to Used Equipment, the
date of delivery of such Equipment shall be deemed to be September 1, 1997. As
between Lessor and Lessee the signature of Lessee on an Individual Leasing
Record shall constitute acknowledgement by Lessee that the Equipment has been
delivered in good condition and accepted for lease by Lessee as of the date of
the Individual Leasing Record. The Individual Leasing Record
2
<PAGE> 9
shall contain a short form of lease to be executed by each of the parties
reading substantially as follows:
"The undersigned Lessor hereby leases to the undersigned Lessee, and
Lessee acknowledges delivery to it in good condition of, the Equipment
described above. The covenants, terms and conditions of this lease are
those appearing in a Master Leasing Agreement between the undersigned
Lessor and Lessee dated August 15, 1997, which covenants, terms and
conditions are hereby incorporated by reference."
Any Motor Vehicle leased hereunder shall be leased under an Individual
Leasing Record in any form for the leasing of Motor Vehicles provided by Lessor
(called herein "Motor Vehicle ILR") and any Other Equipment leased hereunder
shall be leased under an Individual Leasing Record in any form for the leasing
of Other Equipment provided by Lessor (called herein "Other Equipment ILR").
(j) "Interim Rent" for any Equipment acquired during any partial first
month during the term of the lease of such Equipment shall be determined in the
manner that Rent is determined under Subsection l(n) hereof, but based on the
product of
(1) the Acquisition Cost of the Equipment, multiplied by
(2) a fraction having a numerator equal to the number of days
remaining in such partial month and a denominator of 360, multiplied by
(3) the applicable percentage provided in Subsection l(n)(3).
(k) "Monthly Amortization Figure" for any Equipment for each full month
during the Basic Term for such Equipment is an amount equal to (i) the
Acquisition Cost less the Expected Residual for such Equipment divided by (ii)
the number of months in the Basic Term for such Equipment; provided that such
Basic Term shall not exceed the amortization period referred to in the table
set forth in Subsection 1(d) hereof
The "Monthly Amortization Figure" for any Equipment for each full month
during the Extended Term for such Equipment shall be equal to the Unamortized
Value of such Equipment at the end of the Basic Term divided by the number of
months in the Extended Term selected by Lessee and approved by Lessor plus the
additional amount described in Subsection 17(b) hereof (if any).
Monthly amortization shall be taken as of the close of business of the
last day of each full month of the lease of the Equipment until the Unamortized
Value of the Equipment has reached zero.
(l) "Motor Vehicle" shall, for the purposes of this Master Leasing
Agreement, mean any Equipment (i) which is an automobile, van, bus, light,
medium or heavy duty truck, tractor, trailer, any other vehicle which can be
used on a highway (regardless of whether such vehicle is licensed for such
USE), OR ANY RELATED ITEM ATTACHED to such Equipment and (ii) for which Lessee
shall have executed a MOTOR VEHICLE ILR, including without limitation, units of
Used Equipment.
(m) "Other Equipment" shall mean any Equipment which is not a Motor
Vehicle, including without limitation, units of Used Equipment.
(n) "Rent" for any Equipment for any month during the term of the lease
of such Equipment will be the sum of the Monthly Amortization Figure for such
Equipment, plus Contingent Rent for such Equipment (if any), plus an amount
computed by multiplying the following:
3
<PAGE> 10
(1) the Unamortized Value of such Equipment on the first day of such
month, by
(2) a fraction having a numerator equal to the number of days in
such month and a denominator of 360, by
(3) a percentage (the "Percentage Rental Factor") equal to the sum
of (i) 1.50% per annum for Motor Vehicles, and (ii) 2.00% per annum for
Other Equipment plus the rate per annum obtained by dividing (y) the rate
per annum at which deposits in U.S. dollars are offered by Citibank, N.A.
to prime banks in the London Interbank Market for a period equal to one
month, as quoted at 11:00 a.m. (London time) two Business Days (as such
term is defined in Section 5 hereof) prior to the 1st day of the current
month, by (z) a percentage equal to 100% minus the Reserve Percentage for
such one-month period.
(o) "Reserve Percentage" shall mean the reserve percentage applicable
during such month under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for a member bank of the
Federal Reserve System in New York City that Citibank, N.A. is required to
maintain with respect to liabilities or assets consisting of or including
Eurocurrency liabilities, having a term equal to one (1) month.
(p) "UCC" shall mean the Uniform Commercial Code including the provisions
of the Uniform Personal Property Leasing Act as adopted in the applicable
state.
(q) "Unamortized Value" of Equipment is the Acquisition Cost of the
Equipment less its Aggregate Amortization.
(r) "Unguaranteed Residual" shall mean 13% of the Base Amount for any
unit of Equipment.
2. Agreement for Lease of Equipment: Unconditional Obligation. (a)
Subject to the terms and conditions of this Master Leasing Agreement and upon
execution and delivery by the Lessor and the Lessee of an Individual Leasing
Record evidencing the mutual agreement of the parties hereto with respect to
the lease of specific units of Equipment, Lessor shall lease to Lessee such
units of Equipment as set forth in such Individual Leasing Record. No
Individual Leasing Record shall be effective and Lessor shall have no
obligation to lease any particular unit of equipment hereunder unless and until
such applicable Individual Leasing Record is executed by Lessor and in no event
shall the Lessee execute and deliver to Lessor an Individual Leasing Record
which, if executed and funded by Lessor, would result in the aggregate
Unamortized Value of Equipment leased by Lessor to Lessee hereunder exceeding
$25,000,000. All items of Used Equipment shall be acquired for lease hereunder
on September 1, 1997. Lessor and Lessee hereby declare that this Master Leasing
Agreement is, and is intended to be, an agreement to lease, and that every
Individual Leasing Record executed by the parties pursuant to this Master
Leasing Agreement is a lease. Lessor has or will have title to and will be the
owner of the Equipment to be leased, and Lessee does not hereby acquire any
right, equity, title or interest in the Equipment, except the right, as Lessee,
to use the same under the terms hereof. If this Master Leasing Agreement is
deemed at any time to be one intended as security, Lessee agrees that the
Equipment shall secure all amounts owed by Lessee to Lessor as set forth
herein. With respect to Motor Vehicles, the parties hereto agree that the
Lessor will be treated as the owner for Federal income tax purposes. With
respect to Motor Vehicles and Other Equipment the parties agree to treat this
Master Leasing Agreement as a lease for all other purposes, including without
limitation, accounting, commercial law or otherwise.
4
<PAGE> 11
(b) Lessor hereby covenants that, as long as Lessee is not in default
hereunder, Lessee shall be entitled to the uninterrupted use and quiet
enjoyment of the Equipment on the terms and conditions herein provided.
(c) LESSEE HEREBY CONFIRMS THAT THIS MASTER LEASING AGREEMENT CANNOT BE
CANCELED OR TERMINATED, EXCEPT AS EXPRESSLY PROVIDED HEREIN AND THAT LESSEE'S
OBLIGATION TO PAY RENT, INTERIM RENT AND ANY OTHER AMOUNTS DUE HEREUNDER ARE
ABSOLUTE AND UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES AND SHALL BE PAID
WITHOUT NOTICE OR DEMAND AND WITHOUT ANY ABATEMENT, REDUCTION, DIMINUTION, SET
OFF, DEFENSE, COUNTERCLAIM OR RECOUPMENT DUE OR ALLEGED TO BE DUE TO, OR BY
REASON OF, ANY PAST, PRESENT OR FUTURE CLAIMS WHICH LESSEE MAY HAVE AGAINST
LESSOR, ANY VENDOR OR MANUFACTURER OF THE EQUIPMENT OR ANY PART THEREOF, OR ANY
OTHER PERSON OR ANY REASON WHATSOEVER.
3. Delivery. Lessor shall not be liable to Lessee for any failure or
delay in obtaining Equipment or making delivery thereof. Upon delivery of
Equipment to Lessee and receipt by Lessor of vendor's invoice approved by Lessee
together with an Individual Leasing Record with respect to the Equipment,
mutually acceptable to Lessee and Lessor, duly executed by Lessee and, if
requested by Lessor, appropriate title papers for such Equipment, Lessor shall,
subject to the provisions of this Master Leasing Agreement, execute such
Individual Leasing Record and remit to the vendor or, at the request of Lessee,
shall remit directly to the Lessee a check for the total of the vendor's invoice
for such Equipment provided that the total amount paid by Lessor shall not
exceed the Acquisition Cost of the Equipment. If the amount paid to the vendor
by Lessor is less than the Acquisition Cost of the Equipment, to the extent that
delivery costs or cost of additions to the Equipment have been met by Lessee,
and do not exceed the Acquisition Cost, Lessor shall reimburse Lessee for such
payment made by Lessee up to the amount of the Acquisition Cost.
4. Lease Term. The lease hereunder of New Equipment shall be effective
from the date of delivery of such New Equipment and the Individual Leasing
Record shall be dated such date. With respect to the Used Equipment, Lessee
shall execute and provide to Lessor one Motor Vehicle ILR and one Other
Equipment ILR, each to be dated as of September 1, 1997, and Lessor shall,
subject to the provisions of this Master Leasing Agreement, execute such
Individual Leasing Records. The lease hereunder of such Used Equipment shall be
effective from the date of the two Individual Leasing Records. The lease term
for each unit of Equipment shall be for a period beginning with the effective
date thereof and ending one (1) year after the last day of the month in which
the effective date of the lease occurs. At the end of such one (1) year period
and thereafter, the lease term shall be extended from month to month until
terminated, as provided in Sections 10, 11, 14, 15, 16 or 17 hereof.
Notwithstanding the foregoing, at least the provisions of Section 9 and the
first sentence of Section 11 of this Master Leasing Agreement shall apply as
between Lessor and Lessee with respect to any Equipment from the time the
Equipment is ordered by Lessor pursuant to a request from Lessee. Upon
expiration of the Basic Term or the Extended Term for each item of Equipment,
unless Lessee shall have purchased such Equipment pursuant to Subsection 17(a),
extended the lease term of such Equipment pursuant to Subsection 17(b) or sold
such Equipment to an unrelated third party pursuant to Section 10, it shall be
assumed that Lessee elected to extend the lease of such Equipment as described
in Subsection 17(b) hereof.
5. Rent. Lessee shall pay Rent and Interim Rent monthly in arrears on
the 25th day of the current month. If Lessor shall not receive payment of Rent
or Interim Rent when due hereunder, Lessee shall pay a late payment charge to
Lessor on such late payment at a rate equal to the applicable Percentage Rental
Factor (as provided in Subsection I (n)(3)) plus 3 % per annum (but in
5
<PAGE> 12
no event shall such rate be greater than that rate permitted by applicable law)
for the period during which such late payment remains due and unpaid. Invoices
from Lessor shall be rendered within a reasonable period of time after the
Rent and Interim Rent can be determined. Such invoices shall cover the
computation of Rent and other payments due hereunder for the month, adjustments
to the preceding month's Rent resulting from commencement or termination of the
lease of any Equipment during such month and other appropriate items, if any.
All payments of Rent and Interim Rent and all other payments made by Lessee to
Lessor pursuant to this Master Leasing Agreement shall be paid to Lessor in
lawful money of the United States in immediately available funds by wire
transfer to Lessor's Account No. 3846-9701 at Citibank, N.A., 399 Park Avenue,
New York, New York 10043. If the date for the payment or determination of Rent
and Interim Rent shall not occur on a day when banks in New York, New York are
generally open for business (a "Business Day"), such payment shall be due and
such determination shall be made on the immediately preceding Business Day.
6. Use of Equipment. (a) Lessor and Lessee hereby acknowledge and agree
that the Equipment leased hereunder shall at all times be the sole and
exclusive property of Lessor, and Lessee shall have no right, title or property
therein but only the right to use the same as Lessee as herein provided. So
long as Lessee is not in default in any obligation to Lessor, Lessee may use
the Equipment in the regular course of its business or the business of any
subsidiary or affiliate of Lessee and may permit others to use same for any
lawful purpose. Such use shall be confined to the United States. Lessee shall
promptly and duly execute, deliver, file and record all such documents,
statements, filings and registrations, and take such further action as Lessor
shall from time to time reasonably request in order to establish, perfect and
maintain Lessor's title to and interest in the Equipment as against Lessee or
any third party. Lessee shall provide Lessor with all license, registration and
vehicle identification numbers relating to automotive equipment leased
hereunder. Lessee shall provide Lessor with prior notice in writing of any
change in the principal location of any unit of Equipment, of any change in the
primary business address of Lessee in any particular jurisdiction or of any
change in the legal name or business structure of the Lessee. Notwithstanding
the foregoing, no such changes shall be undertaken unless and until all legal
requirements shall have been met or obtained. Upon the Lessor's request, Lessee
shall advise Lessor in writing where all Equipment leased hereunder as of such
date is principally located. Lessee shall not use any Equipment or allow the
same to be used for any unlawful purpose. Lessee shall use every reasonable
precaution to prevent loss or damage to Equipment and to prevent injury to
third persons or property of third persons. Lessee shall cooperate fully with
Lessor and all insurance companies providing insurance under Section 8 hereof
in the investigation and defense of any claims and suits. Lessee shall comply
and shall cause all persons operating Equipment to comply with all insurance
policy conditions and with all statutes, decrees, ordinances and regulations
regarding acquiring, titling, registering, leasing, insuring, using, operating,
and disposing of Equipment, including all local, state and federal
environmental laws and regulations of whatever kind which relate in any way to
the use of the Equipment, and the licensing of operators thereof. Lessor or any
authorized representative of Lessor may during reasonable business hours from
time to time inspect Equipment wherever the same be located. Lessee shall
register and title all automotive Equipment in the manner requested by Lessor.
If requested by Lessor, Lessee shall cause one of its authorized employees to
hold in his custody and control all registration certificates and certificates
of title covering automotive Equipment, as custodian for Lessor, and, if
further requested by Lessor, Lessee shall cause such employee to certify
annually in a written report to Lessor that all certificates of title required
by applicable law and regulations have been obtained and are being held on
behalf of Lessor. Pursuant to the provisions of the Truth in Mileage Act of
1986 (the "Act") and the regulations relating thereto, certain odometer
disclosures must be made by the transferor at the time the title to any motor
vehicle is transferred. Lessor hereby appoints Lessee, and Lessee hereby agrees
to act, as its agent to make all such disclosures, In addition, the regulations
described above require the Lessor to inform the Lessee and Lessor hereby so
informs Lessee that failure to comply with the Act and the regulations
6
<PAGE> 13
relating thereto may result in fines and/or imprisonment for the party making
the false disclosure or failing to make the required disclosure. Lessee upon
written request from Lessor, or if necessary or advisable under applicable law,
shall attach to each unit of Equipment in a place designated by Lessor (or if
no such place has been designated, in a prominent place), a sign, stencil,
plaque, or legend disclosing the ownership of Lessor and the interest of any
mortgagee or assignee in the Equipment.
(b) Lessor shall have the right to make any security filings necessary or
desirable to protect its interest in the Equipment, including, but not limited
to, UCC personal property filings, and shall have the right to make UCC
personal property filings without the Lessee's signature where authorized by
law. Lessee shall cooperate with Lessor and shall pay all costs and expenses
incurred by Lessor in completing and making all such filings.
(c) LESSEE SHALL NOT WITHOUT PRIOR WRITTEN CONSENT OF LESSOR SUBLEASE ANY
EQUIPMENT NOR PERMIT, OR SUFFER TO EXIST, ANY LIEN OR ENCUMBRANCE OTHER THAN
THOSE PLACED THEREON BY LESSOR OR BY PERSONS CLAIMING ONLY AGAINST LESSOR AND
NOT AGAINST LESSEE, NOR SHALL LESSEE ASSIGN ANY RIGHT OR INTEREST HEREIN OR IN
ANY EQUIPMENT, PROVIDED, HOWEVER, THAT LESSEE MAY SUBLET EQUIPMENT TO SOUTHERN
FOODS GROUP, L.P., MILK PRODUCTS, LLC, OR ANY SUBSIDIARY, AFFILIATE, OFFICER OR
EMPLOYEE OF LESSEE, OR TO ANY CONTRACTOR FOR USE IN PERFORMING WORK FOR LESSEE,
PROVIDED THAT SUCH SUBLETTING SHALL IN NO WAY AFFECT THE OBLIGATIONS OF LESSEE
HEREUNDER, OR THE RIGHTS OF LESSOR HEREUNDER. THE RIGHTS OF THE LESSEE TO
ASSIGN ITS INTEREST AS LESSEE HEREUNDER, AS DESCRIBED IN SECTION 303 OF THE
LEASING ARTICLE OF THE UCC, ARE HEREBY WAIVED BY LESSEE.
7. Improvements and Repair of Equipment. Lessee shall pay all costs,
expenses, fees and charges incurred in connection with the use and operation of
Equipment during the lease thereof Lessee shall at all times, at its own
expense, keep Equipment in good condition and repair, and in good and efficient
working order, reasonable wear and tear only excepted. This provision shall
apply regardless of the cause of damage and all risks with respect thereto are
assumed by Lessee. At its own expense, Lessee shall supply and replace all
parts to the Equipment and shall supply the necessary power and other items
required in the operation of the Equipment. In the case of motor vehicles or
other automotive Equipment, Lessee shall supply and replace all items required
in the operation of such Equipment, including, without limitation, all parts,
tires and tubes, gasoline, oil, and grease; shall put and keep such Equipment
in condition to meet foreseeable climatic conditions; and shall arrange for the
satisfactory storage of such Equipment. All improvements and additions to any
of the Equipment shall become and remain the property of Lessor, except that
any improvements or additions for which Lessor has not made a payment under
Section 3 of this Master Leasing Agreement, Which constitute severable
improvements and which when attached to or removed from the Equipment will not
diminish the value or usefulness of such Equipment, shall become and remain the
property of Lessee.
8. Insurance. Lessee shall, at its own expense, with respect to
Equipment maintain insurance insuring the respective interests of Lessor and
Lessee and covering (i) physical damage to Equipment and (ii) liability for
personal injury, death and property damage resulting from the operation,
ownership, use and possession of Equipment including all environmental or
pollution liability. Policies covering physical damage risks shall be in an
amount not less than the Unamortized Value of Equipment. Lessee shall maintain
third-party liability insurance covering personal injury, death and property
damage Lability as a result of one accident including all environmental or
pollution Lability in the same amount as that insurance coverage maintained by
Lessee with respect to Lessee's
7
<PAGE> 14
owned equipment of the same types as the Equipment leased hereunder, but in no
event shall such coverage be less than $25,000,000. All policies covering
physical damage risks and all third party liability insurance required
hereunder shall be subject to the same self-insured retention or deductible
amounts as are applicable to Lessee's owned equipment of the same types as the
Equipment leased hereunder; provided, however, that if any such self-insured
retention amount is greater than $250,000, Lessee may self-insure only such
portions of the foregoing coverage as Lessor may approve in writing. The above
insurance shall also include the following for all automotive equipment leased
hereunder, in amounts not less than the applicable minimum legal requirements:
(a) uninsured/underinsured motorist coverage and (b) no fault protection.
Lessor and its direct affiliates shall be named as additional insureds as their
interests may appear in all insurance policies required under this Section. All
such policies shall provide for at least thirty (30) days' written notice to
Lessor of any cancellation or material alteration of such policies. Lessee
shall furnish Lessor certificates or other evidence satisfactory to Lessor of
compliance by Lessee with the provisions hereof, but Lessor shall be under no
duty to examine such certificates or to advise Lessee in the event its
insurance is not in compliance herewith. Lessee covenants that it will not use
or operate or permit the use or operation of any Equipment at any time when the
insurance required by this Section is not in force with respect to such
Equipment. Lessee's obligation to maintain insurance with respect to any
Equipment shall commence on the actual day of delivery of the Equipment and
shall continue until the Equipment is sold or the lease of the Equipment
terminates, whichever is sooner.
9. Indemnity.
(a) Lessee agrees to indemnify and hold harmless Lessor, any employee of
Lessor and any parent, subsidiary or affiliate of Lessor against any and all
claims, demands and liabilities of whatsoever nature (including all negligence,
tort and strict liability claims), judgments, suits and all legal proceedings,
and all costs and expenses (including litigation expenses) relating to or in
any way arising out of
(i) the selection, manufacture, purchase, acceptance, ownership,
ordering, delivery, non-delivery, acquisition, making of payments (by
electronic transfer, check or other means), rejection, installation,
possession, leasing, titling, registration, re-registration, custody by
Lessee of title and registration documents, use, non-use, misuse,
operation, condition, servicing, maintenance, transportation, repair,
improvement, alteration, replacement, storage, control or disposition of
Equipment leased or requested by Lessee to be leased hereunder, except to
the extent that such costs are included in the Acquisition Cost of such
Equipment within the dollar limit provided in Section 2 hereof (or within
any change of such limit agreed to in writing by Lessor and Lessee) and
except for any general administrative or overhead expenses of Lessor;
(ii) all recording and filing fees, stamp taxes and like expenses
with respect to security filings on the Equipment incurred by Lessor or
its agent;
(iii) all costs, charges, damages or expenses for royalties and
claims and expenses arising out of or necessitated by the assertion of any
claim or demand based upon any infringement or alleged infringement of any
patent or other right, by or in respect of any Equipment, provided,
however, that Lessor will to the extent permissible make available to
Lessee Lessor's fights under any similar indemnification arising by
contract or operation of law from the manufacturer of Equipment;
(iv) all federal, state, county, municipal, foreign or other fees and
taxes of whatsoever nature, including but not limited to license,
qualification, franchise, sales, use,
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gross receipts, ad valorem, business, property (real or personal), excise,
motor vehicle, and occupation fees and taxes, and penalties and interest
thereon, whether assessed, levied against or payable by Lessor or
otherwise, with respect to Equipment or the acquisition, purchase, sale,
rental, use, operation, control, ownership or disposition of Equipment or
measured in any way by the value thereof or by the business of, investment
in, or ownership by Lessor with respect thereto, excepting only net income
taxes on the net income of Lessor determined substantially in the same
manner as net income is presently determined under the Federal Internal
Revenue Code, and any excise, sales or use taxes included in the
Acquisition Cost of the Equipment;
(v) any violation, or alleged violation, by Lessee of this Master
Leasing Agreement or of any contracts or agreements to which Lessee is a
party or by which it is bound, or any laws, rules, regulations, orders,
writs injunctions, decrees, consents, approvals, exemptions,
authorizations, licenses and withholdings of objection, of any
governmental or public body or authority and all other requirements having
the force of law applicable at any time to Equipment or any action or
transaction by Lessee with respect thereto or pursuant to this Master
Leasing Agreement, including, but not limited to, any costs, expenses or
liabilities arising from Lessee's failure to comply with the provisions of
the Act and the regulations relating thereto or the violation of any
local, state or federal environmental laws or regulations of whatever kind
which relate in any way to the use of the Equipment; or
(vi) tort claims of any kind (whether based on strict liability or
otherwise) including claims for injury to or death of persons (including
Lessee's employees) and for damage to property related directly or
indirectly in any way to the ownership, maintenance, use and operation of
any Equipment.
(b) Lessee shall forthwith upon demand reimburse Lessor for any sum or
sums expended with respect to any of the foregoing, or shall pay such amounts
directly upon request from Lessor. Lessee shall be subrogated to Lessor's right
in the affected transaction and shall have a right to determine the settlement
of claims therein but in the best interests of Lessor. The foregoing indemnity
in this Section shall survive the expiration or earlier termination of this
Master Leasing Agreement or any lease of Equipment hereunder.
(c) If any claim is made or action commenced against Lessor for death,
personal injury or property damage resulting from the ownership, maintenance,
use or operation of any Equipment, Lessor shall promptly notify Lessee thereof
and forward to Lessee a copy of every demand, notice, summons or other process
received in connection therewith. Lessee hereby agrees that it shall fully
defend and indemnify Lessor and handle all aspects of any such claim or action.
Lessee further agrees to keep Lessor reasonably informed as to the progress of
any such claim or action. Lessor shall have the right to arrange for its own
defense against any such claim or action if, in lessor's reasonable discretion,
Lessor believes a separate defense would be in its best interests.
10. Sale or Disposition of Equipment; Adjustment of Rent. (a) After the
expiration of one (1) year from the last day of the month in which the lease of
any Equipment is effective, if such Equipment with respect to the Lessee has
become no longer useful in Lessee's business, and provided that Lessee is not
in default hereunder, Lessee may arrange for the termination of the lease of
such Equipment in the manner and with the consequences hereinafter set forth.
Lessee shall deliver written notice to Lessor, signed by an authorized officer
of Lessee, identifying the Equipment the lease of which Lessee proposes to
terminate, the proposed sale price and the terms of the proposed sale. Such
notice shall constitute a certificate of Lessee that such Equipment has become
no longer useful in Lessee's business. After delivery of such notice, Lessee,
on behalf of and in cooperation with
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<PAGE> 16
Lessor, shall proceed directly with negotiating the sale or disposition of such
Equipment to a third party unrelated to Lessor or Lessee and Lessor shall
execute and transmit to Lessee all papers needed to effectuate such sale or
disposition. In arranging such sale or disposition of any Equipment pursuant to
this Section 10, Lessee shall use its best efforts to obtain sale proceeds not
less than such Equipment's retail fair market value, delivered to a purchaser
or purchasers unrelated to Lessee, giving due consideration to whether the
Equipment's value is higher as an aggregate, or as two or more lots of
equipment. If the parties cannot agree upon such fair market value or values,
they shall appoint a qualified independent appraiser to determine the amount
and his decision shall be final; and, if the parties are unable to agree on a
single qualified independent appraiser, each shall appoint one qualified
independent appraiser and the two so appointed shall, if they are unable to
agree on the fair market value, jointly name a third, in which event the
decisions of a majority of the appraisers as to the fair market value shall be
final. All fees and expenses of the appraiser(s) shall be borne by Lessee. If
the proposed sale price specified in such notice is less than the Unguaranteed
Residual of such Equipment, Lessee shall not proceed to sell the Equipment
until it has received the consent of Lessor, which consent shall not be
unreasonably withheld.
Lessee shall cause the sale proceeds of such Equipment to be transmitted
promptly to Lessor. The lease of such Equipment and Lessee's obligation to pay
Rent shall continue until such sale proceeds and additional Rent, if any, are
received by Lessor, or Lessor's assignee, and shall thereupon terminate. If the
sale proceeds of such Equipment are less than the Unamortized Value of such
Equipment at the time of the termination of the lease of such Equipment
hereunder, Lessee shall forthwith pay as additional Rent an amount equal to
such deficiency. If the sale proceeds of such Equipment are more than the
Unamortized Value of such Equipment at the time of the termination of the lease
of such Equipment hereunder, Lessor, in consideration of Lessee's agreement
hereunder to repair, maintain and insure the Equipment, shall as an adjustment
of Rent forthwith pay to Lessee or, at the option of Lessee, credit Lessee's
account in an amount equal to the difference between said sale proceeds and
said Unamortized Value. If for any month funds are payable by Lessor to Lessee
under this Section, the amount so payable may be deducted by Lessee from funds
payable during the same month by Lessee for Rent of Equipment.
Notwithstanding the foregoing, if the sale proceeds of any unit of
Equipment are less than the Unamortized Value of such Equipment but equal to or
greater than the Unguaranteed Residual of such Equipment, Lessee shall at the
same time pay Lessor a sum equal to the difference between the amount of the
sale proceeds (which proceeds for purposes of determining Lessee's liability
may be reduced due to prior or subsequent sales of other units of Equipment as
hereinafter described) and the Unamortized Value. If the sale proceeds of any
unit of Equipment plus Contingent Rent are less than the Unguaranteed Residual
of such Equipment Lessee shall at the same time pay Lessor a sum equal to the
Unamortized Value of such Equipment less the Unguaranteed Residual of such
Equipment. In the event a deficiency arises because Lessor does not receive the
Unguaranteed Residual, to the extent that in any prior or subsequent sale of
any unit of Equipment, sale proceeds were received or will be received in
excess of the Unguaranteed Residual, such excess sale proceeds shall be paid to
Lessor, with respect to future sales, upon the sale of any unit of Equipment,
and with respect to prior equipment sales resulting in excess proceeds, at the
time the deficiency arises. Any sale proceeds of Equipment in excess of the
Unamortized Value of the Equipment after the expiration of the lease terms of
all Equipment will be for the account of Lessee.
The term "sale proceeds" for purposes of this Master Leasing Agreement
shall mean the gross purchase price paid by the purchaser, without charge or
reduction in any manner on account of any costs or expenses of sale, removal,
transportation, repair, storage, delivery or similar costs or expenses, and all
of such costs and expenses (if any) shall be borne by Lessee.
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(b) If Lessee shall, pursuant to the provisions of this Master Leasing
Agreement, exercise an option to purchase any Equipment for its fair market
value, such purchase shall be treated as a sale of such Equipment under
Subsection 10(a) above.
11. Loss or Destruction of the Equipment. Lessee hereby assumes all risks
of loss or damage to the Equipment howsoever the same may be caused. Lessee
shall notify Lessor immediately of any loss or of any damage to any Equipment
in an amount in excess of $5,000 and shall keep Lessor informed of all
developments and correspondence regarding insurance rights and other rights and
liabilities arising out of the loss or damage. In the event of total
destruction of any of the Equipment or damage beyond repair or the
commandeering, conversion or other such loss of any of the Equipment, or if the
use thereof by Lessee in its regular course of business is prevented by the act
of any third person or persons, or any governmental instrumentality, for a
period exceeding ninety (90) days, or if any of the Equipment is attached
(other than on a claim against Lessor but not Lessee) or is seriously damaged
and the attachment is not removed or the Equipment not repaired, as the case
may be, in a period of ninety (90) days, then in any such event:
(a) Lessee shall promptly notify Lessor in writing of such fact;
(b) Within ten (10) days thereafter Lessee shall (i), in the case of Other
Equipment, pay to Lessor, or Lessor's assignee, an amount equal to the
Unamortized Value of such Other Equipment at the time of payment and (ii), in
the case of Motor Vehicles, either arrange for and effect a sale of such Motor
Vehicle pursuant to the provisions of Section 10 or purchase such Motor Vehicle
for the greater of its then fair market value or its then Unamortized Value;
(c) The lease of such Equipment shall continue until such payment has
been received by Lessor, or Lessor's assignee, and shall thereupon terminate;
and
(d) Upon such payment all of Lessor's title to and rights in such
Equipment and any insurance thereon shall automatically pass to Lessee or its
designee.
12. Surrender of Equipment. Upon the final termination of the lease as to
any Equipment (other than a termination as provided for in Sections 10, 11, 14,
15, 16, or 17), Lessee shall surrender such Equipment to Lessor at Lessee's
property where the Equipment is then located or at such other place as may be
agreed upon. Following such surrender, Lessor, or Lessor's agent, shall effect
a sale of such Equipment to a third party. The sales proceeds from any such
sale shall be treated in the same manner as the sale proceeds from a sale made
pursuant to the terms and provisions of Section 10 hereof. Lessee shall
cooperate with Lessor in effecting removal of the Equipment from Lessee's
property.
13. Events of Default. The following events of default by Lessee ("Events
of Default") shall give rise to rights on the part of Lessor described in
Section 14:
(a) Default in the payment of Rent, Interim Rent or any other payment due
from Lessee hereunder beyond ten (10) days from the date the Rent, Interim Rent
or other payment is due; or
(b) Default in the covenant of Lessee in Section 8 hereof as to non-use
of any Equipment as to which the required liability insurance is not in force;
or
(c) Default in the payment or performance of any other liability,
obligation, or covenant, condition or agreement to be performed or observed by
Lessee hereunder or breaches of any representation or provision contained
herein or in any other document furnished to Lessor in
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connection herewith, and such failure or breach shall continue unremedied for
thirty (30) days after written notice to Lessee sent by registered or certified
mail by Lessor; or
(d) The termination of existence, the termination of the business of, or
the making of an assignment for the benefit of creditors by, Lessee; or
(e) The institution of bankruptcy, reorganization, liquidation or
receivership proceedings by or against Lessee and, if instituted against
Lessee, its consent thereto or the pendency of such proceedings for at least
sixty (60) days; or
(f) Lessee shall admit in writing its inability to pay its debts
generally when due; or
(g) Lessee shall create, incur, assume or suffer to exist any mortgage,
lien, pledge or other encumbrance or attachment of any kind whatsoever upon,
affecting or with respect to the Equipment or this Master Leasing Agreement or
any of Lessor's interests hereunder; or
(h) The dissolution, merger, reorganization or sale of all or
substantially all of the assets of Lessee without the prior written approval of
Lessor, which approval shall not be unreasonably withheld provided that the
Lessee or any surviving entity of such dissolution, merger, reorganization or
sale of all or substantially all of the assets of Lessee shall be rated at
least BBB by Standard and Poor's Corporation or Baa2 by Moody's Investors
Services.
Lessee shall be obligated to provide Lessor with written notice of any
Event of Default and of any event which, with notice, or the lapse of time, or
both, would constitute an Event of Default promptly upon Lessee becoming aware
of any such event.
14. Rights of Lessor upon Default of Lessee. Upon the occurrence of any
of the Events of Default and at any time thereafter Lessor may, with or without
terminating the Master Leasing Agreement, in its discretion do one or more of
the following:
(a) Terminate the lease of any or all Equipment upon five (5) days'
written notice to Lessee sent by certified mail;
(b) Whether or not any lease is terminated, take immediate possession of
any or all of the Equipment, including substituted parts, accessories or
equipment and/or other equipment or property of Lessor in the possession of
Lessee, wherever situated and for such purpose, enter upon any premises without
liability for doing so;
(c) Whether or not any action has been taken under Subsections 14(a) or
(b) above, Lessor may sell any Equipment (with or without the concurrence or
request of Lessee) and Lessor shall retain all proceeds from such sale. In
addition, if the sales proceeds (reduced by any legal costs or any costs or
expenses of sale, removal, transportation, repair, storage, delivery, or
similar costs and expenses) are less than the Unamortized Value of the
Equipment sold, Lessee shall pay to Lessor any such shortfall;
(d) Hold, use or lease any Equipment as Lessor in its sole discretion may
decide, and continue to hold Lessee liable for any deficiency between the rent
received by Lessor from others and the Rent and Interim Rent payable hereunder
for the balance of the term of the lease of such Equipment;
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(e) Invoke and exercise any other remedy or remedies available to Lessor
by law or in equity.
No remedy referred to in this Section is intended to be exclusive, but
shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law or in equity. No express or implied waiver
by Lessor of any default shall constitute a waiver of any other default by
Lessee or a waiver of any of Lessor's rights.
If after default Lessee fails to deliver or converts the Equipment or the
Equipment is destroyed, Lessee shall be liable to Lessor for all unpaid Rent
and Interim Rent to the date of such failure to deliver, conversion or
destruction of such Equipment plus its Unamortized Value at the time and all
loss and damages sustained and all costs and expenses incurred by reason of the
default. If after default Lessee delivers Equipment to Lessor or if Lessor
repossesses Equipment, Lessee shall be liable for and Lessor may recover from
Lessee all unpaid Rent and Interim Rent to the date of such delivery or
repossession plus all loss and damages sustained and all costs and expenses
incurred by reason of the default.
15. Equipment To Be and Remain Personal Property. It is the intention and
understanding of both Lessor and Lessee that all Equipment shall be and at all
times remain personal property. Lessee will obtain and record such instruments
and take such steps as may be necessary to prevent any person from acquiring
any rights in the Equipment paramount to the rights of Lessor, by reason of
such Equipment being deemed to be real property. If, notwithstanding the
intention of the parties and the provisions of this Section 15, any person
acquires or claims to have acquired any rights in any Equipment paramount to
the rights of Lessor, by reason of such Equipment being deemed to be real
property, and such person seeks in any manner to interfere with the continued
quiet enjoyment of the Equipment by Lessee as contemplated by this Master
Leasing Agreement, then Lessee shall promptly notify Lessor in writing of such
fact (unless the basis for such interference is waived or eliminated to the
satisfaction of Lessor within a period of ninety (90) days from the date it is
asserted) and Lessee shall within ninety (90) days after such notice (i), as to
Other Equipment, pay to Lessor or Lessor's assignee an amount equal to the
Unamortized Value of such Other Equipment at the time of payment and (ii), as
to Motor Vehicles, either arrange for and effect a sale of such Equipment
pursuant to the provisions of Section 10 or purchase such Equipment pursuant to
the provisions of Subsection 17(a). The lease of the Equipment shall continue
until such payment has been received and shall thereupon terminate; and upon
such payment all of Lessor's title to and rights in such Equipment shall
automatically pass to Lessee or its designee.
16. Termination. Either Lessor or Lessee may terminate this Master Leasing
Agreement at any time with respect to any equipment not yet leased hereunder
effective upon the delivery of notice in writing to the other party of such
termination, provided, however, neither such notice nor termination shall
affect any transactions entered into or rights created or obligations incurred
prior to such termination. In the event of any such termination, Lessee shall
arrange for and effect not later than one (1) year from the termination date or
upon the expiration of the Basic Term, whichever occurs first, a termination of
the lease of all Equipment hereunder and a sale of all Equipment in the manner
and with the consequences as provided in Section 10 hereof provided that in the
event of any such termination and sale, the Unguaranteed Residual shall equal
$0. In addition, in the event Lessor exercises its right to terminate under
this Section 16, Lessee shall also have the right to purchase all such
Equipment for its then Unamortized Value not later than one (1) year from the
termination date or upon the expiration of the Basic Term, whichever occurs
first. Notwithstanding the provisions of Section 4 hereof, the lease term for
all Equipment, the lease of which is terminated under this Section, and
Lessee's obligation to pay Rent and Interim Rent shall continue until Lessor
receives the sale proceeds or the purchase price of such Equipment.
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17. Purchase of Equipment, Extended Term. (a) After the expiration of the
Basic Term of any Equipment leased hereunder, and provided that Lessee is not
in default hereunder, Lessee may purchase such Equipment for the greater of its
then fair market value or its then Unamortized Value. The lease of such
Equipment and Lessee's obligation to pay Rent therefor shall continue until the
purchase price, any due and unpaid Rent and any other amounts due hereunder
with respect to such Equipment have been transmitted to Lessor and shall
thereupon terminate. If the parties cannot agree on the fair market value of
any such Equipment, they shall follow the appraisal procedures provided in
Section 10.
(b) Upon expiration of the Basic Term for any Equipment leased hereunder,
and provided that an event of default has not occurred and is continuing,
Lessee, with Lessor's consent, may extend the term of this Master Leasing
Agreement for such Equipment for an additional term to be agreed to by Lessor
and Lessee (the"Extended Term"). During such Extended Term the Rent payable for
such Equipment shall equal the fair market rental value for such Equipment as
agreed to by Lessor and Lessee and as determined at the commencement of such
Extended Term (the "Fair Market Rent"); provided, however;
(i) With respect to Equipment for which Lessee shall have selected
an Expected Residual, if during any month during the Extended Term such
Fair Market Rent shall be less than an amount calculated in accordance
with Subsection 1(n) (based on an amortization period as agreed to by
Lessor and Lessee, as determined at the commencement of such Extended Term
and based on an Expected Residual of 0% at the end of such Extended Term)
(the "Minimum Rent"), Lessee shall pay such Minimum Rent instead of the
Fair Market Rent. That portion of any Fair Market Rent paid during any
month which is in excess of the applicable Minimum Rent shall be deemed to
be the additional monthly amortization for such Equipment until such time
as the Aggregate Amortization for such Equipment equals the Acquisition
Cost of such Equipment;
(ii) If the Aggregate Amortization of any Other Equipment leased
hereunder equals the Acquisition Cost of such Other Equipment, the Fair
Market Rent for such Equipment thereafter will be an amount equal to one
half of one percent (0.5%) of the Acquisition Cost of such Other
Equipment; and
(iii) If the parties cannot agree on such Fair Market Rent, they
shall follow the appraisal procedures provided in Section 10.
(c) If on or prior to the expiration of the Basic Term for any Equipment
Lessee shall fail to elect to purchase such Equipment pursuant to Subsection
17(a), sell such Equipment to an unrelated third party pursuant to Section 10,
or extend the term of the lease of such Equipment at the Fair Market Rent
pursuant to Subsection 17(b), it shall be assumed that Lessee elected to extend
the lease of such Equipment pursuant to Subsection 17(b).
18. Finance Lease Status. The parties agree that this lease and each
Individual Leasing Record hereunder is a "Finance Lease" AS defined by the UCC.
Lessee acknowledges that Lessee has reviewed and approved any written "Supply
Contract" (as such term is defined in the UCC), covering the Equipment
purchased from the "Supplier" (as such term is defined in the UCC), thereof for
lease to Lessee. Lessee also acknowledges the following:
(a) Lessor has not selected, manufactured, or supplied the Equipment;
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(b) Lessor acquired or will acquire the Equipment or the right to
possession and use of the Equipment in connection with the Individual Leasing
Record; and
(c) Lessor provides no warranties or other rights with respect to the
purchase of the Equipment and any and all rights Lessee has with respect to the
purchase of the Equipment are solely against Supplier.
19. Disclaimer of Warranties. LESSEE AGREES AND ACKNOWLEDGES THAT
ACCEPTANCE OF THE EQUIPMENT FOR LEASE SHALL CONSTITUTE LESSEE'S ACKNOWLEDGEMENT
AND AGREEMENT THAT LESSEE HAS FULLY INSPECTED SUCH EQUIPMENT, AND THAT THE
EQUIPMENT IS IN GOOD ORDER AND CONDITION AND IS OF THE MANUFACTURE, DESIGN,
SPECIFICATIONS AND CAPACITY SELECTED BY LESSEE, THAT LESSEE IS SATISFIED THAT
THE SAME IS SUITABLE FOR ITS PURPOSE, THAT LESSOR IS NOT ENGAGED IN THE SALE OR
DISTRIBUTION OF EQUIPMENT, THAT LESSOR HAS NOT SELECTED, MANUFACTURED OR
SUPPLIED SUCH EQUIPMENT, THAT LESSOR HAS PURCHASED THE EQUIPMENT FROM VENDORS
OF LESSEE'S CHOICE, AND THAT LESSOR HAS NOT MADE AND DOES NOT HEREBY MAKE ANY
REPRESENTATION, EXPRESS WARRANTY, IMPLIED WARRANTY, OR COVENANT WHATSOEVER WITH
RESPECT TO TITLE, MERCHANTABILITY, CONDITION, QUALITY, DURABILITY, SUITABILITY,
OPERATION OR FITNESS OF THE EQUIPMENT IN ANY RESPECT OR IN CONNECTION WITH, OR
FOR ANY PURPOSE OR USE OF LESSEE, OR ANY OTHER REPRESENTATION, WARRANTY OR
COVENANT OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT THERETO.
Lessor shall, at Lessee's sole expense take all action reasonably requested by
Lessee to make available to Lessee any rights of Lessor under any express or
implied warranties of any manufacturer or vendor of the Equipment. The Lessee
acknowledges and agrees that neither the manufacturer, the supplier, nor any
salesman, representative or other agent of the manufacturer or supplier, is an
agent of Lessor. No salesman, representative or agent of the manufacturer or
supplier is authorized to waive or alter any term or condition of this Master
Leasing Agreement and no representation as to the Equipment or any other matter
by the manufacturer or supplier shall in any way affect Lessee's duty to pay
Rent and perform its other obligations as set forth in this Master Leasing
Agreement.
20. Assignment by Lessor. LESSEE ACKNOWLEDGES NOTICE THAT LESSOR MAY,
IN CONNECTION WITH FINANCING ITS ACQUISITION AND OWNERSHIP OF SOME OR ALL OF
THE EQUIPMENT, GRANT PARTICIPATIONS OR SECURITY INTERESTS IN OR SELL OR ASSIGN
ITS INTERESTS IN SUCH EQUIPMENT, THIS MASTER LEASING AGREEMENT OR ANY RENT,
INTERIM RENT OR OTHER AMOUNTS DUE HEREUNDER. Any instrument executed in
connection with such assignment shall contain a provision to the effect that as
long as Lessee is not in default hereunder or under any lease executed pursuant
hereto, it shall be entitled to uninterrupted use and quiet enjoyment of the
Equipment on the terms herein provided. After such assignment the terms and
provisions of this Master Leasing Agreement may not be altered, modified or
waived without the written consent of such assignee. In connection with such
assignment Lessee agrees to execute such documents as Lessor or its assignee
may reasonably request, including notices, acknowledgements and financing
statements. Lessee agrees to permit Lessor to record this Master Leasing
Agreement. Upon the written request of such assignee, the Lessee shall make
payment of all Rent, Interim Rent and other payments due hereunder with respect
to such assignment to the assignee without abatement, deduction or set off.
Such payments shall discharge the obligations of the Lessee to the Lessor
hereunder to the extent of such payments. Lessee further covenants and agrees
that it will not assert against Lessor's assignee any defense, counterclaim or
set off due to a breach of warranty or otherwise in any action for Rent,
Interim Rent or any other amounts due hereunder or for possession of the
Equipment which is
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brought by Lessor's assignee. The assignment by the Lessor to the assignee of
rights hereunder shall not impose on the assignee any of the duties or
obligations of the Lessor hereunder, but in all other respects the assignee
shall have all the rights of the Lessor hereunder to the extent necessary to
realize upon Rent, Interim Rent and other amounts due hereunder and to protect
the assignee's security interest in Equipment resulting from such assignment.
21. Leasing Of Components. (a) Lessee may lease components of Equipment,
no one of which constitutes a completed unit of Equipment but all of which
shall be assembled into a completed unit of Equipment. The completed unit of
Equipment and each of the components thereof shall be owned by Lessor and
leased to Lessee hereunder. A component Individual Leasing Record shall be
executed for each component of Equipment leased hereunder, and each such
component Individual Leasing Record shall be clearly designated as such on the
form of such Individual Leasing Record. The lease of each component shall be
effective from the date of delivery of such component and the component
Individual Leasing Record for such component shall be dated as of such date.
When delivery is made on one or more components constituting less than a
completed unit of Equipment, Lessee shall cause all such delivered components
to be assembled into a completed unit of Equipment within six (6) months after
the first day of the calendar month following the first of any such deliveries
or within such longer period as may be agreed upon in writing by Lessor.
(b) Lessee shall pay Interim Rent to Lessor on a monthly basis for all
components not yet assembled into a completed unit of Equipment beginning on
the date of the applicable component Individual Leasing Record and continuing
to and including the day before the commencement date of the applicable final
Individual Leasing Record. As used in this Section "Interim Rent" for components
shall equal the product of (i) The aggregate Acquisition Cost of the components,
multiplied by (ii) a fraction having a numerator equal to the number of days
such components are under lease during such month and a denominator of 360,
multiplied by (iii) the Percentage Rental Factor as provided for in Subsection
I (n)(3).
(c) Upon assembly into a completed unit of Equipment, a final Individual
Leasing Record shall be executed, the Monthly Amortization Figure and Rent
shall be computed, and the lease term shall be deemed to commence for such unit
of Equipment as of the date of the final Individual Leasing Record. The final
Individual Leasing Record shall be dated as of the first day of the next
succeeding month following assembly of the components into a completed unit of
Equipment. The component Individual Leasing Records for the components of the
completed units of Equipment shall be canceled on the same date the final
Individual Leasing Record shall be dated. The Acquisition Cost of the completed
unit of Equipment shall be the sum of the Acquisition Costs of the components
thereof and all reasonable labor and other expenses incurred in assembling the
unit of Equipment, and shall be amortized as provided in Subsections 1(d) and
1(k).
(d) Notwithstanding the foregoing, at least the provisions of Section 9
and the first sentence of Section 11 of this Master Leasing Agreement shall
apply as between Lessor and Lessee with respect to all components from the time
such components are ordered by Lessor pursuant to a request from lessee or from
the time such components are delivered to Lessee, whichever shall first occur.
22. Rebuilds. Lessee may, subject to Lessor's approval, prior to the
expiration of the lease of any Equipment, rebuild such Equipment if the
remaining life thereof is thereby extended, and if such rebuilt Equipment and
all components thereof are owned by Lessor and leased to Lessee hereunder. When
the rebuilt Equipment is delivered and accepted, a new Individual Leasing
Record shall be substituted for the original Individual Leasing Record which
shall be canceled. The new Individual Leasing Record shall be dated and the
original Individual Leasing Record canceled as of Leasing Record canceled as of
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the date of such delivery. The cost of such rebuild, if approved by Lessor,
shall be paid by Lessor and added to the Unamortized Value, if any, of the
Equipment at the time the new Individual Leasing Record is substituted, and the
sum thereof shall be the Acquisition Cost of the rebuilt Equipment. The maximum
number of months over which the Acquisition Cost of the rebuilt Equipment may
be amortized shall be determined in accordance with Subsection 1(d) and as
though the rebuilt Equipment were a new unit of Equipment leased on the date
the Individual Leasing Record is substituted.
23. Reports and Certificates. At all times during the continuance of this
Master Leasing Agreement and so long as any amount remains due and owing to
Lessor under this Master Leasing Agreement, the Lessee shall furnish to Lessor:
(a) Within one hundred twenty (120) days after the close of its fiscal year, an
annual report of Lessee consisting of (i) its financial statements including a
balance sheet of Lessee as of the end of such fiscal year, and (ii) statements
of income for the year then ended, with all notes thereto in each case
certified as true and correct by the chief financial officer of Lessee;
provided that if Lessee shall have independent certified accountants prepare
such financial statements, Lessee shall furnish such financials to Lessor when
available, (b) Within ninety (90) days after the close of each of the first
three quarterly periods of Lessee's fiscal year, a balance sheet of Lessee as
of the end of such quarter, and a statement of income and earnings for such
quarter in reasonable detail and scope and setting forth the corresponding
figure for the similar quarter certified as true and correct by the chief
financial officer of Lessee.
24. Miscellaneous. (a) THIS MASTER LEASING AGREEMENT AND ALL RIGHTS
HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, BUT WITHOUT REFERENCE TO ITS
PRINCIPLES GOVERNING CONFLICTS OF LAWS.
(b) Each of the parties hereto acknowledges that the other party shall
not by act, delay, omission or otherwise be deemed to have waived any of its
rights or remedies hereunder or under any other instrument given hereunder
unless such waiver is given in writing and the same shall be binding to the
extent therein provided and only upon the parties signing the same. A waiver on
any one occasion shall not be construed as a waiver on any future occasion.
(c) This Master Leasing Agreement shall be binding upon and inure to the
benefit of the parties hereto, their permitted successors and assignees.
(d) All rights, remedies and powers granted herein, or in any other
instrument given in connection herewith, shall be cumulative and may be
exercised singularly or cumulatively.
(e) This Master Leasing Agreement constitutes the entire understanding or
agreement between Lessor and Lessee and there is no understanding or agreement,
oral or written, which is not set forth herein. The Lessee agrees to do such
further acts and things and to execute and deliver to the Lessor such
additional agreements, powers and instruments as the Lessor may reasonably
require or deem advisable to carry into effect the purposes of this Master
Leasing Agreement or to better assure and confirm to the Lessor its rights,
powers and remedies under this Master Leasing Agreement.
(f) Notices to Lessee required pursuant to this Master Leasing Agreement
shall be delivered to MidAmerica Dairymen, Inc. at 3253 East Chestnut
Expressway, Springfield, Missouri 65802-2584, Attention: Corporate Controller,
or at such other location as Lessee may direct in writing. Notices to Lessor
required pursuant to this Master Leasing Agreement shall be delivered
17
<PAGE> 24
to BLC Corporation at 989 East Hillsdale Boulevard, Suite 300, Foster City, CA
94404, Attention: Contract Services Department, or at such other location as
Lessor may direct in writing.
(g) This Master Leasing Agreement may be executed in two or more
counterparts, each of which, when taken together, shall constitute a single
agreement binding upon all the parties hereto.
(h) If any provision of this Master Leasing Agreement is in conflict with
any statute or rule of law in the jurisdiction where it is sought to be
enforced, then such provision shall be deemed null and void to the extent that
it may be in conflict therewith, but without invalidating the remaining
provisions hereof
(i) No provisions of this Master Leasing Agreement are to be interpreted
for or against any party because that party or that party's legal counsel or
representative drafted such provision.
(j) LESSOR AND LESSEE HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY
WAIVE THE RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS MASTER
LEASING AGREEMENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LESSOR AND
LESSEE TO ENTER INTO THIS MASTER LEASING AGREEMENT.
(k) NO EXECUTORY AGREEMENT SHALL BE EFFECTIVE TO CHANGE, MODIFY OR
DISCHARGE, IN WHOLE OR IN PART, THIS MASTER LEASING AGREEMENT, OR ANY OTHER
INSTRUMENT GIVEN IN CONNECTION HEREWITH UNLESS SUCH AGREEMENT IS IN WRITING AND
SIGNED BY LESSOR AND LESSEE.
IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Master
Leasing Agreement as of the day and year first above written.
BLC CORPORATION, Lessor
Attest:
By /s/ By /s/
--------------------------- ----------------------------
Secretary Title President
-------------------------
MID-AMERICA DAIRYMEN, INC.,
Lessee
Attest:
By /s/ By /s/
--------------------------- ----------------------------
Assistant Secretary Title Vice President
18
<PAGE> 25
LESSEE CERTIFICATION, NOTICE OF TAX OWNERSHIP
With respect to each Motor Vehicle, as part of the agreement made by
this Master Leasing Agreement together with the applicable Motor Vehicle
ILR or other supplement hereunder, it is stated as follows:
(a) Lessee hereby certifies, under penalty of perjury, that
Lessee intends that more than 50% of the use of each Motor Vehicle
that is at any time subject to such agreement is to be in a trade or
business of the Lessee.
(b) Lessee has been advised that Lessee will not be treated as
the owner for Federal income tax purposes of any Motor Vehicle
subject to such agreement.
MID-AMERICA DAIRYMEN, INC., as
Lessee
By /s/
-------------------------------
Title Vice President
----------------------------
<PAGE> 1
EXHIBIT 10.7
TRADEMARK LICENSE AGREEMENT
AGREEMENT made this 4th day of September, 1997, by and among
BORDEN, INC., a New Jersey corporation ("Borden"), and BDH TWO, INC., a
Delaware corporation ("BDH" and, together with Borden, "Licensor"), and
SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership, and its permitted
assignees and successors in interest (collectively, "Licensee").
W I T N E S S E T H :
WHEREAS, Licensor owns the BORDEN and ELSIE trademarks and
certain logotype design trademarks used in connection with milk and other dairy
products, fruit juices and drinks, and has obtained United States federal and
state trademark registrations therefor; and
WHEREAS, Licensee desires that Licensee and its permitted
sublicensees be allowed to process, sell and distribute the Products and
Additional Products (each as hereinafter defined) under the trademarks
developed by Licensor and seeks to have Licensor grant it the right to do so,
all on the terms and conditions hereinafter set out.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. The following terms shall have the meanings set
forth below:
"Additional Appendix C Products" shall mean, collectively,
milk or other dairy products or fruit juices not
<PAGE> 2
specifically listed on Appendix C that are currently manufactured or processed
by Holdings.
"Additional Appendix D Products" shall mean, collectively,
fruit drinks not specifically listed on Appendix D that are currently
manufactured or processed by Holdings.
"Additional Products" shall mean, collectively, the Additional
Appendix C Products and the Additional Appendix D Products.
"Holdings" shall mean, collectively, Borden/Meadow Gold
Dairies Holdings, Inc., a Delaware corporation, and its subsidiaries.
"Initial Term" shall have the meaning set forth in Article IX,
Section 9.1.
"Licensed Trademarks" shall mean (i) the trademarks listed and
described in Appendices A and B, attached hereto, including the federal and
state trademark registrations and applications therefor and all common law
rights in such trademarks and any trade dress or label designs associated with
such trademarks, and (ii) any such other marks and trade dress or label designs
as the parties may agree in writing to add to Appendices A and B during the
Term.
"Products" shall mean only those milk and other dairy products
and fruit juices specifically listed in Appendix C and those fruit drinks
specifically listed in Appendix D.
"Renewal Period" shall have the meaning set forth in Article
IX, Section 9.1.
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<PAGE> 3
"State Marks" shall have the meaning set forth in Article VI,
Section 6.2.
"Term" shall mean the Initial Term and any Renewal Period.
"Territory" shall mean the United States and Mexico.
"United States" shall mean only the 50 states comprising the
United States of America, and the District of Columbia, excluding without
limitation any U.S. possessions and territories.
ARTICLE II
GRANT OF LICENSE
Section 2.1. (a) Subject to the terms and conditions herein,
Licensor hereby grants to Licensee during the Initial Term of this Agreement
and any Renewal Periods, and subject to the existing license agreements listed
in Appendix E attached hereto (the "Existing License Agreements"):
(i) an exclusive license to use the Licensed Trademarks
listed in Appendix A solely on or in connection with Products
manufactured or processed in the United States and listed in Appendix
C, for sale to customers in the United States;
(ii) a non-exclusive license to use the Licensed
Trademarks listed in Appendix A solely on or in connection with
Products manufactured or processed in the United States and listed in
Appendix C, for sale to customers in Mexico;
(iii) a non-exclusive license to use the Licensed
Trademarks listed in Appendix A solely on or in connection
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<PAGE> 4
with Additional Appendix C Products currently sold under the Licensed
Trademarks listed in Appendix A, for sale to customers in the United
States or in Mexico;
(iv) an exclusive license to use the Licensed Trademarks
listed in Appendix B solely on or in connection with Products
manufactured or processed in the United States and listed in Appendix
D, for sale to customers in the United States;
(v) a non-exclusive license to use the Licensed
Trademarks listed in Appendix B solely on or in connection with
Products manufactured or processed in the United States and listed in
Appendix D, for sale to customers in Mexico; and
(vi) a non-exclusive license to use the Licensed
Trademarks listed in Appendix B solely on or in connection with
Additional Appendix D Products currently sold under the Licensed
Trademarks listed in Appendix B, for sale to customers in the United
States or in Mexico.
(b) Licensor and Licensee agree that $55 million of the
aggregate consideration being paid pursuant to the Stock Purchase and Merger
Agreement dated as of May 22, 1997, among Licensor, Mid-America Dairymen, Inc.
and Borden/Meadow Gold Dairies Holdings, Inc. (the "Acquisition Agreement"),
shall be allocated to the license granted under Section 2.1(a). No other
consideration shall be payable as consideration for the license granted
hereunder.
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<PAGE> 5
Section 2.2. Subject to the terms and conditions herein,
Licensee may use the Licensed Trademarks on Product or Additional Product
containers, labels, packaging and shipping cases and on delivery vehicles and
in any other way suitable to promote or advertise the Licensed Trademarks and
Products or Additional Products.
Section 2.3. Subject to the terms and conditions herein,
Licensee shall not have any right to export, purchase, distribute, receive,
take on consignment or sell the Products or Additional Products bearing the
Licensed Trademarks in areas outside of the Territory. Moreover, Licensee
shall require each of its customers selling over $500,000 a year of Products
and/or Additional Products to agree in writing not to directly or indirectly
export, distribute, resell or ship any Products or Additional Products bearing
the Licensed Trademarks to any customer or wholesale or retail outlet located
outside the Territory.
Section 2.4. Other than as expressly stated herein, Licensee
shall have no other right to use or interest in the Licensed Trademarks.
Specifically, Licensee may not use any of the Licensed Trademarks in its trade
name or as its business name or in connection with (i) any products, goods or
services of any kind or nature whatsoever, whether or not the same as or
similar to the Products or Additional Products, other than the Products or
Additional Products currently sold under the Licensed Trademarks, (ii) any
products, goods or services of any kind or nature whatsoever, whether or not
the same as or similar to the
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<PAGE> 6
Products or Additional Products, and including the Products and Additional
Products, if such products, goods or services have been manufactured, processed
or conducted outside the United States, (iii) any cheese or cheese products not
listed on Appendix C hereto, including without limitation processed cheese
products, (iv) any liquid or powdered non-dairy coffee creamer product, (v) any
condensed milk, evaporated milk or powdered milk products, however packaged, or
(vi) any shelf stable eggnog, whether canned, in "brick pack" packages or in
any other aseptic form of packaging. Notwithstanding the foregoing, Licensee
shall have the right to use any pre-existing materials bearing the Licensed
Trademarks for a transitional phase-out period of 120 days, after which all use
of such materials must cease. Nothing contained in this Article or any other
provision of this Agreement shall restrict Licensor from the sale of other
products different from the Products or Additional Products bearing the
Licensed Trademarks anywhere in the world or the Products or Additional
Products anywhere in the world other than the United States.
Section 2.5. (a) Except as provided in Sections 2.5(c)(i)
and 2.5(d), Licensor hereby assigns to Licensee all right, title and interest
of Licensor in, to and under each of the Existing License Agreements.
(b) Except as provided in Section 2.5(c)(ii), Licensee hereby
assumes, and agrees to perform, pay and satisfy, all of Licensor's debts,
liabilities and obligations under, each of the Existing License Agreements.
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<PAGE> 7
(c) (i) Notwithstanding Section 2.5(a), the assignment under
Section 2.5(a) shall not include any right, title or interest of Licensor in,
to or under any Existing License Agreement to the extent such Existing License
Agreement pertains to or covers any products other than the Products or any
trademarks other than the Licensed Trademarks.
(ii) Notwithstanding Section 2.5(b), the assumption by
Licensee under Section 2.5(b) shall not include any debts, liabilities or
obligations under any Existing License Agreement to the extent such Existing
License Agreement pertains to or covers any products other than the Products or
any trademarks other than the Licensed Trademarks.
(d) If the assignment provided for in Section 2.5(a)
conflicts with, or would result in the breach or termination of any provision
of, or constitute a default under, or result in the acceleration of the
performance of the obligations of Licensor or any of its subsidiaries or
affiliates under, any Existing License Agreement, then, notwithstanding Section
2.5(a), Licensor shall not assign to Licensee any of its right, title or
interest in, to or under such Existing License Agreement, but shall hold such
Existing License Agreement, to the extent provided in Section 2.5(c), for the
benefit and account of Licensee, with all gains, income, losses, taxes or other
items generated thereby to be for Licensee's account. Licensor shall remit to
Licensee promptly any amounts received by Licensor under any Existing License
Agreement that is not assigned under this Section 2.5, subject to the
limitation in Section 2.5(c).
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<PAGE> 8
ARTICLE III
OWNERSHIP OF TRADEMARKS
Section 3.1. Licensee acknowledges that Licensor is the sole
owner of the Licensed Trademarks. Licensee shall not directly or indirectly
question, attack, contest, or in any other manner impugn the validity or
Licensor's ownership of the Licensed Trademarks, nor shall Licensee willingly
become an adverse party to Licensor in litigation contesting the validity of
Licensor's ownership and other rights in and to the Licensed Trademarks.
Section 3.2. Licensee shall be deemed a "related company"
under the U.S. Lanham Act, such that any use of the Licensed Trademarks by
Licensee, and any goodwill generated thereby, shall inure to the sole benefit
of Licensor.
ARTICLE IV
FORM OF USE
Section 4.1. Licensee hereby acknowledges and agrees that its
use of the Licensed Trademarks shall be subject at all times during the Term to
the reasonable control of Licensor in order for Licensor to maintain the
consistent standard of quality associated with the Licensed Trademarks.
Licensee will preserve the good appearance of the Licensed Trademarks wherever
and whenever they are used and shall not use any Licensed Trademark in a manner
which is likely to derogate from the integrity, distinctiveness, goodwill,
value or strength of such Licensed Trademark.
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<PAGE> 9
Section 4.2. From time to time, Licensor may determine that a
previously published use of the Licensed Trademarks by Licensee may threaten
the value of the Licensed Trademarks, or is otherwise inconsistent with
Licensor's quality standards. Upon written notice from Licensor, Licensee
shall implement Licensor's directions regarding the proper use of the Licensed
Trademarks as promptly as practicable using its best efforts and, in any event,
within thirty (30) days.
Section 4.3. Except as required by law, Licensee agrees not
to use the Licensed Trademarks in connection or combination with any other
third-party trademarks, names or logotypes, without Licensor's prior written
approval, such approval not to be withheld unreasonably. Licensee shall at no
time adopt or use any variation of the Licensed Trademarks or any word or marks
confusingly similar thereto without Licensor's prior written approval.
Section 4.4. Licensee shall not take any action to cause an
abandonment or forfeiture of any of Licensor's rights in the Licensed
Trademarks and shall not take any action to cancel any registration in the
United States or elsewhere of any Licensed Trademark in the name of Licensor or
to interfere with any renewal of any such registration. Licensee shall
reasonably cooperate with and shall not oppose any application by or on behalf
of Licensor to register or renew any federal or state registration of any
Licensed Trademark in the United States or elsewhere.
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<PAGE> 10
ARTICLE V
QUALITY CONTROL
Section 5.1. Licensee agrees that all Products bearing a
Licensed Trademark pursuant to the Agreement shall be of a high standard and of
such quality as to protect and enhance the Licensed Trademarks and the goodwill
and value pertaining thereto and shall meet Licensor's quality standards and
specifications as set out specifically in the current formulae, ingredients and
manufacturing specifications ("FIMS") for such Products, a copy of which has
been made available to Licensee, and/or such modified formulae as shall be
reasonably agreed in writing between Licensor and Licensee in the future.
Licensee and its Manufacturing Agents (as defined in Section 5.5 below) shall
manufacture, sell, distribute and promote the Products in accordance with all
applicable federal, state and local laws.
Section 5.2. In order to assure that Licensee meets
Licensor's quality standards and specifications, once each quarter of the Term
and/or for good cause shown, Licensee shall submit comprehensive affidavits
that meet with Licensor's reasonable approval from all of Licensee's quality
control department managers responsible for the quality standards of the
Products produced by that part of Licensee's or its Manufacturing Agents'
business for which they are responsible, attesting under oath that Licensor's
quality standards and Product specifications have been fully complied with
during the prior quarter, also submitting representative Product samples and
listing the number of customer complaints relating to Product quality during
that
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<PAGE> 11
quarter and a summary of the actions taken by Licensee in response to such
complaints.
Section 5.3. Licensee also agrees that Licensor will submit
the quarterly Product samples provided for in Section 5.2 to an independent
testing laboratory to determine if the FIMS are being complied with, the
expense thereof being borne by Licensee. Licensor also reserves the right
periodically to conduct quality control inspections, upon reasonable notice and
during normal business hours, at Licensee's plants to determine if the
Licensor's FIMS for the Products and the processing thereof are being complied
with.
Section 5.4. In the event that Licensor or its agents shall
determine that any Products sold or distributed by Licensee and/or its
Manufacturing Agents bearing or using Licensed Trademarks do not conform to
Licensor's FIMS, and/or otherwise violate the provisions of this Article V,
Licensee agrees, at its expense, to take such action as Licensor directs in
writing, including, but not limited to, withdrawal and/or recall of such
Products from the market and to refrain and cause its Manufacturing Agents to
refrain from further sale and/or distribution of such Products under the
Licensed Trademarks unless and until Licensee and/or its Manufacturing Agents
have demonstrated to the reasonable satisfaction of Licensor that said Products
conform to said FIMS and/or the provisions of the Article V, as the case may
be.
Section 5.5. If Licensee enters into co-packing agreements
with suppliers or any other arrangement with respect
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<PAGE> 12
to the processing or packaging of final Products by any person who is not a
subsidiary of Licensee, who will process or package final Products for the
Licensee, for sale in the Territory ("Manufacturing Agents"), Licensee must
submit such co-packing agreements in draft form to Licensor or an individual
designated by Licensor ("Licensor's License Coordinator") for prior approval to
ensure they include trademark protection and quality control provisions that
safeguard the rights of both the Licensor and Licensee under this Agreement.
Licensor agrees that such prior approval shall not be withheld or delayed
unreasonably, and that Licensor shall respond promptly to any request for
approval. If Licensor fails to respond to such request within thirty (30)
days, Licensor's approval shall be deemed given.
Section 5.6. On a semi-annual basis, Licensee shall review
with Licensor's License Coordinator and obtain prior approval for, all
advertising, promotional and point-of-purchase materials published or
distributed by Licensee in connection with Products bearing Licensed
Trademarks. Licensor agrees that such prior approval shall not be withheld or
delayed unreasonably, and that Licensor shall respond promptly to any request
for approval. If Licensor fails to respond to such request within thirty (30)
days, Licensor's approval shall be deemed given.
Section 5.7. If Licensee desires to adopt new cartons or
packaging bearing the Licensed Trademarks, which package designs or trade dress
are different from those presently used by Licensor, Licensee shall submit to
Licensor's License Coordinator at least one (1) representative sample of each
such new carton
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<PAGE> 13
and packaging material and may not use any such materials in connection with
the Licensed Trademarks without Licensor's prior written approval. Licensor
agrees that such prior approval shall not be withheld or delayed unreasonably,
and that Licensor shall respond promptly to any request for approval. If
Licensor fails to respond to such request within thirty (30) days, Licensor's
approval shall be deemed given.
Section 5.8. Licensee shall notify Licensor promptly in
writing upon its determination that it intends to use any Licensed Trademark in
connection with an Additional Product, which notification shall include a
description of the Additional Product, and a certification of the Chief
Executive Officer of each of Licensee and Holdings that the Additional Product
was manufactured or processed by Holdings on the date of this Agreement. From
and after such notification, Licensor and Licensee shall mutually agree upon
the FIMS that will be applicable to such Additional Product and the provisions
of this Article V thereafter shall be applicable to such Additional Product as
if it were a "Product" hereunder.
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 6.1. Subject to the limitations of Section 6.2,
Licensor represents that it is the owner of or has the exclusive right to
license the Licensed Trademarks for use in connection with the Products in the
Territory and is not aware of any other party with ownership rights in the
United States in any
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<PAGE> 14
of the Licensed Trademarks, except for the Existing License Agreements.
Section 6.2. Notwithstanding Section 6.1, Licensee
acknowledges that Licensor makes no representation or warranty whatsoever as to
the ownership, existence or validity of the state trademark registrations
listed on Appendix A (the "State Marks"). The State Marks are hereby licensed
to Licensee on an "as is" basis, and Licensee shall bear the economic and legal
risk that the State Marks are valid and that their ownership by Licensor is
other than good and marketable and free from encumbrances.
Section 6.3. Licensor represents that during the Term, it
will not license any other party to use the Licensed Trademarks on the Products
in the Territory and will not itself sell Products identified by the Licensed
Trademarks in the United States. Licensor may use the Licensed Trademarks on
Products it sells anywhere in the world outside the United States. Nothing
herein shall restrict Licensor's right or ability to sell (or license others to
sell) goods or services other than the Products identified by the Licensed
Trademarks or similar marks anywhere in the world.
Section 6.4. Licensor agrees to use reasonable efforts to
prevent any of its present or future third- party licensees from trans-shipping
or otherwise selling Products bearing the Licensed Trademarks to accounts or
customers located within the United States.
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<PAGE> 15
Section 6.5. Licensor shall take all steps necessary to
insure the continued registration of, including, but not limited to, filing all
timely renewals of registrations for, the United States trademarks and Mexican
trademarks listed on Appendix A. Licensor shall have no obligation under this
Section 6.5 with respect to the State Marks.
Section 6.6. Licensee shall cooperate with Licensor in the
protection of the Licensed Trademarks and in connection therewith shall:
(a) promptly inform Licensor of any third-party use of any
Licensed Trademarks or any infringement or encroachment upon or any misuse
whatsoever of any Licensed Trademarks which comes to Licensee's attention; and
(b) promptly inform Licensor of any claim against Licensee
that the use of any Licensed Trademark infringes the rights of others or of the
institution of any proceeding against Licensee predicated upon any such claimed
infringement.
Section 6.7. Without limiting the effect of Section 3.1
hereof, Licensor and Licensee shall both have the right to take action in
respect of any Products bearing the Licensed Trademarks for any alleged
infringements of, or other impairments to, such Products. The party taking any
such action shall bear all expenses, have complete control over, and recover
all proceeds, settlements and damages with respect to the action.
Notwithstanding the foregoing sentence, the other party retains the right to
join such action and share evenly all expenses, control, proceeds, settlements
and damages with respect thereto,
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<PAGE> 16
if such other party joins such action within a reasonable time period following
its commencement.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
Section 7.1. Licensor will hold Licensee harmless from and
against all suits, claims or actions by third parties against Licensee alleging
trademark infringement arising from Licensee's authorized use of any of the
Licensed Trademarks; provided that Licensee gives Licensor prompt written
notice of such suit, claim or action and cooperates fully with Licensor in
defending the same.
Section 7.2. Licensee hereby indemnifies and undertakes to
defend and hold Licensor harmless from and against any and all claims, suits,
losses, damages, fines, penalties, and/or expenses, including, but not limited
to, attorneys' fees, arising out of or based upon:
(a) Licensee's or its Manufacturing Agents' processing,
distribution or sale of Products or Additional Products bearing a Licensed
Trademark; or
(b) any breach by Licensee or its Manufacturing Agents of
their obligations hereunder; or
(c) any proceeding brought by any person, governmental agency
or consumer group in connection with the Products or Additional Products
processed, sold or distributed by Licensee or its Manufacturing Agents bearing
or using a Licensed Trademark; or
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<PAGE> 17
(d) any violations of any applicable law or regulation or
civil claims relating to the manufacture, processing, sale, distribution,
promotion or advertising of Products or Additional Products bearing or using a
Licensed Trademark unless attributable to Licensor's breach of its obligations
under this Agreement. Licensor may participate in the defense of any such
litigation.
Section 7.3. Licensee shall be solely responsible for the
acts and omissions of those with whom it or its Manufacturing Agents contract
for any aspect of the processing, distribution or sale of Products or
Additional Products bearing or using a Licensed Trademark.
Section 7.4. In order to assure its ability to discharge its
obligations to Licensor, Licensee agrees that it will maintain throughout the
Term at its expense, comprehensive general liability insurance, including
product liability insurance and contractual liability coverage specifically
endorsed to cover the indemnity provisions in this Agreement, from a carrier
satisfactory to Licensor, in a minimum amount of Five Million Dollars
($5,000,000) combined single limit for each single occurrence, for bodily
injury and property damage, which shall designate Licensor as an additional
insured therein. The policy shall provide for thirty (30) days prior written
notice to Licensor from the insurer in the event of any material modification,
cancellation or termination. Licensee shall deliver certificates of such
insurance coverage to Licensor prior
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<PAGE> 18
to the sale and/or distribution of any Products or Additional Products bearing
a Licensed Trademark.
ARTICLE VIII
RELATIONSHIP
Section 8.1. The relationship between Licensor and the
Licensee is that of licensor and licensee; the Licensee, its contractors,
agents and employees shall under no circumstances be deemed agents,
franchisees, representatives, employees or partners of Licensor.
ARTICLE IX
TERM AND TERMINATION
Section 9.1. Subject to the provisions of Sections 9.2 and
9.3 hereof, the term of this Agreement shall be a period of five (5) years from
the date hereof (the "Initial Term") and for continuous subsequent five (5)
year terms (the "Renewal Period(s)"), provided that, for the Licensed
Trademarks listed on Appendix B and the Products listed on Appendix D and the
Additional Appendix D Products, the licenses granted under Sections 2.1(a)(iv),
(v) and (vi) herein shall expire after three (3) years from the date hereof and
cannot be renewed.
Section 9.2. Licensee may cancel this Agreement upon no less
than one (1) year's written notice delivered to Licensor prior to the end of
the Initial Term or the then-effective Renewal Period, provided that, if
Licensee does not give the required notice of termination, the Agreement shall
be automatically renewed for a subsequent Renewal Period.
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<PAGE> 19
Section 9.3. Licensor shall have the right to cancel and
terminate this Agreement immediately by written notice to Licensee upon the
occurrence of any one (1) or more of the following events:
(a) Licensee fails to deliver to Licensor or to maintain in
full force and effect the insurance referred to in Section 7.4; or
(b) Except as provided in 9.3(c), Licensee or its
Manufacturing Agents fail to commence and diligently pursue the cure of any
breach by them of a material provision of this Agreement within ten (10) days
of receipt of Licensor's written notice of such breach or to effect such cure
within twenty (20) days of receipt of such written notice; or
(c) The failure or refusal of Licensee or its Manufacturing
Agents:
(i) to, within ten (10) days of receipt of Licensor's
reasonable written instructions issued regarding the quality standards
of the Licensed Trademarks and Products or Additional Products,
respond to such instructions and commence a diligent attempt at cure,
or to effect such cure within twenty (20) days of receipt of such
instructions; or
(ii) to perform, or comply with, any provision contained
in Article V which failure results in the production for sale of
Products or Additional Products that are unsafe or unfit for human
consumption; or
(d) The insolvency of Licensee; an assignment by Licensee for
the benefit of creditors; the failure of Licensee to
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<PAGE> 20
obtain the dismissal of any involuntary bankruptcy or reorganization petition
filed against it within sixty (60) days from the date of such filing; the
failure of Licensee to vacate the appointment of a receiver for all or any part
of its business within sixty (60) days from the date of such appointment; or
the dissolution of Licensee; or
(e) An involuntary recall of Products or Additional Products
bearing the Licensed Trademarks for reasons directly or indirectly related to
the safety of such Products or Additional Products and attributable to the
negligence or intentional wrongdoing of Licensee or its Manufacturing Agents;
provided that Licensor determines in its reasonable judgment that such event
has had or is reasonably likely to have a material adverse effect on the
integrity, goodwill, value or strength of any of the Licensed Trademarks;
provided, further, that Licensor may terminate this license under this Section
9.3(e) without regard to the immediately preceding proviso upon or after the
third occurrence within any 12-month period of an event referred to in this
Section 9.3(e).
Section 9.4. In the event that this Agreement is terminated
or expires, Licensee shall, and shall cause its Manufacturing Agents to,
immediately cease all use of the Licensed Trademarks, provided that Licensee
may dispose of inventory on hand of Products and Additional Products in the
ordinary course of business, which shall be no longer than 120 days, if
Licensee complies with its obligations under this Agreement. Upon the request
of Licensor, Licensee will
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<PAGE> 21
immediately remove or obliterate any Licensed Trademark from all signs,
billboards, vehicles and from each and every other place and medium in which
they appear and destroy or surrender to Licensor all other materials of
whatever nature which bear or refer in any way to the Licensed Trademarks.
Section 9.5. Licensee hereby acknowledges and agrees that in
the event it breaches or otherwise defaults under Articles IV, V or X of this
Agreement, Licensor shall suffer immediate and irreparable harm for which there
is not an adequate remedy at law. Licensee agrees that Licensor shall be
entitled to equitable relief by way of injunction, in addition to any other
remedy available at law or in equity.
ARTICLE X
ASSIGNMENTS AND SUBLICENSES
Section 10.1. This Agreement shall not be assigned by
Licensee, in whole or in part, without the prior written consent of Licensor.
From and after any permitted assignment pursuant to this Section 10.1, the
assignee shall be deemed to be a Licensee for all purposes hereof.
Section 10.2. The licenses granted under Article II, Section
2.1(a) of this Agreement shall not be sublicensed by Licensee, in whole or in
part, without the prior written consent of Licensor, which consent shall not be
unreasonably withheld. Notwithstanding the preceding sentence, Licensee may
sublicense such licenses in whole or in part, to any Permitted Assignee under
the Acquisition Agreement or any subsidiary thereof, provided that such
sublicense is pursuant to a written instrument
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<PAGE> 22
that explicitly binds the sublicensee to all pertinent provisions of this
Agreement governing Licensee's own use of the Licensed Trademarks. In no event
shall any sublicense under this section relieve Licensee of any of its
obligations under this Agreement.
ARTICLE XI
NOTICE
All notices pursuant to this Agreement shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, as follows:
If to Licensee: Pat Ford
Assistant Secretary
c/o SFG Management Limited
Liability Company,
General Partner
3114 South Haskell
Dallas, Texas 75223
With copies thereof to: David A. Giesler, Esq.
Vice President - Legal
Mid-America Dairymen, Inc.
3253 East Chestnut Expressway
Springfield, Missouri 65802
and
Anthony R. Ward, President and
Chief Executive Officer
Borden/Meadow Gold Dairies, Inc.
1104 E. Country Hills Drive
Suite 400
Ogden, Utah 84403
and
Ronald P. Moran, Esq.
General Counsel
Borden/Meadow Gold Dairies, Inc.
1104 E. Country Hills Drive
Suite 400
Ogden, Utah 84403
-22-
<PAGE> 23
If to Licensor: Phyllis R. Yeatman, Assistant
Secretary
BDH Two, Inc.
Suite 202
One Little Falls Centre
Wilmington, Delaware 19808
With a copy thereof to: William F. Stoll, General Counsel
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215
Any notice delivered personally shall be deemed to have been given on the date
it is so delivered, and any notice delivered by registered or certified mail
shall be deemed to have been given on the date it is received. Either party by
notice in writing delivered or mailed to the other may change the name or
address or both to which future notices to such party shall be delivered.
ARTICLE XII
MISCELLANEOUS
Section 12.1. This Agreement and each of the appendices and
exhibits thereto constitute the entire understanding of the parties with
respect to the subject matter hereof, and supersede and merge all prior
agreements and discussions between the parties relating hereto. No changes in
the terms of this Agreement shall be valid, except when and if reduced to
writing and signed by both Licensee and Licensor.
Section 12.2. All rights and remedies which Licensor or
Licensee may have hereunder or by operation of law are cumulative, and the
pursuit of one right or remedy shall not be deemed an election to waive or
renounce any other right or remedy. Licensor or Licensee's failure to enforce
any provision hereof on any occasion shall not be deemed to waive any other
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<PAGE> 24
breach of any provision hereof. Any waiver of any provision of this Agreement
must be in writing and executed by the waiving party. No waiver of any breach
or default under this Agreement shall waive any other breach or default.
Section 12.3. The parties agree that each provision of this
Agreement shall be construed as separable and divisible from every other
provision. Enforceability of any one provision shall not limit the
enforceability, in whole or in part, of any other provision hereof. If any
term or provision of this Agreement (or the application thereof to any party or
set of circumstances) shall be held invalid or unenforceable in any
jurisdiction and to any extent, it shall be ineffective only to the extent of
such invalidity or unenforceability and shall not invalidate or render
unenforceable any other terms or provisions of this Agreement (or such
applicability thereof).
Section 12.4. Licensee and Licensor agree to execute such
further documentation and perform such further actions as may be reasonably
requested by the other party hereto to evidence and effectuate further the
purposes and intents set forth in this Agreement.
Section 12.5. All representations, warranties and indemnities
contained in this Agreement shall survive any independent investigation made by
the benefiting party and the suspension, expiration or termination of this
Agreement.
Section 12.6. This Agreement, irrespective of place of
execution or performance, shall be construed and enforced in accordance with
the laws of the State of Delaware applicable to
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<PAGE> 25
contracts executed and wholly performed therein. Any and all actions or
proceedings concerning this Agreement shall, if brought by any party hereto, be
instituted and resolved in the courts of the State of Delaware or any federal
court sitting in the State of Delaware. Each party hereby consents to
jurisdiction and service of process in such locale.
Section 12.7. Article and section headings and captions are
for convenience only and shall not be used in the construction or
interpretation of this Agreement or any terms herein.
Section 12.8. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together constitute one and the same instrument.
Section 12.9. From and after the date hereof, the Trademark
License Agreement dated as of October 21, 1996 between BDH and Borden/Meadow
Gold Dairies, Inc. is terminated and of no further force or effect.
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<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORDEN, INC.
By: /s/
-------------------------------------
Title:
BDH TWO, INC.
By: /s/
-------------------------------------
Title:
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited
Liability Company, its general
partner
By: /s/ PETE SCHENKEL
-------------------------------------
Title:
The undersigned hereby agrees to be bound by the foregoing
Agreement and to be obligated to the Licensor named in the foregoing Agreement
as if the undersigned were the Licensee named therein.
MID-AMERICA DAIRYMEN, INC.
By: /s/ GERALD L. BOS
-------------------------------------
Title:
The undersigned hereby agrees to the termination of the
Trademark License Agreement dated as of October 21, 1996 between BDH and
Borden/Meadow Gold Dairies, Inc. from and after the date of the foregoing
Agreement pursuant to Section 12.9 of the foregoing Agreement.
BORDEN/MEADOW GOLD DAIRIES, INC.
By: /s/
-------------------------------------
Title:
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<PAGE> 27
Appendix A - Licensed Trademarks
<TABLE>
<CAPTION>
UNITED STATES TRADEMARK U.S. REG. NO.
- ----------------------- -------------
<S> <C>
BORDEN Corporate Logo 921,370
BORDEN (Corporate Logo) &
Cow's Head (Elsie) Design 969,728
Borden Logotype with Cow's Head 1,859,074
Design of Cow's Head
(Elsie's Head with Flowers) 1,860,207
Design of Cow's Head -
Elsie Design (Daisy) 397,158
Design of Cow's Head -
Elsie (Design Plus Oval) 405,706
Design of Cow's Head 529,468
Elsie Design 810,861
Elsie 1,857,137
Gail Borden Signature 1,689,184
IF IT'S BORDEN, IT'S GOT TO BE GOOD 1,042,420
IF IT'S BORDEN, IT'S GOT TO BE GOOD 1,504,138
LADY BORDEN 572,693
LADY BORDEN & DESIGN 1,893,711
</TABLE>
<TABLE>
<CAPTION>
STATE TRADEMARK STATE REG. NO.
- --------------- --------------
<S> <C>
Borden (Alabama) 103,326
Borden (Arizona) 25,318
Borden (Arkansas) 124-87
Borden (California) 085,407
Borden (Colorado) T33167
Borden (Connecticut) 6,783
Borden (Delaware) 170-62
</TABLE>
<PAGE> 28
<TABLE>
<S> <C>
Borden (Florida) T07258
Borden (Georgia) T-7593
Borden (Idaho) 12016
Borden (Illinois) 60328
Borden (Indiana) 5009-8037
Borden (Iowa) 8189
Borden (Kansas) 10588
Borden (Kentucky) 07288
Borden (Louisiana) 45-0849
Borden (Maine) 19880138M
Borden (Maryland) 87-6805
Borden (Massachusetts) 40263
Borden (Michigan) M74-057
Borden (Minnesota) 13121
Borden (Mississippi) N/A
Borden (Missouri) 9541
Borden (Montana) 14,965
Borden (Nebraska) 69,516
Borden (New Hampshire) N/A
Borden (New Jersey) 7522
Borden (New Mexico) TK87051105
Borden (New York) R-24433
Borden (North Carolina) 6993
Borden (North Dakota) 12,390
Borden (Oklahoma) 21,492
Borden (Oregon) 21,597
Borden (Pennsylvania) 976092
</TABLE>
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<PAGE> 29
<TABLE>
<S> <C>
Borden (Rhode Island) 87-5-4
Borden (South Carolina) N/A
Borden (South Dakota) N/A
Borden (Tennessee) 686-2060
Borden (Texas) 47,355
Borden (Utah) 28,516
Borden (Vermont) 5615
Borden (Virginia) N/A
Borden (West Virginia) N/A
Borden (Wisconsin) N/A
Glacier Club (Indiana) 5008-453
Glacier Club (Iowa) 3255
Glacier Club (Vermont) 4,439
Glacier Club (Wisconsin) 18054
Home Treat (Louisiana) N/A
Home Treat (Mississippi) H-185
Meadow Gold (Alabama) 103,325
Meadow Gold (Arizona) 25439
Meadow Gold (Arkansas) 116-87
Meadow Gold (California) 085406
Meadow Gold (Colorado) T33105
Meadow Gold (Idaho) 12011
Meadow Gold (Illinois) 60299
Meadow Gold (Indiana) 5009-8021
Meadow Gold (Iowa) 8188
Meadow Gold (Kansas) N/A
Meadow Gold (Kentucky) 07293
</TABLE>
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<PAGE> 30
<TABLE>
<S> <C>
Meadow Gold (Louisiana) N/A
Meadow Gold (Maryland) 87-6790
Meadow Gold (Michigan) M57-057
Meadow Gold (Mississippi) N/A
Meadow Gold (Missouri) 9510
Meadow Gold (Nebraska) 69146
Meadow Gold (Nevada) N/A
Meadow Gold (New Jersey) N/A
Meadow Gold (New York) R24419
Meadow Gold (North Carolina) N/A
Meadow Gold (Oklahoma) 21354
Meadow Gold (South Carolina) N/A
Meadow Gold (Tennessee) N/A
Meadow Gold (Texas) 47328
Meadow Gold (Virginia) N/A
</TABLE>
<TABLE>
<CAPTION>
MEXICAN TRADEMARK REG. NO.
- ----------------- --------
<S> <C>
Borden Label (milk carton) 379,964
Borden Corporate Logo 452,152
Borden Corporate Logotype 349,338
Borden and Design of Cow's Head
(Elsie's Head with Flowers in "New" Logo) 459,630
Borden and Design of Cow's Head
(Elsie's Head with Flowers in "New" Logo) 459,629
Borden Label (milk carton) 400,509
Borden and Design of Cow's Head
(Elsie's Head with Flowers in "New" Logo) 459,628
Cow's Head Design 379,768
Cow's Head Design 383,926
</TABLE>
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<PAGE> 31
<TABLE>
<S> <C>
Cow's Head Design 400,235
Elsie's Market & Cow's Head Design
(Service Mark) 457,129
Lady Borden 417,418
</TABLE>
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<PAGE> 32
Appendix B - Licensed Trademarks
BORDEN
BORDEN LOGOTYPE
BORDEN (Corporate Logo & Cow's Head (Elsie) Design)
Borden Logotype with Cow's Head
Design of Cow's Head (Elsie's Head with Flowers)
Design of Cow's Head - Elsie Design (Daisy)
Design of Cow's Head - Elsie (Design Plus Oval)
Design of Cow's Head - Elsie Design
Elsie Design
ELSIE
IF IT'S BORDEN, IT'S GOT TO BE GOOD
<PAGE> 33
Appendix C - Products
MILKS
Fluid fresh homogenized milk
Fluid fresh 1% and 2% low fat milk
Fluid fresh nonfat skimmed milk
Fluid fresh 1% and 2% chocolate milk
Fluid fresh whole chocolate milk
Fresh skim chocolate milk
Fresh buttermilk
Lactose reduced & lactose free fresh milk
Ultra-pasteurized, shelf stable, aseptically packaged fluid fresh milk
BUTTER
"Country Store" butter (in quarters)
Spreadable light butter
EGGNOGS
Regular fresh eggnog
Light fresh eggnog
Fat free fresh eggnog
CREAMS
Fresh heavy cream
Fresh light cream
Fresh half & half cream
Fresh fat free cream
ICE CREAMS, FROZEN YOGURTS AND SHERBETS
Frozen ice cream - full fat
Frozen ice cream - fat free
Frozen ice cream - low fat
Frozen confections - Juice pops on sticks
Frozen confections - Regular ice cream pops on sticks
Frozen confections - Reduced sugar ice cream pops
Frozen confections - No sugar-added ice cream pops
Frozen confections - ice cream bars
Frozen confections - ice cream sandwiches
Frozen confections - ice cream cups
Frozen confections - ice cream cones containing bulk
ice cream packed inside a foil container
Frozen sherbets or sorbets in various flavors
Frozen yogurt in various flavors
<PAGE> 34
COTTAGE CHEESES
Regular fresh cottage cheese
Low fat fresh cottage cheese
Fat free fresh cottage cheese
SOUR CREAMS
Regular fresh sour cream
Low fat fresh sour cream
Fat free fresh sour cream
FRESH YOGURTS
Regular yogurt
Low fat yogurt
Fat free yogurt
CREAM CHEESES
Regular cream cheese
Reduced fat cream cheese
FRUIT JUICES - From 100% Concentrate
Orange, apple and a variety of other flavors
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<PAGE> 35
Appendix D - Products
FRUIT DRINKS
Refrigerated fruit drinks, namely, orange and other flavor drinks
<PAGE> 36
Appendix E - Pre-Existing Licenses
Affiliated Funding, Inc. (d/b/a/ Plains Dairy Products),
May 1, 1997 through May 1, 2002
Barber Dairies, Inc., March 24, 1997 through March 24, 1998
Dean Foods Co., April 5, 1997 through April 5, 1998
Reiter Dairy, Inc. (Dean Foods Co.), October 30, 1995 through
October 29, 2000
Country Fresh, Inc., January 1, 1991 through December 31, 1993
(with one year renewals)
H.P. Hood, Inc., August 26, 1996 through August 25, 2005
Modern Dairy of Champaign, Inc., November 20, 1995 through
November 20, 1998
Rich Foods, Inc., May 31, 1996 through November 30, 1998
Sunnydale Farms, Inc., July, 1996 through December 31, 2001
Turner Dairies, Inc., June 14, 1996 through June 13, 1999
United Dairy, Inc., June 30, 1995 through June 29, 1998
<PAGE> 1
EXHIBIT 10.8
TRADEMARK LICENSE AGREEMENT
AGREEMENT made this 4th day of September, 1997, by and between
SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership ("Licensor"), and
BORDEN FOODS CORPORATION, a Delaware corporation ("Licensee").
W I T N E S S E T H :
WHEREAS, Licensor owns the MEADOW GOLD trademarks used in
connection with sweetened condensed milk, and has obtained United States
federal trademark registrations therefor; and
WHEREAS, Licensee desires that Licensee and its permitted
assignees and sublicensees be allowed to process, sell and distribute sweetened
condensed milk under the MEADOW GOLD trademark and certain related designs of
Licensor and seeks to have Licensor grant it the right to do so, all on the
terms and conditions hereinafter set out.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 The following terms shall have the meanings set
forth below:
"Initial Term" shall have the meaning set forth in Article IX,
Section 9.1.
"Licensed Trademarks" shall mean (i) the trademarks listed and
described in Appendix A, attached hereto, including the United States federal
trademark registrations and applications therefor and all common law rights in
such
<PAGE> 2
trademarks and any trade dress or label designs associated with such
trademarks, and (ii) any such other marks and trade dress or label designs as
the parties may agree in writing to add to Appendix A during the Term.
"Products" shall mean sweetened condensed milk and any other
product that the parties agree in the future shall bear a Licensed Trademark.
"Renewal Period" shall have the meaning set forth in Article
IX, Section 9.1.
"Term" shall mean the Initial Term and any Renewal Period.
"Territory" shall mean the United States.
"United States" shall mean only the 50 states comprising the
United States of America, and the District of Columbia, excluding without
limitation any U.S. possessions and territories.
ARTICLE II
GRANT OF LICENSE
Section 2.1. (a) Subject to the terms and conditions herein,
Licensor hereby grants to Licensee during the Initial Term of this Agreement
and any Renewal Periods an exclusive license to use the Licensed Trademarks on
or in connection with the Products in the Territory.
(b) This license is being entered into in connection with the
Stock Purchase and Merger Agreement dated as of May 22, 1997, among Mid-America
Dairymen, Inc., Borden, Inc., BDH Two, Inc. and Borden/Meadow Gold Dairies
Holdings, Inc. (the
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<PAGE> 3
"Acquisition Agreement"), and the consummation by Borden, Inc. and BDH Two,
Inc., each of which is an affiliate of Licensee, will be treated as
consideration for the license granted under Section 2.1(a). No other
consideration shall be payable as consideration for the license granted
hereunder.
Section 2.2. Subject to the terms and conditions herein,
Licensee may use the Licensed Trademarks on Product containers, labels,
packaging and shipping cases and on delivery vehicles and in any other way
suitable to promote or advertise the Licensed Trademarks and the Products.
Section 2.3. Other than as expressly stated herein, Licensee
shall have no other right to use or interest in the Licensed Trademarks.
Specifically, Licensee may not use any of the Licensed Trademarks in its trade
name or as its business name or in connection with any products, goods or
services of any kind or nature whatsoever, whether or not the same as or
similar to the Products, other than the Products. Notwithstanding the
foregoing, Licensee shall have the right to use any pre-existing materials
bearing the Licensed Trademarks for a transitional phase-out period of 120
days, after which all use of such materials must cease. Nothing contained in
this Article or any other provision of this Agreement shall restrict Licensor
from the sale of other products different from the Products bearing the
Licensed Trademarks anywhere in the world.
-3-
<PAGE> 4
ARTICLE III
OWNERSHIP OF TRADEMARKS
Section 3.1. Licensee acknowledges that Licensor is the sole
owner of the Licensed Trademarks. Licensee shall not directly or indirectly
question, attack, contest, or in any other manner impugn the validity or
Licensor's ownership of the Licensed Trademarks, nor shall Licensee willingly
become an adverse party to Licensor in litigation contesting the validity of
Licensor's ownership and other rights in and to the Licensed Trademarks.
Section 3.2. Licensee shall be deemed a "related company"
under the U.S. Lanham Act, such that any use of the Licensed Trademarks by
Licensee, and any goodwill generated thereby, shall inure to the sole benefit
of Licensor.
ARTICLE IV
FORM OF USE
Section 4.1. Licensee hereby acknowledges and agrees that its
use of the Licensed Trademarks shall be subject at all times during the Term to
the reasonable control of Licensor in order for Licensor to maintain the
consistent standard of quality associated with the Licensed Trademarks.
Licensee will preserve the good appearance of the Licensed Trademarks wherever
and whenever they are used and shall not use any Licensed Trademark in a manner
which is likely to derogate from the integrity, distinctiveness, goodwill,
value or strength of such Licensed Trademark.
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<PAGE> 5
Section 4.2. From time to time, Licensor may determine that a
previously published use of the Licensed Trademarks by Licensee may threaten
the value of the Licensed Trademarks, or is otherwise inconsistent with
Licensor's quality standards. Upon written notice from Licensor, Licensee
shall implement Licensor's directions regarding the proper use of the Licensed
Trademarks as promptly as practicable using its best efforts and, in any event,
within thirty (30) days.
Section 4.3. Except as required by law, Licensee agrees not
to use the Licensed Trademarks in connection or combination with any other
third-party trademarks, names or logotypes, without Licensor's prior written
approval, such approval not to be withheld unreasonably. Licensee shall at no
time adopt or use any variation of the Licensed Trademarks or any word or marks
confusingly similar thereto without Licensor's prior written approval.
Section 4.4. Licensee shall not take any action to cause an
abandonment or forfeiture of any of Licensor's rights in the Licensed
Trademarks and shall not take any action to cancel any registration in the
Territory of any Licensed Trademark in the name of Licensor or to interfere
with any renewal of any such registration. Licensee shall reasonably cooperate
with and shall not oppose any application by or on behalf of Licensor to
register or renew any registration of any Licensed Trademark in the Territory.
-5-
<PAGE> 6
ARTICLE V
QUALITY CONTROL
Section 5.1. Licensee agrees that all Products bearing a
Licensed Trademark pursuant to the Agreement shall be of a high standard and of
such quality as to protect and enhance the Licensed Trademarks and the goodwill
and value pertaining thereto and shall meet Licensee's quality standards.
Licensee and its Manufacturing Agents (as defined in Section 5.5 below) shall
manufacture, sell, distribute and promote the Products in accordance with all
applicable federal, state and local laws.
Section 5.2. In order to assure that Licensee meets
Licensor's quality standards and specifications, once each quarter of the Term
and/or for good cause shown, Licensee shall submit comprehensive affidavits
that meet with Licensor's reasonable approval from all of Licensee's quality
control department managers responsible for the quality standards of the
Products produced by that part of Licensee's or its Manufacturing Agents'
business for which they are responsible, attesting under oath that Licensor's
quality standards and Product specifications have been fully complied with
during the prior quarter, also submitting representative Product samples, if
any, and listing the number of customer complaints relating to Product quality
during that quarter and a summary of the actions taken by Licensee in response
to such complaints.
Section 5.3. Licensor also reserves the right periodically to
conduct quality control inspections, upon reasonable notice and during normal
business hours, at Licensee's
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<PAGE> 7
plants to determine if the Licensee's standards for the Products and the
processing thereof are being complied with.
Section 5.4. In the event that Licensor or its agents shall
determine that any Products sold or distributed by Licensee and/or its
Manufacturing Agents bearing or using Licensed Trademarks do not conform to
Licensee's standards, and/or otherwise violate the provisions of this Article
V, Licensee agrees, at its expense, to take such action as Licensor directs in
writing, including, but not limited to, withdrawal and/or recall of such
Products from the market and to refrain and cause its Manufacturing Agents to
refrain from further sale and/or distribution of such Products under the
Licensed Trademarks unless and until Licensee and/or its Manufacturing Agents
have demonstrated to the reasonable satisfaction of Licensor that said Products
conform to said standards and/or the provisions of the Article V, as the case
may be.
Section 5.5. If Licensee enters into co-packing agreements
with suppliers or any other arrangement with respect to the processing or
packaging of final Products by any person who is not a subsidiary of Licensee,
who will process or package final Products for the Licensee, for sale in the
Territory ("Manufacturing Agents"), Licensee must submit such co-packing
agreements in draft form to Licensor or an individual designated by Licensor
("Licensor's License Coordinator") for prior approval to ensure they include
trademark protection and quality control provisions that safeguard the rights
of both the Licensor and Licensee under this Agreement. Licensor agrees that
such prior
-7-
<PAGE> 8
approval shall not be withheld or delayed unreasonably, and that Licensor shall
respond promptly to any request for approval. If Licensor fails to respond to
such request within thirty (30) days, Licensor's approval shall be deemed
given.
Section 5.6. On a semi-annual basis, Licensee shall review
with Licensor's License Coordinator and obtain prior approval for, all
advertising, promotional and point-of-purchase materials published or
distributed by Licensee in connection with Products bearing Licensed
Trademarks. Licensor agrees that such prior approval shall not be withheld or
delayed unreasonably, and that Licensor shall respond promptly to any request
for approval. If Licensor fails to respond to such request within thirty (30)
days, Licensor's approval shall be deemed given.
Section 5.7. If Licensee desires to adopt new cartons or
packaging bearing the Licensed Trademarks, which package designs or trade dress
are different from those presently used by Licensor, Licensee shall submit to
Licensor's License Coordinator at least one (1) representative sample of each
such new carton and packaging material and may not use any such materials in
connection with the Licensed Trademarks without Licensor's prior written
approval. Licensor agrees that such prior approval shall not be withheld or
delayed unreasonably, and that Licensor shall respond promptly to any request
for approval. If Licensor fails to respond to such request within thirty (30)
days, Licensor's approval shall be deemed given.
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<PAGE> 9
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 6.1. Subject to the limitations of Section 6.2,
Licensor represents that it is the owner of or has the exclusive right to
license the Licensed Trademarks and is not aware of any other party with
ownership rights in the Territory in any of the Licensed Trademarks.
Section 6.2. Licensor represents that during the Term, it
will not license any other party to use the Licensed Trademarks on the Products
in the Territory and will not itself sell Products identified by the Licensed
Trademarks in the Territory. Nothing herein shall restrict Licensor's right or
ability to sell (or license others to sell) goods or services other than the
Products identified by the Licensed Trademarks or similar marks anywhere in the
world.
Section 6.3 Licensor shall take all steps necessary to insure
the continued registration of, including, but not limited to, filing all timely
renewals of registrations for the Licensed Trademarks.
Section 6.4. Licensee shall cooperate with Licensor in the
protection of the Licensed Trademarks and in connection therewith shall:
(a) promptly inform Licensor of any third-party use of any
Licensed Trademarks or any infringement or encroachment upon or any misuse
whatsoever of any Licensed Trademarks which comes to Licensee's attention; and
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<PAGE> 10
(b) promptly inform Licensor of any claim against Licensee
that the use of any Licensed Trademark infringes the rights of others or of the
institution of any proceeding against Licensee predicated upon any such claimed
infringement.
Section 6.5. Without limiting the effect of Section 3.1
hereof, Licensor and Licensee shall both have the right to take action in
respect of any Products bearing the Licensed Trademarks for any alleged
infringements of, or other impairments to, such Products. The party taking any
such action shall bear all expenses, have complete control over, and recover
all proceeds, settlements and damages with respect to the action.
Notwithstanding the foregoing sentence, the other party retains the right to
join such action and share evenly all expenses, control, proceeds, settlements
and damages with respect thereto, if such other party joins such action within
a reasonable time period following its commencement.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
Section 7.1. Licensor will hold Licensee harmless from and
against all suits, claims or actions by third parties against Licensee alleging
trademark infringement arising from Licensee's authorized use of any of the
Licensed Trademarks; provided that Licensee gives Licensor prompt written
notice of such suit, claim or action and cooperates fully with Licensor in
defending the same.
Section 7.2. Licensee hereby indemnifies and undertakes to
defend and hold Licensor harmless from and against
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any and all claims, suits, losses, damages, fines, penalties, and/or expenses,
including, but not limited to, attorneys' fees, arising out of or based upon:
(a) Licensee's or its Manufacturing Agents' processing,
distribution or sale of Products bearing a Licensed Trademark; or
(b) any breach by Licensee or its Manufacturing Agents of
their obligations hereunder; or
(c) any proceeding brought by any person, governmental agency
or consumer group in connection with the Products processed, sold or
distributed by Licensee or its Manufacturing Agents bearing or using a Licensed
Trademark; or
(d) any violations of any applicable law or regulation or
civil claims relating to the manufacture, processing, sale, distribution,
promotion or advertising of Products bearing or using a Licensed Trademark
unless attributable to Licensor's breach of its obligations under this
Agreement. Licensor may participate in the defense of any such litigation.
Section 7.3. Licensee shall be solely responsible for the
acts and omissions of those with whom it or its Manufacturing Agents contract
for any aspect of the processing, distribution or sale of Products bearing or
using a Licensed Trademark.
Section 7.4. In order to assure its ability to discharge its
obligations to Licensor, Licensee agrees that it will maintain throughout the
Term at its expense, comprehensive general liability insurance, including
product liability insurance and contractual liability coverage specifically
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endorsed to cover the indemnity provisions in this Agreement, from a carrier
satisfactory to Licensor, in a minimum amount of Five Million Dollars
($5,000,000) combined single limit for each single occurrence, for bodily
injury and property damage, which shall designate Licensor as an additional
insured therein. The policy shall provide for thirty (30) days prior written
notice to Licensor from the insurer in the event of any material modification,
cancellation or termination. Licensee shall deliver certificates of such
insurance coverage to Licensor prior to the sale and/or distribution of any
Products bearing a Licensed Trademark.
ARTICLE VIII
RELATIONSHIP
Section 8.1. The relationship between Licensor and the
Licensee is that of licensor and licensee; the Licensee, its contractors,
agents and employees shall under no circumstances be deemed agents,
franchisees, representatives, employees or partners of Licensor.
ARTICLE IX
TERM AND TERMINATION
Section 9.1. Subject to the provisions of Sections 9.2 and
9.3 hereof, the term of this Agreement shall be a period of five (5) years from
the date hereof (the "Initial Term") and for continuous subsequent five (5)
year terms (the "Renewal Period(s)").
Section 9.2. Licensee may cancel this Agreement upon no less
than one (1) year's written notice delivered to Licensor
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prior to the end of the Initial Term or the then-effective Renewal Period,
provided that, if Licensee does not give the required notice of termination,
the Agreement shall be automatically renewed for a subsequent Renewal Period.
Section 9.3. Licensor shall have the right to cancel and
terminate this Agreement immediately by written notice to Licensee upon the
occurrence of any one (1) or more of the following events:
(a) Licensee fails to deliver to Licensor or to maintain in
full force and effect the insurance referred to in Section 7.4; or
(b) Except as provided in 9.3(c), Licensee or its
Manufacturing Agents fail to commence and diligently pursue the cure of any
breach by them of a material provision of this Agreement within ten (10) days
of receipt of Licensor's written notice of such breach or to effect such cure
within twenty (20) days of receipt of such written notice; or
(c) The failure or refusal of Licensee or its Manufacturing
Agents:
(i) to, within ten (10) days of receipt of Licensor's
reasonable written instructions issued regarding the quality standards
of the Licensed Trademarks and Products, respond to such instructions
and commence a diligent attempt at cure, or to effect such cure within
twenty (20) days of receipt of such instructions; or
(ii) to perform, or comply with, any provision contained
in Article V which failure results in the
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production for sale of Products that are unsafe or unfit for human
consumption; or
(d) The insolvency of Licensee; an assignment by Licensee for
the benefit of creditors; the failure of Licensee to obtain the dismissal of
any involuntary bankruptcy or reorganization petition filed against it within
sixty (60) days from the date of such filing; the failure of Licensee to vacate
the appointment of a receiver for all or any part of its business within sixty
(60) days from the date of such appointment; or the dissolution of Licensee; or
(e) An involuntary recall of Products bearing the Licensed
Trademarks for reasons directly or indirectly related to the safety of such
Products and attributable to the negligence or intentional wrongdoing of
Licensee or its Manufacturing Agents; provided that Licensor determines in its
reasonable judgment that such event has had or is reasonably likely to have a
material adverse effect on the integrity, goodwill, value or strength of any of
the Licensed Trademarks; provided, further, that Licensor may terminate this
license under this Section 9.3(e) without regard to the immediately preceding
proviso upon or after the third occurrence within any 12-month period of an
event referred to in this Section 9.3(e).
Section 9.4. In the event that this Agreement is terminated
or expires, Licensee shall, and shall cause its Manufacturing Agents to,
immediately cease all use of the Licensed Trademarks, provided that Licensee
may dispose of inventory on hand of Products in the ordinary course of
business,
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which shall be no longer than 120 days, if Licensee complies with its
obligations under this Agreement. Upon the request of Licensor, Licensee will
immediately remove or obliterate any Licensed Trademark from all signs,
billboards, vehicles and from each and every other place and medium in which
they appear and destroy or surrender to Licensor all other materials of
whatever nature which bear or refer in any way to the Licensed Trademarks.
Section 9.5. Licensee hereby acknowledges and agrees that in
the event it breaches or otherwise defaults under Articles IV, V or X of this
Agreement, Licensor shall suffer immediate and irreparable harm for which there
is not an adequate remedy at law. Licensee agrees that Licensor shall be
entitled to equitable relief by way of injunction, in addition to any other
remedy available at law or in equity.
ARTICLE X
ASSIGNMENTS AND SUBLICENSES
Section 10.1. This Agreement shall not be assigned by
Licensee, in whole or in part, without the prior written consent of Licensor,
provided that Licensee may assign this Agreement or any part hereof without
Licensor's consent to any person or group of affiliated persons that acquire
all or a significant portion of the sweetened condensed milk business of
Licensee and its affiliates on the date hereof. From and after any permitted
assignment pursuant to this Section 10.1, the assignee shall be deemed to be a
Licensee for all purposes hereof.
Section 10.2. The license granted under Article II, Section
2.1(a) of this Agreement shall not be sublicensed by
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<PAGE> 16
Licensee, in whole or in part, without the prior written consent of Licensor,
which consent shall not be unreasonably withheld. In no event shall any
sublicense under this section relieve Licensee of any of its obligations under
this Agreement.
ARTICLE XI
NOTICE
All notices pursuant to this Agreement shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, as follows:
If to Licensor: Pat Ford
Southern Foods Group, L.P.
3114 South Haskell
Dallas, TX 75223
With copies thereof to: Anthony R. Ward, President and
Chief Executive Officer
Borden/Meadow Gold Dairies, Inc.
1104 E. Country Hills Drive
Suite 400
Ogden, Utah 84403
and
Ronald P. Moran, Esq.
General Counsel
Borden/Meadow Gold Dairies, Inc.
1104 E. Country Hills Drive
Suite 400
Ogden, Utah 84403
If to Licensee: Nancy Brown, Esq.
General Counsel
Borden Foods Corporation
180 East Broad Street
Columbus, Ohio 43215
With a copy thereof to: William F. Stoll, General Counsel
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215
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<PAGE> 17
Any notice delivered personally shall be deemed to have been given on the date
it is so delivered, and any notice delivered by registered or certified mail
shall be deemed to have been given on the date it is received. Either party by
notice in writing delivered or mailed to the other may change the name or
address or both to which future notices to such party shall be delivered.
ARTICLE XII
MISCELLANEOUS
Section 12.1. This Agreement and each of the appendices and
exhibits thereto constitute the entire understanding of the parties with
respect to the subject matter hereof, and supersede and merge all prior
agreements and discussions between the parties relating hereto. No changes in
the terms of this Agreement shall be valid, except when and if reduced to
writing and signed by both Licensee and Licensor.
Section 12.2. All rights and remedies which Licensor or
Licensee may have hereunder or by operation of law are cumulative, and the
pursuit of one right or remedy shall not be deemed an election to waive or
renounce any other right or remedy. Licensor or Licensee's failure to enforce
any provision hereof on any occasion shall not be deemed to waive any other
breach of any provision hereof. Any waiver of any provision of this Agreement
must be in writing and executed by the waiving party. No waiver of any breach
or default under this Agreement shall waive any other breach or default.
Section 12.3. The parties agree that each provision of this
Agreement shall be construed as separable and divisible from
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every other provision. Enforceability of any one provision shall not limit the
enforceability, in whole or in part, of any other provision hereof. If any
term or provision of this Agreement (or the application thereof to any party or
set of circumstances) shall be held invalid or unenforceable in any
jurisdiction and to any extent, it shall be ineffective only to the extent of
such invalidity or unenforceability and shall not invalidate or render
unenforceable any other terms or provisions of this Agreement (or such
applicability thereof).
Section 12.4. Licensee and Licensor agree to execute such
further documentation and perform such further actions as may be reasonably
requested by the other party hereto to evidence and effectuate further the
purposes and intents set forth in this Agreement.
Section 12.5. All representations, warranties and indemnities
contained in this Agreement shall survive any independent investigation made by
the benefiting party and the suspension, expiration or termination of this
Agreement.
Section 12.6. This Agreement, irrespective of place of
execution or performance, shall be construed and enforced in accordance with
the laws of the State of Delaware applicable to contracts executed and wholly
performed therein. Any and all actions or proceedings concerning this
Agreement shall, if brought by any party hereto, be instituted and resolved in
the courts of the State of Delaware or any federal court sitting in the State
of Delaware. Each party hereby consents to jurisdiction and service of process
in such locale.
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Section 12.7. Article and section headings and captions are
for convenience only and shall not be used in the construction or
interpretation of this Agreement or any terms herein.
Section 12.8. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORDEN FOODS CORPORATION
By: /s/
------------------------------------
Title:
SOUTHERN FOODS GROUP, L.P.
by SFG Management Limited Liability
Company, its General Partner
By: /s/ PETE SCHENKEL
------------------------------------
Title: President & CEO
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<PAGE> 20
Appendix A - Licensed Trademarks
<TABLE>
<CAPTION>
UNITED STATES TRADEMARK U.S. REG. NO.
- ----------------------- -------------
<S> <C>
MEADOW GOLD (stylized letters) 582,470
Shield Design 644,259
Milkwagon Design 1,412,503
</TABLE>
<PAGE> 1
EXHIBIT 10.9
TRADEMARK SUBLICENSE AGREEMENT
AGREEMENT made this 4th day of September, 1997, by and between
BORDEN FOODS CORPORATION, a Delaware corporation ("Sublicensor"), and
SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership ("Sublicensee").
W I T N E S S E T H :
WHEREAS, Sublicensor is the licensee of the EAGLE brand
trademarks used in connection with ice cream, and BDS Four Inc., a Delaware
corporation, composed of T.M.I. Associates, L.P., a Delaware limited
partnership ("Owner"), has obtained United States federal trademark
registrations therefor; and
WHEREAS, Sublicensee desires that Sublicensee and its
permitted assignees and sublicensees be allowed to process, sell and distribute
ice cream under the EAGLE BRAND trademark and certain related designs of
Sublicensor and seeks to have Sublicensor grant it the right to do so, all on
the terms and conditions hereinafter set out.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 The following terms shall have the meanings set
forth below:
"Licensed Trademarks" shall mean (i) the trademarks listed and
described in Appendix A, attached hereto, including the United States federal
trademark registrations and applications therefor and all common law rights in
such
<PAGE> 2
trademarks and any trade dress or label designs associated with such
trademarks, and (ii) any such other marks and trade dress or label designs as
the parties may agree in writing to add to Appendix A during the Term.
"Products" shall mean ice cream and any other product that the
parties agree in the future shall bear a Licensed Trademark.
"Term" shall have the meaning set forth in Article IX, Section
9.1.
"Territory" shall mean the United States.
"United States" shall mean only the 50 states comprising the
United States of America, and the District of Columbia, excluding without
limitation any U.S. possessions and territories.
ARTICLE II
GRANT OF LICENSE
Section 2.1. (a) Subject to the terms and conditions herein,
Sublicensor hereby grants to Sublicensee during the Term of this Agreement an
exclusive license to use the Licensed Trademarks solely on or in connection
with the Products in the Territory.
(b) This license is being entered into in connection with the
Stock Purchase and Merger Agreement dated as of May 22, 1997, among Mid-America
Dairymen, Inc., Borden, Inc., BDH Two, Inc. and Borden/Meadow Gold Dairies
Holdings, Inc. (the "Acquisition Agreement"), and the consummation by
Mid-America Dairymen, Inc., which is an affiliate of Sublicensee, will be
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<PAGE> 3
treated as consideration for the license granted under Section 2.1(a). No
other consideration shall be payable as consideration for the license granted
hereunder.
Section 2.2. Subject to the terms and conditions herein,
Sublicensee may use the Licensed Trademarks on Product containers, labels,
packaging and shipping cases and on delivery vehicles and in any other way
suitable to promote or advertise the Licensed Trademarks and the Products.
Section 2.3. Other than as expressly stated herein,
Sublicensee shall have no other right to use or interest in the Licensed
Trademarks. Specifically, Sublicensee may not use any of the Licensed
Trademarks in its trade name or as its business name or in connection with any
products, goods or services of any kind or nature whatsoever, whether or not
the same as or similar to the Products, other than the Products.
Notwithstanding the foregoing, upon termination of this Agreement, Sublicensee
shall have the right to use any pre-existing materials bearing the Licensed
Trademarks for a transitional phase-out period of 120 days, after which all use
of such materials must cease. Nothing contained in this Article or any other
provision of this Agreement shall restrict Sublicensor from the sale of other
products different from the Products bearing the Licensed Trademarks anywhere
in the world.
ARTICLE III
OWNERSHIP OF TRADEMARKS
Section 3.1. Sublicensee acknowledges and agrees that
Sublicensee will not gain any ownership interest in the Licensed
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<PAGE> 4
Trademarks under any circumstances. Sublicensee agrees not to directly or
indirectly question, attack, contest, or in any other manner impugn the
validity of the Licensed Trademarks, nor shall Sublicensee willingly become an
adverse party to Sublicensor or Owner in litigation contesting the
Sublicensor's or Owner's rights in and to the Licensed Trademarks.
Section 3.2. Sublicensee recognizes the value of the goodwill
associated with the Licensed Trademarks and acknowledges that the Licensed
Trademarks have acquired secondary meaning. Sublicensee shall be deemed a
"related company" under the U.S. Lanham Act, such that any use of the Licensed
Trademarks by Sublicensee, and any goodwill generated thereby, shall inure to
the sole benefit of Sublicensor and/or Owner. Sublicensee shall not take any
action that could be detrimental to the Licensed Trademarks or the goodwill
associated with the Licensed Trademarks, Sublicensor or Owner.
ARTICLE IV
FORM OF USE
Section 4.1. Sublicensee hereby acknowledges and agrees that
its use of the Licensed Trademarks shall be subject at all times during the
Term to the reasonable control of Sublicensor in order for Sublicensor to
maintain the consistent standard of quality associated with the Licensed
Trademarks. Sublicensee will preserve the good appearance of the Licensed
Trademarks wherever and whenever they are used and shall not use any Licensed
Trademark in a manner which is likely to derogate
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<PAGE> 5
from the integrity, distinctiveness, goodwill, value or strength of such
Licensed Trademark.
Section 4.2. From time to time, Sublicensor may determine
that a previously published use of the Licensed Trademarks by Sublicensee may
threaten the value of the Licensed Trademarks, or is otherwise inconsistent
with Sublicensor's quality standards. Upon written notice from Sublicensor,
Sublicensee shall implement Sublicensor's directions regarding the proper use
of the Licensed Trademarks as promptly as practicable using its best efforts
and, in any event, within thirty (30) days.
Section 4.3. Except as required by law, Sublicensee agrees
not to use the Licensed Trademarks in connection or combination with any other
third-party trademarks, names or logotypes, without Sublicensor's prior written
approval, such approval not to be withheld unreasonably. Sublicensee shall at
no time adopt or use any variation of the Licensed Trademarks or any word or
marks confusingly similar thereto without Sublicensor's prior written approval.
Section 4.4. Sublicensee shall not take any action to cause
an abandonment or forfeiture of any of Sublicensor's or Owner's rights in the
Licensed Trademarks and shall not take any action to cancel any registration in
the Territory of any Licensed Trademark in the name of Sublicensor or Owner or
to interfere with any renewal of any such registration. Sublicensee shall
reasonably cooperate with and shall not oppose any application by or on behalf
of Sublicensor or Owner to register
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<PAGE> 6
or renew any registration of any Licensed Trademark in the Territory.
ARTICLE V
QUALITY CONTROL
Section 5.1. Sublicensee agrees that all Products bearing a
Licensed Trademark pursuant to the Agreement shall be of a high standard and of
such quality as to protect and enhance the Licensed Trademarks and the goodwill
and value pertaining thereto and shall meet Sublicensee's quality standards.
Sublicensee and its Manufacturing Agents (as defined in Section 5.5 below)
shall manufacture, sell, distribute and promote the Products in accordance with
all applicable federal, state and local laws.
Section 5.2. In order to assure that Sublicensee meets
Sublicensor's quality standards and specifications, once each quarter of the
Term and/or for good cause shown, Sublicensee shall submit comprehensive
affidavits that meet with Sublicensor's reasonable approval from all of
Sublicensee's quality control department managers responsible for the quality
standards of the Products produced by that part of Sublicensee's or its
Manufacturing Agents' business for which they are responsible, attesting under
oath that Sublicensor's quality standards and Product specifications have been
fully complied with during the prior quarter, also submitting representative
Product samples, if any, and listing the number of customer complaints relating
to Product quality during that quarter and a
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summary of the actions taken by Sublicensee in response to such complaints.
Section 5.3. Sublicensor reserves the right periodically to
conduct quality control inspections, upon reasonable notice and during normal
business hours, at Sublicensee's plants to determine if the Sublicensee's
standards are being complied with.
Section 5.4. In the event that Sublicensor or its agents
shall determine that any Products sold or distributed by Sublicensee and/or its
Manufacturing Agents bearing or using Licensed Trademarks do not conform to
Sublicensee's standards, and/or otherwise violate the provisions of this
Article V, Sublicensee agrees, at its expense, to take such action as
Sublicensor directs in writing, including, but not limited to, withdrawal
and/or recall of such Products from the market and to refrain and cause its
Manufacturing Agents to refrain from further sale and/or distribution of such
Products under the Licensed Trademarks unless and until Sublicensee and/or its
Manufacturing Agents have demonstrated to the reasonable satisfaction of
Sublicensor that said Products conform to said standards and/or the provisions
of the Article V, as the case may be.
Section 5.5. If Sublicensee enters into co-packing agreements
with suppliers or any other arrangement with respect to the processing or
packaging of final Products by any person who is not a subsidiary of
Sublicensee, who will process or package final Products for the Sublicensee,
for sale in the
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<PAGE> 8
Territory ("Manufacturing Agents"), Sublicensee must submit such co-packing
agreements in draft form to Sublicensor or an individual designated by
Sublicensor ("Sublicensor's License Coordinator") for prior approval to ensure
they include trademark protection and quality control provisions that safeguard
the rights of both the Sublicensor and Sublicensee under this Agreement.
Sublicensor agrees that such prior approval shall not be withheld or delayed
unreasonably, and that Sublicensor shall respond promptly to any request for
approval. If Sublicensor fails to respond to such request within thirty (30)
days, Sublicensor's approval shall be deemed given.
Section 5.6. On a quarterly basis, Sublicensee shall review
with Sublicensor's License Coordinator and obtain prior approval for, all
advertising, promotional and point-of-purchase materials published or
distributed by Sublicensee in connection with Products bearing Licensed
Trademarks. Sublicensor agrees that such prior approval shall not be withheld
or delayed unreasonably, and that Sublicensor shall respond promptly to any
request for approval. If Sublicensor fails to respond to such request within
thirty (30) days, Sublicensor's approval shall be deemed given.
Section 5.7. If Sublicensee desires to adopt new cartons or
packaging bearing the Licensed Trademarks, which package designs or trade dress
are different from those presently used by Sublicensor, Sublicensee shall
submit to Sublicensor's License Coordinator at least one (1) representative
sample of each such new carton and packaging material and may not use any
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<PAGE> 9
such materials in connection with the Licensed Trademarks without Sublicensor's
prior written approval. Sublicensor agrees that such prior approval shall not
be withheld or delayed unreasonably, and that Sublicensor shall respond
promptly to any request for approval. If Sublicensor fails to respond to such
request within thirty (30) days, Sublicensor's approval shall be deemed given.
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 6.1. SUBLICENSEE ACKNOWLEDGES THAT SUBLICENSOR MAKES
NO REPRESENTATION OR WARRANTY WHATSOEVER AS TO OWNERSHIP OR VALUE OF THE
LICENSED MARKS. THE LICENSED MARKS ARE HEREBY LICENSED TO SUBLICENSEE ON AN
"AS IS" BASIS, AND SUBLICENSEE SHALL BEAR THE ECONOMIC AND LEGAL RISK THAT
SUBLICENSOR'S RIGHT TO USE THE LICENSED MARKS SHALL BE OTHER THAN GOOD AND
MARKETABLE AND FREE FROM ENCUMBRANCES AND THAT THE LICENSED MARKS SHALL BE
VALID AND FREE FROM CONFLICT IN THE TERRITORY.
Section 6.2. Sublicensor represents that during the Term, it
will not license any other party to use the Licensed Trademarks on the Products
in the Territory and will not itself sell Products identified by the Licensed
Trademarks in the Territory. Nothing herein shall restrict Sublicensor's right
or ability to sell (or license others to sell) goods or services other than the
Products identified by the Licensed Trademarks or similar marks anywhere in the
world.
Section 6.3 Sublicensor shall take all steps necessary to
insure the continued registration of, including, but not
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<PAGE> 10
limited to, filing all timely renewals of registrations for the Licensed
Trademarks.
Section 6.4. Sublicensee shall cooperate with Sublicensor in
the protection of the Licensed Trademarks and in connection therewith shall:
(a) promptly inform Sublicensor of any third-party use of any
Licensed Trademarks or any infringement or encroachment upon or any misuse
whatsoever of any Licensed Trademarks which comes to Sublicensee's attention;
and
(b) promptly inform Sublicensor of any claim against
Sublicensee that the use of any Licensed Trademark infringes the rights of
others or of the institution of any proceeding against Sublicensee predicated
upon any such claimed infringement.
Section 6.5. Without limiting the effect of Section 3.1
hereof, Sublicensor and Sublicensee shall both have the right to take action in
respect of any Products bearing the Licensed Trademarks for any alleged
infringements of, or other impairments to, such Products. The party taking any
such action shall bear all expenses, have complete control over, and recover
all proceeds, settlements and damages with respect to the action.
Notwithstanding the foregoing sentence, the other party retains the right to
join such action and share evenly all expenses, control, proceeds, settlements
and damages with respect thereto, if such other party joins such action within
a reasonable time period following its commencement.
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<PAGE> 11
ARTICLE VII
INDEMNIFICATION AND INSURANCE
Section 7.1. Sublicensor will hold Sublicensee harmless from
and against all suits, claims or actions by third parties against Sublicensee
alleging trademark infringement arising from Sublicensee's authorized use of
any of the Licensed Trademarks; provided that Sublicensee gives Sublicensor
prompt written notice of such suit, claim or action and cooperates fully with
Sublicensor in defending the same.
Section 7.2. Sublicensee hereby indemnifies and undertakes to
defend and hold Sublicensor harmless from and against any and all claims,
suits, losses, damages, fines, penalties, and/or expenses, including, but not
limited to, attorneys' fees, arising out of or based upon:
(a) Sublicensee's or its Manufacturing Agents' processing,
distribution or sale of Products bearing a Licensed Trademark; or
(b) any breach by Sublicensee or its Manufacturing Agents of
their obligations hereunder; or
(c) any proceeding brought by any person, governmental agency
or consumer group in connection with the Products processed, sold or
distributed by Sublicensee or its Manufacturing Agents bearing or using a
Licensed Trademark; or
(d) any violations of any applicable law or regulation or
civil claims relating to the manufacture, processing, sale, distribution,
promotion or advertising of Products bearing or using a Licensed Trademark
unless attributable to Sublicensor's
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<PAGE> 12
breach of its obligations under this Agreement. Sublicensor may participate in
the defense of any such litigation.
Section 7.3. Sublicensee shall be solely responsible for the
acts and omissions of those with whom it or its Manufacturing Agents contract
for any aspect of the processing, distribution or sale of Products bearing or
using a Licensed Trademark.
Section 7.4. In order to assure its ability to discharge its
obligations to Sublicensor, Sublicensee agrees that it will maintain throughout
the Term at its expense, comprehensive general liability insurance, including
product liability insurance and contractual liability coverage specifically
endorsed to cover the indemnity provisions in this Agreement, from a carrier
satisfactory to Sublicensor, in a minimum amount of Five Million Dollars
($5,000,000) combined single limit for each single occurrence, for bodily
injury and property damage, which shall designate Sublicensor as an additional
insured therein. The policy shall provide for thirty (30) days prior written
notice to Sublicensor from the insurer in the event of any material
modification, cancellation or termination. Sublicensee shall deliver
certificates of such insurance coverage to Sublicensor prior to the sale and/or
distribution of any Products bearing a Licensed Trademark.
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<PAGE> 13
ARTICLE VIII
RELATIONSHIP
Section 8.1. The relationship between Sublicensor and the
Sublicensee is that of licensor and licensee; the Sublicensee, its contractors,
agents and employees shall under no circumstances be deemed agents,
franchisees, representatives, employees or partners of Sublicensor.
ARTICLE IX
TERM AND TERMINATION
Section 9.1. Subject to the provisions of Sections 9.2
hereof, the term of this Agreement (the "Term") shall be a period of one (1)
year from the date hereof .
Section 9.2. Sublicensor shall have the right to cancel and
terminate this Agreement immediately by written notice to Sublicensee upon the
occurrence of any one (1) or more of the following events:
(a) Sublicensee fails to deliver to Sublicensor or to
maintain in full force and effect the insurance referred to in Section 7.4; or
(b) Except as provided in 9.3(c), Sublicensee or its
Manufacturing Agents fail to commence and diligently pursue the cure of any
breach by them of a material provision of this Agreement within ten (10) days
of receipt of Sublicensor's written notice of such breach or to effect such
cure within twenty (20) days of receipt of such written notice; or
(c) The failure or refusal of Sublicensee or its
Manufacturing Agents:
-13-
<PAGE> 14
(i) to, within ten (10) days of receipt of Sublicensor's
reasonable written instructions issued regarding the quality standards
of the Licensed Trademarks and Products, respond to such instructions
and commence a diligent attempt at cure, or to effect such cure within
twenty (20) days of receipt of such instructions; or
(ii) to perform, or comply with, any provision contained
in Article V which failure results in the production for sale of
Products that are unsafe or unfit for human consumption; or
(d) The insolvency of Sublicensee; an assignment by
Sublicensee for the benefit of creditors; the failure of Sublicensee to obtain
the dismissal of any involuntary bankruptcy or reorganization petition filed
against it within sixty (60) days from the date of such filing; the failure of
Sublicensee to vacate the appointment of a receiver for all or any part of its
business within sixty (60) days from the date of such appointment; or the
dissolution of Sublicensee; or
(e) An involuntary recall of Products bearing the Licensed
Trademarks for reasons directly or indirectly related to the safety of such
Products and attributable to the negligence or intentional wrongdoing of
Sublicensee or its Manufacturing Agents; provided that Sublicensor determines
in its reasonable judgment that such event has had or is reasonably likely to
have a material adverse effect on the integrity, goodwill, value or strength of
any of the Licensed Trademarks; provided, further, that Sublicensor may
terminate this license under this Section
-14-
<PAGE> 15
9.3(e) without regard to the immediately preceding proviso upon or after the
third occurrence within any 12-month period of an event referred to in this
Section 9.3(e).
Section 9.3. In the event that this Agreement is terminated
or expires, Sublicensee shall, and shall cause its Manufacturing Agents to,
immediately cease all use of the Licensed Trademarks, provided that Sublicensee
may dispose of inventory on hand of Products in the ordinary course of
business, which shall be no longer than 120 days, if Sublicensee complies with
its obligations under this Agreement. Upon the request of Sublicensor,
Sublicensee will immediately remove or obliterate any Licensed Trademark from
all signs, billboards, vehicles and from each and every other place and medium
in which they appear and destroy or surrender to Sublicensor all other
materials of whatever nature which bear or refer in any way to the Licensed
Trademarks.
Section 9.4. Sublicensee hereby acknowledges and agrees that
in the event it breaches or otherwise defaults under Articles IV, V or X of
this Agreement, Sublicensor shall suffer immediate and irreparable harm for
which there is not an adequate remedy at law. Sublicensee agrees that
Sublicensor shall be entitled to equitable relief by way of injunction, in
addition to any other remedy available at law or in equity.
-15-
<PAGE> 16
ARTICLE X
ASSIGNMENTS AND SUBLICENSES
Section 10.1. This Agreement shall not be assigned by
Sublicensee, in whole or in part, without the prior written consent of
Sublicensor.
Section 10.2. The license granted under Article II, Section
2.1(a) of this Agreement shall not be sublicensed by Sublicensee, in whole or
in part, without the prior written consent of Sublicensor, which consent shall
not be unreasonably withheld. In no event shall any sublicense under this
section relieve Sublicensee of any of its obligations under this Agreement.
ARTICLE XI
NOTICE
All notices pursuant to this Agreement shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
return receipt requested, as follows:
If to Sublicensee: Pat Ford
Southern Foods Group, L.P.
3114 South Haskell
Dallas, Texas 75223
With copies thereof to: Anthony R. Ward, President and
Chief Executive Officer
Borden/Meadow Gold Dairies, Inc.
1104 E. Country Hills Drive
Suite 400
Ogden, Utah 84403
-16-
<PAGE> 17
and
Ronald P. Moran, Esq.
General Counsel
Borden/Meadow Gold Dairies, Inc.
1104 E. Country Hills Drive
Suite 400
Ogden, Utah 84403
If to Sublicensor: Nancy Brown, Esq.
General Counsel
Borden Foods Corporation
180 East Broad Street
Columbus, Ohio 43215
With a copy thereof to: William F. Stoll, General Counsel
Borden, Inc.
180 East Broad Street
Columbus, Ohio 43215
Any notice delivered personally shall be deemed to have been given on the date
it is so delivered, and any notice delivered by registered or certified mail
shall be deemed to have been given on the date it is received. Either party by
notice in writing delivered or mailed to the other may change the name or
address or both to which future notices to such party shall be delivered.
ARTICLE XII
MISCELLANEOUS
Section 12.1. This Agreement and each of the appendices and
exhibits thereto constitute the entire understanding of the parties with
respect to the subject matter hereof, and supersede and merge all prior
agreements and discussions between the parties relating hereto. No changes in
the terms of this Agreement shall be valid, except when and if reduced to
writing and signed by both Sublicensee and Sublicensor.
-17-
<PAGE> 18
Section 12.2. All rights and remedies which Sublicensor or
Sublicensee may have hereunder or by operation of law are cumulative, and the
pursuit of one right or remedy shall not be deemed an election to waive or
renounce any other right or remedy. Sublicensor or Sublicensee's failure to
enforce any provision hereof on any occasion shall not be deemed to waive any
other breach of any provision hereof. Any waiver of any provision of this
Agreement must be in writing and executed by the waiving party. No waiver of
any breach or default under this Agreement shall waive any other breach or
default.
Section 12.3. The parties agree that each provision of this
Agreement shall be construed as separable and divisible from every other
provision. Enforceability of any one provision shall not limit the
enforceability, in whole or in part, of any other provision hereof. If any
term or provision of this Agreement (or the application thereof to any party or
set of circumstances) shall be held invalid or unenforceable in any
jurisdiction and to any extent, it shall be ineffective only to the extent of
such invalidity or unenforceability and shall not invalidate or render
unenforceable any other terms or provisions of this Agreement (or such
applicability thereof).
Section 12.4. Sublicensee and Sublicensor agree to execute
such further documentation and perform such further actions as may be
reasonably requested by the other party hereto to evidence and effectuate
further the purposes and intents set forth in this Agreement.
-18-
<PAGE> 19
Section 12.5. All representations, warranties and indemnities
contained in this Agreement shall survive any independent investigation made by
the benefiting party and the suspension, expiration or termination of this
Agreement.
Section 12.6. This Agreement, irrespective of place of
execution or performance, shall be construed and enforced in accordance with
the laws of the State of Delaware applicable to contracts executed and wholly
performed therein. Any and all actions or proceedings concerning this
Agreement shall, if brought by any party hereto, be instituted and resolved in
the courts of the State of Delaware or any federal court sitting in the State
of Delaware. Each party hereby consents to jurisdiction and service of process
in such locale.
Section 12.7. Article and section headings and captions are
for convenience only and shall not be used in the construction or
interpretation of this Agreement or any terms herein.
Section 12.8. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together constitute one and the same instrument.
-19-
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
SOUTHERN FOODS GROUP, L.P.
By SFG Management Limited Liability
Company, its General Partner
By: /s/ PETE SCHENKEL
------------------------------------
Title: President & CEO
BORDEN FOODS CORPORATION
By: /s/
------------------------------------
Title:
-20-
<PAGE> 21
Appendix A - Licensed Trademarks
<TABLE>
<CAPTION>
UNITED STATES TRADEMARK U.S. REG. NO.
- ----------------------- -------------
<S> <C>
EAGLE 1,499,835
</TABLE>
<PAGE> 1
EXHIBIT 10.10
Execution Copy
COPYRIGHT ASSIGNMENT
This Copyright Assignment is made and entered into by and between
Borden, Inc., a Delaware corporation, (hereinafter "ASSIGNOR"), and Southern
Foods Group, L.P., a Delaware limited partnership, (hereinafter "ASSIGNEE").
WHEREAS, Assignor is the owner of the copyrights in the works
described in Schedule A, copies of which have been registered with the U.S.
Copyright Office (the "Works");
WHEREAS Assignor desires to assign its rights, including copyright, in
the Works to Assignee;
NOW THEREFORE, in consideration for One Dollar ($1.00) and good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Assignor and Assignee hereby agree as follows:
Assignor hereby assigns to Assignee all right, title, and interest in
the Works, including copyright throughout the world (and any renewals and
extensions of copyright), and all rights under copyright in all forms or media
now or hereafter known, including the exclusive right to publish, perform,
display, reproduce, print, distribute, and sell the Work, and to license
exercise of any such rights, in the English language and all other languages,
throughout the world, together with any Copyright Registrations therein. In the
event that the Works are the subject of any copyright registrations, Assignee
shall be responsible for recording the transfer of the rights under the
copyright in conformity with United States law and the Universal Copyright
Convention with the United States Copyright Office with respect to any such
Copyright Registrations.
IN WITNESS WHEREOF, the parties set forth their signatures hereto this
4th day of September, 1997.
BORDEN, INC.
By: /s/ R. R. HALSEY
---------------------------------
Its: V.P. Corporate Dev.
---------------------------------
Copyright Assignment - Page 1
<PAGE> 2
ACCEPTED BY:
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, its General Partner
By: /s/ PATRICK K. FORD
----------------------------------
Patrick K. Ford, Assistant Secretary
STATE OF New York )
)
)
COUNTY OF New York )
BEFORE ME, on this day personally appeared Roy R. Halsey, known to me
to be the person whose name is subscribed to the foregoing instrument on behalf
of Borden, Inc. and acknowledged to me that he executed the same on behalf of
the corporation as the VP Corp. Dev. - for the purposes and consideration
therein expressed.
Subscribed to and sworn to before me this 4th day of September, 1997.
/s/ MARY ANN SURGOT
-------------------------------------
Notary Public in and for the
State of New York
Printed Name: Mary Ann Surgot
-----------------------
My Commission Expires: 6/23/98
---------------
Copyright Assignment - Page 2
<PAGE> 3
SCHEDULE A
<TABLE>
<CAPTION>
TYPE OF
TITLE OF WORK REGISTRATION # MERCHANDISE
- ------------- -------------- -----------
<S> <C> <C>
"Borden's Dutch Chocolate Drink" KK 90978 Milk
"A wonderful new treat from Borden's! - KK 115873 Milk
Borden's Dutch chocolate flavored drink -
the finest imported dutch cocoa gives it the
most wonderful chocolate flavor! - It's rich
with real milk nourishment!"
"Borden's Golden Vanilla Ice Cream!*** KK 192302 Ice Cream
Brings Back *** Memories"
</TABLE>
<PAGE> 1
EXHIBIT 10.11
Execution Copy
PATENT ASSIGNMENT
WHEREAS, Borden/Meadow Gold Dairies, Inc., a Delaware corporation
(hereinafter "ASSIGNOR"), is the owner of several patents related to milk
products and packaging as listed in Schedule A to this Agreement (the
"PATENTS");
WHEREAS, Southern Foods Group, L.P., a Delaware limited partnership
(hereinafter "ASSIGNEE"), desires to acquire the entire right, title and
interest in, to and under the above invention and application in the United
States and in any and all foreign countries;
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00)
being paid to Assignor, the receipt of which is hereby acknowledged, and other
good and valuable consideration, Assignor does hereby sell, assign, and
transfer, and by these presents does sell, assign and transfer unto Assignee,
the full and exclusive right to the Patents.
IN TESTIMONY WHEREOF, we have executed this Agreement as of the 4th
day of September, 1997.
BORDEN/MEADOW GOLD DAIRIES, INC.
By: /s/ DAVID A. GEISLER
------------------------------------
David A. Geisler, Vice President
ACCEPTED BY:
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, its General Partner
By: /s/ PATRICK K. FORD
------------------------------------
Patrick K. Ford, Assistant Secretary
Patent Assignment - Page 1
<PAGE> 2
STATE OF New York )
)
)
COUNTY OF New York )
BEFORE ME, on this day personally appeared David A. Geisler, known to
me to be the person whose name is subscribed to the foregoing instrument on
behalf of Borden/Meadow Gold Dairies, Inc. and acknowledged to me that he
executed the same on behalf of the corporation as the Vice President for the
purpose and consideration therein expressed.
Subscribed to and sworn to before me this 3rd day of September, 1997.
<TABLE>
<S> <C>
PAMELA WARNER /s/ PAMELA WARNER
--------------------------------
Notary Public, State of New York Notary Public in and for
No. 01WA5067161 the State of New York
Qualified In Kings County
Commission Expires October 15, 1998 Printed Name: Pamela Warner
My Commission Expires: Oct. 15, 1998
</TABLE>
Patent Assignment -Page 2
<PAGE> 3
SCHEDULE A
<TABLE>
<CAPTION>
PATENT NUMBER TITLE ISSUE DATE COUNTRY
------------- ----- ---------- -------
<S> <C> <C> <C>
4,701,329 "Calcium Fortified Milk" 10/20/87 United States
4,851,243 "Calcium Fortified Aseptic Milk" 07/25/89 United States
4,888,194 "Shelf-Stable Aseptic Dairy Product" 12/19/89 United States
(Aseptic Whipping Cream)
4,935,255 "Controlled Headspace Gas Packaging" 06/19/90 United States
4,956,186 "Process for the Production of Low
Calorie Yogurt" 09/11/90 United States
4,971,810 "Fiber Enriched Yogurt" 11/20/90 United States
</TABLE>
<PAGE> 1
EXHIBIT 10.12
Execution Copy
================================================================================
ASSET PURCHASE AGREEMENT
AMONG
SOUTHERN FOODS GROUP, L.P.
BUYER
AND
BORDEN/MEADOW GOLD DAIRIES INVESTMENTS, INC.
SELLER
AND
MID-AMERICA DAIRYMEN, INC.
FOR THE PURCHASE AND SALE
OF THE ASSETS OF BORDEN/MEADOW GOLD DAIRIES INVESTMENTS, INC.
-------------------------------
SEPTEMBER 4, 1997
-------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. "Assumed Liabilities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. "Assumption Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3. "Closing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4. "Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5. "Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6. "Intellectual Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.7. "Liabilities" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.8. "Lien" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.9. "Losses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.10. "Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.11. "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.12. "Purchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.13. "Purchased Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.14. "Seller Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.15. "Taxes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.16. "Trademark Assignment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II PURCHASE AND SALE OF PURCHASED ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.1. Payment of Purchase Price for Purchased Assets . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.2. Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE V REPRESENTATIONS AND WARRANTIES
OF SELLER AND MID-AM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 5.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 5.2. Authority; Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 5.3. Title to Purchased Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5.4. No Injunctions or Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5.6. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5.7. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 6.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 6.2. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 6.3. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 6.4. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE VII INDEMNIFICATION AND NATURE
AND SURVIVAL OF REPRESENTATIONS AND
WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7.1. Indemnities by Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7.2. Limitations Upon Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7.3. Indemnities by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7.4. Limitations Upon Indemnification by Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 7.5. Indemnity Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VIII FURTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.1. Additional Actions by Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.2. Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.3. Costs and Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8.4. Books and Records after Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IX CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 9.1. Closing; Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 9.2. Seller's Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 9.3. Buyer's Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 10.1. Entire Understanding, Waiver, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 10.2. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 10.3. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 10.4. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 10.5. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10.6. Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10.8. Construction of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10.9. Attorneys' Fees and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10.10. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10.11. Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 10.12. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 10.13. DTPA Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
SCHEDULES AND EXHIBITS
EXHIBIT A - ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT B - TRADEMARK ASSIGNMENT
iii
<PAGE> 5
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into as of
the 4th day of September,1997, by and among BORDEN/MEADOW GOLD DAIRIES
INVESTMENTS, INC., a Delaware corporation ("Seller"), SOUTHERN FOODS GROUP,
L.P., a Delaware limited partnership ("Buyer"), and is joined in by MID-AMERICA
DAIRYMEN, INC., a Kansas cooperative marketing association ("Mid-Am"), for the
limited purposes hereinafter set forth.
WHEREAS, simultaneously with, or immediately prior to, the execution
of this Agreement, the transactions contemplated by that certain Stock Purchase
and Merger Agreement dated as of May 22, 1997 (the "Borden Purchase
Agreement"), among Mid-Am, Borden/Meadow Gold Dairies Holdings, Inc.
("Holdings"), BDH Two, Inc. and Borden, Inc. have been consummated, pursuant to
which Mid-Am has acquired all of the issued and outstanding common stock and
preferred stock of Holdings;
WHEREAS, as a result of the closing of the Borden Purchase Agreement
and the subsequent merger of Holdings into Mid-Am, Seller has become a
wholly-owned subsidiary of Mid-Am;
WHEREAS, Seller owns certain assets, including without limitation the
Meadow Gold and Viva trademarks, all of which are used in dairy operations of
Holdings in the Western United States (such dairy business herein called the
"Business");
WHEREAS, simultaneously with, or immediately prior to, the execution
of this Agreement, Mid-Am has contributed the Business to Buyer as a capital
contribution and Buyer desires to purchase from Seller and Seller desires to
sell to Buyer, on the terms and subject to the conditions of this Agreement,
all of the assets owned by Seller;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties agree
as follows.
ARTICLE I
DEFINITIONS
The terms defined in this Article shall have the following respective
meanings for all purposes of this Agreement and all schedules and exhibits
hereto:
SECTION 1.1. "ASSUMED LIABILITIES" means all Liabilities of
Seller.
1
<PAGE> 6
SECTION 1.2. "ASSUMPTION AGREEMENT" means that certain
Assignment and Assumption Agreement, in the form attached hereto as Exhibit A
to this Agreement, to be executed and delivered by Buyer and Seller at the
Closing.
SECTION 1.3. "CLOSING" means the consummation and effectuation
of the transactions contemplated herein pursuant to the terms and conditions of
this Agreement and shall occur simultaneously with the execution hereof at such
place as is mutually agreed upon by the parties hereto.
SECTION 1.4. "CLOSING DATE" means the date of this Agreement.
SECTION 1.5. "CODE" means the Internal Revenue Code of 1986,
as amended.
SECTION 1.6. "INTELLECTUAL PROPERTY" means all of Seller's
trademarks, trademark registrations, trademark applications, trade names,
patents, patent applications, trade secrets, service marks, copyrights,
copyright registrations, copyright applications, logos, technical drawings and
specifications, standards and guidelines, processes, designs, formulae,
inventions, ideas and concepts reduced to writing by Seller, advertising and
media materials, and other information, know-how and intellectual property
rights, including without limitation the Meadow Gold and Viva trademarks and
other intellectual property listed on Exhibit A to the Trademark Assignment (as
defined in Section 1.16 herein) (collectively, the "INTELLECTUAL PROPERTY").
SECTION 1.7. "LIABILITIES" means any direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, known or unknown, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise, including, without limitation, liabilities on account of Taxes,
other governmental charges or lawsuits brought, whether or not of the kind
required by generally accepted accounting principles to be set forth on a
financial statement.
SECTION 1.8. "LIEN" means any lien, pledge, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction, or any other encumbrance, restriction or
limitation whatsoever.
SECTION 1.9. "LOSSES" means any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies, including interest, penalties and attorneys' fees and
disbursements and costs of investigation.
SECTION 1.10. "NOTICE" means any notice given pursuant to the
terms of Section 10.4.
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SECTION 1.11. "PERSON" means an individual, partnership,
corporation, trust, unincorporated organization, association or joint venture
or a government, agency, political subdivision or instrumentality thereof.
SECTION 1.12. "PURCHASE PRICE" means the Purchase Price as
established in accordance with Section 4.1.
SECTION 1.13. "PURCHASED ASSETS" means all assets of Seller
as of the Closing, including without limitation, the Intellectual Property.
SECTION 1.14. "SELLER DOCUMENTS" shall have the meaning set
forth in Section 5.2.
SECTION 1.15. "TAXES" means all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use,
documentary, ad valorem, value-added, transfer, franchise, profits, license,
lease, real property gains or transfer, service, service use, rental,
withholding, payroll, employment, excise, workers' compensation, Pension
Benefit Guaranty Corporation premiums, serverance, stamp, occupation, premium,
property, windfall profits, production, customs, duties or other taxes,
assessments, fees, levies or other governmental charges of any kind whatever,
together with any interest and any penalties, additions to tax or additional
amounts with respect thereto, and the term "TAX" means any one of the foregoing
Taxes.
SECTION 1.16 "TRADEMARK ASSIGNMENT" means that certain
Trademark Assignment dated the Closing Date by and between Seller as assignor
and Buyer as assignee substantially in the form of Exhibit B.
ARTICLE II
PURCHASE AND SALE OF PURCHASED ASSETS
On the terms and subject to the conditions hereof, Seller
hereby agrees to sell, assign and convey to Buyer, and Buyer hereby agrees to
purchase from Seller, all of the Purchased Assets.
ARTICLE III
ASSUMPTION OF LIABILITIES
On the terms and subject to the conditions hereof, Buyer
hereby agrees to assume, perform and discharge when and as the same become due,
all of the Liabilities of Seller as of the Closing Date.
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ARTICLE IV
PURCHASE PRICE
SECTION 4.1. PAYMENT OF PURCHASE PRICE FOR PURCHASED ASSETS.
Buyer will pay Seller $_____________, the appraised value of the Purchased
Assets as determined by an independent appraiser. Buyer shall pay such purchase
price to Seller by wire transfer of immediately available funds on the date
hereof, which wire transfer shall be made in accordance with Seller's written
wire instructions previously provided to Buyer.
SECTION 4.2. ALLOCATION OF PURCHASE PRICE. The Purchase Price
shall be allocated as mutually agreed by the parties subsequent to the Closing
(excluding transaction costs incurred by the respective parties). At the
Closing, Buyer and Seller will endeavor in good faith to allocate that portion
of the Purchase Price as is necessary or appropriate in connection with the
payment of applicable documentary stamp taxes, intangible taxes or other
transfer taxes incurred as a result of the Closing. Buyer and Seller shall
timely (and in no event later than three (3) months following the Closing Date)
complete a Form 8594, Asset Acquisition Statement of Allocation, consistent
with such mutually agreed allocation (excluding transaction costs), shall
provide such form to the other parties thereto and shall file a copy of such
form with its federal income tax return for the period that includes the
Closing Date. Each of Buyer and Seller further agrees not to take any position
inconsistent with such mutually agreed allocation for any tax purpose.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF SELLER AND MID-AM
Seller hereby represents and warrants to Buyer as follows:
SECTION 5.1. ORGANIZATION. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate right, power and authority to own its
assets and to carry out its business as presently conducted.
SECTION 5.2. AUTHORITY; CONSENTS AND APPROVALS. Seller has all
requisite corporate right, power and authority to execute, deliver and perform
this Agreement and all other documents and agreements referenced herein to be
executed and delivered pursuant hereto (together, the "SELLER DOCUMENTS"). The
execution, delivery, and performance of the Seller Documents by Seller have
been duly and validly authorized and approved by all necessary corporate
action. The Seller Documents constitute the legal, valid and binding
obligations of Seller, enforceable against it in accordance with their terms.
The execution,
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delivery and performance of the Seller Documents by Seller will not (with or
without the giving of notice or the passage of time, or both) (a) to the
knowledge of Seller, violate any applicable provision of law or any rule or
regulation of any federal, state or local administrative agency or governmental
authority applicable to Seller, the Business or the Purchased Assets, (b)
violate any order, writ, injunction, judgment or decree of any court,
administrative agency or governmental authority applicable to Seller, the
Business or the Purchased Assets, (c) violate Seller's certificates of
incorporation or bylaws, as each is amended to the date hereof, (d) require any
consent under or constitute a default under any agreement, indenture, mortgage,
deed of trust, lease, or other instrument to which Seller is a party or by
which such party is bound, or any license, permit or certificate held by either
such party, (e) require any consent of, approval by, notice to or registration
with any governmental authority other than in compliance with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), or (f)
result in the creation of any Lien upon any of the Purchased Assets.
SECTION 5.3. TITLE TO PURCHASED ASSETS. To Seller's knowledge,
(i) Seller has good and indefeasible title to and the right to assign the
Purchased Assets free and clear of all Liens and has the full right and power
to transfer to Buyer good and indefeasible title to such Purchased Assets, (ii)
the assets described in Article II which are being sold by Seller to Buyer
pursuant to the terms of this Agreement constitute all of the assets owned by
Seller, and (iii) Seller is conveying to Buyer good and indefeasible title to
the Purchased Assets described in Article II, free and clear of any and all
Liens.
SECTION 5.4. NO INJUNCTIONS OR ORDERS. Seller is not a party
to any agreement, nor is it subject to or threatened with any injunctions of
any court or orders of any federal, state or municipal court or governmental
department, commission, board, bureau, agency or instrumentality, which would
limit or otherwise adversely affect the Purchased Assets or would limit or
otherwise adversely affect Buyer's ability to own or use the Purchased Assets
after Closing substantially as such Purchased Assets are currently owned or
used by Seller.
SECTION 5.5. LITIGATION. There is no suit, action,
administrative proceeding, arbitration, grievance or other proceeding or
governmental investigation pending or, to the knowledge of Seller, threatened
against Seller which individually or in the aggregate could materially and
adversely affect the Purchased Assets.
SECTION 5.6. COMPLIANCE WITH LAWS. To the knowledge of Seller,
Seller is not currently in violation of, nor has it received any written notice
claiming it is in violation of, any order, law, ordinance, statute, rule or
regulation applicable to the Purchased Assets where the consequences of such
violation would have a material adverse affect on the Purchased Assets.
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SECTION 5.7. BROKERS. No agent, broker, investment banker, or
other Person acting on behalf of Seller or under its authority is or will be
entitled to any broker's or finder's fee or any other commission or similar
fee, directly or indirectly, in connection with the transactions contemplated
by this Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
SECTION 6.1. ORGANIZATION. Buyer is a limited partnership duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the full right, power and authority to own, lease and operate
all of its properties and assets and to carry out its business as it is
presently conducted.
SECTION 6.2. AUTHORITY. Buyer has all requisite right, power
and authority to execute, deliver and perform this Agreement and each other
document and agreement of Buyer referenced herein to be executed and delivered
by Buyer pursuant hereto (together, the "BUYER DOCUMENTS"). The execution,
delivery and performance of the Buyer Documents by Buyer have been duly and
validly authorized and approved by all necessary partnership action. The Buyer
Documents constitute the legal, valid and binding obligations of Buyer
enforceable against it in accordance with their respective terms. The
execution, delivery and performance of the Buyer Documents by Buyer will not
(with or without the giving of notice or the passage of time or both),
(a) violate any applicable provision of law or any rule or regulation of any
federal, state or local administrative agency or governmental authority
applicable to Buyer, or any order, writ, injunction, judgment or decree of any
court, administrative agency or governmental authority applicable to Buyer,
(b) violate Buyer's certificate of limited partnership or limited partnership
agreement as amended to the date hereof, (c) require any consent under or
constitute a default under any agreement, indenture, mortgage, deed of trust,
lease, license or other instrument to which Buyer is a party or by which it is
bound, or any license, permit or certificate held by it, or (d) require any
consent of, approval by, notice to or registration with any governmental
authority other than in compliance with the HSR Act.
SECTION 6.3. LITIGATION. Buyer is not engaged in, nor is there
pending or, to Buyer's knowledge, threatened, any action, dispute, claim,
litigation, arbitration, investigation or other proceeding at law or in equity
or before any governmental or other administrative agency which could
materially and adversely affect Buyer's ability to perform any of its payment
or other obligations hereunder or the transactions contemplated by this
Agreement.
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SECTION 6.4. BROKERS. No agent, broker, investment banker or
other Person acting on behalf of Buyer or under its authority is or will be
entitled to any broker's or finder's fee or any other commission or similar
fee, directly or indirectly, in connection with the transactions contemplated
by this Agreement.
ARTICLE VII
INDEMNIFICATION AND NATURE AND
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
SECTION 7.1. INDEMNITIES BY SELLER. Subject to the limitations
contained in Section 7.2, Seller shall indemnify, defend and hold harmless
Buyer from and against and in respect of any and all Losses that Buyer shall
incur, suffer or have asserted against it, which arise, result from or relate
to any breach of any representation, warranty, covenant or agreement of Seller
contained in this Agreement or any document or certificate delivered by Seller
at Closing pursuant hereto.
SECTION 7.2. LIMITATIONS UPON INDEMNIFICATION BY SELLER.
(a) The representations and warranties of Seller
hereunder shall survive the Closing and remain in full force and effect
thereafter for the period of the statute of limitations applicable to the
particular representation and warranty; provided, however, that any
representation or warranty a violation of which is made the basis of a claim
for indemnity pursuant to the indemnity set forth in Section 7.1 shall survive
(until the claim is finally resolved) with respect to any such claim concerning
which Buyer shall have notified Seller in reasonable detail prior to the date
on which such representation or warranty would otherwise expire under the
preceding provisions of this Section 7.2(a).
(b) No claim for indemnity under Section 7.1 in
respect of any representation or warranty which has expired pursuant to Section
7.2(a) may be asserted by Buyer after the date on which such representation or
warranty expired.
SECTION 7.3. INDEMNITIES BY BUYER. Subject to the limitations
contained in Section 7.4, Buyer shall indemnify, defend and hold harmless
Seller from and against and in respect of any and all Losses that Seller shall
incur, suffer or have asserted against it, which arise, result from or relate
to:
(a) Any breach of any representation, warranty,
covenant or agreement of Buyer contained in this Agreement or in any document
or certificate delivered by Buyer at Closing pursuant hereto;
(b) Any Assumed Liabilities; and
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(c) All Liabilities relating to the use of the
Purchased Assets by Buyer after the Closing.
SECTION 7.4. LIMITATIONS UPON INDEMNIFICATION BY BUYER.
(a) The representations and warranties of Buyer
hereunder or in any document or certificate delivered by Buyer hereunder shall
survive the Closing and remain in force and effect thereafter for the period of
the statute of limitations applicable to the particular representation and
warranty; provided, however, that any representation or warranty the violation
of which is made the basis for a claim of indemnity pursuant to the indemnity
set forth in Section 7.3(a) shall survive (until the claim is finally resolved)
with respect to any such claim concerning which Seller shall have notified
Buyer in reasonable detail prior to the date on which such representation or
warranty would otherwise expire under the preceding provisions of this Section
7.4(a).
(b) No claim for indemnity under Section 7.3(a) in
respect of any representation or warranty which has expired pursuant to Section
7.4(a) may be asserted by Seller after the date on which such representation or
warranty expired.
SECTION 7.5. INDEMNITY PROCEDURES. In case any claim, demand
or action shall be brought against any party entitled to indemnity under
Sections 7.1 or 7.3 above, such party shall promptly notify the other party
from whom indemnity is sought in writing and the Indemnifying party shall
assume the defense thereof, including the employment of counsel; provided,
however, that any failure to notify the indemnifying party of a claim, demand
or action shall not bar a claim of indemnity unless the indemnified party has
been prejudiced or damaged, in which case the right to be indemnified shall be
reduced by the damages suffered as a result of such failure to give notice. In
addition, in case any party shall become aware of any facts which might result
in any such claim, demand or action, such party shall promptly notify the other
party from whom indemnity might be sought with respect thereto, which shall
have the right to take such action as it may deem appropriate to resolve such
matter. The indemnified party shall have the right to employ separate counsel
in any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless the employment of such counsel has been specifically authorized by the
indemnifying party or unless a conflict of interest exists between the
interests of the indemnified and indemnifying parties that requires a separate
representation, in which case the fees and expenses of separate counsel shall
be paid by the indemnifying party. The indemnifying party shall not be liable
for any settlement of any action effected without its consent, but if settled
with the consent of the indemnifying party or if there shall be a final
judgment for the plaintiff in any such action, the indemnifying party shall
indemnify and hold harmless the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
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ARTICLE VIII
FURTHER AGREEMENTS
SECTION 8.1. ADDITIONAL ACTIONS BY PARTIES
(a) On and after the Closing Date, Seller shall
execute and deliver such documents and do and perform all such other acts as
may reasonably be required by Buyer in order fully to convey and transfer to
and vest in Buyer all of the assets, properties, business and rights of Seller
intended to be assigned, transferred and conveyed pursuant hereto.
(b) Buyer shall execute and deliver all such
documents and assumptions and do and perform all such other acts as may be
reasonably requested by Seller to assure the assignment to and the assumption
by Buyer of the Assumed Liabilities and shall cooperate to provide access to
the records and former employees of Seller to the extent reasonably necessary
in connection with Seller's tax returns.
SECTION 8.2. ANNOUNCEMENTS. Except as expressly contemplated
by this Agreement, the parties will mutually agree as to the time, form and
content before issuing any press releases or otherwise making any public
statements or statements to third parties with respect to transactions
contemplated hereby and shall not issue any press release or, except as
necessary to perform their respective obligations hereunder, discuss the
transactions contemplated hereby with any third party prior to reaching mutual
agreement with respect thereto, except as may be required by law.
SECTION 8.3. COSTS AND TRANSFER TAXES. Except as set forth in
this Section 8.3, each party hereto shall pay its own costs and expenses
(including legal fees and expenses) incurred in connection with due diligence
reviews, the preparation, negotiation and execution of this Agreement and all
other agreements, certificates, instruments and documents delivered hereunder
and all other matters relating to the consummation of the transactions
contemplated hereby.
SECTION 8.4. BOOKS AND RECORDS AFTER CLOSING. From and after
the Closing Buyer shall own and be entitled to possession of all books and
records of Seller relating in any manner to the Purchased Assets.
ARTICLE IX
CLOSING
SECTION 9.1. CLOSING; EFFECTIVE TIME. The legal transfer of
the Purchased Assets, and risk of loss with respect thereto, shall be effective
simultaneously with the
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execution of this Agreement by the parties hereto, and all income and expense
attributable to the ownership of the Purchased Assets (measured on an accrual
basis) to the Closing Date shall be for the account of Seller and thereafter
for the account of Buyer.
SECTION 9.2. SELLER'S CLOSING DELIVERIES. Seller shall have
executed and delivered, or caused to be executed and delivered, to Buyer at the
Closing each of the following:
(a) the Assumption Agreement;
(b) the Trademark Assignment;
(c) OTHER AGREEMENTS. Seller shall perform or shall
have performed all of the covenants and agreements contained in this Agreement
to be performed or complied with by Seller at or prior to the Closing
hereunder.
Simultaneously with the consummation of the transfer, Buyer shall take
full possession and enjoyment of all Purchased Assets.
SECTION 9.3. BUYER'S CLOSING DELIVERIES. Buyer shall deliver,
or cause to be delivered, to Seller at the Closing each of the following:
(a) the Purchase Price, by wire transfer;
(b) the Assumption Agreement;
(c) any other documents necessary to consummate the
transactions contemplated under this Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. ENTIRE UNDERSTANDING, WAIVER, ETC. This
Agreement (including all schedules and exhibits attached hereto) and all other
agreements executed and delivered at the Closing set forth the entire
understanding of the parties and supersede any and all prior or contemporaneous
agreements, arrangements and understandings relating to the subject matter
hereof, and the provisions hereof may not be changed, modified, waived or
altered except by an agreement in writing signed by the parties hereto. A
waiver by any party of any of the terms or conditions of this Agreement, or of
any breach thereof, shall not be deemed a waiver of such term or condition for
the future, or of any other term or condition hereof, or of any subsequent
breach thereof.
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SECTION 10.2. SEVERABILITY. If any provision of this Agreement
or the application of such provision shall be held by a court of competent
jurisdiction to be unenforceable, the remaining provisions of this Agreement
shall remain in full force and effect.
SECTION 10.3. CAPTIONS. The captions herein are for
convenience only and shall not be considered a part of this Agreement for any
purpose, including, without limitation, the construction or interpretation of
any provision hereof.
SECTION 10.4. NOTICES. All Notices, requests, demands and
other communications that are required or may be given under this Agreement
shall be in writing. All Notices shall be deemed to have been duly given or
made: if by hand, immediately upon delivery; if by telecopier or similar
device, immediately upon sending, provided notice is sent on a business day
during the hours of 9:00 a.m. and 6:00 p.m. Central Time, but if not, then
immediately upon the beginning of the first business day after being sent; if
overnight by Federal Express, Express Mail or any other reputable overnight
delivery service, one (1) business day after being placed in the exclusive
custody and control of said courier; and if mailed by certified mail, return
receipt requested, five (5) business days after mailing. Notwithstanding the
foregoing, with respect to any Notice given or made by telecopier or similar
device, such Notice shall not be effective unless and until (i) the telecopier
or similar device being used prints a written confirmation of the successful
completion of such communication by the party sending the Notice, and (ii) a
copy of such Notice is deposited in first class mail to the appropriate address
for the party to whom the Notice is sent. In addition, notwithstanding the
foregoing, a notice of a change of address by a party hereto shall not be
effective until received by the party to whom such notice of a change of
address is sent. All Notices are to be given or made to the parties at the
following addresses (or to such other address as either party may designate by
Notice in accordance with the provisions of this Section):
(a) If to Seller: Borden/Meadow Gold Dairies Investments, Inc.
c/o Mid-America Dairymen, Inc.
3253 East Chestnut Expressway
Springfield, Missouri 65802
Attention: Gerald L. Bos, Vice President
Fax Number: (417) 865-1093
Copy to: Mid-America Dairymen, Inc.
3253 East Chestnut Expressway
Springfield, Missouri 65802
Attention: David A. Geisler, Esq.,
Vice President-Legal
Fax Number: (417) 865-1093
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(b) If to Buyer: Southern Foods Group, L.P.
3114 South Haskell
Dallas, Texas 75223
Attention: Mr. Pete Schenkel
Fax Number: (214) 821-1686
SECTION 10.5. SUCCESSORS AND ASSIGNS. Neither this Agreement
nor any of the rights or obligations arising hereunder shall be assignable
without the prior written consent of the parties hereto. Nothing in this
Agreement, express or implied, shall confer upon any Person, other than the
parties hereto, and their successors and permitted assigns, any rights or
remedies under or by reason of this Agreement.
SECTION 10.6. SCHEDULES AND EXHIBITS. The schedules and
exhibits attached hereto shall form a part of this Agreement and are hereby
incorporated into this Agreement by reference.
SECTION 10.7. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original but all of
which, together, shall constitute one and the same instrument.
SECTION 10.8. CONSTRUCTION OF TERMS. Any reference herein to
the masculine or neuter shall include the masculine, the feminine and the
neuter, and any reference herein to the singular or plural shall include the
opposite thereof. The parties to this Agreement acknowledge that each party and
counsel to each party has participated in the drafting of this Agreement and
agree that this Agreement shall not be interpreted against one party or the
other based upon who drafted it.
SECTION 10.9. ATTORNEYS' FEES AND COSTS. Unless otherwise
provided herein to the contrary, in the event any action or proceeding is
commenced by any party to this Agreement to (a) determine rights, duties or
obligations under this Agreement, (b) determine a breach of this Agreement and
obtain damages as a result of such breach or (c) otherwise enforce this
Agreement, the prevailing party in such action or proceeding shall be entitled
to recover from the non-prevailing party all of the prevailing party's
out-of-pocket costs and expenses, including, without limitation, all reasonable
attorneys' fees, disbursements and related charges.
SECTION 10.10. GOVERNING LAW. THIS AGREEMENT SHALL BE
CONTROLLED, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THAT STATE.
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SECTION 10.11. THIRD-PARTY BENEFICIARIES. The parties hereto
acknowledge and agree that no third party is intended to be a third-party
beneficiary of this Agreement.
SECTION 10.12. ARBITRATION. Buyer and Seller agree that any
dispute or controversy arising out of or in connection with this Agreement or
any alleged breach hereof shall be settled by arbitration in Dallas, Texas
pursuant to the rules of the American Arbitration Association. If the two
parties cannot jointly select a single arbitrator to determine the matter, one
arbitrator shall be chosen by each party (or, if a party fails to make a
choice, by the American Arbitration Association on behalf of such party) and
the two arbitrators so chosen will select a third. The decision of the single
arbitrator jointly selected by the parties, or, if three arbitrators are
selected, the decision of any two of them, will be final and binding upon the
parties and the judgment of a court of competent jurisdiction may be entered
thereon. The fees of the arbitrators and costs of the arbitration shall be
borne by the parties in such manner as shall be determined by the arbitrators.
SECTION 10.13. DTPA WAIVER. Buyer and Seller hereby waive all
of the provisions of the Texas Deceptive Trade Practices Consumer Protection
Act, other than Section 17.555 of such Act, and expressly acknowledge and agree
that each (a) has assets of Five Million Dollars ($5,000,000.00) or more, (b)
has knowledge and experience in financial and business matters that enables it
to evaluate the merits and risks of the transactions contemplated by this
Agreement, and (c) is not in a significantly disparate bargaining position
relative to each other but has agreed to this provision in negotiations
involving real choice on the part of each party.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement on the day and year first above written.
SELLER:
BORDEN/MEADOW GOLD DAIRIES
INVESTMENTS, INC.
By: /s/ DAVID GEISLER
-----------------------------------
Its: Vice President
----------------------------------
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BUYER:
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited
Liability Company, General
Partner
By: /s/ PETE SCHENKEL
-----------------------------------
Its: PRES. CEO
-----------------------------------
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JOINDER BY MID-AM
Mid-Am is Joining in the execution and delivery of this Agreement for
the purposes of (a) acknowledging the terms and provisions of this Agreement,
(b) acknowledging its consent as the sole shareholder of Seller to the
execution and delivery of this Agreement by Seller and the performance by
Seller of its obligations under this Agreement, and (c) agreeing to cause
Seller to perform its obligations under this Agreement.
MID-AMERICA DAIRYMEN, INC.
By: /s/ GERALD BOS
-----------------------------------
Its: Vice President
----------------------------------
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EXHIBIT A
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "AGREEMENT") is made
and entered into this ______ day of_________, 1997, by and between
Borden/Meadow Gold Dairies Investments, Inc., a Delaware corporation
("ASSIGNOR"), and Southern Foods Group, L.P., a Delaware limited partnership
("ASSIGNEE").
WHEREAS, in accordance with, and pursuant to, that certain Asset
Purchase Agreement dated as of August 1997 (the "Purchase Agreement"),
among Assignor, Assignee, and Mid-America Dairymen, Inc., a Kansas cooperative
marketing association, Assignor and Assignee have agreed to enter into this
Agreement (all capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Purchase Agreement);
NOW, THEREFORE, in consideration of their obligations under the
Purchase Agreement, and their mutual agreements, covenants and undertakings and
the mutual agreements, covenants and undertakings of the parties herein
contained, it is agreed as follows:
SECTION 1. ASSIGNMENT. Assignor hereby assigns to Assignee the Assumed
Liabilities and all of Assignor's right, title and interest in and to the
Assumed Contracts.
SECTION 2. ACCEPTANCE OF ASSIGNMENT BY ASSIGNEE; PERFORMANCE. Assignee
hereby accepts the assignment from Assignor of the Assumed Contracts and the
Assumed Liabilities as provided in Section 1 hereof. Assignee hereby assumes
and agrees to pay, perform and discharge the Assumed Liabilities when and as
the same become due, and Assignee hereby agrees to perform and discharge all
obligations which accrue and are to be performed and discharged under the
Assumed Contracts after the Closing Date, when and as the same become due.
SECTION 3. PURSUANT TO PURCHASE AGREEMENT. This instrument is executed
pursuant to and in furtherance of, and is subject to, the terms and conditions
of the Purchase Agreement. It does not replace, substitute for, expand or
extinguish any obligation or provision of the Purchase Agreement.
SECTION 4. BINDING. This instrument shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, legal
representatives and assigns.
SECTION 5. GOVERNING LAW. This instrument shall be governed by, and
construed and interpreted in accordance with, the laws of the State of Texas.
<PAGE> 21
IN WITNESS WHEREOF, each party hereto has caused this instrument to be
executed by its duly authorized officer as of the day and year first above
written.
BUYER:
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, General Partner
By:
------------------------------
Its:
--------------------------
SELLER:
BORDEN/MEADOW GOLD DAIRIES
INVESTMENTS, INC.
By:
--------------------------------------
Its:
----------------------------------
<PAGE> 22
EXHIBIT B
TRADEMARK ASSIGNMENT
This Trademark Assignment is made the _______ day of September, 1997,
between BORDEN/MEADOW GOLD DAIRIES INVESTMENTS, INC., a Delaware corporation
("ASSIGNOR"), and SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership
("ASSIGNEE").
WHEREAS,
I. Assignor has used and is the owner of trademarks listed in Schedule A,
together with common law rights therein (hereinafter, the "Trademarks"); and
II. The Trademarks are the subject of both federal and state registrations
and applications, details of which are set out in Schedule A hereto; and
III. The Trademarks are subject to a license agreement between
Borden/Meadow Gold Dairies Investments, Inc. and Borden/Meadow Gold Dairies,
Inc., a Delaware corporation, in Ogden, Utah, a copy of which is attached as
Schedule B;
IV. Assignor has agreed to assign to Assignee all rights of Assignor in
the Trademarks, including all property, right, title and interest in and to the
Trademarks, including the registrations listed in Exhibit A hereto, and the
goodwill associated therewith.
NOW THIS DEED WITNESSETH AS FOLLOWS:
For good and valuable consideration (the receipt and sufficiency of
which is hereby acknowledged), Assignor hereby assigns and conveys to Assignee
all Assignor's rights in the Trademarks, including all property, right, title,
and interest in and to the Trademarks, and the registrations and applications
for registration listed in Exhibit A hereto, the common law rights therein, the
goodwill associated with the business in which the Trademarks are used, and the
right to recover for past infringements thereof, and to collect any royalty
thereof; to hold the same unto Assignee absolutely.
Assignor agrees to assist Assignee in any ongoing or future disputes
involving the validity, infringement, or ownership of the Trademarks.
IN WITNESS WHEREOF, Assignor has executed this Assignment the date and
year first written above.
BORDEN/MEADOW GOLD DAIRIES
INVESTMENTS, INC.
By:
--------------------------------------
David A. Geisler, Vice President
Exhibit B - Trademark Assignment - Page 1
<PAGE> 23
Accepted By:
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, its General Partner
By:
-----------------------------
Patrick K. Ford
Assistant Secretary
STATE OF ______________________ )
)
COUNTY OF _____________________ )
BEFORE ME, on this day personally appeared David A. Geisler, known to
me to be the person whose name is subscribed to the foregoing instrument on
behalf of Borden/Meadow Gold Dairies Investments, Inc. and acknowledged to me
that he executed the same on behalf of the corporation as the Vice President
for the purposes and consideration therein expressed.
Subscribed to and sworn to before me this ____ day of September, 1997.
---------------------------------------
Notary Public in and for the
State of
------------------------------
Printed Name:
-------------------------
My Commission Expires:
----------------
Exhibit B - Trademark Assignment - Page 2
<PAGE> 24
SCHEDULE A
<TABLE>
<CAPTION>
U.S. OR STATE REGISTRATION
TRADEMARK NO. OR U.S. APPLICATION NO.(SN) GOODS INCLUDING:
--------- ------------------------------- ----------------
<S> <C> <C>
BLUE VALLEY U.S. 1,088,264 Ice cream, namely, frozen ice cream packed in bulk in various
flavors, in regular, lowfat and fat-free varieties.
BLUEBERRY WAFFLE S.N. 75/243,256 Ice cream and sherbet.
CRUNCH
CHERRY BLOSSOM SWIRL S.N. 75/245,481 Ice cream and sherbet.
CHOCOLATE MIDNIGHT S.N. 75/243,255 Ice cream and sherbet.
MADNESS
CRANBERRY-RASPBERRY S.N. 75/209,503 Yogurt.
BAY
CRAZY MILK U.S. 1,991,763 Flavored fresh milk, namely, 2% lowfat milk in various flavors
such as blueberry, strawberry, banana, chocolate and
chocolate peanut butter cup.
ECON-O-WAY U.S. 1,661,693 Flavored fresh milk, namely, 1% and 2% lowfat milk,homogenized
whole milk, nonfat skim milk, 1% and 2% lowfat chocolate milk
whole chocolate milk, skim chocolate milk; fluid UHT milk
processed at ultra high temperatures for sale as refrigerated
or non-refrigerated, extended life products, either
aseptically or non-aseptically packed, namely whole milk, 1%
and 2% lowfat milk, skim milk and lactose-reduced and lactose
free milk.
ECON-O-WAY U.S. 1,682,452 Fluid fresh milk, namely, 1% and 2% low-fat milk, homogenized
whole milk, nonfat skim milk, 1% and 2% lowfat chocolate milk,
whole chocolate milk, skim chocolate milk.
FABULOUS FRUIT S.N. 75/243,473 Ice cream and sherbet.
SHORTCAKE
FARMSTEAD U.S. 1,406,961 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
FARMSTEAD U.S. 1,407,842 Fluid fresh milk, namely, 1% and 2% lowfat milk, homogenized
whole milk, nonfat skim milk, 1% and 2% lowfat chocolate milk,
whole chocolate milk, skim chocolate milk; fluid UHT milk
processed at ultra high temperature for sale as refrigerated
or non-refrigerated, extended life products, either
aseptically or non-aseptically packed, namely whole milk, 1%
and 2% lowfat milk, skim milk and lactose-reduced and lactose
free milk.
</TABLE>
3
<PAGE> 25
<TABLE>
<S> <C> <C>
FROSTICK U.S. 311,368 Frozen confections, namely, regular ice cream sherbet and
water ice pops on sticks in various flavors and coatings.
FRUIT BLOSSOM DELIGHT S.N. 75/268,436 Sherbet.
GLACIER CLUB S.N. 75/125,446 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Alabama 104-950 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Arizona 17,325 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Connecticut 2500 Ice cream namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Florida 911,988 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Georgia T-1146 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Illinois 41,033 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Iowa 3255 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Kansas --- Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Kentucky 04581 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Louisiana --- Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Michigan M15-013 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Minnesota 4125 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
</TABLE>
4
<PAGE> 26
<TABLE>
<S> <C> <C>
GLACIER CLUB Mississippi G264 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Missouri 4720 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB New Hampshire --- Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB New Mexico 9278 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB North Carolina --- Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Rhode Island 81-3-16 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB South Carolina 2120 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GLACIER CLUB Texas 28,961 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
GO LIGHTLY & DESIGN U.S. 1,331,064 Fluid fresh milk namely 1% and 2% lowfat milk, homogenizedous
whole milk, nonfat skim milk, 1% and 2% lowfat chocolate
milk, whole chocolate milk and skim chocolate milk.
GRAND OLD VANILLA U.S. 1,064,973 Ice cream, namely, frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat-free varieties.
HOLLAND DUTCH TREAT U.S. 746,288 Fluid fresh milk, namely 1% and 2% lowfat milk, homogenized
whole milk, nonfat skim milk, 1% and 2% lowfat chocolate
milk, whole chocolate milk, and skim chocolate milk; ice
cream, namely frozen ice cream packed in bulk in various
flavors in regular, lowfat and fat free varieties.
HOLLAND DUTCH & DESIGN U.S. 1,872,664 Refrigerated yogurt in regular and lowfat varieties.
HONEY ALMOND OASIS S.N. 75/263,322 Yogurt.
HONEY LIGHT U.S. 1,637,620 Refrigerated yogurt in regular and lowfat varieties.
JAVA & CREAM S.N. 75/243,257 Ice cream and sherbet.
</TABLE>
5
<PAGE> 27
<TABLE>
<S> <C> <C>
LITE-LINE (Stylized Letters) U.S. 929,657 Fluid fresh milk, namely 1% and 2% lowfat milk, nonfat skim
milk, 1% and 2% lowfat chocolate milk, and skim chocolate
milk, fluid UHT milk processed at ultra high temperatures for
sale as refrigerated or non-refrigerated, extended life
products, either aseptically or non-aseptically packed,
namely; 1% and 2% lowfat milk and skim milk.
LITE-LINE U.S. 1,178,356 Refrigerated yogurt in regular, lowfat and fat-free
varieties and in various flavors; cottage cheese in regular,
lowfat and fat-free varieties.
MALT ASSAULT S.N. 75/243,258 Ice cream and sherbet.
MARVELOUS MOCHA S.N. 75/245,478 Ice cream and sherbet.
MEADOW GOLD (Stylized U.S. 145,605 Ice cream, namely, frozen ice cream packed in bulk in various
Letters) flavors in regular, lowfat and fat-free varieties.
MEADOW GOLD (Stylized U.S. 173,261 Fluid fresh milk, namely, 1% lowfat milk, 2% lowfat milk;
Letters) milk; homogenized whole milk, nonfat skim milk; 1% and 2%
lowfat chocolate milk, whole chocolate milk, skim chocolate
milk and buttermilk, all of these HTST products, being sold
in paperboard and plastic containers; fluid HTST cream,
namely, whipping, heavy cream light cream, half-and-half, and
fat-free cream, fluid UHT milk processed at ultra high
temperatures for sale as refrigerated and non-refrigerated,
extended life products, packed both aseptically and
non-aseptically; fluid UHT cream processed at ultra-high
temperatures for sale as refrigerated and non-refrigerated,
extended life products packed both aseptically and
non-septically, namely, heavy and light, half-and-half and
fat-free cream.
MEADOW GOLD (Stylized U.S. 281,436 Ice cream, namely, frozen ice cream packed in bulk in various
Letters) flavors in regular, lowfat and fat-free varieties; butter in
regular, lowfat, salted and unsalted varieties.
</TABLE>
6
<PAGE> 28
<TABLE>
<S> <C> <C>
MEADOW GOLD (Stylized U.S. 285,893 Fluid fresh milk, namely, 1% lowfat milk 2% lowfat milk,
Letters) homogenized whole milk, nonfat skim milk; 1% and 2% lowfat
chocolate milk, whole chocolate milk, skim chocolate milk and
buttermilk, all of these HTST products, being sold in
paperboard and plastic containers; fluid HTST cream, namely,
whipping, heavy cream, light cream, half-and-half, and
fat-free cream, fluid UHT milk processed at ultra high
temperatures for sale as refrigerated and non-refrigerated,
extended life products, packed both aseptically and
non-aseptically; fluid UHT cream processed at ultra-high
temperatures for sale as refrigerated and non-refrigerated,
extended life products packed both aseptically and
non-aseptically, namely, heavy and light, half-and-half and
fat-free cream.
MEADOW GOLD (Stylized U.S. 394,672 Orangeade.
Letters)
MEADOW GOLD (Stylized U.S. 582,470 Fluid fresh milk, namely 1% and 2% lowfat milk, homogenized
Letters) whole milk; nonfat skim milk; 1% and 2% lowfat chocolate milk,
whole chocolate milk, skim chocolate milk, flavored milk and
buttermilk; fluid HTS cream, namely, whipping, heavy cream,
light cream, half-and-half, and fat-free cream; fluid UHT milk
processed at ultra high temperatures for sale as refrigerated
or non-refrigerated, extended life products, packed both
aseptically, or non-aseptically, namely, ice cream and
sherbet packed in bulk in various flavors in regular, lowfat
and fat-free varieties; frozen confections, namely regular,
reduced sugar, and no sugar added ice cream pops on sticks in
various flavors; ice cream bars and sandwiches; ice cream
cups, sour cream in regular and lowfat varieties; fruit
juices and drinks; cottage cheese and yogurt in regular lowfat
and non-fat varieties.
</TABLE>
7
<PAGE> 29
<TABLE>
<S> <C> <C>
MEADOW GOLD & SHIELD U.S. 1,936,181 Fluid fresh milk, namely 1% and 2% lowfat milk;
DESIGN homogenized whole milk; nonfat skim milk; 1% and 2% lowfat
chocolate milk, whole chocolate milk, skim chocolate milk,
eggnog and buttermilk; fluid HTS cream, namely, whipping.
heavy cream, light cream, half-and- half, and fat-free cream;
fluid UHT milk processed at ultra high temperatures for sale
as refrigerated or non-refrigerated, extended life products,
packed both aseptically, or non-aseptically, namely, ice
cream, frozen yogurt and sherbet packed in bulk in various
flavors in regular, lowfat and fat-free varieties; frozen
confections, namely regular, reduced sugar, and no sugar
added ice cream pops on sticks in various flavors; ice cream
bars and sandwiches; ice cream cups, on sticks in various
flavors; ice cream bars and sandwiches, sour cream in regular
and lowfat varieties; fruit juices and drinks; cottage cheese
and yogurt in regular, lowfat and non-fat varieties; butter
and margarine in regular and lowfat varieties.
MEADOW GOLD 103,325
(Alabama)
MEADOW GOLD 25439
(Arizona)
MEADOW GOLD 116-87
(Arkansas)
MEADOW GOLD 085406
(California)
MEADOW GOLD 851033105
(Colorado)
*MEADOW GOLD N/A
(Connecticut)
MEADOW GOLD 9524
(Delaware)
*MEADOW GOLD 900621
(Florida)
MEADOW GOLD 7595
(Georgia)
MEADOW GOLD 12011
(Idaho)
MEADOW GOLD 60299
(Illinois)
MEADOW GOLD 5009-8021
(Indiana)
</TABLE>
8
<PAGE> 30
<TABLE>
<S> <C>
MEADOW GOLD 8188
(Iowa)
MEADOW GOLD N/A
(Kansas)
MEADOW GOLD 9465
(Kentucky)
MEADOW GOLD N/A
(Louisiana)
MEADOW GOLD 87-6790
(Maryland)
MEADOW GOLD M57-057
(Michigan)
MEADOW GOLD N/A
(Mississippi)
MEADOW GOLD 9510
(Missouri)
MEADOW GOLD 69145
(Nebraska)
MEADOW GOLD N/A
(Nevada)
MEADOW GOLD 7371
(New Jersey)
MEADOW GOLD R24419
(New York)
MEADOW GOLD 6987
(North Carolina)
MEADOW GOLD 21254
(Oklahoma)
MEADOW GOLD 976091
(Pennsylvania)
MEADOW GOLD N/A
(South Carolina)
MEADOW GOLD 6851109
(Tennessee)
MEADOW GOLD 47328
(Texas)
MEADOW GOLD 28506
(Utah)
MEADOW GOLD 452
(Virginia)
</TABLE>
9
<PAGE> 31
<TABLE>
<S> <C> <C>
MEADOW GOLD N/A
(Wisconsin)
MEADOW GOLD N/A
(Wyoming)
MEADOW LIGHT U.S. 1,544,637 Calorie-reduced butter; and dairy spread, namely, lowfat
butter spread.
MILK WAGON DESIGN U.S. 1,412,503 Fluid fresh milk, namely 1% and 2% lowfat milk, homogenized
whole milk; nonfat skim milk; 1% and 2% lowfat chocolate
milk, whole chocolate milk, skim chocolate milk, all of these
HTST products being sold in paperboard and plastic
containers; fluid HTST cream, namely whipping, heavy cream,
light cream, half-and-half, and fat-free cream; fluid UHT
milk processed at ultra high temperatures for sale as
refrigerated or non-refrigerated, extended life products,
either aseptically, or non-aseptically packed, namely whole
milk, 1% and 2% lowfat milk, skim milk and lactose-reduced
and lactose-free milk; fluid UHT cream processed at ultra high
temperatures for sale as refrigerated or non-refrigerated,
extended life products, either aseptically or non-aseptically
packed, namely heavy whipping, light, half-and-half and
fat-free creams; fresh, refrigerated eggnog and UHT eggnog
processed at ultra high temperatures in regular, light and
fat-free varieties; ice cream and frozen yogurt, namely
frozen ice cream, sherbet and yogurt packed in bulk in various
flavors in regular, lowfat and fat-free varieties; frozen
confections, namely, regular, reduced sugar, and no sugar
added ice cream pops on sticks in various flavors; ice cream
bars and sandwiches, ice cream cups and cones, both
containing bulk ice cream; cultured products, namely,
cottage cheese in regular, lowfat and fat-free varieties,
sour cream in regular, lowfat and fat-free varieties,
ready-made sour cream dips; sour half-and-half, yogurt in
regular, lowfat and fat-free varieties; butter in regular,
lowfat and fat-free varieties; creamed cheese in regular and
lowfat varieties; orange juice and apple juice.
MINTERRIFIC S.N. 75/243,254 Ice cream and sherbet.
MOO JUICE S.N. 75/195,308 Milk and flavored milk.
MOUNTAIN HIGH & DESIGN U.S. 1,132,793 Refrigerated yogurt in regular lowfat and non-fat varieties.
MOUNTAIN HIGH U.S. 1,132,794 Refrigerated yogurt in regular, lowfat and non-fat varieties.
</TABLE>
10
<PAGE> 32
<TABLE>
<S> <C> <C>
OLD FASHIONED RECIPE U.S. 1,496,023 Ice cream packed in bulk in various flavors.
PACE U.S. 892,148 Fluid fresh milk, namely, 1% lowfat milk, 2% lowfat milk;
homogenized whole milk, nonfat skim milk; 1% and 2% lowfat
chocolate milk, whole chocolate milk, skim chocolate milk and
buttermilk; fluid HTST cream, namely, whipping, heavy cream,
light cream, half-and-half, and fat-free cream sold in
paperboard and plastic containers; fluid UHT milk and cream
processed at ultra high temperatures for sale as refrigerated
and non-refrigerated, extended life products, packed both
aseptically and non-aseptically; cottage cheese and sour
cream in regular, lowfat and nonfat varieties.
POINSETTIA U.S. 813,109 Fluid fresh milk, namely, 1% lowfat milk 2% lowfat milk;
homogenized whole milk, nonfat skim milk; 1% and 2% lowfat
chocolate milk, whole chocolate milk, skim chocolate milk and
butter milk; fluid UHT milk processed at ultra high
temperatures for sale as refrigerated and non-refrigerated,
extended life products, packed both aseptically and
non-aseptically.
RAINBOW RAPTURE S.N. 75/245,480 Ice cream and sherbet.
READY FRESH PACK U.S. 1,408,446 Cardboard milk containers.
RICH & FIT S.N. 75/263,321 Yogurt.
ROYAL DANISH S.N. 75/285,014 Non-dairy creamer and imitation dairy products, namely,
whipped cream, sour cream, vegetable and dairy-based dip
mixes.
RUBY RED RASPBERRY S.N. 75/245,477 Ice cream and sherbet.
SHIELD DESIGN U.S. 644,259 Fluid fresh milk, namely 1% and 2% lowfat milk, homogenized
whole milk; nonfat skim milk; 1% and 2% lowfat chocolate
milk, whole chocolate milk, skim chocolate milk; fluid HTST
cream, namely whipping, heavy cream, fight cream,
half-and-half, and fat-free cream; fluid UHT milk and cream
processed at ultra high temperatures for sale as refrigerated
or non-refrigerated, extended life products, packed both
aseptically, or non-aseptically; ice cream packed in bulk in
various flavors in regular, lowfat and fat-free varieties;
frozen confections, namely, regular, reduced sugar, and no
sugar added ice cream pops on stick in various flavors; ice
cream bars and sandwiches; ice cream cups and cones, cottage
cheese in regular, lowfat and non-fat varieties.
</TABLE>
11
<PAGE> 33
<TABLE>
<S> <C> <C>
SKIM-LINE U.S. 1,825,314 Fluid fresh milk namely, 1% lowfat milk 2% lowfat milk;
homogenized whole milk, nonfat skim milk; 1% and 2% lowfat
chocolate milk, whole, chocolate milk, skim chocolate milk
and buttermilk, fluid UHT milk processed at ultra high
temperatures for sale as refrigerated and non-refrigerated,
extended life products, packed both aseptically and
non-aseptically.
STARFLAKE U.S. 880,996 Cultured products, namely, refrigerated yogurt, sour cream,
creamed cheese, onion dip and creamed cottage cheese in
regular, lowfat and fat free varieties.
STRAWBERRY MANGO S.N. 75/254,596 Yogurt
ISLAND
SUPER SCOOP U.S. 1,194,419 Frozen dessert, namely, ice milk packed in bulk in various
flavors.
SVELTE U.S. 660,410 Low calorie frozen dessert, similar to ice milk packed in bulk
in various flavors.
THE WAY YOGHURTS U.S. 1,921,066 Refrigerated yogurt in regular, lowfat and non-fat varieties.
SUPPOSED TO TASTE
THIRSTEE SMASH S.N. 75/183,282 Fruit flavored juice drinks containing water.
TIC TAC TOE U.S. 809,357 Ice cream, namely, frozen ice cream and sherbet packed in bulk
in various flavors in regular, lowfat and fat-free varieties.
TOTALLY NUTS S.N. 75/245,479 Ice cream and sherbet.
VANILLA VALLEY S.N. 75/254,592 Yogurt.
VIVA S.N. 75/244,533 Low fat fluid milk.
VIVA U.S. 1,283,514 Fluid fresh milk, namely, 1% lowfat milk 2% lowfat milk;
non-fat skim milk; 1% and 2% lowfat chocolate milk, and skim
chocolate milk; fat-free cream; fluid UHT milk processed at
ultra high temperatures for sale as refrigerated and
non-refrigerated, extended life products, packed both
aseptically and non-aseptically; frozen confections, namely
reduced sugar and non sugar added ice cream pops on sticks in
various flavors; ice cream bars and sandwiches; ice cream cups
in cream in lowfat and non-fat varieties, cottage cheese
and refrigerated yogurt in lowfat at and non-fat varieties.
VIVA & DESIGN U.S. 1,334,580 Ice milk, namely, frozen milk packed in bulk in various
flavors.
VIVA-YO U.S. 1,071,902 Frozen yogurt packed in bulk in various flavors; frozen
confections made of yogurt.
VIVA-YO (Stylized Letters) U.S. 1,165,701 From yogurt confections.
</TABLE>
12
<PAGE> 1
EXHIBIT 10.13
Execution Copy
TRADEMARK ASSIGNMENT
This Trademark Assignment is made the 4th day of September, 1997, between
BORDEN/MEADOW GOLD DAIRIES INVESTMENTS, INC., a Delaware corporation
("ASSIGNOR"), and SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership
("ASSIGNEE").
WHEREAS,
I. Assignor has used and is the owner of trademarks listed in Schedule A,
together with common law rights therein (hereinafter, the "Trademarks"); and
II. The Trademarks are the subject of both federal and state registrations
and applications, details of which are set out in Schedule A hereto; and
III. The Trademarks are subject to a license agreement between Borden/Meadow
Gold Dairies Investments, Inc. and Borden/Meadow Gold Dairies, Inc., a Delaware
corporation, in Ogden, Utah, a copy of which is attached as Schedule B;
IV. Assignor has agreed to assign to Assignee all rights of Assignor in the
Trademarks, including all property, right, title and interest in and to the
Trademarks, including the registrations listed in Exhibit A hereto, and the
goodwill associated therewith.
NOW THIS DEED WITNESSETH AS FOLLOWS:
For good and valuable consideration (the receipt and sufficiency of
which is hereby acknowledged), Assignor hereby assigns and conveys to Assignee
all Assignor's rights in the Trademarks, including all property, right, title,
and interest in and to the Trademarks, and the registrations and applications
for registration listed in Exhibit A hereto, the common law rights therein, the
goodwill associated with the business in which the Trademarks are used, and the
right to recover for past infringements thereof; and to collect any royalty
thereof; to hold the same unto Assignee absolutely.
Assignor agrees to assist Assignee in any ongoing or future disputes
involving the validity, infringement, or ownership of the Trademarks.
IN WITNESS WHEREOF, Assignor has executed this Assignment the date and
year first written above.
BORDEN/MEADOW GOLD DAIRIES
INVESTMENTS, INC.
By: /s/ DAVID A. GEISLER
--------------------------------------
David A. Geisler, Vice President
TRADEMARK ASSIGNMENT - Page 1
<PAGE> 2
ACCEPTED BY:
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, its General Partner
By: /s/ PATRICK K. FORD
--------------------------------
Patrick K. Ford, Assistant
Secretary
STATE OF )
------------- )
COUNTY OF )
-------------
BEFORE ME, on this day personally appeared David A. Geisler, known to
me to be the person whose name is subscribed to the foregoing instrument on
behalf of Borden/Meadow Gold Dairies Investments, Inc. and acknowledged to me
that he executed the same on behalf of the corporation as the Vice President
for the purposes and consideration therein expressed.
Subscribed to and sworn to before me this ______ day of September,
1997.
/s/
--------------------------------------------
Notary Public in and for the
State of ______________
Printed Name:
-------------------------------
My Commission Expires:
----------------------
TRADEMARK ASSIGNMENT - Page 2
<PAGE> 3
SCHEDULE A
<TABLE>
<CAPTION>
U.S. OR STATE REGISTRATION
TRADEMARK NO. OR U.S. APPLICATION NO. (SN) GOODS INCLUDING:
--------- -------------------------------- -----------------
<S> <C> <C>
BLUE VALLEY U.S. 1,088,264 Ice cream, namely, frozen ice cream packed
in bulk in various flavors, in regular,
lowfat and fat-free varieties.
BLUEBERRY WAFFLE CRUNCH S.N. 75/243,256 Ice cream and sherbet.
CHERRY BLOSSOM SWIRL S.N. 75/245,481 Ice cream and sherbet.
CHOCOLATE MIDNIGHT MADNESS S.N. 75/243,255 Ice cream and sherbet.
CRANBERRY-RASPBERRY BAY S.N. 75/209,503 Yogurt.
CRAZY MILK U.S. 1,991,763 Flavored fresh milk, namely, 2% lowfat
milk in various flavors such as blueberry,
strawberry, banana, chocolate and
chocolate peanut butter cup.
ECON-O-WAY U.S. 1,661,693 Flavored fresh milk, namely, 1% and 2%
lowfat milk, homogenized whole milk,
nonfat skim milk, 1% and 2% lowfat
chocolate milk, whole chocolate milk, skim
chocolate milk; fluid UHT milk processed
at ultra high temperatures for sale as
refrigerated or non-refrigerated, extended
life products, either aseptically or non-
aseptically packed, namely whole milk, 1%
and 2% lowfat milk, skim milk and lactose-
reduced and lactose free milk.
ECON-O-WAY U.S. 1,682,452 Fluid fresh milk, namely, 1% and 2% lowfat
milk, homogenized whole milk, nonfat skim
milk, 1% and 2% lowfat chocolate milk,
whole chocolate milk, skim chocolate milk.
FABULOUS FRUIT SHORTCAKE S.N. 75/243,473 Ice cream and sherbet.
FARMSTEAD U.S. 1,406,961 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
FARMSTEAD U.S. 1,407,842 Fluid fresh milk, namely, 1% and 2% lowfat
milk, homogenized whole milk, nonfat skim
milk, 1% and 2% lowfat chocolate milk,
whole chocolate milk, skim chocolate milk;
fluid UHT milk processed at ultra high
temperatures for sale as refrigerated or
non-refrigerated, extended life products,
either aseptically or non-aseptically
packed, namely whole milk, 1% and 2%
lowfat milk, skim milk and lactose-reduced
and lactose free milk.
FROSTICK U.S. 311,368 Frozen confections, namely, regular ice
cream sherbet and water ice pops on sticks
in various flavors and coatings.
FRUIT BLOSSOM DELIGHT S.N. 75/268,436 Sherbet.
GLACIER CLUB S.N. 75/125,446 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Alabama 104-950 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Arizona 17,325 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Connecticut 2500 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Florida 911,988 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Georgia T-1146 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Illinois 41,033 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Iowa 3255 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Kansas --- Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Kentucky 04581 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C> <C>
GLACIER CLUB Louisiana --- Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Michigan M15-013 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Minnesota 4125 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Mississippi G264 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Missouri 4720 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB New Hampshire --- Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB New Mexico 9278 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB North Carolina --- Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Rhode Island 81-3-16 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB South Carolina 2120 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GLACIER CLUB Texas 28,961 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
GO LIGHTLY & Design U.S. 1,331,064 Fluid fresh milk, namely 1% and 2% lowfat
milk, homogenized whole milk, nonfat skim
milk, 1% and 2% lowfat chocolate milk,
whole chocolate milk and skim chocolate
milk.
GRAND OLD VANILLA U.S. 1,064,973 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat free varieties.
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C> <C>
HOLLAND DUTCH TREAT U.S. 746,288 Fluid fresh milk, namely 1% and 2% lowfat
milk, homogenized whole milk, nonfat skim
milk, 1% and 2% lowfat chocolate milk,
whole chocolate milk, and skim chocolate
milk; ice cream, namely frozen ice cream
packed in bulk in various flavors in
regular, lowfat and fat free varieties.
HOLLAND DUTCH & DESIGN U.S. 1,872,664 Refrigerated yogurt in regular and lowfat
varieties.
HONEY ALMOND OASIS S.N. 75/263,322 Yogurt.
HONEY LIGHT U.S. 1,637,620 Refrigerated yogurt in regular and lowfat
varieties.
JAVA & CREAM S.N. 75/243,257 Ice cream and sherbet.
LITE-LINE (Stylized Letters) U.S. 929,657 Fluid fresh milk, namely 1% and 2% lowfat
milk, nonfat skim milk, 1% and 2% lowfat
chocolate milk, and skim chocolate milk,
fluid UHT milk processed at ultra high
temperatures for sale as refrigerated or
non-refrigerated, extended life products,
either aseptically or non-aseptically
packed, namely; 1% and 2% lowfat milk and
skim milk.
LITE-LINE U.S. 1,178,356 Refrigerated yogurt in regular, lowfat and
fat-free varieties and in various flavors;
cottage cheese in regular, lowfat and fat-
free varieties.
MALT ASSAULT S.N. 75/243,258 Ice cream and sherbet.
MARVELOUS MOCHA S.N. 75/245,478 Ice cream and sherbet.
MEADOW GOLD (Stylized Letters) U.S. 145,605 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties.
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C> <C>
MEADOW GOLD (Stylized Letters) U.S. 173,261 Fluid fresh milk, namely, 1% lowfat milk,
2% lowfat milk; homogenized whole milk,
nonfat skim milk; 1% and 2% lowfat
chocolate milk, whole chocolate milk, skim
chocolate milk and buttermilk, all of
these HTST products, being sold in
paperboard and plastic containers; fluid
HTST cream, namely, whipping, heavy cream,
light cream, half-and-half, and fat-free
cream, fluid UHT milk processed at ultra
high temperatures for sale as refrigerated
and non-refrigerated, extended life
products, packed both aseptically and non-
aseptically; fluid UHT cream processed at
ultra-high temperatures for sale as
refrigerated and non-refrigerated,
extended life products packed both
aseptically and non-septically, namely,
heavy and light, half-and-half and fat-
free cream.
MEADOW GOLD (Stylized Letters) U.S. 281,436 Ice cream, namely, frozen ice cream packed
in bulk in various flavors in regular,
lowfat and fat-free varieties; butter in
regular, lowfat, salted and unsalted
varieties.
MEADOW GOLD (Stylized Letters) U.S. 285,893 Fluid fresh milk, namely, 1% lowfat milk
2% lowfat milk; homogenized whole milk,
nonfat skim milk; 1% and 2% lowfat
chocolate milk, whole chocolate milk, skim
chocolate milk and buttermilk, all of
these HTST products, being sold in
paperboard and plastic containers; fluid
HTST cream, namely, whipping, heavy cream,
light cream, half-and-half, and fat-free
cream, fluid UHT milk processed at ultra
high temperatures for sale as refrigerated
and non-refrigerated, extended life
products, packed both aseptically and non-
aseptically; fluid UHT cream processed at
ultra-high temperatures for sale as
refrigerated and non-refrigerated,
extended life products packed both
aseptically and non-aseptically, namely,
heavy and light, half-and-half and fat-
free cream.
MEADOW GOLD (Stylized Letters) U.S. 394,672 Orangeade.
MEADOW GOLD (Stylized Letters) U.S. 582,470 Fluid fresh milk, namely 1% and 2% lowfat
milk, homogenized whole milk; nonfat skim
milk; 1% and 2% lowfat chocolate milk,
whole chocolate milk, skim chocolate milk,
flavored milk and buttermilk; fluid HTS
cream, namely, whipping, heavy cream,
light cream, half-and-half, and fat-free
cream; fluid UHT milk processed at ultra
high temperatures for sale as refrigerated
or non-refrigerated, extended life
products, packed both aseptically, or non-
aseptically, namely, ice cream and sherbet
packed in bulk in various flavors in
regular, lowfat and fat-free varieties;
frozen confections, namely regular,
reduced sugar, and no sugar added ice
cream pops on sticks in various flavors;
ice cream bars and sandwiches; ice cream
cups, sour cream in regular and lowfat
varieties; fruit juices and drinks;
cottage cheese and yogurt in regular,
lowfat and non-fat varieties.
</TABLE>
7
<PAGE> 8
<TABLE>
<S> <C> <C>
MEADOW GOLD & SHIELD DESIGN U.S. 1,936,181 Fluid fresh milk, namely 1% and 2% lowfat
milk, homogenized whole milk; nonfat skim
milk; 1% and 2% lowfat chocolate milk,
whole chocolate milk, skim chocolate milk,
eggnog and buttermilk; fluid HTS cream,
namely, whipping, heavy cream, light
cream, half-and-half, and fat-free cream;
fluid UHT milk processed at ultra high
temperatures for sale as refrigerated or
non-refrigerated, extended life products,
packed both aseptically, or non-
aseptically, namely, ice cream, frozen
yogurt and sherbet packed in bulk in
various flavors in regular, lowfat and
fat-free varieties; frozen confections,
namely regular, reduced sugar, and no
sugar added ice cream pops on sticks in
various flavors; ice cream bars and
sandwiches; ice cream cups, on sticks in
various flavors; ice cream bars and
sandwiches; sour cream in regular and
lowfat varieties; fruit juices and drinks;
cottage cheese and yogurt in regular,
lowfat and non-fat varieties; butter and
margarine in regular and lowfat varieties.
MEADOW GOLD 103,325
(Alabama)
MEADOW GOLD 25439
(Arizona)
MEADOW GOLD 116-87
(Arkansas)
MEADOW GOLD 085406
(California)
MEADOW GOLD 851033105
(Colorado)
*MEADOW GOLD N/A
(Connecticut)
MEADOW GOLD 9524
(Delaware)
*MEADOW GOLD 900621
(Florida)
MEADOW GOLD 7595
(Georgia)
MEADOW GOLD 12011
(Idaho)
MEADOW GOLD 60299
(Illinois)
MEADOW GOLD 5009-8021
(Indiana)
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C>
MEADOW GOLD 8188
(Iowa)
MEADOW GOLD N/A
(Kansas)
MEADOW GOLD 9465
(Kentucky)
MEADOW GOLD N/A
(Louisiana)
MEADOW GOLD 87-6790
(Maryland)
MEADOW GOLD M57-057
(Michigan)
MEADOW GOLD N/A
(Mississippi)
MEADOW GOLD 9510
(Missouri)
MEADOW GOLD 69145
(Nebraska)
MEADOW GOLD N/A
(Nevada)
MEADOW GOLD 7371
(New Jersey)
MEADOW GOLD R24419
(New York)
MEADOW GOLD 6987
(North Carolina)
MEADOW GOLD 21254
(Oklahoma)
MEADOW GOLD 976091
(Pennsylvania)
MEADOW GOLD N/A
(South Carolina)
MEADOW GOLD 685 1109
(Tennessee)
MEADOW GOLD 47328
(Texas)
MEADOW GOLD 28506
(Utah)
MEADOW GOLD 452
(Virginia)
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C> <C>
MEADOW GOLD N/A
(Wisconsin)
MEADOW GOLD N/A
(Wyoming)
MEADOW LIGHT U.S. 1,544,637 Calorie-reduced butter; and dairy spread,
namely, lowfat butter spread.
MILK WAGON DESIGN U.S. 1,412,503 Fluid fresh milk, namely 1% and 2% lowfat
milk, homogenized whole milk; nonfat skim
milk; 1% and 2% lowfat chocolate milk,
whole chocolate milk, skim chocolate milk,
all of these HTST products being sold in
paperboard and plastic containers; fluid
HTST cream, namely whipping, heavy cream,
light cream, half-and-half, and fat-free
cream; fluid UHT milk processed at ultra
high temperatures for sale as refrigerated
or non-refrigerated, extended life
products, either aseptically, or non-
aseptically packed, namely whole milk, 1%
and 2% lowfat milk, skim milk and lactose-
reduced and lactose-free milk; fluid UHT
cream processed at ultra high temperatures
for sale as refrigerated or non-
refrigerated, extended life products,
either aseptically or non-aseptically
packed, namely heavy whipping, light,
half-and-half and fat-free creams; fresh,
refrigerated eggnog and UHT eggnog
processed at ultra high temperatures in
regular, light and fat-free varieties; ice
cream and frozen yogurt, namely frozen ice
cream, sherbet and yogurt packed in bulk
in various flavors in regular, lowfat and
fat-free varieties; frozen confections,
namely, regular, reduced sugar, and no
sugar added ice cream pops on sticks in
various flavors; ice cream bars and
sandwiches, ice cream cups and cones, both
containing bulk ice cream; cultured
products, namely, cottage cheese in
regular, lowfat and fat-free varieties,
sour cream in regular, lowfat and fat-free
varieties, ready-made sour cream dips;
sour half-and-half; yogurt in regular,
lowfat and fat-free varieties; butter in
regular, lowfat and fat-free varieties;
creamed cheese in regular and lowfat
varieties; orange juice and apple juice.
MINTERRIFIC S.N. 75/243,254 Ice cream and sherbet.
MOO JUICE S.N. 75/195,308 Milk and flavored milk.
MOUNTAIN HIGH & DESIGN U.S. 1,132,793 Refrigerated yogurt in regular lowfat and
non-fat varieties.
MOUNTAIN HIGH U.S. 1,132,794 Refrigerated yogurt in regular, lowfat and
non-fat varieties.
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C>
OLD FASHIONED RECIPE U.S. 1,496,023 Ice cream packed in bulk in various
flavors.
PACE U.S. 892,148 Fluid fresh milk, namely, 1% lowfat milk,
2% lowfat milk; homogenized whole milk,
nonfat skim milk; 1% and 2% lowfat
chocolate milk, whole chocolate milk, skim
chocolate milk and buttermilk; fluid HTST
cream, namely, whipping, heavy cream,
light cream, half-and-half, and fat-free
cream sold in paperboard and plastic
containers; fluid UHT milk and cream
processed at ultra high temperatures for
sale as refrigerated and non-refrigerated,
extended life products, packed both
aseptically and non-aseptically; cottage
cheese and sour cream in regular, lowfat
and nonfat varieties.
POINSETTIA U.S. 813,109 Fluid fresh milk, namely, 1% lowfat milk
2% lowfat milk; homogenized whole milk,
nonfat skim milk; 1% and 2% lowfat
chocolate milk, whole chocolate milk, skim
chocolate milk and butter milk; fluid UHT
milk processed at ultra high temperatures
for sale as refrigerated and non-
refrigerated, extended life products,
packed both aseptically and non-
aseptically.
RAINBOW RAPTURE S.N. 75/245,480 Ice cream and sherbet.
READY FRESH PACK U.S. 1,408,446 Cardboard milk containers.
RICH & FIT S.N. 75/263,321 Yogurt.
ROYAL DANISH S.N. 75/285,014 Non-dairy creamer and imitation dairy
products, namely, whipped cream, sour
cream, vegetable and dairy-based dip
mixes.
RUBY RED RASPBERRY S.N. 75/245,477 Ice cream and sherbet.
SHIELD DESIGN U.S. 644,259 Fluid fresh milk, namely 1% and 2% lowfat
milk, homogenized whole milk; nonfat skim
milk; 1% and 2% lowfat chocolate milk,
whole chocolate milk, skim chocolate milk;
fluid HTST cream, namely whipping, heavy
cream, light cream, half-and-half, and
fat-free cream; fluid UHT milk and cream
processed at ultra high temperatures for
sale as refrigerated or non-refrigerated,
extended life products, packed both
aseptically, or non-aseptically; ice cream
packed in bulk in various flavors in
regular, lowfat and fat-free varieties;
frozen confections, namely, regular,
reduced sugar, and no sugar added ice
cream pops on stick in various flavors;
ice cream bars and sandwiches; ice cream
cups and cones; cottage cheese in regular,
lowfat and non-fat varieties.
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C>
SKIM-LINE U.S. 1,825,314 Fluid fresh milk, namely, 1% lowfat milk
2% lowfat milk; homogenized whole milk,
nonfat skim milk; 1% and 2% lowfat
chocolate milk, whole, chocolate milk,
skim chocolate milk and buttermilk; fluid
UHT milk processed at ultra high
temperatures for sale as refrigerated and
non-refrigerated, extended life products,
packed both aseptically and non-
aseptically.
STARFLAKE U.S. 880,996 Cultured products, namely, refrigerated
yogurt, sour cream, creamed cheese, onion
dip and creamed cottage cheese in regular,
lowfat and fat free varieties.
STRAWBERRY MANGO ISLAND S.N. 75/254,596 Yogurt
SUPER SCOOP U.S. 1,194,419 Frozen dessert, namely, ice milk packed in
bulk in various flavors.
SVELTE U.S. 660,410 Low calorie frozen dessert, similar to ice
milk, packed in bulk in various flavors.
THE WAY YOGHURTS SUPPOSED TO U.S. 1,921,066 Refrigerated yogurt in regular, lowfat and
TASTE non-fat varieties.
THIRSTEE SMASH S.N. 75/183,282 Fruit flavored juice drinks containing
water.
TIC TAC TOE U.S. 809,357 Ice cream, namely, frozen ice cream and
sherbet packed in bulk in various flavors
in regular, lowfat and fat-free varieties.
TOTALLY NUTS S.N. 75/245,479 Ice cream and sherbet.
VANILLA VALLEY S.N. 75/254,592 Yogurt.
VIVA S.N. 75/244,533 Low fat fluid milk.
VIVA U.S. 1,283,514 Fluid fresh milk, namely, 1% lowfat milk
2% lowfat milk; non-fat skim milk; 1% and
2% lowfat chocolate milk, and skim
chocolate milk; fat-free cream; fluid UHT
milk processed at ultra high temperatures
for sale as refrigerated and non-
refrigerated, extended life products,
packed both aseptically and non-
aseptically; frozen confections, namely,
reduced sugar and non sugar added ice
cream pops on sticks in various flavors;
ice cream bars and sandwiches; ice cream
cups; sour cream in lowfat and non-fat
varieties; cottage cheese and refrigerated
yogurt in lowfat and non-fat varieties.
VIVA & DESIGN U.S. 1,334,580 Ice milk, namely, frozen milk packed in
bulk in various flavors.
VIVA-YO U.S. 1,071,902 Frozen yogurt packed in bulk in various
flavors; frozen confections made of
yogurt.
VIVA-YO (Stylized Letters) U.S. 1,165,701 Frozen yogurt confections.
</TABLE>
12
<PAGE> 1
EXHIBIT 10.14
Execution Copy
MILK PRODUCTS SUBLICENSE AGREEMENT
THIS SUBLICENSE AGREEMENT (this "AGREEMENT"), effective as of _______
on the 4th day of September 1997, by and between Southern Foods Group, L.P., a
Delaware limited partnership (hereinafter called "SFG"), and Milk Products,
LLC, a Delaware limited liability company (hereinafter called "MILK PRODUCTS").
WHEREAS, SFG has obtained a trademark license pursuant to the
Trademark License Agreement which is attached hereto as Exhibit A and
incorporated herein for all purposes (the "BORDEN LICENSE") from Borden, Inc.,
a New Jersey corporation, and BDH Two, Inc., a Delaware corporation
(hereinafter "BORDEN" and "BDH TWO" or collectively "LICENSOR"), to use and
sublicense the trademarks and service marks and registrations thereof listed in
Appendix A and Appendix B to the Borden License for use on the products listed
in Appendix C and Appendix D to the Borden License and on the Additional
Appendix C Products and Additional Appendix D Products (each as hereinafter
defined);
WHEREAS, Milk Products desires to use the trademarks and service marks
listed in Exhibit B to this Agreement and those listed in Appendix B to the
Borden License, including the federal and state trademark registrations and
applications therefore and all common law rights in such trademarks and any
trade dress or label designs associated with such trademarks (hereinafter
collectively called the "SUBLICENSED MARKS") in connection with its business;
WHEREAS, Borden and BDH Two have reserved the right to review and
approve the terms of this Agreement;
WHEREAS, Milk Products will obtain financing pursuant to the terms of
that certain Credit Agreement of even date herewith among Milk Products, Bank
of America National Trust and Savings Association, as Agent and Letter of
Credit Issuing Bank and other financial institutions party thereto (such Credit
Agreement, together with any amendments thereto and renewals, extensions, and
replacements thereof the "Milk Products Credit Agreement");
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises hereinafter set forth, the parties agree as follows:
1. DEFINITIONS
The following terms shall have the meanings set forth below:
"ADDITIONAL APPENDIX C PRODUCTS" shall have the meaning
ascribed to such term in the Borden License.
MILK PRODUCTS SUBLICENSE AGREEMENT - Page 1
<PAGE> 2
"ADDITIONAL APPENDIX D PRODUCTS" shall have the meaning
ascribed to such term in the Borden License.
"ADDITIONAL PRODUCTS" shall have the meaning ascribed to such
term in the Borden License.
"BofA AGENT" means Bank of America National Trust and Savings
Association in its capacity as agent under the terms of that certain Credit
Agreement of even date herewith among Milk Products, Bank of America National
Trust and Savings Association as Agent and Letter of Credit Issuing Bank and
the other financial institutions party thereto (the "Credit Agreement") and the
Security Agreement executed in conjunction therewith.
"PRODUCTS" shall have the meaning ascribed to such term in the
Borden License.
"TERRITORY" shall mean Alabama, Arkansas, Florida, Louisiana,
Mississippi, New Mexico, Tennessee, Texas and Mexico.
2. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement and the Borden
License and subject to the existing License Agreements listed in Appendix E to
the Borden License, SFG hereby grants to Milk Products the following:
(a) An exclusive license to use the Sublicensed Marks listed in
Exhibit B to this Agreement solely on or in connection with Products
manufactured or processed in the United States and listed in Appendix C to the
Borden License, for sale to customers in Louisiana, New Mexico and Texas;
(b) A non-exclusive license to use the Sublicensed Marks listed in
Exhibit B to this Agreement solely on or in connection with Products
manufactured or processed in the United States and listed in Appendix C to the
Borden License, for sale to customers in Alabama, Arkansas, Florida,
Mississippi, Tennessee and Mexico;
(c) A non-exclusive license to use the Sublicensed Marks listed in
Exhibit B to this Agreement solely on or in connection with Additional Appendix
C Products currently sold by Borden/Meadow Gold Dairies, Inc. under the
Sublicensed Marks listed in Exhibit B to this Agreement, for sale to customers
in the United States or in Mexico;
(d) An exclusive license to use the Sublicensed Marks listed in
Appendix B to the Borden License solely on or in connection with Products
manufactured or processed in the United States and listed in Appendix D to the
Borden License, for sale to customers in Louisiana, New Mexico and Texas;
MILK PRODUCTS SUBLICENSE AGREEMENT - Page 2
<PAGE> 3
(e) A non-exclusive license to use the Sublicensed Marks listed
in Appendix B to the Borden License solely on or in connection with the
Products manufactured or processed in the United States and listed in Appendix
D to the Borden License, for sale to customers in Alabama, Arkansas, Florida,
Mississippi, Tennessee and Mexico; and
(f) A non-exclusive license to use the Sublicensed Marks listed
in Appendix B to the Borden License solely on or in connection with Additional
Appendix D Products currently sold by Borden/Meadow Gold Dairies, Inc. under
the Sublicensed Marks listed in Appendix B to the Borden License, for sale to
customers in the United States or Mexico.
The licenses being granted hereunder by SFG shall be royalty free and
shall be solely and to the same extent that SFG has been granted a license with
respect to the Products pursuant to the Borden License. Milk Products shall
not have any right to sell the Products bearing the Sublicensed Marks outside
the Territory and Milk Products agrees to be bound by the terms and provisions
of the Borden License as if Milk Products was named as the licensee under the
Borden License and SFG was named as the licensor under the Borden License;
provided, however, that if the rights granted herein are more restrictive than
those granted in the Borden License, Milk Products shall be bound by the more
restrictive rights granted herein.
3. OWNERSHIP OF SUBLICENSED MARKS
3.1 Milk Products acknowledges that Licensor is the sole owner of the
Sublicensed Marks. Milk Products shall not directly or indirectly question,
attack, contest, or in any other manner impugn the validity of Licensor's
ownership of the Sublicensed Marks, nor shall Milk Products willingly become an
adverse party to Licensor in litigation contesting the validity of Licensor's
ownership and other rights in and to the Sublicensed Marks.
3.2 Milk Products shall be deemed a "related company" under the U.S.
Lanham Act, such that any use of the Sublicensed Marks by Milk Products, and
any goodwill generated thereby, shall inure to the sole benefit of Licensor.
4. QUALITY STANDARDS
4.1 Milk Products agrees that all Products bearing a Sublicensed Mark
pursuant to this Agreement shall be of a high standard and of such quality as
to protect and enhance the Sublicensed Marks and the goodwill and value
pertaining thereto and shall meet Licensor's quality standards and
specifications as set out specifically in the current formulae, ingredients and
manufacturing specifications ("FIMS") for such Products, a copy of which has
been made available to Milk Products, and/or such modified formulae as shall be
reasonably agreed in writing between Licensor and Milk Products in the future.
Milk Products and its Manufacturing Agents shall manufacture, sell, distribute
and promote the Products in accordance with all applicable federal, state and
local laws.
MILK PRODUCTS SUBLICENSE AGREEMENT - Page 3
<PAGE> 4
5. QUALITY MAINTENANCE
5.1 In order to assure that Milk Products meets Licensor's quality
standards and specifications, once each quarter of the Term and/or for good
cause shown, Milk Products shall submit comprehensive affidavits that meet with
Licensor's reasonable approval from all of Milk Products' quality control
department managers responsible for the quality standards of the Products
produced by that part of Milk Products' or its Manufacturing Agents' business
for which they are responsible, attesting under oath that Licensor's quality
standards and Product specifications have been fully complied with during the
prior quarter, also submitting representative Product samples and listing the
number of customer complaints relating to Product quality during that quarter
and a summary of the actions taken by Milk Products in response to such
complaints.
5.2 Milk Products also agrees that Licensor will submit the quarterly
Product samples to an independent testing laboratory to determine if the FIMS
are being complied with, the expense thereof being borne by Milk Products.
Licensor also reserves the right periodically to conduct quality control
inspections, upon reasonable notice and during normal business hours, at Milk
Products' plants to determine if the Licensor's FIMS for the Products and the
processing thereof are being complied with.
5.3 In the event that Licensor or its agents shall determine that any
Products sold or distributed by Milk Products and/or its Manufacturing Agents
bearing or using Sublicensed Marks do not conform to Licensor's FIMS, Milk
Products agrees, at its expense, to take such action as Licensor directs in
writing, including, but not limited to, withdrawal and/or recall of such
Products from the market and to refrain and cause its Manufacturing Agents to
refrain from further sale and/or distribution of such Products under the
Sublicensed Marks unless and until Milk Products and/or its Manufacturing
Agents have demonstrated to the reasonable satisfaction of Licensor that said
Products conform to said FIMS, as the case may be.
5.4 If Milk Products enters into co-packing agreements with suppliers or
any other arrangement with respect to the processing or packaging of final
Products by any person who is not a subsidiary of Milk Products, who will
process or package final Products for Milk Products, for sale in the Territory
("MANUFACTURING AGENTS"), Milk Products must submit such co-packing agreements
in draft form to Licensor or an individual designated by Licensor ("LICENSOR'S
LICENSE COORDINATOR") for prior approval to ensure they include trademark
protection and quality control provisions that safeguard the rights of both the
Licensor and Milk Products under this Agreement. Licensor agrees that such
prior approval shall not be withheld or delayed unreasonably, and that Licensor
shall respond promptly to any request for approval. If Licensor fails to
respond to such request within thirty (30) days, Licensor's approval shall be
deemed given.
5.5 On a semi-annual basis, Milk Products shall review with Licensor's
License Coordinator and obtain prior approval for, all advertising, promotional
and point-of-purchase materials published or distributed by Milk Products in
connection with Products bearing Sublicensed Marks. Licensor agrees that such
prior approval shall not be withheld or delayed unreasonably, and that Licensor
shall respond promptly to any request for approval. If Licensor fails to
respond to such request within thirty (30) days, Licensor's approval shall be
deemed given.
MILK PRODUCTS SUBLICENSE AGREEMENT - Page 4
<PAGE> 5
5.6 If Milk Products desires to adopt new cartons or packaging bearing the
Sublicensed Marks, which package designs or trade dress are different from
those presently used by Licensor, Milk Products shall submit to Licensor's
License Coordinator at least one (1) representative sample of each such new
carton and packaging material and may not use any such material in connection
with the Sublicensed Marks without Licensor's prior written approval. Licensor
agrees that such prior approval shall not be withheld or delayed unreasonably,
and that Licensor shall respond promptly to any request for approval. If
Licensor fails to respond to such request within thirty (30) days, Licensor's
approval shall be deemed given.
5.7 Milk Products shall notify Licensor promptly in writing upon its
determination that it intends to use any Sublicensed Mark in connection with an
Additional Product, which notification shall include a description of the
Additional Product, and a certification that the Additional Product was
manufactured or processed by Holdings on the date of this Agreement. From and
after such notification, Licensor and Milk Products shall mutually agree upon
the FIMS that will be applicable to such Additional Product as if it were a
"Product" hereunder.
6. FORM OF USE
6.1 Milk Products hereby acknowledges and agrees that its use of the
Sublicensed Marks shall be subject to all times during the Term to the
reasonable control of Licensor in order for Licensor to maintain the consistent
standard of quality associated with the Sublicensed Marks. Milk Products will
preserve the good appearance of the Sublicensed Marks wherever and whenever
they are used and shall not use any Sublicensed Mark in a manner which is
likely to derogate from the integrity, distinctiveness, goodwill, value or
strength of such Sublicensed Mark.
6.2 From time to time, Licensor may determine that a previously published
use of the Sublicensed Marks by Milk Products may threaten the value of the
Sublicensed Marks, or is otherwise inconsistent with Licensor's quality
standards. Upon written notice from Licensor, Milk Products shall implement
Licensor's directions regarding the proper use of the Sublicensed Marks as
promptly as practicable using its best efforts and, in any event, within thirty
(30) days.
6.3 Except as required by law, Milk Products agrees not to use the
Sublicensed Marks in connection or combination with any other third-party
trademarks, names or logotypes, without Licensor's prior written approval, such
approval not to be withheld unreasonably. Milk Products shall at no time adopt
or use any variation of the Sublicensed Marks or any word or marks confusingly
similar thereto without Licensor's prior written approval.
6.4 Milk Products shall not take any action to cause an abandonment or
forfeiture of any of Licensor's rights in the Sublicensed Marks and shall not
take any action to cancel any registration in the United States or elsewhere of
any Sublicensed Mark in the name of Licensor or to interfere with any renewal
of any such registration. Milk Products shall reasonably cooperate with and
shall not oppose any application by or on behalf of Licensor to register or
renew any federal or state registration of any Sublicensed Mark in the United
States or elsewhere.
MILK PRODUCTS SUBLICENSE AGREEMENT - Page 5
<PAGE> 6
7. INFRINGEMENT PROCEEDINGS
Milk Products shall cooperate with Licensor in the protection of the
Sublicensed Marks and in connection therewith shall: (i) promptly inform
Licensor of any third-party use of any Sublicensed Marks or any infringement or
encroachment upon or any misuse whatsoever of any Sublicensed Marks which comes
to Milk Products' attention; and (ii) promptly inform Licensor of any claim
against Milk Products that the use of any Sublicensed Mark infringes the rights
of others or of the institution of any proceeding against Milk Products
predicated upon any such claimed infringement.
8. INDEMNIFICATION BY MILK PRODUCTS
Milk Products hereby indemnifies and undertakes to defend and hold SFG
and Licensor harmless from and against any and all claims, suits, losses,
damages, fines, penalties, and/or expenses including, but not limited to,
attorney's fees arising out of or based upon:
(a) Milk Products' or its Manufacturing Agents' processing,
distribution or sale of Products bearing a Sublicensed Mark; or
(b) Any breach by Milk Products or its Manufacturing Agents of
their obligations under this Agreement; or
(c) Any proceeding brought by any person, governmental agency or
consumer group in connection with the Products or Additional Products
processed, sold or distributed by Milk Products or its Manufacturing Agents
bearing or using a Sublicensed Mark; or
(d) Any violation of any applicable law or any regulation or civil
claims relating to the manufacture, processing, sale, distribution, promotion
or advertising of Products or Additional Products bearing or using a
Sublicensed Mark unless attributable to SFG's breach of its obligations under
this Agreement. SFG and Licensor may participate in the defense of any such
litigation.
9. RESPONSIBLE FOR ACTS OF MANUFACTURING AGENTS
Milk Products shall be solely responsible for the acts and omissions
of those with whom it or its Manufacturing Agents contract for any aspect of
the processing, distribution, or sale of the Products or Additional Products
bearing or using a Sublicensed Mark.
10. MAINTENANCE OF INSURANCE
In order to assure its ability to discharge its obligations to SFG and
Licensor , Milk Products agrees that it will maintain throughout the term of
this Agreement at its expense, comprehensive general liability insurance,
including product liability insurance and contractual liability coverage
specifically endorsed to cover the indemnity provisions in this Agreement, from
a carrier satisfactory to SFG and Licensor, in a minimum amount of Five Million
Dollars ($5,000,000) combined single limit for each single occurrence, for
bodily injury and property damage which shall designate SFG,
MILK PRODUCTS SUBLICENSE AGREEMENT - Page 6
<PAGE> 7
Borden and BDH Two as additional insureds therein. The policy shall provide
for thirty (30) day prior written notice to SFG and Licensor from the insurer
in the event of any material modification, cancellation or termination. Milk
Products shall deliver certificates of such insurance coverage to SFG and
Licensor prior to the sale and/or distribution of any Products or Additional
Products bearing a Sublicensed Mark.
11. TERM
This Agreement shall continue in force and effect for the Term (as
defined in the Borden License) and each Renewal Period(s) (as defined in the
Borden License) of the Borden License, provided that, for the Sublicensed Marks
listed in Appendix B to the Borden License and the Products listed in Appendix
D to the Borden License and the Additional Appendix D Products, the licenses
granted under Section 2(d), (e) and (f) of this Agreement shall expire after
three (3) years from the date of this Agreement and cannot be renewed. SFG
agrees that it will not exercise any rights granted to it under the Borden
License to terminate the Borden License without the prior written consent of
Milk Products. Upon the termination of the Borden License, this Agreement
shall also terminate.
12. EFFECT OF TERMINATION
Upon termination of this Agreement, Milk Products agrees to
immediately discontinue all use of the Sublicensed Marks, to cooperate with SFG
or its appointed agent to apply to the appropriate authorities to cancel
recording of this Agreement from all government records, to destroy all printed
materials bearing any of the Sublicensed Marks, and that all rights in the
Sublicensed Marks and the goodwill connected therewith shall remain the
property of Borden and BDH Two. Notwithstanding the foregoing in the event of
termination of this Agreement as a result of termination of the Borden License
pursuant to Section 9.3(d) thereto, Borden and BDH Two acknowledge that BofA
Agent shall have a limited license in the Sublicensed Marks for a period not to
exceed one hundred twenty (120) days for the sole purpose of disposing of
finished goods inventory on hand of Products and Additional Products that bear
the Sublicensed Marks.
13. RELATIONSHIP
The relationship between SFG and Milk Products is that of sublicensor
and sublicensee. Milk Products, its contractors, agents and employees shall
under no circumstances be deemed agents, franchisees, representatives,
employees or partners of SFG, Borden or BDH Two.
14. NO ASSIGNMENT OR SUB-LICENSING
Milk Products shall not have the right to assign this Agreement, in
whole or in part, or sublicense the Sublicensed Marks without the prior written
approval of SFG, Borden and BDH Two. Notwithstanding anything contained in
this Agreement to the contrary, the provisions of this Section 14 shall not
apply to (a) Milk Products sale of equity interests in Milk Products to third
parties or (b) any change in the control or ownership of Milk Products.
MILK PRODUCTS SUBLICENSE AGREEMENT - Page 7
<PAGE> 8
15. INTERPRETATION OF AGREEMENT
It is agreed that this Agreement shall be interpreted according to the
laws of the State of Delaware, United States of America.
16. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
SOUTHERN FOODS GROUP, L.P.
BY SFG MANAGEMENT LIMITED LIABILITY
COMPANY, ITS GENERAL PARTNER
By: /s/ PETE SCHENKEL
--------------------------------
Title: President & CEO
-----------------------------
MILK PRODUCTS, LLC
By: /s/ ALLEN A. MEYER
--------------------------------
Title: President
-----------------------------
READ AND APPROVED BY:
BORDEN, INC.
By: /s/
--------------------------------
Title:
-----------------------------
BDH TWO, INC.
By: /s/
--------------------------------
Title:
-----------------------------
MILK PRODUCTS SUBLICENSE AGREEMENT - Page 8
<PAGE> 9
EXHIBIT B - TRADEMARKS
SUBLICENSED TO MILK PRODUCTS
<TABLE>
<CAPTION>
UNITED STATES TRADEMARK U.S. REG. NO.
- ----------------------- -------------
<S> <C>
BORDEN Corporate Logo 921,370
BORDEN (Corporate Logo) &
Cow's Head (Elsie) Design 969,728
Borden Logotype with Cow's Head 1,859,074
Design of Cow's Head
(Elsie's Head with Flowers) 1,860,207
Design of Cow's Head
Elsie Design (Daisy) 397,158
Design of Cow's Head
Elsie (Design Plus Oval) 405,706
Design of Cow's Head 529,468
Elsie Design 810,861
Elsie 1,857,137
Gail Borden Signature 1,689,184
IF IT'S BORDEN, IT'S GOT TO BE GOOD 1,042,420
IF IT'S BORDEN, IT'S GOT TO BE GOOD 1,504,138
LADY BORDEN 572,693
LADY BORDEN & DESIGN 1,893,711
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
STATE TRADEMARK STATE REG. NO.
- --------------- -------------
<S> <C>
Borden (Alabama) 103,326
Borden (Arkansas) 124-87
Borden (Florida) T07258
Borden (Louisiana) 45-0849
Borden (New Mexico) TK87051105
Borden (Tennessee) 686-2060
Borden (Texas) 47,355
MEXICAN TRADEMARK REG. NO.
- ----------------- --------
Borden Label (milk carton) 379,964
Borden Corporate Logo 452,152
Borden Corporate Logotype 349,338
Borden and Design of Cow's Head
(Elsie's Head with Flowers in "New" Logo) 459,630
Borden and Design of Cow's Head
(Elsie's Head with Flowers in "New" Logo) 459,629
Borden Label (milk carton) 400,509
Borden and Design of Cow's Head
(Elsie's Head with Flowers in "New" Logo) 459,628
Cow's Head Design 379,768
Cow's Head Design 383,926
Cow's Head Design 400,235
Elsie's Market & Cow's head Design
(Service Mark) 457,129
Lady Borden 417,418
</TABLE>
2
<PAGE> 1
EXHIBIT 10.15
Execution Copy
MILK PRODUCTS TRADEMARK LICENSE AGREEMENT
AGREEMENT made this 4th day of September, 1997, by and among SOUTHERN
FOODS GROUP, L.P., a Delaware limited partnership ("SFG" or "LICENSOR"), and
MILK PRODUCTS, LLC, a Delaware limited liability company ("MILK PRODUCTS"), and
its permitted assignees and successors in interest (collectively, "LICENSEE").
W I T N E S S E T H :
WHEREAS, Licensor owns the POINSETTIA and LITE LINE trademarks and
certain logotype design trademarks used in connection with milk and other dairy
products, fruit juices and drinks, and has obtained United States federal and
state trademark registrations therefor;
WHEREAS, Licensee desires that Licensee and its permitted sublicensees
be allowed to process, sell and distribute the Products (as hereinafter
defined) under the trademarks developed by Licensor and seeks Licensor to grant
it the right to do so, all on the terms and conditions hereinafter set out;
WHEREAS, Milk Products will obtain financing pursuant to the terms of
that certain Credit Agreement of even date herewith among Milk Products, Bank
of America National Trust and Savings Association, as Agent and Letter of
Credit Issuing Bank and other financial institutions party thereto (such Credit
Agreement, together with any amendments thereto and renewals, extensions, and
replacements thereof the "Milk Products Credit Agreement") and SFG will obtain
financing pursuant to the terms of that certain Credit Agreement of even date
herewith among Licensee, SFG, the Lenders party thereto, and The Chase
Manhattan Bank, as Administrative Agent (such Credit Agreement, together with
any amendments thereto and renewals, extensions, and replacements thereof the
"SFG Credit Agreement");
WHEREAS, in accordance with terms of the Milk Products Credit
Agreement, Milk Products executed that certain Security Agreement between Milk
Products and Bank of America National Trust and Savings Association, as Agent
(in such capacity "BofA Agent"), to secure the Secured Bank Obligations as
defined in the Security Agreement with a security interest in, among other
things, all of the inventory of Milk Products;
WHEREAS, in accordance with terms of the SFG Credit Agreement, SFG
executed that certain Security Agreement between SFG and The Chase Manhattan,
as Collateral Agent (in such capacity the "Collateral Agent"), to secure the
Obligations as defined in the Security Agreement with a security interest in,
among other things, all of the inventory of SFG;
WHEREAS, BofA Agent and the Collateral Agent are hereafter
collectively referred to as "Secured Parties";
TRADEMARK LICENSE AGREEMENT - Page 1
<PAGE> 2
WHEREAS, Secured Parties require that each license entered into by SFG
or Milk Products provide each Secured Party with a limited right to sell any
and all finished goods inventory on hand and bearing the Licensed Trademarks;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. The following terms shall have the meanings set forth
below:
"Exclusive Territory" shall mean Louisiana, New Mexico, Mississippi,
Florida, Tennessee, Alabama and Mexico.
"Initial Term" shall have the meaning set forth in Article IX, Section
9.1.
"Licensed Trademarks" shall mean (i) the trademarks listed and
described in Appendix A, attached hereto, including the federal and any state
trademark registrations and applications therefor and all common law rights in
such trademarks and any trade dress or label designs associated with such
trademarks, and (ii) any such other marks and trade dress or label designs as
the parties may agree in writing to add to Appendix A during the Term.
"Non-Exclusive Territory" shall mean Texas, Oklahoma and Arkansas.
"Products" shall mean only those milk and other dairy products and
fruit juices specifically listed in Appendix B.
"Renewal Period" shall have the meaning set forth in Article IX,
Section 9.1.
"Territory" shall mean collectively the Exclusive Territory and the
Non-Exclusive Territory. "Term" shall mean the Initial Term and any Renewal
Period.
"United States" shall mean only the 50 states comprising the United
States of America, and the District of Columbia, excluding without limitation
any U.S. possessions and territories.
ARTICLE II
GRANT OF LICENSE
Section 2.1. (a) Subject to the terms and conditions herein, Licensor
hereby grants to Licensee during the Initial Term of this Agreement and any
Renewal Periods;
(i) a royalty-free, exclusive license to use the Licensed
Trademarks listed in Appendix A solely on or in connection with
Products listed in Appendix B, for sale to customers in the Exclusive
Territory;
TRADEMARK LICENSE AGREEMENT - Page 2
<PAGE> 3
(ii) a royalty-free, exclusive license as to parties other
than SFG to use the Licensed Trademarks listed in Appendix A solely
on or in connection with Products manufactured or processed in the
United States and listed in Appendix B, for sale to customers in the
Second Territory provided that SFG shall also be free to use the
Trademarks listed in Appendix A on or in connection with Products for
sale in the Non- Exclusive Territory.
Section 2.2. Subject to the terms and conditions herein, Licensee may
use the Licensed Trademarks on Product or Additional Product containers,
labels, packaging and shipping cases and on delivery vehicles and in any other
way suitable to promote or advertise the Licensed Trademarks and Products.
Section 2.3. Subject to the terms and conditions herein, Licensee
shall not have any right to export, purchase, distribute, receive, take on
consignment or sell the Products bearing the Licensed Trademarks in areas
outside of the Territory.
Section 2.4. Other than as expressly stated herein, Licensee shall
have no other right to use or interest in the Licensed Trademarks.
Specifically, Licensee may not use any of the Licensed Trademarks in its trade
name or as its business name or in connection with (i) any products, goods or
services of any kind or nature whatsoever, whether or not the same as or
similar to the Products, other than the Products currently sold by
Borden/Meadow Gold Dairies Inc. under the Licensed Trademarks; (ii) any
products, goods or services of any kind or nature whatsoever, whether or not
the same as or similar to the Products, and including the Products, if such
products, goods or services have been manufactured, processed or conducted
outside the United States, (iii) any cheese or cheese products not listed on
Appendix B hereto, including without limitation processed cheese products, (iv)
any liquid or powdered non-dairy coffee creamer product, (v) any condensed
milk, evaporated milk or powdered milk products, however packaged, or (vi) any
shelf stable eggnog, whether canned, in "brick pack" packages or in any other
aseptic form of packaging.
Section 2.5. Subject to the term and conditions of this Agreement,
Milk Products hereby assigns to BofA Agent the right to dispose of any and all
finished goods inventory on hand of Products and Additional Products bearing
the mark, provided that BofA Agent is otherwise exercising its rights pursuant
to Section ___ of the Security Agreement with respect to such inventory.
ARTICLE III
OWNERSHIP OF TRADEMARKS
Section 3.1. Licensee acknowledges that Licensor is the sole owner of
the Licensed Trademarks. Licensee shall not directly or indirectly question,
attack, contest, or in any other manner impugn the validity of Licensor's
ownership of the Licensed Trademarks, nor shall Licensee willingly become an
adverse party to Licensor in litigation contesting the validity of Licensor's
ownership and other rights in and to the Licensed Trademarks.
TRADEMARK LICENSE AGREEMENT - Page 3
<PAGE> 4
Section 3.2. Licensee shall be deemed a "related company" under the
U.S. Lanham Act, such that any use of the Licensed Trademarks by Licensee, and
any goodwill generated thereby, shall inure to the sole benefit of Licensor.
ARTICLE IV
FORM OF USE
Section 4.1. Licensee hereby acknowledges and agrees that its use of
the Licensed Trademarks shall be subject to all times during the Term to the
reasonable control of Licensor in order for Licensor to maintain the consistent
standard of quality associated with the Licensed Trademarks. Licensee will
preserve the good appearance of the Licensed Trademarks wherever and whenever
they are used and shall not use any Licensed Trademark in a manner which is
likely to derogate from the integrity, distinctiveness, goodwill, value or
strength of such Licensed Trademark.
Section 4.2. From time to time, Licensor may determine that a
previously published use of the Licensed Trademarks by Licensee may threaten
the value of the Licensed Trademarks, or is otherwise inconsistent with
Licensor's quality standards. Upon written notice from Licensor, Licensee
shall implement Licensor's directions regarding the proper use of the Licensed
Trademarks as promptly as practicable using its best efforts and, in any event,
within thirty (30) days.
Section 4.3. Except as required by law, Licensee agrees not to use
the Licensed Trademarks in connection or combination with any other third-party
trademarks, names or logotypes, without Licensor's prior written approval, such
approval not to be withheld unreasonably. Licensee shall at no time adopt or
use any variation of the Licensed Trademarks or any word or marks confusingly
similar thereto without Licensor's prior written approval.
Section 4.4. Licensee shall not take any action to cause an
abandonment or forfeiture of any of Licensor's rights in the Licensed
Trademarks and shall not take any action to cancel any registration in the
United States or elsewhere of any Licensed Trademark in the name of Licensor or
to interfere with any renewal of any such registration. Licensee shall
reasonably cooperate with and shall not oppose any application by or on behalf
of Licensor to register or renew any federal or state registration of any
Licensed Trademark in the United States or elsewhere.
ARTICLE V
QUALITY CONTROL
Section 5.1. Licensee agrees that all Products bearing a Licensed
Trademark pursuant to the Agreement shall be of a high standard and of such
quality as to protect and enhance the Licensed Trademarks and the goodwill and
value pertaining thereto and shall meet Licensor's quality standards and/or
such modified formulae as shall be reasonably agreed in writing between
Licensor and Licensee in the future. Licensee and its Manufacturing Agents (as
defined in
TRADEMARK LICENSE AGREEMENT - Page 4
<PAGE> 5
Section 5.5 below) shall manufacture, sell, distribute and promote the Products
in accordance with all applicable federal, state and local laws.
Section 5.2. In order to assure that Licensee meets Licensor's
quality standards and specifications, at least once each year during the Term
and/or for good cause shown, Licensee shall submit comprehensive affidavits
that meet with Licensor's reasonable approval that Licensor's quality standards
and Product specifications have been fully complied with during the prior year,
also submitting representative Product samples and listing the number of
customer complaints relating to Product quality during that year and a summary
of the actions taken by Licensee in response to such complaints.
Section 5.3. In the event that Licensor or its agents shall determine
that any Products sold or distributed by Licensee and/or its Manufacturing
Agents bearing or using Licensed Trademarks do not conform to Licensor's
Standards, and/or otherwise violate the provisions of this Article V, Licensee
agrees, at its expense, to take such action as Licensor directs in writing,
including, but not limited to, withdrawal and/or recall of such Products from
the market and to refrain and cause its Manufacturing Agents to refrain from
further sale and/or distribution of such Products under the Licensed Trademarks
unless and until Licensee and/or its Manufacturing Agents have demonstrated to
the reasonable satisfaction of Licensor that said Products conform to said
Standards and/or the provisions of the Article V, as the case may be.
Section 5.4. If Licensee enters into co-packing agreements with
suppliers or any other arrangement with respect to the processing or packaging
of final Products by any person who is not a subsidiary of Licensee, who will
process or package final Products from the Licensee, for sale in the Territory
("MANUFACTURING AGENTS"), Licensee must submit such co-packing agreements in
draft form to Licensor or an individual designated by Licensor ("LICENSOR'S
LICENSE COORDINATOR") for prior approval to ensure they include trademark
protection and quality control provisions that safeguard the rights of both the
Licensor and Licensee under this Agreement. Licensor agrees that such prior
approval shall not be withheld or delayed unreasonably, and that Licensor shall
respond promptly to any request for approval. If Licensor fails to respond to
such request within thirty (30) days, Licensor's approval shall be deemed
given.
Section 5.5. On a semi-annual basis, Licensee shall review with
Licensor and obtain prior approval for, all advertising, promotional and
point-of-purchase materials published or distributed by Licensee in connection
with Products bearing Licensed Trademarks. Licensor agrees that such prior
approval shall not be withheld or delayed unreasonably, and that Licensor shall
respond promptly to any request for approval. If Licensor fails to respond to
such request within thirty (30) days, Licensor's approval shall be deemed
given.
Section 5.6. If Licensee desires to adopt new cartons or packaging
bearing the Licensed Trademarks, which package designs or trade dress are
different from those presently used by Licensor, Licensee shall submit to
Licensor at least one (1) representative sample of each such new carton and
packaging material and may not use any such material in connection with the
Licensed Trademarks without Licensor's prior written approval. Licensor agrees
that such prior approval shall not be withheld or delayed unreasonably, and
that Licensor shall respond promptly to any
TRADEMARK LICENSE AGREEMENT - Page 5
<PAGE> 6
request for approval. If Licensor fails to respond to such request within
thirty (30) days, Licensor's approval shall be deemed given.
Section 5.7. Licensee shall notify Licensor promptly in writing upon
its determination that it intends to use any Licensed Trademark in connection
with a product not listed in Appendix B, which notification shall include a
description of the additional product. From and after such notification,
Licensor and Licensee shall mutually agree upon the standard that will be
applicable to such additional product and the provisions of this Article V
thereafter shall be applicable to such additional product as if it were a
"Product" hereunder.
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 6.1. Subject to the limitations of Section 6.2, Licensor
represents that it is the owner of or has the exclusive right to license the
Licensed Trademarks and is not aware of any other party with ownership rights
in the United States in any of the Licensed Trademarks, except for the Existing
License Agreements.
Section 6.2. Licensor represents that during the Term, it will not
license any other party to use the Licensed Trademarks on the Products in the
First Territory or Second Territory. Nothing herein shall restrict Licensor's
right or ability to sell (or license others to sell) goods or services other
than the Products identified by the Licensed Trademarks or similar marks
anywhere in the world.
Section 6.3. Licensor agrees to use reasonable efforts to prevent any
of its present or future third-party licensees from trans-shipping or otherwise
selling Products bearing the Licensed Trademarks to accounts or customers
located within the Territory.
Section 6.4. Licensor shall take all steps necessary to insure the
continued registration of, including, but not limited to, filing all timely
renewals of registrations for, the trademarks and listed on Appendix A.
Section 6.5. Licensee shall cooperate with Licensor in the protection
of the Licensed Trademarks and in connection therewith shall:
(a) promptly inform Licensor of any third-party use of any
Licensed Trademarks or any infringement or encroachment upon or any misuse
whatsoever of any Licensed Trademarks which comes to Licensee's attention; and
(b) promptly inform Licensor of any claim against Licensee that
the use of any Licensed Trademark infringes the rights of others or of the
institution of any proceeding against Licensee predicated upon any such claimed
infringement.
Section 6.6. Without limiting the effect of Section 3.1 hereof,
Licensor and Licensee shall both have the right to take action in respect of
any Products bearing the Licensed Trademarks for any alleged infringements of,
or other impairments to, such Products. The party taking any such action shall
bear all expenses, have complete control over, and recover all proceeds,
settlements
TRADEMARK LICENSE AGREEMENT - Page 6
<PAGE> 7
and damages with respect to the action. Notwithstanding the foregoing
sentence, the other party retains the right to join such action and share
evenly all expenses, control, proceeds, settlements and damages with respect
thereto, if such other party joins such action within a reasonably time period
following its commencement.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
Section 7.1. Licensor will hold Licensee harmless from and against
all suits, claims or actions by third parties against Licensee alleging
trademark infringement arising from Licensee's authorized use of any of the
Licensed Trademarks; provided that Licensee gives Licensor prompt written
notice of such suit, claim or action and cooperates fully with Licensor in
defending the same.
Section 7.2. Licensee hereby indemnifies and undertakes to defend and
hold Licensor harmless from and against any and all claims, suits, losses,
damages, fines, penalties, and/or expenses, including, but not limited to,
attorneys' fees, arising out of or based upon:
(a) Licensee's or its Manufacturing Agents' processing,
distribution or sale of Products bearing a Licensed Trademark; or
(b) any breach by Licensee or its Manufacturing Agents of their
obligations hereunder; or
(c) any proceeding brought by any person, governmental agency or
consumer group in connection with the Products processed, sold or distributed
by Licensee or its Manufacturing Agents bearing or using a Licensed Trademark;
or
(d) any violations of any applicable law or regulation or civil
claims relating to the manufacture, processing, sale, distribution, promotion
or advertising of Products bearing or using a Licensed Trademark unless
attributable to Licensor's breach of its obligations under this Agreement.
Licensor may participate in the defense of any such litigation.
Section 7.3. Licensee shall be solely responsible for the acts and
omissions of those with whom it or its Manufacturing Agents contracts for any
aspect of the processing, distribution or sale of Products bearing or using a
Licensed Trademark.
Section 7.4. In order to assure its ability to discharge its
obligations to Licensor, Licensee agrees that it will maintain throughout the
Term at its expense, comprehensive general liability insurance, including
product liability insurance and contractual liability coverage specifically
endorsed to cover the indemnity provisions in this Agreement, from a carrier
satisfactory to Licensor, in a minimum amount of Five Million Dollars
($5,000,000) combined single limit for each single occurrence, for bodily
injury and property damage, which shall designate Licensor as an additional
insured therein. The policy shall provide for thirty (30) days prior written
notice to Licensor from the insurer in the event of any material modification,
cancellation or termination. Licensee shall deliver certificates of such
insurance coverage to Licensor prior to the sale and/or distribution of any
Products bearing a Licensed Trademark.
TRADEMARK LICENSE AGREEMENT - Page 7
<PAGE> 8
ARTICLE VIII
RELATIONSHIP
Section 8.1. The relationship between Licensor and the Licensee is
that of licensor and licensee; the Licensee, its contractors, agents and
employees shall under no circumstances be deemed agents, franchisees,
representatives, employees or partners of Licensor.
ARTICLE IX
TERM AND TERMINATION
Section 9.1. Subject to the provisions of Section 9.2 and 9.3 hereof,
the term of this Agreement shall be a period of five (5) years from the date
hereof (the "INITIAL TERM") and for continuous subsequent five (5) years terms
(the "RENEWAL PERIOD(S)").
Section 9.2. Licensee may cancel this Agreement upon no less than one
(1) year's written notice delivered to Licensor prior to the end of the Initial
Term or the then-effective Renewal Period, provided that, if Licensee does not
give the required notice of termination, the Agreement shall be automatically
renewed for a subsequent Renewal Period.
Section 9.3. Licensor shall have the right to cancel and terminate
this Agreement immediately by written notice to Licensee upon the occurrence of
any one (1) or more of the following events:
(a) Licensee fails to deliver to Licensor or to maintain in full
force and effect the insurance referred to in Section 7.4; or
(b) Except as provided in 9.3(c), Licensee or its Manufacturing
Agents fail to commence and diligently pursue the cure of any breach by them of
a material provision of this Agreement within ten (10) days of receipt of
Licensor's written notice of such breach or to effect such cure within twenty
(20) days of receipt of such written notice; or
(c) The failure or refusal of Licensee or its Manufacturing
Agents:
(i) to, within ten (10) days of receipt of Licensor's
reasonable written instructions issued regarding the quality standards
of the Licensed Trademarks and Products, respond to such instructions
and commence a diligent attempt at cure, or to effect such cure within
twenty (20) days of receipt of such instructions; or
(ii) to perform, or comply with, any provision contained
in Article V which failure results in the production for sale of
Products that are unsafe or unfit for human consumption; or
(d) The insolvency of Licensee; an assignment by Licensee for the
benefit of creditors; the failure of Licensee to obtain the dismissal of any
involuntary bankruptcy or reorganization petition filed against it within sixty
(60) days from the date of such filing; the failure of Licensee to vacate the
appointment of a receiver for all or any part of its business within sixty (60)
days from the date of such appointment; or the dissolution of Licensee; or
(e) An involuntary recall of Products bearing the Licensed
Trademarks for reasons directly or indirectly related to the safety of such
Products and attributable to the negligence or intentional wrongdoing of
Licensee or its Manufacturing Agents; provided that Licensor determines in its
reasonable judgment that such event has had or is reasonably likely to have a
TRADEMARK LICENSE AGREEMENT - Page 8
<PAGE> 9
material adverse effect on the integrity, goodwill, value or strength of any of
the Licensed Trademarks; provided, further, that Licensor may terminate this
license under this Section 9.3(e) without regard to the immediately preceding
provision upon or after the third occurrence within any 12-month period of an
event referred to in this Section 9.3(e).
Section 9.4. In the event that this Agreement is terminated or
expires, Licensee shall, and shall cause its Manufacturing Agents to,
immediately cease all use of the Licensed Trademarks, provided that Licensee
may dispose of inventory on hand of Products in the ordinary course of
business, which shall be no longer than 120 days, if Licensee complies with its
obligations under this Agreement. Upon the request of Licensor, Licensee will
immediately remove or obliterate any Licensed Trademark from all signs
billboards, vehicles and from each and every other place and medium in which
they appear and destroy or surrender to Licensor all other materials of
whatever nature which bear or refer in any way to the Licensed Trademarks.
Section 9.5. Licensee hereby acknowledges and agrees that in the
event it breaches or otherwise defaults under Articles IV, V or X of this
Agreement, Licensor shall suffer immediate and irreparable harm for which there
is not an adequate remedy at law. Licensee agrees that Licensor shall be
entitled to equitable relief by way of injunction, in addition to any other
remedy available at law or in equity.
ARTICLE X
ASSIGNMENTS AND SUBLICENSES
Section 10.1. Licensee shall have the right to assign this Agreement
for the benefit of creditors pursuant to the terms of the Milk Products Credit
Agreement.
Section 10.2. The licenses granted under Article Section 2.1(a) of
this Agreement shall not be sublicensed by Licensee, in whole or in part,
without the prior written consent of Licensor, which consent shall not be
unreasonably withheld. In no event shall any sublicense under this section
relieve Licensee of any of its obligations under this Agreement.
ARTICLE XI
NOTICE
All notices pursuant to this Agreement, shall be in writing and
delivered in person, or sent by registered or certified mail, postage prepaid,
return receipt requested, as follows:
If to Licensee: Milk Products, LLC
3601 Wentwood
Dallas, Texas 75225
Attn: Allen Meyer
If to Licensor: Southern Foods Group L.P.
3114 South Haskell
Dallas, Texas 75223
Attn: Chief Financial Officer
TRADEMARK LICENSE AGREEMENT - Page 9
<PAGE> 10
Any notice delivered personally shall be deemed to have been given on the date
it is so delivered, and any notice delivered by registered or certified mail
shall be deemed to have been given on the date it is received. Either party by
notice in writing delivered or mailed to the other may change the name or
address or both to which future notices to such party shall be delivered.
ARTICLE XII
MISCELLANEOUS
Section 12.1. This Agreement and each of the appendices and exhibits
thereto constitute the entire understanding of the parties with respect to the
subject matter hereof, and supersede and merge all prior agreements and
discussions between the parties relating hereto. No changes in the terms of
this Agreement shall be valid, except, when and if reduced to writing and
signed by both Licensee and Licensor.
Section 12.2. All rights and remedies which Licensor or Licensee may
have hereunder or by operation of law are cumulative, and the pursuit of one
right or remedy shall not be deemed an election to waive renounce any other
right or remedy. Licensor or Licensee's failure to enforce any provision
hereof on any occasion shall not be deemed to waive any other breach of any
provision hereof. Any waiver of any provision of this Agreement must be in
writing and executed by the waiving party. No waiver of any breach or default
under this Agreement shall waive any other breach or default.
Section 12.3. The parties agree that each provision of this Agreement
shall be construed as separable and divisible from every other provision.
Enforceability of any one provision shall not limit the enforceability, in
whole or in part, of any other provision hereof. If any term of this Agreement
(or the application thereof to any part or set of circumstances) shall be held
invalid or unenforceable in any jurisdiction and to any extent, it shall be
ineffective only to the extent of such invalidity or unenforcability an shall
not invalidate or render unenforceable any other terms of provisions of this
Agreement (or such applicability thereof).
Section 12.4. Licensee and Licensor agree to execute such further
documentation and perform such further actions as may be reasonably, requested
by the other party hereto to evidence and effectuate further the purposes and
intents set forth in this Agreement.
Section 12.5. All representations, warranties and indemnities
contained in this Agreement shall survive any independent investigation made by
the benefiting party and the suspension, expiration or termination of this
Agreement.
Section 12.6. This Agreement, irrespective of place of execution or
performance, shall be construed and enforced in accordance with the laws of the
State of Texas applicable to contracts executed and wholly performed therein.
Any and all actions or proceedings concerning this Agreement shall, if brought
by any party hereto, be instituted and resolved in the courts of the
TRADEMARK LICENSE AGREEMENT - Page 10
<PAGE> 11
State of Texas or any federal court, sitting in the State of Texas. Each party
hereby consents to jurisdiction and service of process in such locale.
Section 12.7. Article and section headings and captions are for
convenience only and shall not be used in the construction or interpretation of
this Agreement or any terms herein.
Section 12.8. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original and all of which taken
together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
SOUTHERN FOODS GROUP, L.P.
BY SFG MANAGEMENT LIMITED LIABILITY
COMPANY, ITS GENERAL PARTNER
By: /s/ PATRICK K. FORD
------------------------------------
Patrick K. Ford, Assistant Secretary
MILK PRODUCTS, LLC
By: /s/ ALLEN A. MEYER
------------------------------------
Allen A. Meyer, President
APPENDIX A - LICENSED TRADEMARKS
<TABLE>
<CAPTION>
UNITED STATES TRADEMARK U.S. REG. NO.
<S> <C>
Lite-Line (Stylized Letters) 929657
Lite-Line (words only) 1,178,356
Poinsettia (words only) 813,109
</TABLE>
<PAGE> 12
APPENDIX B - PRODUCTS
MILKS
Fluid fresh homogenized milk
Fluid fresh 1% and 2% low fat milk
Fluid fresh nonfat skimmed milk
Fluid fresh 1% and 2% chocolate milk
Fluid fresh whole chocolate milk
Fresh skim chocolate milk
Fresh buttermilk
Lactose reduced & lactose free fresh milk
Ultra-pasteurized, shelf stable, aseptically packaged fluid fresh milk
BUTTER
"Country Store" butter (in quarters)
Spreadable light butter
EGGNOGS
Regular fresh eggnog
Light fresh eggnog
Fat free fresh eggnog
CREAMS
Fresh heavy cream
Fresh light cream
Fresh half & half cream
Fresh fat free cream
ICE CREAMS, FROZEN YOGURTS AND SHERBETS
Frozen ice cream - full fat
Frozen ice cream - fat free
Frozen ice cream - low fat
Frozen confections - Juice pops on sticks
Frozen confections - Regular ice cream pops on sticks
Frozen confections - Reduced sugar ice cream pops
Frozen confections - No sugar-added ice cream pops
Frozen confections - ice cream bars
Frozen confections - ice cream sandwiches
<PAGE> 13
Frozen confections - ice cream cups
Frozen confections - ice cream cones containing bulk
ice cream packed inside a foil container
Frozen sherbets or sorbets in various flavors
Frozen yogurt in various flavors
COTTAGE CHEESES
Regular fresh cottage cheese
Low fat fresh cottage cheese
Fat free fresh cottage cheese
SOUR CREAMS
Regular fresh sour cream
Low fat fresh sour cream
Fat free fresh sour cream
FRESH YOGURTS
Regular yogurt
Low fat yogurt
Fat free yogurt
CREAM CHEESES
Regular cream cheese
Reduced fat cream cheese
FRUIT JUICES - From 100% Concentrate
Orange, apple and a variety of other flavors
<PAGE> 1
EXHIBIT 10.16
Execution Copy
PATENT LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this "AGREEMENT"), effective as of _______ on
the 4th day of September 1997, by and between Southern Foods Group, L.P., a
Delaware limited partnership (hereinafter called "SFG"), and Milk Products,
LLC, a Delaware limited liability company (hereinafter called "MILK PRODUCTS").
WHEREAS, SFG has obtained ownership of U.S. Patent No. 4,701,329
entitled "Calcium Fortified Milk" (the "PATENT") a copy of which is attached as
Exhibit A;
WHEREAS, Milk Products desires to use the Patent in connection with
its production and sale of various milk and dairy products (the "PRODUCTS");
WHEREAS, Milk Products will obtain financing pursuant to the terms of
that certain Credit Agreement of even date herewith among Milk Products, Bank
of America National Trust and Savings Association, as Agent and Letter of
Credit Issuing Bank and other financial institutions party thereto (such Credit
Agreement, together with any amendments thereto and renewals, extensions, and
replacements thereof the "MILK PRODUCTS CREDIT AGREEMENT") and SFG will obtain
financing pursuant to the terms of that certain Credit Agreement of even date
herewith among Licensee, SFG, the Lenders party thereto, and The Chase
Manhattan Bank, as Administrative Agent (such Credit Agreement, together with
any amendments thereto and renewals, extensions, and replacements thereof the
"SFG CREDIT AGREEMENT");
WHEREAS, in accordance with terms of the Milk Products Credit
Agreement, Milk Products executed that certain Security Agreement between Milk
Products and Bank of America National Trust and Savings Association, as Agent
(in such capacity "BOFA AGENT"), to secure the Secured Bank Obligations as
defined in the Security Agreement with a security interest in, among other
things, all of the inventory of Milk Products;
WHEREAS, in accordance with terms of the SFG Credit Agreement, SFG
executed that certain Security Agreement between SFG and The Chase Manhattan,
as Collateral Agent (in such capacity the "COLLATERAL AGENT"), to secure the
Obligations as defined in the Security Agreement with a security interest in,
among other things, all of the inventory of SFG;
WHEREAS, BofA Agent and the Collateral Agent are hereafter
collectively referred to as "SECURED PARTIES";
WHEREAS, Secured Parties require that each license entered into by SFG
or Milk Products provide each Secured Party with a limited right to sell any
and all finished goods inventory on hand covered by the licensed Patent;
PATENT LICENSE AGREEMENT - Page 1
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises hereinafter set forth, the parties agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, SFG hereby
grants to Milk Products a non-exclusive, royalty-free license to make, use and
sell any product covered by the claims of the Patent.
Subject to the term and conditions of this Agreement, Milk Products
hereby assigns to BofA Agent the right to dispose of any and all finished goods
inventory on hand of Products covered by the Patent, provided that BofA Agent
is otherwise exercising its rights pursuant to Section ___ of the Security
Agreement with respect to such inventory.
2. OWNERSHIP OF PATENT
Milk Products acknowledges the ownership of the Patent by SFG agrees
that it will do nothing inconsistent with such ownership.
3. INFRINGEMENT PROCEEDINGS
Milk Products agrees to notify SFG of any unauthorized products
infringing the Patent as it comes to Milk Products' attention. In the event
SFG fails to take action regarding any unauthorized products which infringe the
Patent, Milk Products shall have the right to take such action, including the
right to bring infringement proceedings.
4. INDEMNIFICATION BY MILK PRODUCTS
Milk Products hereby indemnifies and undertakes to defend and hold SFG
harmless from and against any and all claims, suits, losses, damages, fines,
penalties, and/or expenses including, but not limited to, attorney's fees
arising out of or based upon:
(a) Milk Products' or its manufacturing agents' processing,
distribution or sale of Products covered by the Patent; or
(b) Any breach by Milk Products or its manufacturing agents of
their obligations under this Agreement; or
(c) Any proceeding brought by any person, governmental agency or
consumer group in connection with the Products processed, sold or distributed
by Milk Products or its manufacturing agents covered by the Patent; or
(d) Any violation of any applicable law or any regulation or civil
claims relating to the manufacture, processing, sale, distribution, promotion
or advertising of Products covered by the
PATENT LICENSE AGREEMENT - Page 2
<PAGE> 3
Patent unless attributable to SFG's breach of its obligations under this
Agreement. SFG may participate in the defense of any such litigation.
5. RESPONSIBLE FOR ACTS OF MANUFACTURING AGENTS
Milk Products shall be solely responsible for the acts and omissions
of those with whom it or its manufacturing agents contract for any aspect of
the processing, distribution, or sale of the Products covered by the Patent.
6. MAINTENANCE OF INSURANCE
In order to assure its ability to discharge its obligations to SFG,
Milk Products agrees that it will maintain throughout the term of this
Agreement at its expense, comprehensive general liability insurance, including
product liability insurance and contractual liability coverage specifically
endorsed to cover the indemnity provisions in this Agreement, from a carrier
satisfactory to SFG, in a minimum amount of Five Million Dollars ($5,000,000)
combined single limit for each single occurrence, for bodily injury and
property damage which shall designate SFG as an additional insured therein.
The policy shall provide for thirty (30) day prior written notice to SFG from
the insurer in the event of any material modification, cancellation or
termination. Milk Products shall deliver certificates of such insurance
coverage to SFG prior to the sale and/or distribution of any Products covered
by the Patent.
7. TERM
This Agreement shall continue in force for the life of the Patent.
8. RELATIONSHIP
The relationship between SFG and Milk Products is that of licensor and
licensee. Milk Products, its contractors, agents and employees shall under no
circumstances be deemed agents, franchisees, representatives, employees or
partners of SFG.
9. ASSIGNMENT AND SUB-LICENSING
Milk Products shall have the right to assign this Agreement, in whole
or in part, for the benefit of creditors pursuant to the Milk Products Credit
Agreement. Milk Products shall not have the right to sublicense the Patent
without the prior written approval of SFG. Notwithstanding anything contained
in this Agreement to the contrary, the provisions of this section shall not
apply to (a) Milk Products sale of equity interests in Milk Products to third
parties or (b) any change in the control or ownership of Milk Products.
10. INTERPRETATION OF AGREEMENT
It is agreed that this Agreement shall be interpreted according to the
laws of the State of Texas, United States of America.
PATENT LICENSE AGREEMENT - Page 3
<PAGE> 4
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
SOUTHERN FOODS GROUP, L.P.
BY SFG MANAGEMENT LIMITED LIABILITY
COMPANY, ITS GENERAL PARTNER
By: /s/ PATRICK K. FORD
------------------------------------
Patrick K. Ford, Assistant Secretary
MILK PRODUCTS, LLC
By: /s/ ALLEN A. MEYER
------------------------------------
Allen A. Meyer, President
PATENT LICENSE AGREEMENT - Page 4
<PAGE> 1
EXHIBIT 10.17
Execution Copy
COPYRIGHT LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this "AGREEMENT"), effective as of _______ on
the 4th day of September 1997, by and between Southern Foods Group, L.P., a
Delaware limited partnership (hereinafter called "SFG"), and Milk Products,
LLC, a Delaware limited liability company (hereinafter called "MILK PRODUCTS").
WHEREAS, SFG has obtained ownership of the copyrights listed on
Schedule A (the "COPYRIGHTS");
WHEREAS, Milk Products desires to use the Copyrights in connection
with packaging and advertisement (the "ADVERTISEMENTS") of various milk and
dairy products (the "PRODUCTS");
WHEREAS, Milk Products will obtain financing pursuant to the terms of
that certain Credit Agreement of even date herewith among Milk Products, Bank
of America National Trust and Savings Association, as Agent and Letter of
Credit Issuing Bank and other financial institutions party thereto (such Credit
Agreement, together with any amendments thereto and renewals, extensions, and
replacements thereof the "MILK PRODUCTS CREDIT AGREEMENT") and SFG will obtain
financing pursuant to the terms of that certain Credit Agreement of even date
herewith among Licensee, SFG, the Lenders party thereto, and The Chase
Manhattan Bank, as Administrative Agent (such Credit Agreement, together with
any amendments thereto and renewals, extensions, and replacements thereof the
"SFG CREDIT AGREEMENT");
WHEREAS, in accordance with terms of the Milk Products Credit
Agreement, Milk Products executed that certain Security Agreement between Milk
Products and Bank of America National Trust and Savings Association, as Agent
(in such capacity "BOFA AGENT"), to secure the Secured Bank Obligations as
defined in the Security Agreement with a security interest in, among other
things, all of the inventory of Milk Products;
WHEREAS, in accordance with terms of the SFG Credit Agreement, SFG
executed that certain Security Agreement between SFG and The Chase Manhattan,
as Collateral Agent (in such capacity the "COLLATERAL AGENT"), to secure the
Obligations as defined in the Security Agreement with a security interest in,
among other things, all of the inventory of SFG;
WHEREAS, BofA Agent and the Collateral Agent are hereafter
collectively referred to as "SECURED PARTIES";
WHEREAS, Secured Parties require that each license entered into by SFG
or Milk Products provide each Secured Party with a limited right to sell any
and all finished goods_inventory on hand including materials covered by the
Copyrights;
COPYRIGHT LICENSE AGREEMENT - Page 1
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises hereinafter set forth, the parties agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, SFG hereby
grants to Milk Products a non-exclusive, royalty-free license to copy and
distribute materials covered by the Copyrights.
Subject to the term and conditions of this Agreement, Milk Products
hereby assigns to BofA Agent the right to dispose of any and all finished goods
inventory on hand of Products including any materials covered by the
Copyrights, provided that BofA Agent is otherwise exercising its rights
pursuant to Section ___ of the Security Agreement with respect to such
inventory.
2. OWNERSHIP OF COPYRIGHTS
Milk Products acknowledges the ownership of the Copyrights by SFG and
agrees that it will do nothing inconsistent with such ownership.
3. INFRINGEMENT PROCEEDINGS
Milk Products agrees to notify SFG of any unauthorized materials
infringing the Copyrights as it comes to Milk Products' attention. In the
event SFG fails to take action regarding any unauthorized products which
infringe the Patent, Milk Products shall have the right to take such action,
including the right to bring infringement proceedings.
4. INDEMNIFICATION BY MILK PRODUCTS
Milk Products hereby indemnifies and undertakes to defend and hold SFG
harmless from and against any and all claims, suits, losses, damages, fines,
penalties, and/or expenses including, but not limited to, attorney's fees
arising out of or based upon:
(a) Milk Products' or its manufacturing agents' use of the
Copyrights in Advertisements; or
(b) Any breach by Milk Products or its manufacturing agents of
their obligations under this Agreement; or
(c) Any proceeding brought by any person, governmental agency or
consumer group in connection with the Advertisements or Products prepared, sold
or distributed by Milk Products or its manufacturing agents which incorporate
materials covered by the Copyrights; or
(d) Any violation of any applicable law or any regulation or civil
claims relating to the manufacture, processing, sale, distribution, promotion
or advertising of Products which
COPYRIGHT LICENSE AGREEMENT - Page 2
<PAGE> 3
incorporate materials covered by the Copyrights unless attributable to SFG's
breach of its obligations under this Agreement. SFG may participate in the
defense of any such litigation.
5. RESPONSIBLE FOR ACTS OF MANUFACTURING AGENTS
Milk Products shall be solely responsible for the acts and omissions
of those with whom it or its manufacturing agents contract for any aspect of
the processing, distribution, or sale of the Products or Advertisements which
incorporate materials covered by the Copyrights.
6. MAINTENANCE OF INSURANCE
In order to assure its ability to discharge its obligations to SFG,
Milk Products agrees that it will maintain throughout the term of this
Agreement at its expense, comprehensive general liability insurance, including
product liability insurance and contractual liability coverage specifically
endorsed to cover the indemnity provisions in this Agreement, from a carrier
satisfactory to SFG, in a minimum amount of Five Million Dollars ($5,000,000)
combined single limit for each single occurrence, for bodily injury and
property damage which shall designate SFG as an additional insured therein.
The policy shall provide for thirty (30) day prior written notice to SFG from
the insurer in the event of any material modification, cancellation or
termination. Milk Products shall deliver certificates of such insurance
coverage to SFG prior to the sale and/or distribution of any Products or
Advertisements which incorporate materials covered by the Copyrights.
7. TERM
This Agreement shall continue in force for the life of the Copyrights.
8. RELATIONSHIP
The relationship between SFG and Milk Products is that of licensor and
licensee. Milk Products, its contractors, agents and employees shall under no
circumstances be deemed agents, franchisees, representatives, employees or
partners of SFG.
9. ASSIGNMENT AND SUBLICENSING
Milk Products shall have the right to assign this Agreement, in whole
or in part, for the benefit of a creditor pursuant to the requirements of the
Milk Products Credit Agreement. Milk Products shall not have the right to
sublicense the Copyrights without the prior written approval of SFG.
Notwithstanding anything contained in this Agreement to the contrary, the
provisions of this section shall not apply to (a) Milk Products sale of equity
interests in Milk Products to third parties or (b) any change in the control or
ownership of Milk Products.
COPYRIGHT LICENSE AGREEMENT - Page 3
<PAGE> 4
10. INTERPRETATION OF AGREEMENT
It is agreed that this Agreement shall be interpreted according to the
laws of the State of Texas, United States of America.
11. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together constitute
one and the same instrument.
[REMAINDER OF THIS PAGE LEFT BLANK INTENTIONALLY]
COPYRIGHT LICENSE AGREEMENT - Page 4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
SOUTHERN FOODS GROUP, L.P.
BY SFG MANAGEMENT LIMITED LIABILITY
COMPANY, ITS GENERAL PARTNER
By: /s/ PATRICK K. FORD
-------------------------------------
Patrick K. Ford, Assistant Secretary
MILK PRODUCTS, LLC
By: /s/ ALLEN A. MEYER
-------------------------------------
Allen A. Meyer, President
COPYRIGHT LICENSE AGREEMENT - Page 5
<PAGE> 6
SCHEDULE A
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
TITLE OF WORK REGISTRATION # TYPE OF MERCHANDISE
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
"Borden's Dutch Chocolate Drink" KK 90978 Milk
- ---------------------------------------------------------------------------------------------------------
"A wonderful new treat from Borden's! - Borden's KK 115873 Milk
Dutch chocolate flavored drink - the finest
imported dutch cocoa gives it the most wonderful
chocolate flavor! - It's rich with real milk
nourishment!"
- ---------------------------------------------------------------------------------------------------------
"Borden's Golden Vanilla Ice Cream! *** Brings KK 192302 Ice Cream
Back *** Memories"
- ---------------------------------------------------------------------------------------------------------
</TABLE>
COPYRIGHT LICENSE AGREEMENT - Page 6
<PAGE> 1
EXHIBIT 10.18
LICENSE ASSIGNMENT AND ASSUMPTION AGREEMENT
This License Assignment and Assumption Agreement made as of the 4th day
of September, 1997, by Borden/Meadow Gold Dairies, Inc., a Delaware corporation
having a place of business at 1104 East Country Hills Drive, Ogden, Utah 84403
("ASSIGNOR"), and Southern Foods Group, L.P., a Delaware limited partnership
having a place of business at 3114 South Haskell, Dallas, Texas 75223
("ASSIGNEE").
WHEREAS, Assignor has entered into a License Agreement ("LICENSE
AGREEMENT") dated effective May 3, 1996 between Assignor as Licensee and
Creamery Hollow U.S.A., Inc., an Idaho corporation, as Licensor, for the
exclusive license to make, use and/or sell certain Licensed Products as
described therein; and
WHEREAS, pursuant to that certain Stock Purchase and Merger Agreement
dated as of May 22, 1997, by and among Mid-America Dairymen, Inc. ("MID-AM"),
Borden/Meadow Gold Dairies Holdings, Inc. ("HOLDINGS"), BDH Two, Inc. and
Borden, Inc. (the "AGREEMENT"), Mid-Am (a) has acquired all of the stock of
Holdings, (b) has merged Holdings and its subsidiaries other than Assignor and
Borden/Meadow Gold Dairies Investments, Inc. ("INVESTMENTS") into Mid-Am, and
(c) has contributed the assets of Holdings constituting the Meadow Gold Dairies
and excluding the assets of Assignor and Investments to Assignee as a capital
contribution by Mid-Am;
WHEREAS, the License Agreement is an asset included in the Meadow Gold
Dairies and is intended to be included in the assets of the Meadow Gold Dairies
being contributed to Southern Foods.
NOW, THEREFORE, in consideration of the sum of Ten ($10.00) Dollars and
other good and valuable consideration paid by Assignee to Assignor, the receipt
and sufficiency of which is
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<PAGE> 2
hereby acknowledged, and in order to consummate the transactions contemplated
by the Agreement, Assignor and Assignee hereby agree as follows:
1. Assignor hereby transfers, assigns, conveys and delivers to
Assignee and its successors and assigns, all of Assignor's right, title, and
interest as Licensee in, to and in respect of the License Agreement.
2. In consideration of the foregoing assignment, Assignee, for
itself and its successors and assigns, does hereby accept the assignment set
forth herein and assume all the obligations of Assignor and its successors and
assigns arising on or after the date hereof under the License Agreement.
3. Assignor hereby further covenants that at any time and from time
to time after the date hereof, upon the request of Assignee, Assignor shall
promptly execute and deliver, or cause to be executed and delivered, to
Assignee all such further assignments and other documents, in form and
substance satisfactory to Assignee, as Assignee may reasonably request in order
to carry out or evidence the terms of the Agreement and this instrument.
4. This instrument is being delivered pursuant to the Agreement,
shall be construed consistently therewith and shall not be deemed to modify,
impair or affect any of the terms, covenants, conditions, indemnifications or
other provisions contained in the Agreement.
5. This License Assignment and Assumption Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
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<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this License
Assignment and Assumption Agreement as of the day and year set forth above.
ASSIGNOR:
BORDEN/MEADOW GOLD DAIRIES, INC.
By: /s/
-----------------------------------------
Name:
-------------------------------
Title:
------------------------------
ASSIGNEE:
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, Its General Partner
By: /s/ PETE SCHENKEL
-----------------------------------------
Name: Pete Schenkel
-------------------------------
Title: President & CEO
------------------------------
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<PAGE> 1
EXHIBIT 10.19
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT (this "Agreement") is made and
entered into as of this 4th day of February, 1995, by and between FLAV-O-RICH,
INC., a Kentucky cooperative association ("Licensor"), and SOUTHERN FOODS
GROUP, L.P., a Delaware limited partnership ("Licensee").
WHEREAS, pursuant to that certain Lease Agreement of even date
herewith, between Licensor and Licensee (the "Lease Agreement"), Licensor
agreed to grant certain licenses to the Trademarks (as hereinafter defined) to
Licensee; and
WHEREAS, Licensee desires to acquire from Licensor, and Licensor
desires to grant to Licensee, certain licenses to the Trademarks for use in
connection with certain specified products in a specified territory, all
pursuant to the terms and conditions provided herein.
NOW, THEREFORE, for and in consideration of the sum of One Dollar
($1.00), receipt of which is hereby acknowledged, and for other good and
valuable consideration, and the mutual performance of the undertakings herein,
the parties hereto hereby agree as follows:
1. DEFINED TERMS. The following terms shall have the meanings set
forth below when used in this Agreement:
(a) "SPECIFIED PRODUCTS" means processed fluid milk,
liquid milk, chocolate milk, butter milk, half and
half, cream and low and reduced fat versions of any
of the foregoing, e.g. "low-fat chocolate milk."
(b) "TERM" has the meaning set forth in Section 14
hereof.
(c) "TERRITORY" means the States of Louisiana,
Mississippi and Arkansas and Shelby County, Tennessee
and the contiguous counties in Tennessee.
(d) "TRADEMARKS" means the trademarks listed in
Attachment A attached hereto and incorporated herein
by reference.
2. LICENSE. On the terms and subject to the conditions stated in
this Agreement, Licensor hereby grants to Licensee an exclusive (including as
to Licensor), royalty-free license to use the Trademarks in connection with the
promotion, advertising, offer
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for sale, sale and distribution of the Specified Products in the Territory
during the Term.
3. LIMITATIONS ON LICENSE. The license herein granted does not
include or give to Licensee the right to use any trademark of Licensor other
than the Trademarks and does not license the use of any trade dress for the
Specified Products currently used by Licensor. Licensee agrees to use the
Trademarks only as and in the manner specified in this Agreement. Without
limiting the generality of the foregoing, (a) the use of the Trademarks by
Licensee shall not be extended outside the Territory, or to any products other
than the Specified Products sold or advertised for sale by Licensee in the
Territory during the Term, (b) Licensee shall not use the Trademarks or any
derivative thereof as a trade name and (c) Licensee shall not use or advertise
the Trademarks in a manner which is likely to cause any third party to believe
that Licensee is related to Licensor in any other way than as a licensee or
lessor.
4. LICENSOR'S RIGHTS. Licensee recognizes and agrees that
Licensor is the owner of the Trademarks and subject to the rights granted
Licensee hereunder is entitled to the exclusive right to employ, use, control
and derive the benefit and goodwill from the use of the Trademarks. Without
limiting the generality of the foregoing, Licensee further agrees that nothing
herein shall prevent or restrict Licensor from using, or granting to others (by
sale, license, or otherwise) the right to use, the Trademarks (a) on or in
connection with the sale, advertising or marketing of any products (including,
without limitation, Specified Products) outside the Territory or (b) in the
Territory on or in connection with the sale, advertising or marketing of
products therein other than the Specified Products.
5. VALIDITY OF TRADEMARKS. Licensee acknowledges the validity of
the Trademarks and the rights and registrations which Licensor owns regarding
the same, and will not at any time, directly or indirectly, do or cause to be
done any act or thing contesting or in any way impairing or intending to impair
any part of Licensor's right, title and interest in and to the Trademarks.
Licensee shall not in any manner represent that it has any ownership in the
Trademarks or registrations thereof, and Licensee acknowledges that its use of
the Trademarks shall not create in favor of Licensee any right, title or
interest in or to the Trademarks or registrations thereof except those rights
and interests granted hereunder. All use of the Trademarks by Licensee shall
enure to the sole benefit of Licensor. For so long as Licensor has not
abandoned the Trademarks, Licensee covenants and agrees that it will not adopt
or use, in the U.S.A., for any dairy product, a trade name or trademark that is
confusingly similar to the Trademarks.
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<PAGE> 3
6. QUALITY CONTROL. Licensee agrees that Licensor has the right
to control the nature and quality of the Specified Products sold by Licensee
under the Trademarks.
7. AGREEMENTS REGARDING SPECIFIED PRODUCTS. Licensee agrees that
(a) the Specified Products produced or marketed by Licensee under the
Trademarks shall comply with all applicable statutes, laws, rules, regulations
and other similar, legal requirements, and shall conform to the standards and
specifications previously used by Licensor immediately prior to the execution
and delivery of this Agreement in the making, marketing and advertising of
Specified Products, such written statements and specifications having been
provided to Licensee prior to execution of this Agreement and (b) the nature
and quality of Licensee's Specified Products bearing the Trademarks will be the
same as the nature and quality of the Specified Products sold under such
Trademarks in the past by Licensor.
8. INSPECTION BY LICENSOR. Licensee agrees to permit Licensor at
reasonable times during business hours on prior written notice to inspect the
production facilities, and the production and the quality control production
records of Licensee in connection with the Specified Products. In the event
that any Specified Products do not meet the quality standards maintained in the
past by Licensor immediately prior to execution and delivery of this Agreement,
Licensor shall identify the alleged non-conformity and work with Licensee to
rectify any concerns of Licensor. In the event the parties cannot resolve their
differences, Licensee will refrain from selling the affected products under the
Trademarks until the parties resolve the dispute.
9. PRODUCT DEFICIENCIES. The license herein granted shall be
subject to termination by Licensor in the event that any substantial deficiency
in the nature or quality of any Specified Products or a substantial deviation
from the standards and specifications for the Specified Products is not
corrected by Licensee within thirty (30) days after receipt of written notice
from Licensor specifying in reasonable detail the deficiency or deviation. If
such deficiency or deviation results in a product potentially hazardous to
health or safety, Licensee shall take immediate steps after discovery of the
hazardous product to recall such hazardous product from distribution channels
and destroy it.
10. PACKAGING AND ADVERTISING. Licensee agrees to mark all labels,
wrappings, packages and containers for the Specified Products sold or
distributed under the Trademarks in accordance with all applicable laws and
regulations. No packaging, labeling or advertising of Specified Products sold
by Licensee under the Trademarks, as provided herein, may be used without the
prior written approval of Licensor. Samples of all advertising, packaging and
labeling for Specified Products shall be submitted sufficiently far in advance
to permit Licensee to make such changes as Licensor reasonably requests. If
Licensor has not disapproved
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<PAGE> 4
in writing an item of packaging, labeling and advertising within five calendar
(5) days after its receipt, such item shall be deemed to have Licensor's
approval. Once approval has been obtained, further approval need not be
obtained for additional or repeated use of the same or substantially similar
packaging, labeling and advertising.
11. CLAIMS OF INFRINGEMENT. If, during the Term of this Agreement,
any third party uses in the Territory a trademark that is confusingly similar
to the Trademarks, then Licensee shall notify Licensor in writing thereof,
specifying the details of the third party use, including copies of the third
party's labels, advertising or packaging complained of. If Licensee so requests
in the notification, Licensor shall promptly undertake preventive measures in
order to stop the infringement and/or the unfair method of competition,
including litigation if necessary, and where appropriate to recover damages,
costs and fees. Licensee shall, at Licensor's written request, but at
Licensor's cost as to out-of-pocket expenses only, cooperate with Licensor in
its preventive measures, including litigation. Licensee shall with respect to
litigation commenced at its request pay one-half of substantiated court costs
and expenses, including reasonable attorneys' fees and share one-half of any
monetary recovery. If Licensee does not request litigation, but Licensor
notifies Licensee that it intends to litigate, Licensee may within fifteen (15)
days notify Licensor whether or not it wishes to participate in the litigation
If Licensee declines to participate, then Licensee shall forfeit its share of
any monetary recovery. If Licensee agrees, on the other hand, to participate,
then Licensee shall pay one-half of the costs and expenses as described above
and share one-half of any monetary recovery; provided, however, that Licensee
may at any time during such non-requested litigation notify Licensor that it no
longer desires to participate, in which case Licensee will not thereafter be
obligated to pay any portion of such costs and expenses including fees. In such
event, Licensee shall forfeit its share of any monetary recovery.
12. INDEMNIFICATION. Licensee hereby agrees to indemnify, defend
and hold harmless Licensor, its shareholders, directors, officers, employees
and agents, from, against and in respect of, any all claims, demands,
liabilities, losses, costs, damages, penalties, fines and expenses (including,
without limitation, reasonable attorneys' fees and expenses) arising out of any
of the following:
(a) any and all product liability claims or actions, and
any and all other claims or actions, involving or relating to
Licensee's manufacture, processing, use, advertising, marketing, sale
or distribution of the Specified Product (unless such claims are based
on Licensee's use of the Trademarks);
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<PAGE> 5
(b) any and all civil or administrative proceedings
brought by any federal, state or local agency in connection with the
Specified Products processed, sold or distributed by Licensee under the
Trademarks (unless such proceedings are based on Licensee's use of the
Trademarks);
(c) any claim or action by any consumer or other third
party relating to any advertising, marketing or promotional material
published, used or distributed by Licensee (unless such claim is based
on Licensee's use of the Trademarks); and
(d) any and all actions, suits, proceedings, demands,
assessments, judgments, costs, and legal and other expenses incident
to any of the foregoing (unless such claim is based on Licensee's use
of the Trademarks).
The provisions of this Section 12 shall survive the expiration or termination
of this Agreement.
13. INSURANCE. Licensee shall maintain in force during the Term of
this Agreement an insurance policy covering claims arising out of the
distribution and sale by Licensee of the Specified Products (the "Policy"). The
Policy shall name Licensor as an additional insured and shall have coverage
amounts reasonably acceptable to Licensor. Licensee shall provide Licensor
with a copy of the Policy and any endorsement thereof prior to the first use by
Licensee of the Trademarks and shall, no less than ten (10) days before the
renewal date of the Policy, provide Licensor with a copy of the renewal
certificate. Licensee shall not sell any Specified Products under the Trademark
that are not covered under the Policy.
14. TERM AND SELL-OFF RIGHTS.
(a) The term of this Agreement shall commence on the date
hereof and shall continue (i) so long as the Lease Agreement remains
in full force and effect, and (ii) in the event that the Licensee
exercises its option to purchase under the Lease Agreement, for Three
(3) years immediately following the date such purchase is closed,
unless terminated as herein provided (the "Term").
(b) Subject to the provisions of this Section 14(b), upon
the termination of this Agreement for any reason, all rights of
Licensee to use the Trademarks shall cease. Upon such termination
Licensee shall discontinue advertisement, sale, distribution and
promotion of the Specified Products under the Trademarks, except that
for thirty (30) days following such termination, unless termination
has occurred under any of the provisions of Section 15 hereof,
Licensee shall be permitted to sell or otherwise distribute (in a
manner consistent with the reputation of the Trademarks) (i) its
inventory of all Specified Products (whether or not
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<PAGE> 6
finished, and shall have the right to finish any work-in-process and
use supplies of raw materials on hand or ordered), (ii) all items
previously ordered under purchase orders that cannot be cancelled
without penalty to, or a claim against, Licensee and (iii) all
Specified Products required to fill binding orders outstanding at the
time of such termination under sales orders that cannot be cancelled
without penalty to, or a claim against, Licensee. Notwithstanding
anything herein to the contrary, for so long as Licensee shall have
any rights under this Section 14(b), it shall continue to perform all
of its obligations under this Agreement.
15. EARLY TERMINATION. This Agreement and the license granted
hereby shall terminate at the option of Licensor, without prior notice to
Licensee, in the event that: (a) Licensee is adjudicated a bankrupt; (b) a
receiver for the business of Licensee is appointed; (c) Licensee makes an
assignment for the benefit of its creditors; (d) any attempt is made by
Licensee to assign or transfer this Agreement or the license herein granted;
(e) the Lease Agreement is terminated for any reason other than the exercise of
the option to purchase; or (f) Licensee fails to comply with any other
provision of this Agreement and such failure is not corrected by Licensee
within thirty (30) days after receipt of written notice from Licensor
specifying in reasonable detail such failure.
16. EFFECT OF EXPIRATION OR TERMINATION. Licensee agrees that upon
the expiration or termination of the license herein granted, Licensee (a)
releases and forever quitclaims unto Licensor any and all right, title and
interest in and to the Trademarks, (b) shall not use any of the Trademarks
except as provided in Section 14(b), and (c) shall promptly return to Licensor
all unused labels bearing the Trademarks then in the possession or under the
control of Licensee.
17. GOVERNING LAW. This Agreement shall be deemed to be made in
and pursuant to the laws of the State of Texas and all questions of the
validity and the construction thereof shall be determined in accordance with
the laws of Texas, except that trademark questions shall be determined under
federal trademark law.
18. NO JOINT VENTURE. Licensee agrees that it is an independent
entity and not a partner, joint venturer, or agent of Licensor. Neither party
is authorized to or has the power to obligate or bind the other party in any
manner whatsoever, except as may be expressly provided herein.
19. FURTHER INSTRUMENTS. The parties hereto agree to execute and
deliver such instruments and take such other action as shall be reasonably
necessary, or as shall be reasonably requested by the other party hereto, in
order to carry out the transactions, agreements and covenants contemplated in
this Agreement.
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<PAGE> 7
20. NOTICES. Any notices, claims or demands which any party is
required or may desire to give to another under or in conjunction with this
Agreement shall be in writing, and shall be given by addressing the same to
such other party at the address set forth below, and by (a) depositing the same
so addressed, postage prepaid, first class, certified or registered, in the
United States mail (herein referred to as "Mailing"), (b) overnight delivery by
a nationally recognized overnight courier service (e.g. UPS, Federal Express),
(c) delivery of the same personally to such other party, or (d) transmitting
the same by facsimile and Mailing the original. Any notice shall be deemed to
have been delivered on the date of Mailing; one day after timely delivery to an
overnight courier; if by personal delivery, upon such delivery; or if by
facsimile, the day of transmission if made within customary business hours, or
if not transmitted within customary business hours, the following business day.
(i) If to Licensor:
Flav-O-Rich, Inc.
Northeast Tennessee Business Park
10368 Wallace Alley Drive, Suite 4
Kingsport, Tennessee 37663
Attention: Steve Conerly
Facsimile: (615) 279-3388
(ii) If to Licensee:
SFG Management Limited Liability Company
3114 South Haskell
Dallas, Texas 75223
Attention: Pete Schenkel
Facsimile: (214) 821-1686
Any party may change the address or facsimile telephone number for notices to
be sent to it by written notice delivered pursuant to the terms of this Section
20.
21. ENTIRE AGREEMENT; AMENDMENTS. This Agreement sets forth the
entire agreement and understanding, and supersedes all prior agreements and
understandings, whether written or oral, between the parties with respect to
the subject matter hereof. Neither party shall be bound by any definition,
condition, warranty or representation other than as expressly stated in this
Agreement or as subsequently set forth in writing and executed by a duly
authorized representative of the party to be bound thereby. This Agreement may
be amended, modified or supplemented only by a writing signed by Licensee and
Licensor.
22. BINDING EFFECT/ASSIGNABILITY. This Agreement shall extend to
and be binding upon and inure to the benefit of the parties hereto, their
respective successors and permitted assigns.
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<PAGE> 8
Without the prior written consent of Licensor, Licensee shall not, directly or
indirectly, by operation of law or otherwise, sell, assign, convey, transfer or
encumber this Agreement or any of its rights hereunder, or sublicense,
franchise or otherwise authorize any person, firm, corporation or other
organization or entity to use any of the Trademarks.
23. ATTACHMENTS. All Attachments referenced in this Agreement are
incorporated herein by reference and shall constitute a part of this Agreement.
24. INVALID PROVISIONS. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provisions shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof with the remaining
provisions remaining in full force and effect and not affected by the illegal,
invalid or unenforceable provision or by severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision there shall be added
automatically as part of this Agreement a provision similar in terms to such
illegal, invalid, or unenforceable provision as may be possible and still be
legal, valid and enforceable.
25. HEADINGS/CAPTIONS. The captions to sections and subsections of
this Agreement have been inserted solely for convenience and reference, and
shall not control or affect the meaning or construction of any of the
provisions of this Agreement.
26. WAIVER; REMEDIES. Waiver by any party hereto of any breach of
or exercise of any rights under this Agreement shall not be deemed to be a
waiver of similar or other breaches or rights or a future breach of the same
duty. The failure of a party to take any action by reason of any such breach
or to exercise any such right shall not deprive any party of the right to take
any action at any time while such breach or condition giving rise to such right
continues. No course of dealing between or among persons having any interest in
this Agreement will be deemed effective to modify, amend or discharge any part
of this Agreement or any rights or obligations of any person under or by reason
of this Agreement. Except as expressly limited by this Agreement, the parties
shall have all remedies permitted to them by this Agreement or law, and all
such remedies shall be cumulative.
27. CONSENT TO JURISDICTION. Each party hereto hereby irrevocably
consents to the jurisdiction of a state or federal court sitting in Dallas
County, Texas in any action or proceeding arising out of or relating to this
Agreement, and agrees that all claims in respect of such action or proceeding
may be heard and determined in such state or federal courts.
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<PAGE> 9
28. ATTORNEY'S FEES AND COSTS. In the event of a breach by any
party to this Agreement and commencement of a subsequent legal action in a
court of law or forum of arbitration, or in the event legal counsel is
consulted in the event of any such breach or in anticipation of any such
prospective legal action, the prevailing party in any such dispute shall be
entitled to reimbursement of reasonable attorney's fees and court costs,
including, but not limited to, the costs of expert witnesses, transportation,
lodging and meal costs of the parties and witnesses, costs of transcript
preparation and other reasonable and necessary direct and incidental costs of
such dispute. "Prevailing party" is the party in whose favor final judgment is
rendered.
29. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
FLAV-O-RICH, INC. SOUTHERN FOODS GROUP, L.P.
BY: SFG MANAGEMENT LIMITED
LIABILITY COMPANY
By: /s/ Its General Partner
-------------------------------
Its: By: /s/ PETE SCHENKEL
--------------------------- -------------------------------
Its: President & CEO
---------------------------
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<PAGE> 1
EXHIBIT 10.20
TRADEMARK LICENSE AGREEMENT
This Agreement is made effective as of this 1st day of September, 1995 by
and between Foremost Farms USA, Cooperative, a Wisconsin corporation with its
principal place of business at Route 3, Baraboo, Wisconsin 53913 (hereinafter,
"Licensor") and Southern Foods Group, L.P. organized under the laws of the State
of Delaware, having a place of business at 3114 Haskell, Post Office Box 279000,
Dallas, Texas 75227 (hereinafter "Licensee").
W I T N E S S E T H
WHEREAS, Licensor represents and warrants that it is the owner of and has
the right to license the trademarks identified in the registrations set forth in
Exhibit A annexed hereto (hereinafter "Trademarks") on certain products;
WHEREAS, Licensee is desirous of obtaining a license to use the Trademarks,
under the terms and conditions hereinafter set forth, in connection with its
marketing and selling of certain dairy products and related goods; and
WHEREAS, Licensor is willing, under the terms and conditions hereinafter
set forth, to have Licensee use the Trademark;
NOW THEREFORE, in consideration of the mutual agreements, promises and
undertakings hereinafter set forth, Licensor and Licensee agree as follows:
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<PAGE> 2
SECTION 1. GRANT OF LICENSE.
(a) Licensor hereby grants to Licensee, during the term of this Agreement
and any extension thereof only, a nonassignable (except as otherwise set forth
at Section 17 herein) exclusive right and license, subject to the terms and
conditions hereinafter set forth, to use the Trademarks in connection with the
production, packaging, sales distribution and advertising of the products
listed on Exhibit B ("Licensed Products") in the territories listed on Exhibit B
("Licensed Territories") attached hereto and incorporated herein. The license
granted pursuant to this Section 1 is limited to the sale and distribution of
Licensed Products to consumers located in the Licensed Territories.
(b) Licensor agrees not to license any other person or entity to use the
Trademarks in the Licensed Territories for the Licensed Products or to use the
Trademarks to sell or distribute the Licensed Products to consumers located in
the Licensed Territories during the Licensed Term or any extension thereof
during which an exclusive license for such Trademarks is outstanding in favor of
Licensee. Notwithstanding anything herein to the contrary, if Licensee shall
abandon or cease using the Trademarks on all Licensed Products in a category for
one year in any State of the Licensed Territory and has not provided to Licensor
notification within that period of an intention to reintroduce at least some of
the Licensed Products in that category within ninety (90) days thereafter and in
fact does not reintroduce those Licensed Products within such ninety (90) day
period, Licensor shall have the right directly or indirectly to use, or to
license others to use, the
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<PAGE> 3
Trademarks for that category of Licensed Products in any such State, provided
that Licensor shall notify Licensee in writing that it is using, or entering
into a license for such product prior to commencement of such use or license.
For the purposes of this Agreement, the categories of Licensed Products are
Licensed Cultured Diary Products, Licensed Frozen Desserts and Licensed Fluid
Milk Products; such categories are further identified on Exhibit B.
(c) Licensee shall have a period of twelve (12) months from the date hereof
to commence use of the Trademarks on the Licensed Products in the States of
Mississippi and Alabama. Failure to commence use of the Trademarks in either of
these two states within the time permitted shall terminate any and all rights of
License with respect to the use of the Trademarks in the state where the use has
not commenced.
(d) Licensee shall have a period of two (2) years from the date hereof to
commence use of the Trademarks on the Licensed Products in the Option
Territories set forth in Exhibit B. Failure to commence use of the Trademarks on
the Licensed Products in any county included in the Option Territories within
the time permitted shall terminate any and all rights of the License with
respect to use of the Trademarks on Licensed Products in such county in the
Option Territories. In consideration for the option rights, Licensee will pay
Licensor One Thousand Five Hundred Dollars ($1,500.00) ("the Option Fee") on or
before August 31, 1995. If Licensee exercises its option within the two (2) year
period, this License shall be extended to the Option Territories for the
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<PAGE> 4
Licensed Products and Licensee shall pay Licensor as provided in Section 6
hereof.
SECTION 2. PULL AUTHORITY OF PARTIES.
Licensor and Licensee each represents that it has the right and power to
enter into this Agreement and to perform all obligations hereunder.
SECTION 3. USE BY OTHER LICENSEES.
Licensor shall use its best efforts to ensure that no other -third party,
which is a licensee of Licensor, distributes or otherwise sells Licensed
Products bearing the Trademarks in the Licensed Territories.
SECTION 4. LICENSEE WARRANTY.
Licensee warrants and guarantees that during the Licensed Term and any
extension thereof,
(i) all Licensed Products using the Trademarks shall be produced,
packaged, sold and distributed strictly in accordance with acceptable,
reasonable commercial standards and conform to applicable federal and state
law, including, without limitation, United States Food & Drug
Administration regulations and food manufacturing practices; and
(ii) be free of impurities and defects so as to be in compliance with
applicable law and regulations and be
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<PAGE> 5
fit for their intended purpose while possessed or held by Licensee.
SECTION 5. QUALITY OF GOODS AND INSPECTION.
Licensor shall have the right to inspect and test all Licensed Products
using the Trademarks advertised, sold and distributed and all literature,
package and label materials (hereinafter "Materials") therefor. Licensee agrees
that the quality of all the Licensed Products to be advertised, sold and
distributed using the Trademark will be maintained in compliance with all
applicable Federal and State food and drug regulations. Licensor shall have the
right, during normal business hours and upon reasonable notice, to inspect the
premises where processing and packaging of the Licensed Products is conducted
and to spot check and test any of the Licensed Products, and to take any other
action which is reasonably necessary or proper to assure Licensor that the
applicable quality standards described at Section 4 herein are being followed in
all material respects. Licensee shall, upon reasonable written request, and at
least upon introduction, submit to Licensor samples of all Licensed Products
sold or distributed using the Trademarks so that Licensor can assure itself that
the standards required to be maintained for the Licensed Products under the
terms of this Agreement are being maintained. Licensee shall, upon reasonable
written request by Licensor, submit to Licensor samples of all the Materials
using the Trademarks so that Licensor can assure itself that the standards
required to be maintained for the Materials under the terms of this Agreement
are being
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<PAGE> 6
maintained. Any such Materials shall be deemed approved if Licensor fails to
respond to Licensee within fifteen (15) days of its receipt of a sample. In the
event of any modification of the Licensed Products or Materials, Licensee agrees
to advise Licensor and upon the written request of Licensor, Licensee shall
furnish samples of each of such modified Licensed Products and Materials prior
to or coincidental with the distribution of such modified Licensed Products or
Materials.
Licensee shall, at least once annually on each anniversary of this
Agreement, at Licensee's expense, submit to Licensor the report of an
independent certified laboratory mutually agreeable to the parties. Should
Licensor reasonably determine that the quality of the Licensed Products or
Materials or the manner of use of the Trademarks do not meet the standards set
forth in Section 4, Licensor will notify Licensee of its objections in writing.
Licensee will have sixty (60) days from the date of its receipt of such
notification to institute modifications and resubmit to Licensor for approval,
which will not be unreasonably withheld. In the event that Licensor must conduct
quality control inspection in subsequent years, Licensee shall pay a Quality
Control charge in each such year of Two Thousand Dollars ($2,000.00).
SECTION 6. ROYALTIES FEES.
(a) The consideration to be paid by Licensee to Licensor for the Licensed
Products is (i) a minimum annual royalty of Eleven Thousand Two Hundred Fifty
Dollars ($11,250.00) for the first year of this Agreement, (ii) a minimum annual
royalty of Fifteen
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<PAGE> 7
Thousand Dollars ($15,000.00) for the second year of this Agreement, (iii) a
minimum annual royalty of Eighteen Thousand Dollars ($18,000.00) for years three
(3) and four (4) of this Agreement, and (iv) a minimum annual royalty of Twenty
Five Thousand Dollars ($25,000.00) for the fifth (5th) year of this Agreement
and for the remainder of the initial term, i.e. September 1, 2000 through August
31, 2024. Beginning September 1, 1995, Licensee shall pay to Licensor
one-quarter of one-cent (1/4 cents) per gallon of the Licensed Fluid Milk
Products using the Trademarks sold in the Licensed Territories and one and
one-half cents (1 1/2 cents) per gallon of Licensed Frozen Dessert Products and
Licensed Cultured Dairy Products using the Trademarks sold in the Licensed
Territories. For the purpose of this Section 6(a), thirty-six, 3 1/2 oz.
novelties equals one gallon and one pound equals one pint. The minimum annual
royalties provided for in this Section 6(a) shall be credited against anal
earned royalties accrued during each year. Earned royalties shall accrue from
and after September 1, 1995 and shall become due and payable on or before the
last day of the second calendar month after the end of each calendar quarter as
provided below. The per gallon royalty shall be adjusted after the fifth year
and each fifth year (each such fifth year hereinafter called an "Index Year")
thereafter including each year during any renewal term by multiplying the per
gallon royalty by a royalty multiplier. The royalty multiplier shall be one
hundred percent (100%) for earned royalties accrued in the period from
September 1, 1995 through August 31, 2000. The royalty multiplier for Earned
Royalties accrued during the Index
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<PAGE> 8
Year beginning September 1, 2000 and ending august 31, 2001 shall be the sum of
the previous Index Year's royalty multiplier and the twelve month index change
(either positive or negative) as reported in the previous Index Year's January
issue of the Consumer Price Index, U. S. Department of Labor in the column
designated "'Unadjusted' percent change in CPI for all urban consumers" for the
expenditure category identified "All Items"; provided, however, that the royalty
multiplier shall be in no event be less than one hundred percent (100%) Licensee
shall render to Licensor a written report within two (2) months following the
end of each calendar quarter during the initial Licensed Term or extended
Licensed Term of this Agreement, stating the total number of Licensed Products
sold during the preceding quarter and after August 31, 1996, the earned royalty
due. The royalties payable to Licensor hereunder shall accompany each such
report in the form of a check drawn on a United States bank in U.S. dollars.
(b) Licensee shall pay Licensor a one-time fee as reimbursement for the
expenses, costs and fees expended by Licensor in association with the
preparation and consummation of this Agreement, in an amount equal to Nine
Thousand Five Hundred Dollars ($9,500.00), said amount to be paid to Licensor
upon full execution of this Agreement along with the first year minimum annual
royalty payment provided for in Section 6(a), and the option Fee for the Option
Territories.
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<PAGE> 9
SECTION 7. CONFIDENTIALITY.
The information furnished by either party hereto, with the exception of
information previously disclosed to the public by the disclosing party, shall be
considered confidential and shall not be disclosed to third parties except to
the extent that such information as a whole
(a) was in the possession of or known to the receiving party prior to
the disclosure thereof,
(b) is or becomes public knowledge by means other than a breach of
confidentiality by the receiving party,
(c) is thereafter received by the receiving party from a third party
who did not require the receiving party to keep it in confidence and who
the receiving party did not know to be bound by a confidentiality agreement
with or other obligation of secrecy to the non-disclosing party, or
(d) is required by the receiving party to be disclosed to appropriate
governmental and regulatory authorities. Such confidential information
shall not be unnecessarily communicated within either party's own operation
and shall be used by the receiving party only in connection with the
production and processing of Licensed Products sold or distributed using
the Trademarks. This obligation of confidentiality shall survive the
termination of this Agreement for any reason.
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<PAGE> 10
SECTION 8. INDEMNITY.
Licensor does not assume any liability to Licensee or third parties with
respect to the Licensed Products manufactured, distributed or sold by Licensee
under the Trademarks, and Licensee will indemnify and hold harmless Licensor
against all losses, damages, costs, including reasonable attorneys' fees and
costs, fines and penalties, incurred through claims (other than claims based on
Licensee's use of the Trademarks pursuant to and in compliance with this
Agreement) of third persons, including any governmental authority or agency,
against Licensor involving the processing, distribution or sale of the Licensed
Products by Licensee or any subsidiaries, parents, affiliates, partners or other
persons or entities controlled by, or in control of, Licensee. If any claim is
made against Licensor or its successors or assigns, by reason of any act or
omission of Licensee, its subsidiaries, parents, affiliates, officers,
directors, agents, servants or employees, connected with the use of the
Trademarks (other than Licensee's use thereof pursuant to and in compliance with
this Agreement), Licensee agrees to indemnify and hold harmless Licensor and its
successors and assigns from any such claims and from any expenses incident
thereto.
SECTION 9. INSURANCE.
Licensee agrees that it will maintain throughout the Licensed Term of this
Agreement, and any extension or renewal thereof, at its expense, comprehensive
general liability insurance, including product liability insurance on an
occurrence basis, from an
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<PAGE> 11
insurance company reasonably satisfactory to Licensor, in a minimum amount of
Two Million Dollars ($2,000,000) combined single limit for each single
occurrence, for bodily injury and property damage, which policy shall designate
Licensor as an additional insured therein, and shall be endorsed to provide
contractual liability insurance in the amount specified above, specifically
covering Licensee's obligation to indemnify Licensor pursuant to Section 8
herein. A certificate of insurance for such coverage shall be delivered to
Licensor prior to the distribution of any Licensed Products under the
Trademarks, which certificate shall specify that Licensor shall be given at
least thirty (30) days prior written notice by the insurer in the event of any
material modification, cancellation or termination of coverage.
SECTION 10. FORCE MAJEURE.
Except for the obligation of Licensee to pay royalties which accrued to
Licensor prior to the occurrence of an act of force majeure as described below
and which become payable during such occurrence, neither party to this Agreement
shall be held liable for failure to comply with any of the terms of this
Agreement, nor shall any such failure be deemed a default or give rise to a
right to terminate this agreement, when such failure has been caused by an act
of force majeure such as a fire, labor dispute, strike, war, insurrection,
government restrictions, or act of God beyond the control and without fault on
the part of the party involved, provided such party uses due diligence to remedy
such default. However, if such failure to comply continues for more than sixty
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<PAGE> 12
(60) days after cessation of the reason for such failure, unless the party in
default has, within said 60-day period, or such longer period as may be
necessary, taken such action as may be necessary to remedy such default, the
non-defaulting party shall have the right to terminate this Agreement, and in
the event of such termination neither party shall have any further rights or
obligations hereunder, except for the obligations of Licensee set forth in
Sections 7, 8, and 13 hereof and the obligations of Licensee to pay any royalty
installment due Licensor for the year that such termination takes place.
SECTION 11. INITIAL TERM/RENEWAL.
Unless terminated earlier pursuant to the provisions of Section 12, the
initial term of this Agreement ("Licensed Term") shall be for a period of
twenty-five (25) years, commencing at 12:00 a.m. Pacific standard time on
September 1, 1995 and terminating at 11:59 Pacific standard time on August 31,
2224. Licensee shall have the right to renew and extend the Licensed Term for
like twenty-five (25) year periods for any or all of the following product
categories of the Licensed Products, provided (a) that Licensee is not in
default or breach of any of the terms of this Agreement for which a cure is not
being diligently pursued, (b) that an event of termination as set forth in
Section 12 below has not occurred, (c) that during the immediately preceding
five (5) year period, Licensee sold in the Licensed Territories those categories
renewed by Licensee in excess of 500,000 gallons of Licensed Frozen Dessert
Products, 1.5 million gallons of
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<PAGE> 13
Cultured Dairy Products and 4 million gallons of Licensed Fluid Milk Products,
and (d) that at least eight (8) percent of such sales required in subparagraph
(c) occurred during the last year of the Licensed Term. During the Licensed
Term, commencing on August 31, 1996 and annually thereafter, Licensee shall
provide to Licensor within sixty (60) days after the end of each calendar year a
written report setting forth in detail the quantity of each Licensed Product
sold using any of the Trademarks for the immediately preceding anniversary year
of this Agreement.
Licensee shall provide to Licensor in writing its intent to renew at least
one (1) year prior to the expiration of the Licensed Term. All terms and
conditions of this Agreement shall continue without change in any such extension
or renewal period. In the event Licensee fails to submit to Licensor timely
written notice of its intent to renew as provided for herein, Licensor shall
provide Licensee with written notice of Licensee's failure to seek renewal, from
which notice Licensee shall have sixty (60) days thereafter to effect its notice
to renew as provided for herein.
SECTION 12. TERMINATION.
(a) Except as otherwise provided herein, this Agreement shall remain in
full force and effect during the Licensed Term and any extension or renewal
thereof subject to the provisions set forth in subparagraphs (i) - (v) below:
(i) If Licensee makes any assignment of substantially all of its
property, assets or business for the benefit of creditors, or if a trustee
or receiver is
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<PAGE> 14
appointed to administer or conduct its business or affairs, or if it is
adjudged in any legal proceeding to be either a voluntary or involuntary
bankrupt, or if a voluntary or involuntary petition is filed by or against
Licensee under any bankruptcy or insolvency law or under the reorganization
provisions of any law of like import, or a receiver of Licensee or of
Licensee's property is appointed, then the rights granted herein shall
forthwith cease and terminate without prior notice or legal action by
Licensor, provided, however, in the event of an involuntary petition being
filed, Licensee shall have ninety (90) days to discharge said petition;
(ii) Should Licensee materially fail to comply with any other
provision of this Agreement, Licensor may terminate this Agreement upon not
less than thirty (30) days written notice to Licensee; but, if the Licensee
shall correct such default during such thirty (30) day period, or shall
begin to take and diligently pursue all action reasonably necessary to
correct such failure during such thirty (30) day period and thereafter
until the failure has been corrected, the notice of termination shall be of
no further force or effect. If Licensee should fail to comply in a material
way with any of its obligations three or more times in any consecutive
twelve (12) month period, such repeated failures shall collectively in and
of themselves be a failure to comply
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<PAGE> 15
in a material way with an obligation hereunder, regardless of the
correction of such failures;
(iii) Licensor may terminate this Agreement upon not less than fifteen
(15) days written notice to Licensee if any Licensed Product using the
Trademarks shall be recalled or withdrawn from the market, provided,
however, if the Licensee shall correct such defect during such fifteen
(15) day period, or shall begin to take and diligently pursue all action
reasonably necessary to correct such defect during such fifteen (15) day
period and thereafter until the defect has been corrected, the notice of
termination shall be of no further force or effect;
(iv) Licensor may terminate the license provided for in this Agreement
as to a particular State of the Licensed Territories effective upon
Licensee's receipt of notice if Licensee shall abandon or cease using the
Trademarks for one year in any State in the Licensed Territory as provided
in Section 1(b) hereof.
[Balance of Page Left Blank Intentionally]
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<PAGE> 16
(b) Licensee agrees that, upon termination of this Agreement, whether by
reason of its failure to extend or renew pursuant to Section 11 or for any other
reason, Licensee will no longer use in any manner whatsoever any of the
Trademarks, or any variations thereof, as part of its name or otherwise, or use
any trademark, trade name, word, symbol, label, design, package, display, or
slogan confusingly similar to any of the Trademarks. However, Licensee shall
have ninety (90) days thereafter to dispose of any existing packaging or
finished goods inventory using the Trademarks.
SECTION 13. USE OF TRADEMARKS.
Licensee undertakes to comply with all laws pertaining to trademarks in
force in the United States including the use of proper notices to indicate that
the Trademarks are registered in the United States Patent and Trademark Office.
Licensee agrees that all manner of use by Licensee of the Trademarks, including,
without limitation, all advertising, promotional programs, sales brochures,
business cards, stationary and telephone directory listings, shall at all times
be subject to review by Licensor. Licensee further agrees that it will cause to
appear on labels, packages or other required places any statements, notices or
matters which may be required to appear under any applicable law, regulation or
rule, and that any and all use by Licensee of the Trademarks shall be in
accordance with all applicable laws, regulations and rules. Licensee shall cause
to appear in the upper right hand corner next to at least the most prominent use
of any of
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<PAGE> 17
the Trademarks the symbol "(R)" when used on packages and, when appropriate, on
other uses indicating that the Trademark has been registered in the United
States Patent and Trademark Office. Licensee shall preserve the appearance of
the Trademarks consistent with the registrations of Exhibit A wherever and
whenever they are used. Licensee agrees not to manufacture, produce or sell any
Licensed Products under any trademark, trade name, word, symbol, label, design,
package, display or slogan that is confusingly similar to any of the Trademarks.
Licensor acknowledges that Licensee manufactures, produces and sells the same or
similar products under private label and other labels. Licensor represents that
it is the owner of the Trademarks and each of the registrations of Exhibit A and
it is not aware of any valid liens existing against the Trademarks or of any
infringers thereof.
SECTION 14. OWNERSHIP OF TRADEMARKS.
Nothing contained in this Agreement shall be deemed in any way to confer on
Licensee any proprietary interest in any of the Trademarks. Licensor represents
and warrants that it owns and holds the exclusive right, title and interest in
and to the Trademarks and the rights to use thereof. Licensee acknowledges
Licensor's exclusive right, title and interest in and to the Trademarks and the
rights to use the Trademarks subject to the rights granted to Licensee herein
and Licensee agrees not at any time to do or cause to be done any act or thing
contesting or in any way impairing or tending to impair any part of such rights,
title or interest during the Licensed Term or thereafter. In
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<PAGE> 18
connection with the use of the Trademarks, Licensee shall not in any manner
represent that it has any ownership in the Trademarks or registration thereof,
and Licensee acknowledges that use of the Trademarks shall not create in
Licensee's favor any right, title or interest in or to the Trademarks other than
Licensee's rights to use them in accordance with this Agreement, but all uses of
the Trademarks by the Licensee shall inure to the benefit of Licensor. Except as
provided in Section 12, upon termination of this Agreement, Licensee will cease
and desist from all use of the Trademarks and Materials using the Trademarks in
any way, and will deliver to the Licensor, or its duly authorized
representatives, all such materials and papers upon which the Trademarks are
used.
SECTION 15. MAINTENANCE OF TRADEMARK.
Licensor will maintain and renew at its cost the Trademark registrations of
Exhibit A during the term of this Agreement. Licensee agrees, at the request of
Licensor and without additional cost to Licensee, to execute any and all
documents and provide such other assistance as may be reasonably necessary or
desirable in connection with the registration and maintenance of the Trademarks.
SECTION 16. INFRINGEMENT.
Licensee understands and agrees that Licensor shall not have any obligation
to police any area where Licensee sells Licensed Products using the Trademarks
against the infringements by others of any of the Trademarks. However, upon
learning of an apparent
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<PAGE> 19
infringement situation, Licensee agrees to notify Licensor in writing of the
name and address, and to furnish such other pertinent information as may be
reasonably available, of any third party who may be infringing or otherwise
violating any of Licensor's rights in and to any of the Trademarks, or of any
third party who makes a claim that use of any of the Trademarks infringes upon
or otherwise violates any property or rights of any nature of said third party.
Licensor shall notify Licensee promptly in writing of the name and address, and
to furnish such other pertinent information as may be available, of any third
party who may be infringing or otherwise violating any of Licensor's rights in
and to any of the Trademarks in the Licensed Territories. Licensor shall have
the sole right to determine whether or not any action shall be undertaken on
account of such apparent infringement and Licensee agrees to cooperate with
Licensor, at Licensor's expense, in all reasonable respects in any action which
Licensor, at its sole discretion, deems advisable or necessary to protect
Licensor's rights in the Trademarks or in the defense of a claim by a third
party that use of any of the Trademarks infringes upon or otherwise violates any
property rights of any nature of said third party. In the event that Licensee
learns of any direct infringement of the Trademarks in the Licensed Territories
by the sale of any of the licensed Products by a third party, other than one
under Section 3, and such third party has infringing sales in excess of two (2%)
percent of those of Licensee in the particular State which is part of the
Licensed Territories, Licensor agrees to take such action as is necessary to
eliminate the infringement or
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<PAGE> 20
delegate the same, at Licensor's sole discretion, to Licensee to pursue at
Licensee's expense. The result of any such action or inaction by Licensor shall
not relieve Licensee of its obligations hereunder, unless such resolution
precludes the use of the Trademarks in connection with the Licensed Products, in
which event Licensee shall have the option to terminate this Agreement, provided
that any such termination will not affect any remedies among the parties at law
or in equity. Nothing in this Section 16 shall relieve Licensor of the
obligations under Section 3 of this Agreement.
SECTION 17. ASSIGNMENT.
Licensee acknowledges and agrees that this Agreement is personal to
Licensee and that Licensee may not assign this Agreement without the prior
written consent of Licensor, and any such attempted assignment shall be void and
of no effect except that Licensee may assign this Agreement:
(i) to a wholly owned affiliate provided that Licensee agrees to
guarantee the obligations of the wholly owned affiliate;
(ii) to a financially viable transferee with a net worth of no less
than five million dollars ($5,000,000.00), as long as such transferee
agrees to be bound by the terms of this Agreement, including without
limitation the quality control standards, in which event Licensee shall be
discharged of its obligations hereunder. A change in control or ownership,
including
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<PAGE> 21
but not limited to the transfer of fifty percent (50%) or more of the
voting rights of all securities of Licensee, shall be deemed an assignment
hereunder. Licensee shall not have the right to sublicense any of the
rights herein granted to Licensee by Licensor except to one or more wholly
owned subsidiaries of Licensee for which Licensee agrees to guarantee the
obligations thereof, provided however Licensee may cause the Licensed
Products to be produced for Licensee by others and may cause the
distribution of the Licensed Products by others. This Agreement may be
assigned by Licensor at any time without the approval of Licensee. Licensor
agrees to provide Licensee with reasonable advance notice of its intent to
assign, but any such failure of Licensor to notify Licensee shall be of no
effect. Subject to the foregoing, this Agreement shall inure to the benefit
of, and be binding upon, the parties and their respective successors and
assigns.
SECTION 18. NO JOINT VENTURE.
It is not the intention of the parties to create a partnership, joint
venture, principal-agent or other relationship for any purpose whatsoever.
Neither party is authorized to or has the power to obligate or bind the other
party in any manner whatsoever, except as may be expressly provided herein.
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<PAGE> 22
SECTION 19. REMEDIES.
In the event Licensee or Licensor breaches or otherwise defaults under the
terms of this Agreement, the non-defaulting party shall be entitled to any and
all remedies provided at law or in equity, including but not limited to,
injunctive relief.
SECTION 20. RESERVATION OF USE.
During the term of this Agreement and any extension or renewal thereof,
Licensor and its wholly owned subsidiaries may use any of the Trademarks in the
Licensed Territories in connection with any products other than the Licensed
Products.
SECTION 21. ENTIRE AGREEMENT.
This Agreement may be amended only by a writing duly executed by each party
in the same manner as this Agreement is executed. This Agreement contains and
embodies the entire agreement and understanding of the parties hereto and
supersedes any and all agreements as to the Trademarks entered into between the
parties prior to or as of this date.
SECTION 22. WAIVER OF BREACH.
The failure of any party to object to, or to enforce a cure of, any breach
of or non-compliance with any provision or condition of this Agreement, shall
not operate or be construed as a lapse of, or tacit agreement to remove or
reform, any obligation hereunder, or as a waiver of any right or remedy on
occurrence of any other breach of or noncompliance with the same provision or
condition, or
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<PAGE> 23
as a waiver of any right or remedy with respect to any other provision or
condition of this Agreement.
SECTION 23. SEVERABILITY.
If any provision, or portion of any provision, of this Agreement should be
determined by any court or tribunal of competent jurisdiction to be invalid,
illegal or unenforceable, in whole or in part, and such determination should
become final, then such provision or portion shall be deemed to be severed or
limited, but only to the extent required to render such provision, or portion of
such provision, and the remaining provisions of this Agreement, enforceable, and
this Agreement, as thus amended, shall be enforced to give effect to the
intention of the parties hereto insofar as that is possible.
SECTION 24. NOTICES.
All notices pursuant to this Agreement shall be in writing and delivered
personally or sent by overnight delivery service or by registered or certified
mail, postage prepaid, return receipt requested, as follows:
If to Licensee: Southern Foods Group, L.P.
3114 Haskell
Post Office Box 2790009
Dallas, Texas 75227
Attention: Jerry Frie
If to Licensor: Foremost Farms USA, Cooperative
Route 3
Baraboo, Wisconsin 53913
Attention: President
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<PAGE> 24
Any notice delivered personally shall be deemed to have been given on the
date it is so delivered, and any notice delivered by overnight delivery service
or registered or certified mail shall be deemed to have been given on the date
it is received. Either party, by notice in writing delivered or mailed to the
other, may change the name or address or both to which future notices to such
party shall be delivered.
SECTION 25. APPLICABLE LAW.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Wisconsin except to the extent such laws are preempted or
made inapplicable by federal law, in which event, the laws of the United States
of America will apply.
SECTION 26. PRIOR AGREEMENTS.
This Agreement shall replace and supersede any and all prior agreements,
written or oral, relating in any way to the Trademarks.
[Remainder of this page intentionally left blank.]
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<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed and their seals to be affixed as of the day and year first above
written.
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited
Liability Company, its general
partner
By: /s/ PETE SCHENKEL
-------------------------------
Print Name: Pete Schenkel
-----------------------
Title: President and Chief
Executive Officer
FOREMOST FARMS USA, COOPERATIVE
By: /s/ DONALD C. STORHOFF
-------------------------------
Print Name: Donald C. Storhoff
-----------------------
Title: President
---------------------------
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<PAGE> 26
EXHIBIT A
TRADEMARKS REGISTERED
<TABLE>
<S> <C> <C>
"F" with label design U.S. Reg. No. 778,823
FOREMOST and "f" design U.S. Reg. No. 733,504
FOREMOST (Script Style Lettering) U.S. Reg. No. 1,277,222
FOREMOST (Block Style Lettering) U.S. Reg. No. 601,918
FOREMOST U.S. Reg. No. 301,356
FOREMOST and "f" design U.S. Reg. No. 797,554
"f" FOREMOST and design U.S. Reg. No. 1,614,047
FOREMOST "f" and design U.S. Reg. No. 1,745,931
</TABLE>
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<PAGE> 27
EXHIBIT B
LICENSED TERRITORIES
The States of Texas, Louisiana, Arkansas, Oklahoma, Mississippi, and
Alabama.
OPTION TERRITORIES
The following counties in the State of Florida:
Escambia Jackson
Santa Rosa Calhoun
Okaloosa Gulf
Walton Liberty
Holmes Franklin
Washington Wakulla
Bay Leon
LICENSED CULTURED DAIRY PRODUCTS
Cultured Dairy Products including sour cream, light sour cream, non-fat
sour cream, yogurt, cottage cheese, yogurt dips, sour cream dips, creamers,
non-dairy creamers
LICENSED FROZEN DESSERT PRODUCTS
Frozen Desserts including ice cream, ice milk, sherbet, ice cream
novelties, frozen novelties, frozen juice products, light products, non-fat
products, non-dairy novelties, soft serve mix, water, ice products and
products consisting principally of any of the above.
LICENSED FLUID MILK PRODUCTS
Fluid Milk Products including HVD milk, UHT milk, low fat milk, skim milk
(all include chocolate), juices, juice drinks and flavored drinks
All definitions of Licensed Products are limited to those products set forth and
for which Licensor has approved or in the future approves product specifications
and formulas. Licensor shall not unreasonably withhold approval of added
products which related or otherwise conform to a particular category.
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<PAGE> 1
EXHIBIT 10.21
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
UNITED STATES OF AMERICA, Civil Action No:
Plaintiff, 3-97-CV-2162-P
v.
MID-AMERICA DAIRYMEN, INC. Filed: 9/3/97
SOUTHERN FOODS GROUP LP
and MILK PRODUCTS LLC,
Defendants
STIPULATION AND ORDER
It is stipulated by and between the undersigned parties, through their
respective attorneys, that:
1. The Court has jurisdiction over the subject matter of this
action and over each of the parties hereto, and venue of this action is proper
in the Northern District of Texas.
2. The parties consent that a Final Judgment in the form hereto
attached may be filed and entered by the Court, upon the motion of any party or
upon the Court's own motion, at any time after compliance with the requirements
of the Antitrust Procedures and Penalties Act (15 U.S.C. Section 16 (b) - (h)),
and without further notice to any party or other proceedings, provided that
plaintiff United States has not withdrawn its consent, which it may do at any
time before the entry of the proposed Final Judgment by serving notice thereof
on defendants and by filing that notice with the Court.
<PAGE> 2
3. The defendants shall abide by and comply with the provisions
of the proposed Final Judgment pending entry of the Final Judgment, or until
expiration of time for all appeals of any court ruling declining entry of the
proposed Final Judgment and shall, from the date of signing of this
Stipulation, comply with all terms and provisions of the proposed Final
Judgment thereof as though the same were in full force and effect as an order
of the Court.
4. This Stipulation shall apply with equal force and effect to
any amended proposed Final Judgment agreed upon in writing by the parties and
submitted to the Court.
5. In the event plaintiff United States withdraws its consent, as
provided in Paragraph 2, above, or if the proposed Final Judgment is not
entered pursuant to this Stipulation, the time has expired for all appeals of
any Court ruling declining entry of the Final Judgment and if the court has not
otherwise ordered continued compliance with the terms and provisions of the
Final Judgment, then the parties are released from all further obligations
under this Stipulation, and the making of this Stipulation shall be without
prejudice to any party in this or any other proceeding.
6. Defendants represent that the divestiture ordered in the
proposed Final Judgment can and will be made, and that they will later raise no
claims of hardship or difficulty as grounds for asking the Court to modify any
of the divestiture provisions contained therein.
2
<PAGE> 3
7. The parties request that the Court acknowledge the terms of
this Stipulation by entering the Order in this Stipulation and Order.
Respectfully submitted,
FOR PLAINTIFF UNITED STATES OR AMERICA:
/s/ JOEL I. KLEIN /s/ ROGER W. FONES
- -------------------------- --------------------------------
JOEL I. KLEIN Roger W. Fones, Chief
Assistant Attorney General DC Bar # 303255
/s/ A. DOUGLAS MELAMED /s/ DONNA N. KOOPERSTEIN
- -------------------------- --------------------------------
A. DOUGLAS MELAMED Donna N. Kooperstein
Deputy Assistant Assistant Chief
Attorney General DC Bar # 26770
/s/ JOAN S. HUGGLER
--------------------------------
Joan S. Huggler
DC Bar # 927244
/s/ MICHAEL P. HARMONIS
--------------------------------
Michael P. Harmonis
PA Bar # 17994
/s/ ROBERT D. YOUNG
--------------------------------
Robert D. Young
DC Bar # 248260
Attorneys
Antitrust Division
U. S. Department of Justice
325 Seventh St. N. W.
Washington, D. C.
(202) 307-6456
(202) 616-2441
Date: September 2, 1997
-------------------
3
<PAGE> 4
FOR DEFENDANT MID-AMERICA DAIRYMEN, INC.
/s/ W. TODD MILLER
- -------------------------
W. TODD MILLER
DC Bar # 414930
Baker & Miller PLLC
Suite 615
700 Eleventh Street, N. W.
Washington, D. C. 20001
(202) - 637-9499
(202) - 637-9394 (Facsimile)
Attorneys for Mid-America Dairymen, Inc.
Date: September 2, 1997
-----------------
<PAGE> 5
FOR DEFENDANT SOUTHERN FOODS GROUP LP:
/s/ JERRY L. BEANE
- ------------------------
Jerry L. Beane
TX Bar # 01966000
Strasburger & Price LLP
Suite 4300
901 Main Street
Dallas, Taxes 75202
(214-651-4521)
(214)-651-4330 (Facsimile)
Attorneys for Southern Foods Group LP
Date: 9-2-97
--------
FOR DEFENDANT MILK PRODUCTS LLC
/s/ JERRY L. BEANE
- ------------------------
Jerry L. Beane
TX Bar # 01966000
Strasburger & Price LLP
Suite 4300
901 Main Street
Dallas, Texas 75202
(214-651-4521)
(214)-651-4330 (Facsimile)
Attorneys for Milk Products LLC
Date: 9-2-97
--------
UPON REVIEW of this Stipulation by the parties, the Court acknowledges
by this Order that the parties have consented to the terms specified in this
Stipulation and the entry of the Final Judgment subject to the provisions of
the Antitrust Procedures and Penalties Act (15 U.S.C. Section 16 (b) - (h)).
SO ORDERED on this day of , 1997.
-------------- ------------------
----------------------------------
UNITED STATES DISTRICT COURT JUDGE
<PAGE> 6
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
UNITED STATES OF AMERICA, Civil Action
Plaintiff, No.:
v.
MID-AMERICA DAIRYMEN, INC.
SOUTHERN FOODS GROUP LP
and MILK PRODUCTS LLC,
Defendants
FINAL JUDGMENT
WHEREAS, plaintiff, United States of America (hereinafter "United
States"), having filed its complaint herein on September 3, 1997, and plaintiff
and defendants, by their respective attorneys, having consented to the entry of
this Final Judgment without trial or adjudication of any issue of fact or law
herein and without this Final Judgment constituting any evidence against or an
admission by any party with respect to any issue of law or fact herein;
AND WHEREAS, defendants have agreed to be bound by the provisions of
this Final Judgment pending its approval by the Court;
AND WHEREAS, prompt and certain divestiture is the essence of this
agreement to assure that competition is not substantially lessened;
<PAGE> 7
AND WHEREAS, defendants have represented to plaintiff that the
divestiture required below and the relief related thereto can and will be made
and that defendants will later raise no claim of hardship or difficulty as
grounds for asking the Court to modify any of the provisions contained below:
NOW, THEREFORE, before the taking of any testimony and without trial
or adjudication of any issue of fact or law herein, and upon consent of the
parties thereto, it is hereby
ORDERED, ADJUDGED AND DECREED;
I.
JURISDICTION
This Court has jurisdiction of the subject matter of this action and
each of the defendants hereto. The complaint states a claim upon which relief
may be granted against each defendant under Section 7 of the Clayton Act, as
amended, 15 U.S.C. Section 18.
II.
DEFINITIONS
As used in this final judgment;
A. "Mid-America" means Mid-America Dairymen, Inc., a Kansas
corporation with headquarters in Springfield, Missouri, its members, directors,
officers, employees, affiliates, joint venture or limited liability company
partners, successors or assigns, and any agent or representative thereof.
B. "Southern Foods" means Southern Foods Group LP, a partnership
organized under the laws of Delaware with
2
<PAGE> 8
headquarters in Dallas, Texas, its members, directors, officers, employees,
affiliates, joint venture or limited liability company partners, successors or
assigns, or any agent or representative thereof.
C. "Milk Products" means Milk Products LLC, the limited liability
company formed by Allen A. Meyer to receive certain dairy processing assets
located in New Mexico, Texas and Louisiana formerly owned by Borden/Meadow Gold
Dairies Holdings, Inc., its members, directors, officers, employees,
affiliates, joint venture or limited liability company partners, successors or
assigns, or any agent or representative thereof.
D. "Divestiture Assets" or "the Assets" means the Borden/Meadow
Gold assets located in New Mexico, Texas and Louisiana that Mid-America will
acquire through purchase of the voting stock of Borden/Meadow Gold Dairies
Holdings, Inc.
E. "The Marks" means certain trademarks described in a Sublicense
Agreement between Southern Foods and Milk Products, which include Borden, Elsie
and other trademarks granted to Mid-America and/or Southern Foods by license
from Borden, Inc. and BDH Two, Inc.
F. "Divest" or "Divestiture" means the complete relinquishing of
all rights and equity and other interests in the Divestiture Assets, provided
that if Mid-America divests the Assets to Milk Products, it may extend to Milk
Products the Loan defined herein. Divestiture also means to grant an exclusive,
royalty-free sublicense to use the Marks in Texas, Louisiana and
3
<PAGE> 9
New Mexico and a non-exclusive, royalty-free sublicense to use the Marks in
Alabama, Arkansas, Florida, Mississippi, Tennessee, and Mexico.
G. "Milk Products Loan" or "the Loan" means the approximately $40
million advanced by Mid-America or Mid-Am Capital LLC for the purchase by Milk
Products of the assets located in New Mexico, Texas and Louisiana held by
Borden/Meadow Gold Dairies Holdings, Inc., and for which Milk Products has
executed Note Purchase Agreements and other related debt instruments setting
forth the terms of the loan arrangements.
III.
APPLICABILITY
A. The provisions of this final judgment shall apply to the
defendants, Mid-America Dairymen, Southern Foods Group, and Milk Products,
their respective successors and assigns, and to all other persons in active
concert or participation with any of them who shall have received actual notice
of this final judgment by personal service or otherwise.
B. Each defendant shall provide written notice to the plaintiff
no later than 10 days subsequent to the effective date of any action whereby
the defendant (1) changes its name or corporate or organizational structure;
(2) liquidates or otherwise ceases operation; or (3) declares bankruptcy. Such
notice shall include a full explanation of the action that invokes this
provision and shall include full documentation required to be filed with any
judicial, administrative or other official entity in connection with that
action.
4
<PAGE> 10
IV.
DIVESTITURE
A. Defendant Mid-America is hereby ordered and directed in
accordance with the terms at this Final Judgment, within 65 days of the filing
of this Final Judgment, or five days after notice of entry of this Final
Judgment by the court, whichever is later, to divest the Divestiture Assets and
the Marks to a purchaser acceptable to the United States. Plaintiff may, in its
sole discretion, extend the time period for an additional period of time, not
to exceed 90 calendar days in total.
B. Unless the United States otherwise consents in writing, the
divestiture of the Assets and the Marks pursuant to Paragraph IV (A), or by a
trustee appointed pursuant to Paragraph V of this Final Judgment, shall include
all of the Assets and the Marks to be divested to a purchaser in such a way as
to satisfy the United States in its sole discretion that the Assets and the
marks can and will be used by the purchaser as part of a viable, ongoing
business engaged in the manufacture, sale and distribution of dairy products in
New Mexico, Texas and Louisiana. The divestiture, whether pursuant to Paragraph
IV or V of this Final Judgment shall be made to a purchaser for whom it is
demonstrated to the sole satisfaction of the United States that (1) the
purchaser has the capability and intent of competing effectively in the
manufacture, sale and distribution of dairy products in New Mexico, Texas and
Louisiana; (2) the purchaser has or soon
5
<PAGE> 11
will have the managerial, operational, and financial capability to compete
effectively in the manufacture, sale and distribution of dairy products in New
Mexico, Texas and Louisiana; and (3) none of the terms of any agreement between
the purchaser and Mid-America give Mid-America the ability unreasonably to
raise the purchaser's costs, to lower the purchaser's efficiency, or otherwise
to interfere in the ability of the purchaser to compete effectively in the
manufacture, sale and distribution of dairy products in New Mexico, Texas and
Louisiana.
C. The Divestiture of the Assets and the Marks to Milk Products,
if accomplished in accordance with this Final Judgment within twenty-four hours
following the acquisition by Mid-America of the voting stock of Borden/Meadow
Gold, is acceptable to the United States and no further approval of plaintiff
pursuant to this Paragraph IV or Paragraph IX is required.
V.
APPOINTMENT OF TRUSTEE
A. In the event that Mid-America has not divested the Divestiture
Assets and the Marks within the time specified in Paragraph IV (A) of this
Final Judgment, the Court shall appoint, on application of the United States, a
trustee selected by the United States to effect the divestiture of the
Divestiture Assets and the Marks.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to accomplish the divestiture of the Assets and
the Marks. The trustee shall have
6
<PAGE> 12
the power and authority to accomplish the divestiture at the best price then
obtainable upon a reasonable effort by the trustee, subject to the provisions
of Paragraphs V and IX of this Final Judgment, and shall have such other powers
as the Court shall deem appropriate. Subject to Paragraph V (C) of this Final
Judgment, the trustee shall have the power and authority to hire at the cost
and expense of Mid-America any investment bankers, attorneys, or other agents
reasonably necessary in the judgment of the trustee to assist in the
divestiture, and such professionals and agents shall be accountable solely to
the trustee. The trustee shall have the power and authority to accomplish the
divestiture at the earliest possible time to a purchaser acceptable to the
United States, and shall have such other powers as this Court shall deem
appropriate. Mid-America shall not object to a sale by the trustee on any
grounds other than the trustee's malfeasance. Any such objections by defendants
must be conveyed in writing to plaintiffs and the trustee within ten (10)
calendar days after the trustee has provided the notice required under
Paragraph IX of this Final Judgment.
C. The trustee shall serve at the cost and expense of
Mid-America, on such terms and conditions as the Court may prescribe, and shall
account for all monies derived from the sale of the assets sold by the trustee
and all costs and expenses so incurred. After approval by the Court of the
trustee's accounting, including fees for its services and those of any
7
<PAGE> 13
professionals and agents retained by the trustee, all remaining money shall be
paid to Mid-America and the trust shall then be terminated. The compensation of
such trustee and of any professionals and agents retained by the trustee shall
be reasonable in light of the value of the Divestiture Assets and the Marks and
based on a fee arrangement providing the trustee with an incentive based on the
price and terms of the divestiture and the speed with which it is accomplished.
D. Mid-America shall use its best efforts to assist the trustee
in accomplishing the required divestiture. The trustee and any consultants,
accountants, attorneys, and other persons retained by the trustee shall have
full and complete access to the personnel, books, records, and facilities of
defendants, and defendants shall develop financial or other information
relevant to such assets as the trustee may reasonably request, subject to
reasonable protection for trade secret or other confidential research,
development, or commercial information. Mid-America shall take no action to
interfere with or to impeded the trustee's accomplishment of the divestiture.
E. After its appointment, the trustee shall file monthly reports
with the parties and the Court setting forth the trustee's efforts to
accomplish the divestiture ordered under this Final Judgment. If the trustee
has not accomplished such divestiture within six (6) months after its
appointment, the trustee thereupon shall file promptly with the Court a report
setting forth (1) the trustee's efforts to accomplish the
8
<PAGE> 14
required divestiture, (2) the reasons, in the trustee's judgment, that the
required divestiture has not been accomplished, and (3) the trustee's
recommendations; provided, however, that to the extent such reports contain
information that the trustee deems confidential, such reports shall not be
filed in the public docket of the Court. The trustee shall at the same time
furnish such report to the parties, who shall each have the right to be heard
and to make additional recommendations consistent with the purpose of the
trust. The Court shall enter thereafter such orders as it shall deem
appropriate in order to carry out the purpose of the trust, which may, if
necessary, include extending the trust and the term of the trustee's
appointment by a period requested by the plaintiffs.
VI.
DIVESTITURE OF THE LOAN
If Mid-America sells the Divestiture Assets to Milk Products,
A. Mid-America shall reduce its holdings in the Milk Products
Loan as follows:
(1) to $30 million or less by December 31, 1997;
(2) to $13 million or less by September 1, 1998; and
(3) to zero by September 1, 1999.
B. Mid-America may sell off any portion of the Milk Products Loan
in order to meet the requirements of Paragraph VI A., provided that no third
party purchaser of all or part of the Loan shall (1) be affiliated in any way
with Mid-America or
9
<PAGE> 15
(2) be a person engaged in the production, sale or delivery of milk in the
sales area of Milk Products.
C. In connection with sale of the Milk Products Loan pursuant to
Paragraph VI (A), Mid-America shall not provide a guarantee to any third party
purchaser, provided, however, that Mid-America may, in its discretion, after it
has reduced its holdings in the Loan to not more than $13 million, guarantee
some or all of the remaining $13 million. Any guarantee by Mid-America must be
without recourse against Milk Products for any sums paid by Mid-America by
virtue of the guarantee.
D. At no time while Mid-America holds all or part of the Milk
Products Loan shall Mid-America (1) require that Milk Products seek approval
from, or give notice to, Mid-America before incurring any indebtedness, or (2)
place any restriction on Milk Products' ability to conduct its operations as it
sees fit.
VII.
ACQUISITIONS AND ACCESS TO INFORMATION
During any period in which Mid-America retains an ownership interest
in Southern Foods,
A. No member, officer, employee or agent of Southern Foods or
Mid-America (other than members, officers, employees, or agents of Land-O-Sun
Dairy LLC, who are not otherwise affiliated with Mid-America or Southern Foods)
shall be employed by or serve as an officer, director, member, or agent of Milk
Products.
10
<PAGE> 16
B. No member, officer, employee or agent of Milk Products shall
be employed by or serve as an officer, director, member or agent of Mid-America
or Southern Foods (other than members, officers, employees or agents of
Land-O-Sun Dairy LLC, who are otherwise not affiliated with Mid-America or
Southern Foods).
C. Neither Mid-America nor Southern Foods shall merge or
consolidate with, acquire membership in or securities or assets of, or provide
loans or other financing to (except for trade credit extended in the ordinary
course of business) Milk Products, without having first obtained the written
approval of the United States. Any request for such approval shall be directed
to the Antitrust Division, U.S. Department of Justice, Transportation, Energy
and Agriculture Section, with a copy to the Director of Operations.
D. Mid-America, Southern Foods, and Milk Products shall not
disclose to each other, directly or indirectly, any competitively sensitive
information including, but not limited to, information concerning present or
future prices or other terms or conditions of sale including discounts,
slotting allowances, bids or price lists, costs, capacity, distribution,
marketing plans or territories, supply, sales forecasts, customer relationships
(including the identity of actual or potential customers or quantities sold to
any particular customer).
E. Notwithstanding Paragraph VII (D), Mid-America may, during any
period in which it is a creditor of Milk Products, obtain and retain copies of
the following information, solely to protect its interests as a creditor:
11
<PAGE> 17
(1) copies of Milk Products, federal income tax returns for each year;
and
(2) quarterly financial statements, including a balance sheet, a
statement of profits and losses, and a statement of cash flow, aggregated for
the entire company. Nothing in this provision shall limit the information that
a purchaser of any portion of the Milk Products Loan may request and obtain,
subject to reasonable commercial credit practices.
F. Nothing in this Final Judgment shall prohibit the orderly
transfer of business records, reports or accounting materials from
Borden/Meadow Gold to Southern Foods or to Milk Products, which shall be
accomplished within 120 days of the closing of the transaction.
VIII.
SUBLICENSE AGREEMENT
A. Southern Foods, as sublicensor of the marks, shall promptly
notify Borden, Inc. and BDH Two, Inc., the owners of the Marks, of any
unauthorized use of the Marks when such use comes to the attention of Southern
Foods from any source, including Milk Products, and Southern Foods shall take
all actions as may be required by Borden, Inc. and BDH Two, Inc. regarding the
unauthorized use of the Marks.
B. Neither Mid-America nor Southern Foods shall assert or claim
that on any sublicensee of the Marks' sale of an equity interest in the
sublicensee or any change in control or ownership in the sublicensee will
affect or diminish the sublicensee's rights in or use of the Marks.
12
<PAGE> 18
C. Mid-America and Southern Foods shall ensure that the rights
that any sublicensee obtains in the Marks are equal to all the rights and
privileges that Southern Foods obtains for itself in its license of the Marks
from Borden, Inc. and BDH Two, Inc.
IX.
NOTIFICATION
Within two (2) business days following execution of a definitive
agreement, contingent upon compliance with the terms of this Final Judgment,
any proposed divestiture pursuant to Paragraph IV, V or VI of this Final
Judgment, Mid-America or the trustee, whoever is responsible for the
divestiture, shall notify plaintiff of the proposed divestiture and provide
documentation that the conditions set forth in Paragraphs IV through VII have
been met.
If the trustee is responsible, it shall similarly notify Mid-America.
The notice shall set forth the details of the proposed transaction and list the
name, address, and telephone number of each person not previously identified
who offered to, or expressed an interest in or a desire to, acquire any
ownership interest in the Assets, together with full details of same. Within
fifteen (15) calendar days of receipt by plaintiff of such notice, plaintiff
may request from Mid-America, the proposed purchaser, any other third party, or
the trustee if applicable, additional information concerning the proposed
divestiture and the proposed purchaser. Mid-America and the trustee shall
13
<PAGE> 19
furnish any additional information requested within fifteen (15) calendar days
of the receipt of the request, unless the parties shall otherwise agree.
Within thirty (30) calendar days after receipt of the notice or within twenty
(20) calendar days after plaintiff has been provided the additional information
requested from Mid-America, the proposed purchaser, any third party, and the
trustee, whichever is later, the United States shall provide written notice to
Mid-America and the trustee, if there is one, stating whether or not it objects
to the proposed divestiture. If the United States provides written notice to
Mid-America and the trustee that it does not object, then the divestiture may
be consummated, subject only to Mid-America's limited right to object to the
sale under Paragraph V (B) of this Final Judgment. Absent written notice that
the United States does not object to the proposed purchaser or upon objection
by the United States, a divestiture proposed under Section IV shall not be
consummated. Upon objection by the United States, or by Mid-America in
accordance with Section V (B), a divestiture proposed under Section V shall not
be consummated unless approved by the Court.
X.
AFFIDAVITS
A. Within twenty (20) calendar days of the closing of any
transaction in which Mid-America directly or indirectly acquires all or any
part of the assets or capital stock of Borden/Meadow Gold, and every thirty
(30) calendar days thereafter until the divestiture of the Divestiture Assets
and the Loan has been
14
<PAGE> 20
completed pursuant to Paragraphs IV, V and VI of this Final Judgment,
Mid-America shall deliver to plaintiff an affidavit as to the fact and manner
of compliance with Paragraphs IV, V and VI of this Final Judgment. Each such
affidavit shall include the name, address, and telephone number of each person
who, at any time after the period covered by the last report, made an offer to
acquire, expressed an interest in acquiring, entered into negotiations to
acquire or was contacted or made an inquiry about acquiring any interest in the
Divestiture Assets or in the Loan, and shall describe in detail each contact
with any such person during that period.
B. Mid-America shall preserve all records of all efforts made to
divest the Loan and the Assets. This provision shall not apply to divestiture
of the Assets if they are sold pursuant to Paragraph IV (C) herein.
XI.
COMPLIANCE INSPECTION
Only for the purposes of determining or securing compliance with the
Final Judgment and subject to any legally recognized privilege, from time to
time:
A. Duly authorized representatives of the plaintiff, including
consultants and other persons retained by the United States, upon written
request of the Assistant Attorney General in charge of the Antitrust Division,
and on reasonable notice to defendants made to their principal offices, shall
be permitted:
15
<PAGE> 21
(1) Access during office hours of defendants to inspect and copy all
books, ledgers, accounts, correspondence, memoranda, and other records
and documents in the possession or under the control of defendants,
who may have counsel present, relating to enforcement of this Final
Judgment; and
(2) Subject to the reasonable convenience of defendants and without
restraint or interference from them, to interview their officers,
employees, and agents, who may have counsel present, regarding any
such matters.
B. Upon the written request of the Assistant Attorney General in
charge of the Antitrust Division made to defendants, principal offices,
defendants shall submit such written reports, under oath if requested, with
respect to enforcement of this Final Judgment.
C. No information or documents obtained by the means provided in
Paragraph XI of this is Final Judgment shall be divulged by a representative of
the plaintiff to any person other than a duly authorized representative of the
Executive Branch of the United States, except in the course of legal
proceedings to which the plaintiff is a party (including grand jury
proceedings), or for the purpose of securing compliance with this Final
Judgment, or as otherwise required by law.
D. If at the time information or documents are furnished by
defendants to plaintiff, defendants represent and identify in writing the
material in any such information or documents to
16
<PAGE> 22
which a claim of protection may be asserted under Rule 26(c)(1) of the Federal
Rules of Civil Procedure, and defendants mark each pertinent page of such
material, "Subject to claim of protection under Rule 26(c)(7) of the Federal
Rules of Civil Procedure," then ten (10) calendar days notice shall be given by
plaintiff to defendants prior to divulging such material in any legal
proceeding (other than a grand jury proceeding).
XII.
RETENTION OF JURISDICTION
Jurisdiction is retained by this Court for the purpose of enabling any
of the parties to this Final Judgment to apply to this Court at any time for
such further orders and directions as may be necessary or appropriate for the
construction or carrying out of this Final Judgment, for the modification of
any of the provisions hereof, for the enforcement of compliance herewith, and
for the punishment of any violations hereof.
XIII.
TERMINATION
Unless this Court grants an extension, this Final Judgment will expire
on the tenth anniversary of the date of its entry.
XIV.
PUBLIC INTEREST
Entry of this Final Judgment is in the public interest.
Dated:
----------------------
----------------------------
United States District Judge
17
<PAGE> 23
CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing has been served upon the
attorneys for Mid-America Dairymen, Inc., Southern Foods Group LP, and Milk
Products LLC by placing a copy in the U.S. Mail, directed to each of the above
named parties at the addresses given below, this 3rd day of September 1997.
Mid-America Dairymen, Inc.
c/o W. Todd Miller
Baker & Miller PLLC
Suite 615
700 Eleventh Street, N.W.
Washington, D. C. 20001
Southern Foods Group LP
c/o Jerry L. Beane
Strasburger & Price LLP
Suite 4300
901 Main Street
Dallas, Texas 75202
Milk Products LLC
c/o Jerry L. Beane
Strasburger & Price LLP
Suite 4300
901 Main Street
Dallas, Texas 75202
/s/ JOAN S. HUGGLER
-------------------
Joan S. Huggler
DC Bar # 927244
Attorney
Antitrust Division
U.S. Department of Justice
325 Seventh St. N.W.
Suite 500
Washington, D. C. 20530
(202) 307-6456
(202) 661-2441 (Facsimile)
<PAGE> 24
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
UNITED STATES OF AMERICA, Civil Action
No: 3-97-CV-2162-P
Plaintiff,
v.
MID-AMERICA DAIRYMEN, INC.
SOUTHERN FOODS GROUP LP Filed: 9-3-97
and MILK PRODUCTS, LLC,
Defendants
COMPLAINT
The United States of America, acting under the direction of the
Attorney General of the United States, brings this civil action to obtain
equitable and other relief against the defendants named and alleges as follows:
1. The United States brings this antitrust case to prevent the
proposed acquisition by Mid-America Dairymen, Inc. ("Mid-America") of the
voting stock of Borden/Meadow Gold Dairies Holdings, Inc. ("Borden/Meadow
Gold"). Mid-America, through its affiliate Southern Foods Group LP ("Southern
Foods"), and Borden/Meadow Gold compete head-to-head in the supply of fluid
milk for school lunch and breakfast programs throughout Eastern Texas and
Louisiana. The transaction will create a school milk monopoly in many areas of
Eastern Texas and Louisiana and will
<PAGE> 25
reduce the number of competitors to two or three in many more. As a result,
many school districts are likely to pay higher prices for milk.
2. Mid-America is the largest dairy cooperative in the United
States, with some 18,000 producer members in 30 states. In addition,
Mid-America owns numerous dairy manufacturing and processing plants throughout
the country, including a significant number of plants that process fluid milk.
In particular, Mid-America owns 50 percent of Southern Foods. Southern Foods
engages in extensive dairy processing operations in Texas and Louisiana.
Borden/Meadow Gold operates a significant number of competing dairy plants in
these two states.
3. In Eastern Texas -- an area from Fort Worth east to the
Louisiana border and north from Fort Worth to the Oklahoma border to just south
of San Antonio and Houston -- Southern Foods operates five fluid milk plants,
and Borden/Meadow Gold operates three. In many of the major metropolitan areas
of Eastern Texas, such as Dallas/Fort Worth, Waco, and San Antonio, Southern
Foods plants and Borden/Meadow Gold plants are usually the only bidders for
school milk contracts and the transaction will thus create a monopoly.
4. In Louisiana, Southern Foods and Borden/Meadow Gold each
operate three plants. In the areas around New Orleans and
2
<PAGE> 26
Baton Rouge, the number of competitors for school milk will be reduced to two.
In other areas of Louisiana, the transaction will create a monopoly.
5. Mid-America has proposed to remedy the anticompetitive effects
of the proposed transaction by selling the Borden/Meadow Gold assets located in
Texas, Louisiana, and New Mexico to a newly-formed firm, Milk Products LLC, for
$65 million. Mid-America proposes, however, to finance most of the purchase
price with a loan of $40 million to Milk Products. The loan would leave
Mid-America with the ability to influence the operations of Milk Products.
Therefore, the proposed remedy will not adequately replace the independent
competition that Borden/Meadow Gold currently provides in Eastern Texas and
Louisiana.
JURISDICTION AND VENUE
6. This action is filed under Section 15 of the Clayton Act, 15
U.S.C. Section 25, to prevent and restrain the violation by the defendants, as
hereinafter alleged, of Section 7 of the Clayton Act, as amended, 15 U.S.C.
Section 18.
7. Mid-America, itself and through Southern Foods, sells raw
milk, fluid milk and other dairy products in interstate commerce. The Court has
jurisdiction over this action and over the parties pursuant to 15 U.S.C.
Section 22 and 28 U.S.C. Sections 1331 and 1337.
3
<PAGE> 27
8. Mid-America, Southern Foods and Borden/Meadow Gold transact
business in this district. Venue is proper in this district under 15 U.S.C.
Section 1391 (c).
THE DEFENDANTS
9. Mid-America is a corporation organized and existing under the
laws of the state of Kansas with headquarters in Springfield, Missouri. The
company had over $4 billion in revenues in 1996. Its ownership interests in 36
fluid milk plants span 19 states, with operations from California to New
Jersey.
10. Southern Foods is a limited partnership organized under the
laws of Delaware, with headquarters in Dallas, Texas. Mid-America owns 50
percent of Southern Foods directly and through its 50 percent ownership of
Southern Foods, general partner, SFG Management LLC, a Delaware limited
liability company. Mid-America also holds $85 million of non-voting preferred
equity in the partnership. Mid-America's affiliate, Mid-Am Capital LLC, holds
an additional $20 million in unsecured subordinated debt in the partnership. In
1996, Southern Foods, dairy plants in Texas and Louisiana had sales in excess
of $550 million. Southern Foods sells fluid milk and other dairy products in
Texas and Louisiana under various brand names, including Oak Farms, Golden
4
<PAGE> 28
Royal, Midwest Farms, Sunnydell, Texas Bluebonnet, Schepps, Dairyland, Goodday,
Brown's Velvet, Medallion, Foremost, Barbe, and Guth.
11. Milk Products LLC is a limited liability company organized
under the laws of Delaware. It will operate the Borden/Meadow Gold assets
located in Texas, Louisiana and New Mexico.
TRADE AND COMMERCE
A. The Relevant Market
12. Dairy processors purchase raw milk requirements from dairy
farmers and agricultural cooperative associations such as Mid-America and
produce fluid milk in a variety of forms. Some processors produce a full line
of packaged fluid milk products, including whole, low-fat, skim and flavored
milk, which are packaged in gallons, half gallons, quarts, pints and half
pints. Other processors package a limited line of container sizes, most
typically gallons and half gallons.
13. In addition to grocery and other food stores, schools,
hospitals and other institutional customers are the major purchasers of fluid
milk. Almost all of the milk purchased by schools is in half pint containers, a
size not purchased in significant quantities by most other customers.
5
<PAGE> 29
14. Federal regulations require that schools participating in the
National School Lunch program and the School Breakfast program offer a half
pint of fluid milk with each meal. Fluid milk is a product with special
nutritional characteristics and is without practical substitutes. There is no
reasonable substitute to which a significant number of schools could turn in
response to a small but significant and non-transitory increase in the price of
fluid milk.
15. School districts in Eastern Texas and Louisiana purchase milk
through contracts that generally are let annually. The contracts require the
delivery of milk in half pint containers to each school in the district and
often require delivery five days per week. Sometimes the contracts require that
deliveries be made during particular hours of the day.
16. The winning bidder of a school contract must have a
distribution system capable of meeting the needs of the schools. Because most
school contracts involve frequent deliveries to numerous schools, and school
deliveries are made only when school is in session, winning bidders generally
deliver to schools using route trucks that also serve other customers in the
area.
17. Firms that bid on school contracts generally include only
those that, at the time they bid on the contract, have an established route
truck distribution system in or near the district to be served under the
contract. Except for the largest
6
<PAGE> 30
school districts, the volume purchased under a school milk contract is not
usually sufficient to justify the cost of establishing a distribution route in
an area remote from a firm's other customers. A small but significant and
non-transitory price increase to a school district would not cause firms that
do not currently serve the immediate area to bid on a contract to serve the
district.
18. The production, sale and distribution of fluid milk to schools
in Eastern Texas and Louisiana constitutes a line of commerce and a section of
the country, and is a relevant market for antitrust purposes.
B. Competition and Entry
19. Southern Foods and Borden/Meadow Gold have established route
distribution systems suitable for serving school districts throughout Eastern
Texas and Louisiana. Each firm is a bidder or potential bidder in more than 600
public school districts in Eastern Texas and more than 50 school districts in
Louisiana. In many of these districts, there are no other bidders or potential
bidders with existing route distribution systems suitable for providing milk to
schools.
20. The sale and delivery of fluid milk to schools is a business
highly susceptible to tacit or overt collusion among competing firms. Numerous
dairy firms have been convicted of
7
<PAGE> 31
collusion in school milk bids in a number of criminal antitrust cases brought
in the last two decades. Such collusion typically involves the allocation of
school contracts among competitors and, where it has occurred, has persisted
for many years.
21. Collusive behavior in this industry is unlikely to attract new
entry. In school milk markets, collusion often has been maintained for many
years without being dissipated by new entry. The Department of Justice has
uncovered numerous longstanding criminal antitrust conspiracies that have
survived for years without attracting new entry.
22. The elimination of one of a small number of significant
competitors and the resulting increase in concentration, such as would occur as
a result of the proposed transactions, significantly increases the likelihood
of collusion in school milk markets.
MID-AMERICA'S PROPOSED REMEDY
23. In an effort to remedy the anticompetitive consequences of the
purchase by Mid-America of the Borden/Meadow Gold assets in Texas and
Louisiana, Mid-America proposes to sell the assets located there and in New
Mexico to Milk Products for $65 million. Mid-America further proposes to
finance most of the purchase price by extending to Milk Products a loan of $40
million. The size and terms of the loan would leave Mid-America with the
8
<PAGE> 32
ability to affect the competitive behavior of Milk Products. Because of its
significant financial interests in both firms, Mid-America would have both the
incentive and the ability to inhibit vigorous competition between Southern
Foods and Milk Products.
24. The proposed remedy is inadequate to replace the independent
competition currently provided by Borden/Meadow Gold in Eastern Texas and
Louisiana.
INTERSTATE COMMERCE
25. Southern Foods purchases a substantial amount of raw milk for
its Texas and Louisiana processing plants from dairy farmers and cooperatives
located outside these states. Southern Foods also purchases substantial amounts
of packaging material, equipment, and other supplies from vendors in other
states. Southern Foods sells significant amounts of fluid milk produced in its
Texas plants in Oklahoma; and milk produced in its Shreveport, Louisiana plant
is also sold in Texas and Arkansas. Milk produced at Southern Foods' Brown
Velvet plant in New Orleans is sold in Mississippi. Significant federal funds
flow to school districts in Eastern Texas and Louisiana under the National
School Lunch and School Breakfast Program in reimbursement for milk and other
food items. The sale and
9
<PAGE> 33
delivery of fluid milk to school districts in Eastern Texas and Louisiana is in
the flow of and substantially affects interstate commerce.
VIOLATION ALLEGED
26. On May 22, 1997, Mid-America entered into an agreement under
which Mid-America would acquire all of the stock of Borden/Meadow Gold Dairies
Holdings, Inc. for a purchase price of $435 million. On May 28, 1997,
Mid-America agreed that a new limited liability company to be formed by Allen
A. Meyer would purchase the Borden/Meadow Gold assets in Texas, Louisiana and
New Mexico for $65 million. Mid-America further agreed to cause its affiliate,
Mid-Am Capital LLC, to lend the new company at least $35 million to make the
purchase.
27. The effect of the proposed transactions may be to
substantially lessen competition in the production, sale and distribution of
fluid milk to school districts in Eastern Texas and Louisiana in violation of
Section 7 of the Clayton Act, in the following ways, among others:
a. actual and potential competition between Southern Foods and
Borden/Meadow Gold in the production, sale and distribution of fluid milk to
school districts in Eastern Texas and Louisiana will be eliminated;
10
<PAGE> 34
b. competition generally in the production, sale and distribution
of fluid milk to school districts in Eastern Texas and Louisiana may be
substantially lessened.
PRAYER
WHEREFORE, plaintiff prays;
1. That the proposed acquisition by Mid-America of the stock of
Borden/Meadow Gold Dairies Holdings, Inc. be adjudged to be in violation of
Section 7 of the Clayton Act;
2. That the defendants and all persons acting on their behalf be
permanently enjoined from carrying out any agreement, understanding, or plan,
the effect of which would be to combine Mid-America and Borden/Meadow Gold
Dairies Holdings, Inc. or to result in Milk Products' or Southern Foods,
acquiring the Borden/Meadow Gold assets in Texas or Louisiana while Mid-America
or Mid-Am Capital is a creditor of Milk Products LLC;
11
<PAGE> 35
3. That the plaintiff have such other and further relief as the
Court may deem just and proper; and
4. That plaintiff recover the costs of this action.
Respectfully submitted,
FOR PLAINTIFF UNITED STATES OR AMERICA:
/s/ JOEL I. KLEIN /s/ ROGER W. FONES
- -------------------------- --------------------------------
JOEL I. KLEIN ROGER W. FONES, CHIEF
Assistant Attorney General DC BAR # 303255
/s/ A. DOUGLAS MELAMED /s/ DONNA N. KOOPERSTEIN
- -------------------------- --------------------------------
A. DOUGLAS MELAMED DONNA N. KOOPERSTEIN
Deputy Assistant Assistant Chief
Attorney General PA Bar # 26770
/s/ JOAN S. HUGGLER
--------------------------------
JOAN S. HUGGLER
DC Bar # 927244
/s/ MICHAEL P. HARMONIS
--------------------------------
MICHAEL P. HARMONIS
PA Bar # 17994
/s/ ROBERT D. YOUNG
--------------------------------
ROBERT D. YOUNG
DC Bar # 24826
Attorneys
Antitrust Division
U.S. Department of Justice
325 Seventh St. N.W.
Washington, D.C. 20530
(202) 307-6456
(202) 616-2441 (Facsimile)
Date: September 3, 1997
-------------------
12
<PAGE> 36
CERTIFICATE OF SERVICE
I hereby certify that I have caused a copy of the foregoing Complaint
to be served on counsel for defendants in this matter in the manner set forth
below:
By first class mail, postage prepaid:
W. Todd Miller, Esquire
Baker & Miller PLLC
Suite 615
700 Eleventh Street, N.W.
Washington, D.C. 20530
(Counsel for Mid-America Dairymen, Inc.)
Jerry L. Beane, Esquire
Strasburger & Price LLP
Suite 4300
901 Main Street
Dallas, Texas 75202
(Counsel for Southern Foods Group LP and Milk Products LLC)
Dated: September 3, 1997
/s/ JOAN S. HUGGLER
--------------------------
Joan S. Huggler
DC Bar # 927244
Antitrust Division
U.S. Department of Justice
325 Seventh Street, N.W.
Suite 500
Washington, D.C. 20530
(202) 307-6456
(202) 616-2441
<PAGE> 37
FOR DEFENDANT SOUTHERN FOODS GROUP LP:
/s/ JERRY L. BEANE
- ---------------------------------
Jerry L. Beane
TX Bar # 01966000
Strasburger & Price LLP
Suite 4300
901 Main Street
Dallas, Taxes 75202
(214)-651-4521
(214)-651-4330 (Facsimile)
Attorneys for Southern Foods Group LP
Date: 9-2-97
------
FOR DEFENDANT MILK PRODUCTS LLC
/s/ JERRY L. BEANE
- ---------------------------
Jerry L. Beane
TX Bar # 01966000
Strasburger & Price LLP
Suite 4300
901 Main Street
Dallas, Texas 75202
(214)-651-4521
(214)-651-4330 (Facsimile)
Attorneys for Milk Products LLC
Date: 9-2-97
------
UPON REVIEW of this Stipulation by the parties, the Court acknowledges
by this Order that the parties have consented to the terms specified in this
Stipulation and the entry of the Final Judgment subject to the provisions of
the Antitrust Procedures and Penalties Act (15 U.S.C. Section 16 (b) - (h)).
SO ORDERED on this day of , 1997.
-------------- ------------------
----------------------------------
UNITED STATES DISTRICT COURT JUDGE
<PAGE> 1
EXHIBIT 10.22
NO. 9710120
THE STATE OF TEXAS, ) IN THE DISTRICT COURT OF
)
)
Plaintiff, )
)
vs. ) TRAVIS COUNTY, TEXAS
)
)
)
MID-AMERICA DAIRYMEN, INC., )
SOUTHERN FOODS GROUP, L.P., and )
MILK PRODUCTS, L.L.C., )
)
Defendants. ) 200th JUDICIAL DISTRICT
AGREED CONSENT DECREE AND PERMANENT INJUNCTION
WHEREAS, Plaintiff, the State of Texas ("the State"), having filed its
Original Petition herein on September 3rd, 1997, against Defendants Mid-America
Dairymen, Inc. ("Mid-Am"), Southern Foods Group, L.P. ("Southern Foods"), and
Milk Products, L.L.C. ("Milk Products") alleging that the effect of the proposed
acquisition of the voting stock of Borden/Meadow Gold Dairies Holdings, Inc.,
("Borden Holdings") by Mid-Am and the subsequent proposed divesture of
Borden/Meadow Gold Dairies, Inc. ("Borden/Meadow Gold"), a subsidiary of Borden
Holdings, may be to lessen competition substantially in the milk processing and
distribution industry in Texas;
AND WHEREAS, simultaneously upon Mid-Am's acquisition of the voting
stock of Borden Holdings, Mid-Am will divest the assets and liabilities of
Borden/Meadow Gold to Milk Products, according to terms that are the same or
substantially the same as those contained in a letter of intent dated May 22,
1997 between Mid-Am and Allen A. Meyer, the sole member of Milk Products;
Agreed Consent Judgment and -----------------------------
Permanent Injunction FILED
Page 1 97 SEP-3 PH 1:38
/s/ [ILLEGIBLE]
DISTRICT CLERK
TRAVIS COUNTY, TEXAS
-----------------------------
<PAGE> 2
AND WHEREAS Mid-Am will finance the divestiture transaction, in part,
by providing Milk Products with a loan in the amount of $40 million ("the
Loan");
AND WHEREAS, the essence of this Agreed Decree is that prompt and
certain divestiture of Mid-Am's interest in the Loan is needed to assure that
competition is not substantially lessened;
AND WHEREAS, to further assure that competition is not substantially
lessened, Mid-Am agrees to adhere to certain terms and conditions regarding its
communication with and access to Milk Product's competitively sensitive
information;
AND WHEREAS, Defendants represent to the State that the divestiture and
adherence to certain terms and conditions required below can and will be made,
and that Defendants will not later raise claims of hardship or difficulty as
grounds for asking the Court to modify any of the divestiture provisions or
provisions regarding terms and conditions contained below.
NOW, THEREFORE, the parties having consented to the entry of this
Agreed Consent Decree and Permanent Injunction ("Agreed Decree") without trial
or final adjudication of any issue of law or fact and before the taking of any
testimony at trial and without this Agreed Decree constituting any evidence
against or an admission by any party with respect to any issue of law or fact
herein;
IT IS HEREBY ORDERED, ADJUDGED AND DECREED:
I.
JURISDICTION
This Court has jurisdiction over the subject matter of this action and
the parties hereto. The Original Petition states claims upon which relief may be
granted against Defendants under Section 15.05(d) of the Texas Free Enterprise
and Antitrust Act of 1983, TEX. BUS & Com. Code Section 15.01
Agreed Consent Judgment and
Permanent Injunction
Page 2
<PAGE> 3
et. seq. ("the Texas Antitrust Act"). Jurisdiction lies in this Court pursuant
to Sections 15.20(b) and 15.26 of the Texas Antitrust Act. Venue lies in Travis
County pursuant to Section 15.20(b) of the Texas Antitrust Act.
II.
DEFINITIONS
As used in this Agreed Decree:
A. "DOJ" or "Department" shall mean the U.S. Department of Justice,
Antitrust Division.
B. "Joint Venture Affiliate" shall mean any company that is more than
25% owned by Mid-America Dairymen, Inc., and includes, for each such company,
its subsidiaries, members, share-holders, directors, officers, employees,
successors and/or assigns;
C. "Land-O-Sun" shall mean Land-O-Sun Dairies, LLC, its members,
officers, directors, employees, subsidiaries, successors and/or assigns;
D. "Loan" or "Loan to Milk Products" shall mean the unsecured,
subordinated, unconvertible loan to be provided to Milk Products by Mid-Am
Capital, L.L.C., in the total amount of $40 million for the purchase by Milk
Products of (a) Borden/Meadow Gold and (b) a sublicense to use certain Borden
trademarks, service marks and registration;
E. "Mid-Am" shall mean Mid-America Dairymen, Inc., its members,
officers, directors, employees, its Joint Venture Affiliates, successors and/or
assigns and Mid-Am Capital, L.L.C., its officers, directors, employees,
successors and/or assigns;
F. "Milk Products" shall mean Milk Products, L.L,C., its members,
officers, directors, employees, successors, and/or assigns;
Agreed Consent Judgment and
Permanent Injunction
Page 3
<PAGE> 4
G. "SFG" shall mean Southern Foods Group, L.P., its members,
representatives, officers, directors, employees, subsidiaries, successors
and/or assigns; and
H. "The State" shall mean the State of Texas, by and through the
Office of the Attorney General, Consumer Protection Division, Antitrust
Section.
III.
APPLICABILITY
This Agreed Decree shall apply to the Defendants, their successors and
assigns, their subsidiaries, affiliates, directors, officers, managers,
employees, agents, representatives, and all other persons in active concert or
participation with any of them who receive actual notice of this Agreed Decree
by personal service or otherwise.
IV.
DIVESTITURE OF ASSETS
A. Mid-Am is hereby ordered and directed to reduce its holding in
the Loan to Milk Products to $30 million or less by December 31, 1997. Mid-Am is
further ordered to reduce its holding in the Loan to Milk Products to $13
million or less by September 1, 1998, and to zero by September 1, 1999. The
required reduction in Mid-Am's holding in the Loan will be completed under the
following conditions:
1) Mid-Am may, in its discretion, sell off any portion of the
Loan in order to meet the requirements of IV.A. Mid-Am shall not provide a
guarantee to any third party purchaser except that, after it has reduced its
holdings in the Loan to $13 million or less, Mid-Am can guarantee some or all
of the remaining amount of the Loan. Any guarantee by Mid-Am must be without
recourse against Milk Products for any sums paid by Mid-Am by virtue of the
guarantee.
Agreed Consent Judgment and
Permanent Injunction
Page 4
<PAGE> 5
2) Mid-Am may sell or otherwise dispose of the Loan or portions
thereof only after receiving a verified written acknowledgment from the acquirer
that identifies the name, address and telephone number of the acquirer and
confirms that (a) the acquirer does not, directly or indirectly, through
subsidiaries, partnerships, or otherwise, operate or intend to operate dairy
processing plants in Texas; (b) the acquirer is not affiliated with Mid-Am in
any way; and (c) the acquirer will not sell the Loan for a period of five (5)
years from the date of the purchase, to any person or entity who is affiliated
with Mid-Am in any way or who, directly or indirectly, through subsidiaries,
partnerships, or otherwise, operates or intends to operate dairy processing
plants in Texas. A copy of this verified written acknowledgment and agreement
will be forwarded to the State within two business days of such sale or
transaction.
3) The State may, in its sole discretion, agree to extensions of
the required time periods noted in IV.A, for up to one year. (If the Defendants
have a similar provision in a Consent Decree filed with DOJ, such agreement must
be given by both the State and DOJ).
4) Notwithstanding anything contained in paragraphs VI. (D) or
(E), below, during any period in which Mid-Am holds any portion of the loan to
Milk Products, and upon reasonable notice, Mid-Am shall be entitled to request,
obtain and retain copies of the following information solely to the extent
necessary to protect Mid-Am's interests as a creditor of Milk Products:
(a) copies of Milk Product's federal income tax returns for
each year; and
(b) quarterly financial statements, including a balance
sheet, a statement of profits and losses and a
statement of cash flow, aggregated for the entire company
Agreed Consent Judgment
and Permanent Injunction
Page 5
<PAGE> 6
Nothing under this provision shall limit the information that a
purchaser of any portion of Mid-Am's Loan to Milk Products may request and
obtain, subject to reasonable commercial credit practices.
5) Within twenty (20) calendar days of the closing of any transaction
in which Mid-Am directly or indirectly acquires all or any part of Borden
Holdings, and every thirty (30) calendar days thereafter until Mid-Am has fully
complied with the obligations of this Agreed Decree regarding reducing its
holding in the Loan, Mid-Am shall submit to the State a verified written report
setting forth in detail the manner and form in which it intends to comply, is
complying, and has complied with the Agreed Decree relating to the sale or other
disposal of its interest in the Loan. Mid-Am shall include in its compliance
reports full descriptions of any sale of any portion of the Loan, including the
acquirer(s) and all terms thereof.
6) If Mid-Am has not divested the Loan, absolutely and in good faith
and on terms, conditions and within the dates specified herein, the State may
appoint a trustee to divest the Loan. The State shall select the trustee,
subject to the consent of Mid-Am, which consent shall not be unreasonably
withheld. Within ten (10) days after appointment of the trustee, Mid-Am shall
execute a trust agreement that, subject to prior approval of the State,
transfers to the trustee all rights and powers necessary to permit the trustee
to effect the divestiture of the Loan required by this Agreed Decree.
7) At no time while Mid-Am holds all or part of the Milk Products
Loan shall Mid-Am (a) require that Milk Products seek approval from, or give
notice to, Mid-Am before incurring any indebtedness, or (b) place any
restriction on Milk Products' ability to conduct its operations as it sees fit.
Agreed Consent Judgment and
Permanent Injunction
Page 6
<PAGE> 7
V.
SUBLICENSE AGREEMENT
A. SFG, as sublicensor of certain trademarks to be licensed to Milk
Products pursuant to a Sublicense Agreement between SFG and Milk Products ("the
Marks"), shall promptly notify Borden, Inc. and BDH Two, Inc., the owners of the
Marks, of any unauthorized use of the Marks when such use comes to the attention
of SFG from any source, including Milk Products, and SFG shall take all actions
as may be required by Borden, Inc., and BDH Two, Inc., regarding the
unauthorized use of the Marks.
B. Neither Mid-Am nor SFG shall assert or claim that any sale, by any
sublicense of the Marks, of an equity interest in the sublicensee or any change
in control or ownership in the sublicensee will affect or diminish the
sublicensee's rights in or use of the Marks.
C. Mid-Am and SFG shall ensure that the rights that any sublicensee
obtains in the Marks are equal to all the rights and privileges that SFG obtains
for itself in its license of the Marks from Borden, Inc. and BDH Two, Inc.
VI.
INJUNCTION
MID-AM, ITS JOINT VENTURE AFFILIATES, SFG, MILK PRODUCTS, AND THEIR
CURRENT OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS, WHO RECEIVE ACTUAL NOTICE OF
THIS INJUNCTION BY PERSONAL SERVICE OR OTHERWISE ARE HEREBY ENJOINED AND
RESTRAINED DIRECTLY OR INDIRECTLY FROM THE FOLLOWING:
A. During any period in which Mid-Am retains an ownership interest
in SFG, Mid-Am will not merge or consolidate with, acquire
securities or assets of or membership interests in, or provide
loans or any other financing to (except for credit extended in the
ordinary course of business, e.g., the purchase of raw milk), Milk
Products without prior written notice to the State and the written
consent of the State, which consent will not be unreasonably
Agreed Consent Judgment
and Permanent Injunction
Page 7
<PAGE> 8
withheld. (If the Defendants have a similar provision in a Consent
Decree filed by DOJ, such agreement must be given by both the
State and DOJ).
B. During any period in which Mid-Am retains an ownership interest
in SFG, none of the members, officers, directors, or employees of
Mid-Am (other than Land-O-Sun) will be an owner or partner of or
be employed by or serve as an officer, director, or agent of Milk
Products.
C. During any period in which Mid-Am retains an ownership interest
in SFG, none of the members, officers, directors, or employees of
Milk Products will be an owner or partner of or be employed by or
serve as an officer, director, or agent of Mid-Am (other than
Land-O-Sun).
D. During any period in which Mid-Am retains an ownership interest
in SFG, neither Mid-Am nor Milk Products shall, directly or
indirectly, discuss with, provide, disclose or otherwise make
available to the other any competitively sensitive information,
except as provided in paragraph IV.A.4, above, and except as may
be commercially necessary if Mid-Am serves as a supplier to Milk
Products or if Joint Venture Affiliates or Milk Products serve as
a supplier to the other. For purposes of this Section,
"competitively sensitive information" means information that is
not public and could be used by a competitor or a supplier to make
production, pricing or marketing decisions, including, but not
limited to information relating to costs, capacity, distribution,
marketing, supply, market territories, customer relationships, the
terms of dealing with any particular customer, and current and
future margins or prices, including discounts, slotting allowances
bids or price lists.
E. During any period in which Mid-Am retains an ownership interest
in SFG, Mid-Am shall not inspect or copy non-public information
from the books, records, reports, and accounts of Milk Products
relating to Milk Product's operations, except as provided in
paragraph IV.A.4, above.
F. During any period in which Mid-Am retains an ownership interest
in SFG, Mid-Am shall not, directly or indirectly, discuss with or
provide, disclose or otherwise make available to SFG any
non-public information it has received from Milk Products
concerning the operations of Milk Products. For purposes of
Sections (E) and (F), information is presumptively "public" if it
is quoted in a publication other than one authored by Milk
Products, if it has been disclosed to the public (other than a
customer or supplier of Milk Products) prior to disclosure to
Mid-Am or is disclosed to the public (other than a customer or
supplier of Milk Products) at the same time it is disclosed to
Mid-Am.
Agreed Consent Judgment and
Permanent Injunction
Page 8
<PAGE> 9
VII.
JUDGMENT FOR INVESTIGATIVE COSTS AND
ATTORNEYS FEE
Within thirty (30) days of the entry of this Agreed Decree, Defendant
Mid-Am shall pay Twenty Thousand Dollars ($20,000.00) and Defendant Milk
Products shall pay Ten Thousand Dollars ($10,000.00) to the Office of the
Attorney General of Texas, as reimbursement of investigative costs and attorneys
fees, in full and final settlement of all claims raised in the State's Original
Petition against Defendants.
VIII.
MISCELLANEOUS PROVISIONS
A. MILK PRODUCTS' SCHOOL BID REPORTING OBLIGATIONS. Milk Products
will provide to Texas on the first business day of September, 1998, 1999, and
2000, a verified written report ("Report") regarding bids by Milk Products to
school districts, cities, counties or any agency of the State of Texas. The
Report shall provide (a) the name and location of each entity to whom a bid was
made by Milk Products during the preceding twelve months and the bid price of
each bid; (b) if known, the names of the other bidders; and (c) if known, the
name of the successful bidder and winning bid prices for low fat white and
chocolate milk in 1/2 pint containers.
B. NOTIFICATION OF CORPORATE CHANGES. Defendants are further ordered
and directed to notify the State at least thirty (30) days prior to any
corporate structure change, dissolution, bankruptcy, liquidation, assignment, or
merger or sale resulting in the emergence of a successor corporation, or the
creation or dissolution of subsidiaries that may affect compliance obligations
arising out of this Agreed Decree.
C. COMPLIANCE WITH CONSENT DECREE.
Agreed Consent Judgment
and Permanent Injunction
Page 9
<PAGE> 10
1) Defendants are required to distribute copies of this Agreed Decree
to their officers, directors, and executive management. Mid-Am shall distribute
copies to each officer, director, and member of executive management of its
Joint Venture Affiliates
2) For the purpose of determining or securing compliance with this
Agreed Decree, and subject to any legally recognized privilege, Mid-Am shall
permit any duly authorized representative of the State:
(a) Access, during office hours and in the presence of counsel, to
inspect and copy all books, ledgers, accounts, correspondence,
memoranda and other records and documents in Mid-Am's
possession or control relating to any matters contained in this
Agreed Decree; and
(b) Upon five days' notice to Mid-Am and without restraint or
interference from it, to interview officers, directors, or
employees of Mid-Am, who may have counsel present regarding
such matters.
3) Necessary actions taken for the orderly transfer of business
records, reports and accounting information from Borden/Meadow Gold to Milk
Products shall not be construed as being violative of this Agreed Decree.
IX.
TERM
Except as otherwise expressly stated, the terms of this Agreed Decree
shall expire five (5) years from the date of entry.
Agreed Consent Judgment and
Permanent Injunction
Page 10
<PAGE> 11
X.
JURISDICTION RETAINED
Jurisdiction is retained by this Court for the purpose of enabling any
party to this Agreed Decree to apply to this Court at any time for such further
orders, directions or modifications as may be necessary or appropriate for the
enforcement of this Agreed Decree and the enforcement of any of the provisions
contained herein.
XI.
STATUTORY LIEN
The statutory lien pursuant to Article 1302-5.08 of the Texas Revised
Civil Statutes on all property of Mid-Am is dissolved
All orders and relief not expressly granted herein are denied.
SIGNED this 3rd day of September, 1997.
Mary Pearl Williams
-----------------------
PRESIDING JUDGE
Agreed Consent Judgment and
Permanent Injunction
Page 11
<PAGE> 12
APPROVED AS TO FORM AND SUBSTANCE AND ENTRY REQUESTED:
<TABLE>
<CAPTION>
ATTORNEYS FOR PLAINTIFF ATTORNEYS FOR DEFENDANTS
THE STATE OF TEXAS
<S> <C>
DAN MORALES By: /s/ JERRY L. BEANE
Attorney General of Texas ---------------------------------
Jerry L. Beane
Texas State Bar No. 01966000
JORGE VEGA Strasburger & Price
First Assistant Attorney General 901 Main Street, Suite 4300
Dallas, Texas 75202
LAQUITA A. HAMILTON (214) 651-4521
Deputy Attorney General for Litigation (214) 651-4330 (Facsimile)
PAUL ELLIOTT Attorneys for Southern Foods
Chief, Consumer Protection Division Group, L.P.
By: /s/ REBECCA FISHER By: /s/ JERRY L. BEANE
---------------------------------- ---------------------------------
Rebecca Fisher Jerry L. Beane
Assistant Attorney General Texas State Bar No. 01966000
Antitrust Section Strasburger & Price
Consumer Protection Division 901 Main Street, Suite 4300
Texas State Bar No. 07057800 Dallas, Texas 75202
(214) 651-4521
(214) 651-4330 (Facsimile)
By: /s/ AMY R. KRASNER
---------------------------------- ------------------
Amy R. Krasner Attorneys for Milk Products, L.L.C.
Assistant Attorney General
Antitrust Division
Consumer Protection Division By: /s/ DAVID A. GEISLER
Texas State Bar No. 00791050 ---------------------------------
David A. Geisler
Missouri State Bar No. 23210
Office of the Attorney General VP-Legal Mid-America Dairymen, Inc.
P.O., Box 12548 3253 E. Chestnut Expressway
Austin, Texas 78711-2548 Springfield, MO 65802-2584
(512) 463-2185 (417) 865-7100
(512) 320-0975 (Facsimile) (417) 865-1093 (Facsimile)
Attorneys for Mid-America Dairymen, Inc.
</TABLE>
Agreed Consent Judgment and
Permanent Injunction
Page 12
<PAGE> 1
EXHIBIT 10.23
COMPLIANCE AGREEMENT IN LIEU OF DEBARMENT
This Compliance Agreement in Lieu of Debarment ("Agreement") is made
between Southern Foods Group, Inc., ("Southern Foods") and the Food and
Consumer Service ("FCS") of the United States Department of Agriculture
("USDA").
PREAMBLE
A. Southern Foods is a corporation engaged in the processing,
sale, and distribution of dairy products in Texas, Louisiana, and Arkansas, and
is headquartered in Dallas, Texas. Southern Foods is the successor corporation
to Schepps-Foremost, Inc., (Schepps-Foremost). The two companies merged on
April 11, 1994. Southern Foods' business includes the provision of fluid milk
and other dairy products to school systems and other entities in connection
with USDA or other Federally assisted programs ("Government programs").
B. On July 18, 1991, Schepps-Foremost entered into a Consent
Judgment And Agreed Permanent Injunction resolving bidrigging claims made by
the State of Texas in the Tyler Division of the U.S. District Court for the
Eastern District of Texas. Schepps-Foremost entered into the Consent Judgment
in resolution of any and all antitrust claims, actions, or causes of action
which the State of Texas may have had or which may later accrue against
Schepps-Foremost in connection with the sale, distribution and marketing of
dairy products to the State of Texas, its agencies and the Free Public Schools
of Texas prior to July 18, 1991, in violation of section 1 of the Sherman Act
(15 U.S.C. Section 1). Schepps-Foremost agreed to pay a civil fine of $575,000,
and compensatory damages of $5,175,000, to be allocated to the Public Free
Schools of Texas.
C. Southern Foods engaged in bidrigging on contracts with school
districts for milk in the State of Texas. On August 16, 1994, Southern Foods
was convicted of bidrigging in the Dallas Division of the U.S. District Court
for the Northern District of Texas. Southern Foods was convicted of conspiring
to rig bids for contracts to supply fluid milk to public schools located in
North, North Central, and East Texas, beginning at least as early as 1975, and
continuing thereafter until at least June 1990, in violation of section 1 of
the Sherman Act (15 U.S.C. Section 1). Southern Foods was ordered to pay a
criminal fine of $1,900,000, and a special assessment of $600.
D. Southern Foods has pleaded guilty to bidrigging on contracts
with school districts for milk in the State of Louisiana. On May 27, 1994, a
Criminal Information was filed against Southern Foods in the
Lafayette-Opelousas Division of the U.S. District Court for the Western
District of Louisiana. Southern Foods pleaded guilty to conspiring to rig bids
for contracts to supply fluid milk products to public schools located in
western Louisiana in violation of the Section 1 of the Sherman Act (15 U.S.C.
Section 1). Southern Foods was ordered to pay a criminal fine of $1,000,000,
and a special assessment of $200.
<PAGE> 2
Compliance Agreement for Southern Foods 2
E. On October 6, 1994, the State of Louisiana, on behalf of
various school districts in Louisiana filed suit against Southern Foods. This
lawsuit was filed under the Louisiana Monopolies Law and seeks damages against
Southern Foods based on the matters referred to above in paragraph D.
F. On January 11, 1993, Mr. Mike Compton ("Compton"), a former
Branch Manager for Oak Farms, Inc., part of Schepps-Foremost, Inc., was
convicted in the Dallas Division of the U.S. District Court for the Northern
District of Texas of conspiring to rig bids for contracts to supply fluid milk
products to public school districts and certain public and private hospitals
located in North Central Texas. Compton was sentenced to six months
imprisonment and one year of probation and community service. On September 25,
1992, a civil settlement agreement was executed between Compton and the United
States. Compton agreed to pay to the United States $10 in settlement of all
residual Federal civil damages and penalties resulting from Compton's
bidrigging in Texas. On January 22, 1993, Mr. Kenneth L. Bullard ("Bullard"),
former Zone Manager for Cabell's Dairy, part of Schepps-Foremost, Inc., was
convicted in the Tyler Division of the U.S. District Court for the Eastern
District of Texas of conspiring to rig bids for contracts to supply fluid milk
products to public school districts located in east Texas. Bullard was ordered
to pay a criminal fine of $20,000, and a special assessment of $50, and was
sentenced to two years probation, and community service. On October 26, 1992, a
civil settlement agreement was executed between Bullard and the United States.
Bullard agreed to pay to the United States $10 in settlement of all residual
Federal civil damages and penalties resulting from Bullard's bidrigging in
Texas.
G. On June 9, 1989, Mr. Lenard O. Jackson ("Jackson") was
convicted of bidrigging in the U.S. District Court for the Middle District of
Florida. Jackson was convicted of participating in a conspiracy to rig bids to
school boards within Peninsular Florida for the award and performance of
contracts to supply milk to county schools in Florida beginning at least as
early as the early 1970's, and continuing at least through December 1986, in
violation of section 1 of the Sherman Act (15 U.S.C. Section 1). Jackson was
sentenced to serve 180 days of imprisonment at a Federal prison camp, and was
ordered to pay a special assessment of $50. Jackson entered into a civil
settlement of $10 with the Federal Government in settlement of all residual
Federal civil damages and penalties resulting from Jackson's bidrigging in
Florida. In December 1990, Jackson became employed as General Manager of Oak
Farms Dairy, which was a wholly-owned Houston, Texas operation of
Schepps-Foremost, Inc., and is now part of Southern Foods, as referred to above
in Paragraph A. On July 8, 1994, in accordance with 7 C.F.R. Part 3017, FCS
sent Jackson a Notice of Proposed Debarment from Federal nonprocurement
programs. The cause for the proposed debarment was the conviction referred to
above. Pursuant to Southern Foods' policy, Jackson is currently suspended from
his position as a result of FCS' Notice of Proposed Debarment and a final
decision on the proposed debarment is pending.
<PAGE> 3
Compliance Agreement for Southern Foods 3
H. Southern Foods cooperated fully with Federal and State
authorities and disclosed the identities and names of all its employees, or
those of its predecessor companies, known to have engaged in improper
anti-competitive activities. These were Compton and Bullard, both of whom also
cooperated with authorities.
I. On June 9, 1994, in accordance with 7 C.F.R. Part 3017, FCS
sent Schepps-Foremost, Inc., a Notice of Proposed Debarment from Federal
nonprocurement programs. The cause for the proposed debarment was the consent
judgment and agreed permanent injunction referred to above in Paragraph B.
J. On June 9, 1994, in accordance with 7 C.F.R. Part 3017, FCS
sent Southern Foods a Notice of Proposed Debarment from Federal nonprocurement
programs. The cause for the proposed debarment was the consent judgment and
agreed permanent injunction referred to above in Paragraph B and its imputation
to Southern Foods through its affiliation with Schepps-Foremost, Inc. referred
to above in Paragraph A.
K. On July 7, 1994, representatives of Southern Foods and counsel for
Southern Foods presented information and oral argument in opposition to the
proposed debarment to representatives of FCS, counsel for FCS, and the hearing
official.
L. Southern Foods has acknowledged the improper activities of its
employees, and those of its predecessor companies, has paid civil penalties and
damages to the State of Texas, and has instituted corrective action.
M. Southern Foods has expressed an interest in demonstrating to
FCS that, notwithstanding the misconduct underlying the consent judgment and
agreed permanent injunction, Southern Foods is presently responsible and will
deal fairly and honestly with respect to the Government programs for which they
submit bids to furnish dairy and/or other products.
N. Southern Foods represents that, to the best of its knowledge,
it is not currently the subject of any investigation or judicial proceeding by
any Federal, State, or local authority for suspected irregularities involving
Southern Foods' operations or activities, other than the judicial proceeding
referred to above in Paragraph E.
O. Southern Foods represents that it does not have any business
relationship with individuals who have been convicted of the misconduct
referenced in Paragraphs B and C except for those post-employment benefit
relationships required by law, such as health and pension benefits required
under the Employee Retirement Income Security Act of 1974 ("ERISA"). Business
relationships, including employer-employee, creditor-debtor, and
principal-business entity (shareholder-corporation and other ownership
relationships are not included unless the shareholder/owner is also a principal
as defined in 7 C.F.R. Section 3017.105(p)).
<PAGE> 4
Compliance Agreement for Southern Foods 4
P. Southern Foods represents that it has established a Compliance
Program which includes the following:
a) A written Code of Business Conduct and Ethics
("Code") which has been distributed to all managers and supervisors and all
sales and administrative employees and consultants;
b) A Code of Business Conduct and Ethics, and Ethics
Compliance Program, including Antitrust Guidelines, which has been distributed
to all managers, and supervisors, and other employees, and consultants involved
in contract bidding or other similar duty areas and designed to assist
employees in recognizing conduct which may violate the antitrust laws;
c) Certification by respective employees that they have
received copies of the Code of Business Conduct and Ethics, and the Code of
Business Conduct and Ethics Compliance Program, and that they agree to comply
with the code or be subject to disciplinary measures;
d) Annual ethics and compliance training seminars for
all managers, and supervisors, and other employees and consultants involved in
contract bidding or other similar duty areas;
e) A Business Conduct and Ethics Compliance Committee
("Compliance Committee"), consisting of the company CEO, president,
secretary/treasurer, and the Business Conduct and Ethics Compliance Officer
("Compliance Officer"), which is responsible for maintaining the compliance
program and reporting annually to the president of the company;
f) A Compliance Officer, who is responsible for
monitoring and investigating questions and issues raised via a toll-free (800)
confidential "hotline" which employees are directed to call when and if any
suspected wrongdoing or other suspected Code violation occurs. The number for
the hotline is included in the Code and is posted on notices in each plant
location;
g) Compliance coordinators at each plant facility, who
have been trained to answer questions regarding the Code and to serve as a
confidential point of contact for employees to report suspected violations of
the Code and who consult outside counsel where appropriate;
h) Availability of outside counsel by phone to all
company employees involved in bidding or pricing to advise on any questions or
concerns which may arise regarding proper bidding priorities or other
competitive relationship issues;
<PAGE> 5
Compliance Agreement for Southern Foods 5
i) A bid analysis of all contract bids which covers bid
amount by dairy and item. Conducted by outside counsel, the bid analysis is
designed to spot questionable bids or unusual bid trends and may result in
counsel contacting the person responsible for the bid to obtain any needed
information regarding bids.
Q. The FCS has determined that the consent judgment and agreed
permanent injunction referred to in Paragraph B are causes for debarment;
however, FCS has determined that, at this time, debarment is not in the public
interest, and is not necessary for the Federal Government's protection as the
terms and conditions of this Agreement provide adequate assurance that Southern
Foods' future business dealings with respect to Government programs, if any,
will be conducted with the highest degree of responsibility, honesty, and
integrity.
R. FCS and Southern Foods ("parties") therefore agree to the
following terms and conditions:
ARTICLES
1. With the exception of the record retention provisions of
Article 3, and the reporting provisions of Articles 8, 12, and 18, the period
of this Agreement and the obligations of the parties thereunder shall be for
three (3) years from the date of execution by FCS.
2. Failure to comply with the terms of the State consent judgment
and agreed permanent injunction referenced in Paragraph B and the Federal
judgment referred to in Paragraph C the Preamble to this Agreement shall
constitute a material breach of this Agreement.
3. Southern Foods shall maintain complete records including
original documents and, upon request, will provide or otherwise furnish
information and documents to FCS, to assure FCS that Southern Foods is
complying with this Agreement. Additionally, Southern Foods shall maintain
records sufficient to provide complete information on all transactions related
to Government programs. Such information shall include, but is not limited to,
cost analyses, bid computations, bid submissions, contracts, purchase and
shipment documents and receipts, and other documents that are in any way
related to the determination and submission of bids and the fulfillment of
contracts by Southern Foods with respect to any Government program. The records
required by this Article shall be maintained for not less than four (4) years
after the end of the calendar year to which they apply with the exception that
documents related to school dairy product bids and contracts shall be
maintained for not less than four (4) years after the end of the school year to
which they apply.
<PAGE> 6
Compliance Agreement for Southern Foods 6
4. In addition to any other right FCS may have by statute or
regulation, Southern Foods shall provide FCS or its duly authorized
representative the right to examine Southern Foods' books, records, and other
company documents and supporting materials, and to interview, with their
consent, employees of Southern Foods for the purpose of evaluating: (a)
Southern Foods' compliance with the terms of this Agreement; (b) Southern
Foods' business conduct in its dealings with all of its customers; (c) Southern
Foods' compliance with accepted business practices; and, (d) Southern Foods'
compliance with the requirements of contracts involving Government programs.
These materials shall be made available to FCS at all reasonable times for
inspection, audit, or reproduction.
5. Southern Foods shall maintain as part of this Agreement a
Compliance Program composed of the Compliance Program voluntarily adopted prior
to the date of this Agreement and discussed in Paragraph P of the Preamble and
such other additional measures as may be necessary to comply with the
requirements of this Agreement. The Compliance Program shall involve all
company employees, officers, and consultants so as to insure that Southern
Foods and each of its employees, officers, and consultants maintains the
business honesty and integrity required of a Government program contractor and
that Southern Foods' performance of each Government program contract is in
strict compliance with all applicable laws, regulations and the terms of the
contract. The Compliance Program shall include, at a minimum, the following
components:
a) The written Code of Ethics and Standards of Conduct
("Code"). If not already included in the Code provided to all employees,
Southern Foods' Code shall include (i) a statement of Southern Foods'
commitment to comply with all applicable statutes and regulations in the
conduct of its business; (ii) guidelines for Southern Foods' employees to follow
in their business dealings on behalf of Southern Foods; (iii) a notice that,
consistent with Articles 6 and 14 of this Agreement, Southern Foods shall
immediately take disciplinary action, including termination, against any
employee, officer, or consultant of Southern Foods whose conduct violates
applicable laws, regulations, contract terms, Southern Foods' Compliance
Program, this Agreement, or basic tenets of business honesty and integrity;
(iv) a requirement that employees report to the compliance coordinator or the
Compliance Officer any misconduct of which they have knowledge whether
committed by an employee of Southern Foods or any other person, whether the
misconduct relates to violations of applicable law, regulations, contracts
terms, Southern Foods' Compliance Program, this Agreement, or basic tenets of
business honesty and integrity; (v) a notice that employees may report
misconduct anonymously; and (vi) a notice that employees may report misconduct
directly to appropriate Government officials in lieu of a compliance
coordinator or the Compliance Officer. Prior to any modification of the Code,
Southern Foods shall obtain FCS approval.
<PAGE> 7
Compliance Agreement for Southern Foods 7
b) The distribution of the Code, through Southern Foods' Employee
Handbook or otherwise, to each employee of Southern Foods. After reading the
Code, each current employee, officer, and consultant shall certify in writing
on an annual basis, in records to be maintained by Southern Foods and open to
inspection by FCS, that the employee, officer, or consultant has read and
understood the import of the document. Southern Foods' Compliance Committee
shall verify compliance with this requirement annually and shall report its
action to Southern Foods' Board of Directors.
c) The posting of Notices, in prominent places accessible to each
of Southern Foods' employees, detailing the company's commitment to complying
with all applicable laws, regulations, Southern Foods' Compliance Program, this
Agreement, and basic tenets of business honesty and integrity in the conduct of
its operations and activities. The Notices shall designate that the Compliance
Officer and the respective plant compliance coordinator may be contacted by an
employee regarding any reports of misconduct about which an employee may have
knowledge, whether committed by an employee of Southern Foods or any other
individual or business entity; state that any report may be made anonymously or
directly to Government officials in lieu of the Ethics Compliance Officer; and
designate the Compliance Officer and the respective plant compliance
coordinator to be available for consultation on any questions the employee may
have concerning Southern Food's business practices. Also, Southern Foods shall
promptly investigate and take corrective action with respect to any misconduct
reported to the Compliance Officer by means of the hotline discussed in
Paragraph P(f) of the Preamble to this Agreement.
d) Southern Foods' Compliance Committee, referred to in Paragraph
P(e) of the Preamble, shall annually verify compliance with the requirements in
Article 5(c) above and shall report the results of this review to Southern
Foods' Board of Directors.
e) A formal Information and Education Program designed to assure
that all Southern Foods employees are appropriately aware of all applicable
laws, regulations, Southern Foods' Compliance Program, the terms of this
Agreement, and basic tenets of business honesty and integrity that they are
expected to follow, and the consequences, both to the employee and the company,
that will ensue from any violation thereof. The information and Education
Program shall include, but not be limited to, annual ethics and antitrust
compliance training seminars for all managers and supervisors and other
employees and consultants involved in contract bidding or other similar duty
areas as well as appropriate annual training for all employees using suitable
training methods as determined by Southern Foods. An annual schedule and
subject outline for the Information and Education Program (to include agendas
for all training seminars/sessions) shall be provided to FCS no later than 30
days from date of this agreement and annually thereafter. Any significant
change(s) to schedules, outlines, or agendas shall be promptly reported to FCS.
FCS retains the right to approve or disapprove schedules, outlines and agendas
and any changes thereto. Furthermore, FCS and its authorized representatives
have the right to be present at all training sessions.
<PAGE> 8
Compliance Agreement for Southern Foods 8
6. Southern Foods shall establish promotion of Southern Foods'
Compliance program as an element of each manager's and supervisor's performance
standards. In addition to the certifications required by Paragraph P(c) of the
Preamble, Southern Foods shall require an annual certification whereby all
managers and supervisors involved in contract bidding or other similar duty
areas will attest that they personally have annually: (a) discussed with each
employee under their supervision the content and application of the company's
Compliance Program; (b) informed each such employee that strict compliance with
the Program is a condition of employment; and (c) informed each such employee
that Southern Foods will take disciplinary action, including termination, for
violation of applicable laws, regulations, Southern Foods' Compliance Program,
the terms of this Agreement, and basic tenets of business honesty and
integrity. Southern Foods' Compliance Committee shall verify compliance with
this requirement annually and shall report its action to Southern Foods' Board
of Directors.
7. Southern Foods shall continue to maintain a Compliance
Committee which shall be responsible for overseeing the Compliance Program, for
oversight in the maintenance and updating of the Code by the Compliance
Officer, and for monitoring Southern Foods' compliance with this Agreement. The
Compliance Committee shall meet not less often than quarterly, consult with
whatever advisors it deems appropriate in matters relating to the Compliance
Program, compile reports concerning Southern Foods' compliance with the
Compliance Program, and take whatever actions are appropriate and necessary to
insure that Southern Foods conducts its activities in compliance with
applicable laws, regulations, Southern Foods' Compliance Program, this
Agreement, and basic tenets of business honesty and integrity. The Compliance
Committee shall report to the Board of Directors, in writing and not less often
than quarterly, the actions the Compliance Committee has taken since the last
report. Such reports and minutes of the Compliance Committee's meetings shall
be maintained as part of Southern Foods' records referenced in Article 3 of
this Agreement.
8. During the 3-month period of May-July of each full or partial
calendar year covered by this Agreement starting with calendar year 1995,
Southern Foods' Compliance Committee shall select, on a random basis, at least
twenty (20) bid proposals that have been or are to be submitted in response to
school district solicitations for the upcoming school year and shall conduct a
pre-award audit of each selected bid proposal to determine whether it has been
prepared in accordance with Southern Foods' internal procedures and is
consistent with applicable statutory and regulatory requirements. During each
of the remaining three (3) periods of the year (August-October,
November-January, and February-April), Southern Foods' Ethics Committee shall
select, on a random basis, at least twelve (12) different current Southern
Foods contracts with school districts for each 3-month period and shall conduct
a post-award audit of each selected contract to determine if the underlying bid
proposal was prepared in accordance with Southern Foods' internal procedures
and applicable laws, regulations, Southern Foods' Compliance Program, the terms
of this Agreement, and basic tenets of business honesty and integrity. A
contract shall not be selected for postaward audit if its underlying bid
proposal was selected for pre-award audit during the prior
<PAGE> 9
Compliance Agreement for Southern Foods 9
May-July period. To the extent that either a pre-award or post-award audit
discloses any misconduct, Southern Foods shall notify FCS within fifteen
(15) days of disclosure.
9. As part of Southern Foods' program of self-governance Southern
Foods shall voluntarily disclose to FCS suspected misconduct involving or
affecting Southern Foods' operations relating to Government programs within
fifteen (15) days after such misconduct is disclosed to the Compliance Officer
or any compliance coordinator or otherwise brought to the attention of the
company management. Southern Foods shall immediately investigate and take
corrective action with respect to any such suspected misconduct, notify FCS of
any action taken, and promptly make restitution for any damage or loss
resulting from such misconduct.
10. Southern Foods shall prepare and submit periodic written
compliance reports to FCS.
a) The compliance reports shall be prepared by the
Compliance Committee and reviewed, approved, and signed by the President of
Southern Foods.
b) The first report is due six (6).months following the
date that FCS executes this Agreement with remaining reports due every (6) six
months thereafter.
c) The report shall contain the following information:
i) An overall assessment and progress statement
concerning implementation of Southern Foods' Compliance Program and compliance
with this Agreement. The assessment and progress statement shall include
supporting information for each of the following areas as appropriate:
A) Ethics and compliance training seminars -
description of activity conducted (training session, etc.), date and location,
subject matter covered, and number and type of employees participating;
B) Compliance Committee's annual verification
regarding the requirements of Articles 5(b) and 6 of this Agreement;
<PAGE> 10
Compliance Agreement for Southern Foods 10
C) A summary of any instances of misconduct
reported to the Compliance Officer or any compliance coordinator or otherwise
brought to the attention of company management or a negative report if
applicable. Summaries shall include: number of instances and type of misconduct
reported (NOTE: Article 9 of this Agreement requires that suspected misconduct
relating to Government programs also be reported to FCS within fifteen (15)
days of disclosure.), source of reports if known (employee, customer, etc. -
not individual names), status of internal investigation (completed or ongoing),
and results of investigations (number of reports confirmed and number not
supported); (NOTE: More detailed information on confirmed reports shall be
provided pursuant to Article 10(c)(ii) below.);
D) A summary of the Ethics Committee's pre-award
and post-award audits required by Article 8 of the Agreement to include for each
type of audit: names of school districts involved and whether or not the audits
revealed any discrepancies; (NOTE: More detailed information on discrepancies
shall be provided in Article 10(c)(ii) below. Furthermore, Article 7 of this
Agreement requires that any misconduct disclosed through pre-award or
post-award audits also be reported to FCS within fifteen (15) days of
disclosure.); and
E) Any other information that the Compliance
Committee deems to be supportive of the assessment and progress statement.
ii) Problems or weaknesses found, corrective action
proposed, and status of corrective action. This Part shall include information
for each of the following areas as applicable:
A) Misconduct reported to the Compliance
Officer, or any compliance coordinator, or otherwise brought to the attention
of company management and confirmed by company internal investigation;
B) Discrepancies revealed through pre-award and
post-award audits conducted by the Compliance Committee pursuant to Article 8
of this Agreement;
C) Problems or weaknesses found by any other
means - internal audits, the audit required by Article 12 of this Agreement,
other independent audits, etc.
11. In submitting any bid proposal for Government programs
business, Southern Foods shall include a Certificate of
Non-Collusion/Independent Price Determination. In making such certification,
Southern Foods shall utilize the form specified in the bid solicitation or, if
no form is specified, a form developed by Southern Foods and approved by FCS.
<PAGE> 11
Compliance Agreement for Southern Foods 11
12. Southern Foods shall retain an independent auditor or
consulting firm to annually evaluate Southern Foods' compliance with the terms
of this Agreement and Southern Foods' system of selecting solicitations for
bid, preparing, and presenting bid proposals, and fulfilling contracts for
Southern Foods' Government program business. The plan for each audit or review
must be submitted to FCS for review and approval prior to initiation of the
audit or review. A report of the auditor's findings for each full or partial
calendar year covered by this Agreement shall be provided to FCS within thirty
(30) days following each such year with the first report to be provided by
January 30, 1996.
13. Southern Foods shall establish a written internal operating
policy dealing with suspended or debarred individuals or entities. All
operating policy shall reflect the requirements of 7 C.F.R. Part 3017. In
addition, this policy shall provide that Southern Foods shall not knowingly
enter into any business relationship, as defined in Paragraph O of the
Preamble, including employment with or without pay, with an individual or other
entity who has been suspended, debarred, or otherwise declared ineligible for
participation in Federal procurement or nonprocurement programs by any Federal
department or agency, except as provided in Article 14 of this Agreement. In
addition to obtaining any certifications required by 7 C.F.R. Part 3017,
Southern Foods shall make reasonable inquiry into the status of any potential
employee or other business partner including, at a minimum, review of the
General Services Administration's List of Parties Excluded from Federal
Procurement or Nonprocurement Programs. Unless otherwise required by Article
15, Southern Foods is not required to terminate the employment of individuals
who become suspended, proposed for debarment, debarred, or otherwise declared
ineligible for participation in Federal procurement or nonprocurement programs
during their employment at Southern Foods, but shall immediately remove such
employees from responsibility for or involvement with Southern Foods'
Government program business until the resolution or conclusion of such actions.
14. Southern Foods may, as part of the operating policy
established pursuant to Article 13 of this Agreement and pursuant to 7 C.F.R.
Section 3017.215, enter into a particular transaction with a person who has
been suspended, debarred, or otherwise declared ineligible for participation in
Federal procurement or nonprocurement programs by any Federal department or
agency, only upon a written determination by the Administrator of FCS, or
another agency head or authorized designee, that such an exception is
warranted.
<PAGE> 12
Compliance Agreement for Southern Foods 12
15. Southern Foods shall not enter into or resume any business
relationships, as defined in Paragraph O of the Preamble, with the individuals
who have been convicted of the misconduct referenced in Paragraph C of the
Preamble, except for those post-employment benefit relationships required by
law, such as health and pension benefits required under the ERISA.
Additionally, if any other individual is charged by Federal, State, or local
authorities with a criminal offense relating to Southern Foods' past, current
or future business with Government programs, Southern Foods voluntarily agrees
that the individual shall immediately be removed from any responsibility for or
involvement with Southern Foods' Government program business and, if convicted,
shall immediately terminate any business relationship with such individual,
including employment with or without pay, except for those post-employment
benefit relationships required by law.
16. Southern Foods shall submit to FCS, in advance of
distribution, copies of all directives, instructions, and procedures issued
and/or implemented in furtherance of Southern Foods' compliance with this
Agreement. FCS, retains the right to approve or disapprove such documents and
procedures.
17. Southern Foods hereby releases the United States, its
instrumentalities, agents and employees, in their official and personal
capacities, of any and all liability or claims (including legal expenses)
arising out of the proposed debarment of Southern Foods or the discussions
leading to this Agreement.
18. In addition to the requirements in Article 12 of this
Agreement pertaining to an annual compliance audit, within thirty (30) days
following each full or partial calendar year covered by this Agreement,
Southern Foods shall provide FCS, a list of all other internal audit reports
generated by or for Southern Foods during the previous calendar year and make
available to FCS, copies of any such audit reports requested by FCS,
19. In the event that the sale and transfer of Southern Foods'
stock or assets results in a change in the legal status, or a significant
change in ownership, of the company, Southern Foods shall notify FCS, in
advance and shall require by the terms of the sale or transfer that the new
owner, in addition to Southern Foods, shall be bound by the terms and
conditions of this Agreement.
20. When requested, Southern Foods shall cooperate fully with any
investigation of suspected irregularities involving Southern Foods' operations
or activities and shall encourage present and past employees of Southern Foods
to make full and candid disclosure of their personal knowledge of the facts and
circumstances of any such suspected irregularities.
<PAGE> 13
Compliance Agreement for Southern Foods 13
21. Southern Foods agrees to promptly inform FCS if it learns
during the period of this Agreement that it is the subject of any investigation
or judicial proceeding by any Federal, State, or local authority for suspected
irregularities involving Southern Foods' operations or activities.
22. Provided that the terms of this Agreement are faithfully
fulfilled, FCS shall not take further action to suspend or debar Southern Foods
based on the misconduct identified in Paragraphs B and C of the Preamble of
this Agreement.
23. Southern Foods' compliance with this Agreement shall
constitute an element of Southern Foods' present responsibility. Southern
Foods' failure to meet any of the obligations pursuant to this Agreement
constitutes a cause for suspension and/or debarment in addition to, and
independent of, those set forth in 7 C.F.R. Part 3017 and shall result in the
immediate suspension of Southern Foods in accordance with 7 C.F.R. Sections
3017.400-.420 and the simultaneous proposal to debar Southern Foods for three
years in accordance with 7 C.F.R. Sections 3017.300-.325.
24. FCS' decision not to debar Southern Foods based upon the
misconduct referenced in Paragraphs B and C of the Preamble shall not restrict
FCS from instituting administrative actions, including, without limitation,
suspension and/or debarment, should other facts forming a separate basis
indicating the need for such action, including material misrepresentations of
information relied upon as set forth in Article 25, come to the attention of
FCS. Furthermore, the provisions of this Agreement in no way alter or diminish
the rights and responsibilities of any agency of the Federal Government to
carry out its lawful function in a proper manner.
25. Southern Foods represents that all written materials and other
information supplied to FCS by its authorized representatives during the course
of discussions with FCS preceding this Agreement are true and accurate, to the
best information and belief of the Southern Foods signatories to this
Agreement. Southern Foods understands that this Agreement is executed on behalf
of FCS in reliance upon the truth and accuracy of such representations.
26. This Agreement constitutes the entire agreement between the
parties and supersedes all prior agreements and understandings, whether oral or
written, relating to the subject matter hereof. This Agreement shall be binding
upon and enure to the benefit of and be enforceable by the parties to this
Agreement and their respective successors and assigns.
27. Southern Foods represents that F.T. Schenkel is fully
authorized to execute this Agreement and represents that he/she has the
authority to bind Southern Foods. This Agreement is signed by F.T. Schenkel
on behalf of Southern Foods.
<PAGE> 14
Compliance Agreement for Southern Foods 14
28. As used in this Agreement, Southern Foods means the Southern
Foods Corporation Group, Inc., and all of its operating sectors, groups,
divisions, units and subsidiaries.
29. In the event that any one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect other provisions of this Agreement.
30. All submissions, reports, notices, and approvals required
hereunder shall be in writing and delivered via certified mail, as follows:
If to Southern Foods, to:
F.T. Schenkel
Southern Foods Group, Inc.
3114 Haskel Street
Dallas, Texas 75223
If to FCS, to:
Ms. Ruthie Jackson
Regional Administrator
Food and Consumer Service
Southwest Regional Office
1100 Commerce Street, Room 5C30
Dallas, TX 75242
or such other address as either party shall have designated by notice in
writing to the other party. All notices mailed shall be deemed given on the
date indicated by the postmark.
31. This Agreement is a public document and may be distributed by
FCS throughout the Federal Government as appropriate and to other interested
persons upon request.
32. This Agreement may be amended or modified only by a written
document signed by both parties.
Dated: 1-13-95 Dated: 12-21-94
Food and Consumer Service Southern Foods Group, Inc.
By: /s/ By: /s/ F.T. SCHENKEL
-------------------------- ---------------------------
<PAGE> 1
EXHIBIT 10.24
ADMINISTRATIVE AGREEMENT
This Agreement dated the 24th day of October 1994 is made
between Southern Foods Group, Inc. ("Southern Foods") and the Defense Logistics
Agency ("DLA"). As used herein, Southern Foods means Southern Foods Group,
Inc., and all of its operating sectors, groups, divisions, units and
wholly-owned subsidiaries, including those acquired or established during the
term of this Agreement.
PREAMBLE
1. Southern Foods is a corporation engaged in the production and
distribution of dairy products commercially and to the military, with its
principal place of business in Dallas, Texas.
2. On May 27, 1994, Southern Foods was charged by Criminal
Information in the United States District Court for the Northern District of
Texas with three counts of violating the Sherman Antitrust Act (15 U.S.C.
Section 1). Count One alleged that Southern Foods, through its predecessors
Schepps-Foremost, Inc., and Oak Farms, Inc., engaged in non-competitive
practices between the years 1975 and 1989, involving various public school
districts, the effect of which was to restrain or eliminate competition for the
award of public school contracts, and to deny the public schools their right to
receive non-collusive bids and the benefits of free and open competition. On
June 17, 1994, in accordance with a Plea Agreement signed on May 25, 1994,
Southern Foods pled guilty to the charges in the Information. Copies of the
Plea Agreement and the Criminal Information are attached to this Agreement as
Exhibits 1 and 2, respectively. On August 11, 1994, Southern Foods was
convicted of the charges and sentenced to pay a fine of $1,900,000.
3. On May 27, 1994, Southern Foods was charged by Criminal
Information in the United States District Court for the Western District of
Louisiana with one count of violating the Sherman Act (15 U.S.C. Section 1).
The Information alleged that Southern Foods, through its Foremost Dairy
Division after February 1987, engaged in non-competitive practices between the
years 1985 and 1989, involving various public school districts, the effect of
which was to restrain or eliminate competition for the award of public school
contracts, and to deny the public schools their right to receive non-collusive
bids and the benefits of free and open competition. On June 27, 1994, in
accordance with a Plea Agreement signed on May 25, 1994, Southern Foods pled
guilty to the charges in the Information. Copies of the Plea Agreement and the
Criminal Information are attached to this Agreement as Exhibits 3 and 4,
respectively. On September 29, 1994, Southern Foods was convicted of the
charges and sentenced to a fine of $1,000,000.
<PAGE> 2
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4. In accordance with the terms of the plea agreements and a
separate Civil Settlement Agreement entered into by Southern Foods and the
United States on May 25, 1994 (a copy of which is attached as Exhibit 5),
Southern Foods has paid, or has been sentenced to pay, $3.0 million to cover
criminal fines, restitution, civil liability under the False Claims Act, and
administrative liability in connection with the contractual matters that are
the subject of the plea agreements and Civil Settlement Agreement.
5. Beginning on March 10, 1994, Southern Foods has presented to
DLA information regarding its potential civil and criminal settlements with the
United States and its opposition to any potential suspension. Southern Foods
described and provided copies of the present Southern Foods Business Code of
Conduct and Ethics, compliance program, education and training program, policy
of avoiding contact with competitors, creation of the position of compliance
officer with direct accountability to the Compliance Committee, and other
internal controls related to the charges to which Southern Foods pled guilty.
Southern Foods has provided DLA with a detailed description of its
self-governance activities and measures. Southern Foods also has acknowledged
improper conduct of its employees and has taken responsibility for the
circumstances of wrongdoing.
6. Southern Foods has expressed an interest in demonstrating to
DLA that, notwithstanding the improper conduct of former employees of
affiliated companies which underlie the criminal conviction and civil
settlement agreement, Southern Foods can be trusted to deal fairly and honestly
with the Government, and that suspending or debarring Southern Foods from
future Government contracting is not a necessary protection in this case.
7. Southern Foods has agreed to keep in place and to incorporate
in this Agreement the measures voluntarily adopted prior to the date of this
Agreement which include Southern Foods Business Code of Conduct and Ethics;
Southern Foods Business Code of Conduct and Ethics Compliance Program; Southern
Foods Antitrust Guidelines; Annual Antitrust Seminar for Management and Sales
Personnel; telecopy of school bid tabulations to outside counsel of company for
review; instructions to company personnel to call directly outside counsel with
any antitrust or competitive problems or questions, and to take other actions
as specified herein to assure against the recurrence of the conditions giving
rise to the criminal conviction and civil settlement agreement referred to
above and to assure that Southern Foods possesses the high degree of business
honesty and integrity required of a Government contractor.
8. Southern Foods represents that none of the individuals who
were charged with the wrongdoing at issue here are now employed by the company
and that none of those individuals who were officers or directors of Southern
Foods' predecessor dairies, Oak Farms, Inc., and Cabell's Dairy, Inc., at the
time of the criminal actions are presently employed by Southern Foods.
<PAGE> 3
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9. DLA has determined that under the authority of Federal
Acquisition Regulation ("FAR") Subpart 9.406, cause exists to debar Southern
Foods based upon the convictions described above. DLA has further determined,
however, that the terms and conditions of this Agreement provide adequate
assurance that Southern Foods' future dealings with the Government, if any,
will be conducted with the high degree of honesty and integrity required of a
Government contractor and that suspension or debarment is not necessary at this
time to protect the Government's interests. The parties, therefore, agree to
the following terms and conditions.
ARTICLES
1. The period of this Administrative Agreement shall be three
years from the date of its execution by DLA, except that, should DLA determine
that Southern Foods failed to be in full compliance with any material term or
condition of this Agreement, the period shall be three years from the date that
Southern Foods reestablishes full compliance. Southern Foods agrees faithfully
to execute the undertakings described in the following articles for the period
of this Agreement.
2. Southern Foods has entered into Plea agreements and a civil
settlement agreement with the United States, which are incorporated herein by
reference (Exhibits 1, 3 and 5). Southern Foods agrees, as a term of this
Agreement, to comply with the terms of the Plea Agreements and civil settlement
agreement.
3. Southern Foods shall maintain complete records, including
original documents of all purchases, sales, receipts, shipments, or testing of
any material or product in any way related to Government contracts or
subcontracts. These records shall be sufficient to provide complete evidence
of all transactions related to items furnished directly or indirectly by
Southern Foods to the Government upon any Government procurement. These records
shall be maintained for not less than four years after final payment of any
affected contract.
4. In addition to any other right DLA may have by statute,
regulation, or contract, DLA or its duly authorized representative may examine
Southern Foods' directly pertinent books, records and other company documents
and supporting materials for the purpose of verifying and evaluating: (a)
Southern Foods' compliance with the terms of this Agreement; (b) Southern
Foods' business conduct in its dealings with all of its customers, including
the Government; (c) Southern Foods' compliance with Federal procurement
policies and accepted business practices; and (d) Southern Foods' compliance
with the requirements of
<PAGE> 4
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Government contracts or subcontracts. The materials described above shall be
made available by Southern Foods upon Government request for inspection, audit,
or reproduction at reasonable times. Further, for purposes of this provision,
DLA or its authorized representative may interview any Southern Foods' employee
who consents to be interviewed at the employee's place of business during
normal business hours or at such other place and time as may be mutually agreed
between the employee and DLA. Employees may elect to be interviewed with or
without a representative of Southern Foods present.
5. Southern Foods has implemented and agrees to maintain a
government contracts compliance program involving all company management and
sales employees. The President of Southern Foods shall be responsible for the
compliance program. The compliance program shall be maintained so as to ensure
that Southern Foods and each of its officers, management and sales employees,
and consultants maintains the business honesty and integrity required of a
Government contractor and that Southern Foods' performance of each Government
contract is in strict compliance with all applicable laws, regulations, and the
terms of the contract. The Compliance Program shall include, at a minimum, the
following components:
a. The written Code of Business Conduct and Ethics (the
"Code") was adopted on February 28, 1994 by Southern Foods' Board of Directors.
The Code includes (i) a statement of Southern Foods' commitment to comply with
all applicable laws and regulations in the conduct of its business; (ii)
guidelines for Southern Foods' employees to follow in their business dealings
on behalf of Southern Foods; (iii) a notice that Southern Foods shall take
immediate disciplinary action, including termination, against any employee,
officer, or director of Southern Foods whose conduct violates applicable laws,
regulations, Southern Foods' Code of Business Conduct and Ethics or Compliance
Program, the terms of this Agreement, or basic tenets of business honesty and
integrity; (iv) a requirement that employees report to the compliance officer
at their individual plant location or the company compliance officer, any
impropriety of which they have knowledge whether committed by an employee of
Southern Foods or the Government or any other person, and whether the
impropriety relates to violations of law, regulation, contract, Southern Foods'
Compliance Program or Code of Business Conduct and Ethics, the terms of this
Agreement, basic tenets of business honesty and integrity, or any other
requirement; (v) a notice that employees may report improprieties anonymously;
and (vi) a notice that employees may report improprieties directly to
appropriate Government officials. A copy of the Code is attached as Exhibit 6
to this Agreement.
<PAGE> 5
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b. The Code of Business Conduct and Ethics has been
circulated to each management and sales employee of Southern Foods. After
reading the Code each such current employee has signed, in a register to be
maintained by Southern Foods and open to inspection by the Government, that the
employee has read and understood the import of the document. Southern Foods
shall ensure that any management and sales employee hired hereafter complies
with this requirement. At least once in each calendar year, each then-current
management and sales employee shall repeat the procedure of reading the Code
and signing the Register. Southern Foods shall submit, as a part of each report
to DLA pursuant to Articles 9, a statement by the Chairman of the Board that
the Board of Directors has verified that the register is being maintained and
that each management and sales employee has signed the register as required by
this provision. The register shall be maintained and available for DLA's review
and inspection during the life of this Agreement. Within two weeks of starting
employment with Southern Foods, new management and sales employees shall read
the Code and sign the register. Within the two weeks, the new management and
sales employee's immediate supervisor or other management person shall discuss
the content and requirements of the Code with the new management and sales
employee.
c. Southern Foods has posted in each plant location a
"Notice" which lists a toll-free telephone number for reporting suspected
misconduct directly to the Company Compliance Coordinator. In addition, the
Notice states that Southern Foods has adopted a Code of Business Conduct and
Ethics and that the Code concerns illegal or unethical conduct and applies to
all employees. The Notice designates the local Compliance Coordinator to
receive any reports of impropriety of which any employee may have knowledge
whether committed by an employee of Southern Foods, an employee of the
Government, or other individual or business entity; provides the toll-free
telephone number for Stuart Gibson (1-800-428-6455), the Company Compliance
Coordinator, states that any report may be anonymous; and designates the local
Compliance Coordinator to be available for any questions the employee may have
concerning Southern Foods' Code. A copy of the notice is attached as Exhibit 7
to this Agreement. Every six months, starting six months from the date of this
agreement, Southern Foods, as a part of the report required by Article 9, shall
provide DLA with a report identifying all instances of misconduct reported to
either a local Compliance Coordinator or the Company Compliance Coordinator, or
otherwise brought to the attention of management, during the preceding six
months. Such reports shall state the nature of the reported conduct, the
results of the internal investigation, and the corrective action, if any, taken
by Southern Foods. Matters pending resolution at the time of a six month
reporting period shall be reported each six months until the matter's final
resolution is reported. Negative reports are required.
<PAGE> 6
- 6 -
d. Southern Foods has instituted and shall maintain an
information and education program designed to assure that all management and
sale employees are aware of all applicable laws, regulations, and standards of
business conduct that employees are expected to follow and the consequences
both to the employee and to the company that will ensue from any violation of
such measures. A schedule and subject outline for the information and education
program is included here as Exhibit 8 and is incorporated by reference into
this Agreement.
6. The principal members of Southern Foods management on the date
of execution of this Agreement by DLA are: F. T. Schenkel, President and Chief
Operating Officer, Gary E. Human, Vice President, Gerald L Bos, Secretary/
Treasurer, and Jerry W. Frie, Assistant Secretary/Treasurer. Southern Foods
agrees to notify DLA within one week if any of these principals leave their
current positions and to advise DLA of their successors upon appointment.
7. Promotion of the Southern Foods compliance program is an
element of each manager's and supervisor's performance standards. Southern
Foods has implemented and will maintain an annual certification requirement
whereby all sales and management employees in the company will attest that they
personally have (a) discussed with each employee under their supervision the
content and application of the company's Compliance Program; (b) informed each
such employee that strict compliance with the Program is a condition of
employment; and (c) informed each such employee that Southern Foods will take
disciplinary action, including termination, for violation of the principles and
practices set forth in the Program, applicable laws or regulations, or basic
tenets of business honesty and integrity. A copy of the certificate used to
fulfill this requirement is attached as Exhibit 9. In addition, promotion of
the Southern Foods Compliance Program will be an element of each manager and
supervisor's performance standards. Southern Foods will submit, as a part of
each report to DLA pursuant to Article 9, a statement by the Chairman of the
Board that the Board of Directors has verified that the certifications are
being maintained and that each manager has provided a certification as required
by this provision. The register shall be maintained and available for DLA's
review and inspection during the life of this agreement.
8. The Board of Directors of Southern Foods shall be responsible
for implementing the company's Compliance Program, for maintaining and updating
the Code of Business Ethics and for auditing Southern Foods' compliance with
this Agreement. The Board shall oversee all of Southern Foods' business ethics
and compliance programs, consult with whatever advisors it deems appropriate in
<PAGE> 7
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matters relating to these programs, receive reports in person and in writing
not less than quarterly from Stuart Gibson, the Company Compliance Officer,
concerning Southern Foods' compliance with the programs, and take whatever
actions are appropriate and necessary to ensure that Southern Foods conducts
its activities in compliance with the requirements of the law and sound
business ethics. Southern Foods shall provide to DLA copies of the written
reports and minutes of the Board meetings reflecting the reports made to the
Board and the Board's decisions or directions to management concerning any
matters in any way related to this Agreement. The names of the members of the
Board are listed at Exhibit 10. If any member of the Board leaves the Board,
Southern Foods shall notify DLA and shall notify DLA of any new board member.
9. The Board of Directors of Southern Foods shall submit periodic
written reports to DLA describing the measures taken by Southern Foods to
implement and to ensure compliance with this Agreement. The reports must be
submitted in time to be received at DLA within six months of the effective date
of this Agreement, and thereafter on or before each six month anniversary
during the term of this Agreement, with the final report to be received not
later than 30 days prior to the final day of this Agreement. The reports are as
follows:
o Standards of conduct/ethics/compliance training conducted and
the number of persons who attended.
o Informal notifications or initiatives relating to the
compliance program
o Number of Hotline calls received, description, and disposition
of each call.
o Information required by Article 5, 7, 10 and 17.
o The status of any ongoing investigation of, or legal
proceedings involving Southern Foods, and related to or
arising from Government business; including times, places, and
subject matter of search warrants, subpoenas, criminal
charges, criminal or civil agreements.
A schedule of reporting dates is attached as Exhibit 11. The reporting
dates and time frames set forth in this Agreement are deadlines for receipt of
the reports at DLA Special Assistant for Contracting Integrity. Southern Foods'
failure to meet these requirements on or before the dates agreed to shall
constitute a breach of this Agreement.
<PAGE> 8
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In addition to the written reports, officers of Southern Foods shall
be available to meet, at the request of DLA, at the end of six months after
execution of this Agreement with the DLA Special Assistant for Contracting
Integrity or a designee to discuss implementation of this Agreement.
10. Southern Foods represents to DLA that, to the best of Southern
Foods' knowledge, Southern Foods is not now under criminal or civil
investigation by any Governmental entity. In addition to the periodic written
reports required under Article 9, Southern Foods shall notify DLA within one
week of the time Southern Foods learns of (a) the initiation of any criminal or
civil investigation by any Governmental entity, (b) service of subpoenas, (c)
service of search warrants and/or searches carried out in any Southern Foods'
facility, (d) initiation of legal action by any entity that alleges facts, that
if true, would impact upon the business responsibility of Southern Foods.
Southern Foods shall provide to DLA as much information as necessary to allow
DLA to determine the impact of the investigative or legal activity upon the
present responsibility of Southern Foods for Government contracting.
11. Between five and seven months after the effective date of this
Agreement, and each six months thereafter, the President of Southern Foods and
the Company Compliance Officer shall contact the DLA Special Assistant for
Contracting Integrity or a designee to discuss implementation of this
Agreement.
12. Southern Foods shall report suspected misconduct involving or
affecting Government business to DLA within fifteen (15) days after such
misconduct is discovered by, known to, or disclosed to company management. The
misconduct to be reported includes misconduct by any person, including, but not
limited to, those associated with Southern Foods or with the Government and
shall include misconduct disclosed to Southern Foods from any source. Southern
Foods will investigate any report of misconduct that comes to its attention and
will notify DLA of the outcome of the investigation and any potential or actual
impact on any aspect of Southern Foods' Government business. Southern Foods
will take corrective action, including prompt restitution of any harm to the
Government. Southern Foods will include summary reports of the status of each
such investigation to DLA in the reports submitted pursuant to Article 9 until
each matter is finally resolved.
13. Southern Foods has an internal operating policy that Southern
Foods shall not knowingly employ, with or without pay, an individual who is
listed by a Federal Agency as debarred, suspended, or otherwise ineligible for
Federal programs. In order to carry out the policy, Southern Foods shall make
reasonable inquiry into the status of any potential employee or consultant.
Such reasonable
<PAGE> 9
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inquiry shall include, at a minimum, review of the General Services
Administration's List of Parties Excluded from Federal Procurement or
Non procurement Programs. Southern Foods' policy does not require Southern Foods
to terminate the employment of individuals who become suspended or are proposed
for debarment during their employment with Southern Foods. Southern Foods,
however, will remove such employees from responsibility for, or involvement
with, Government business until the resolution of such suspension or proposed
debarment. In addition, if any employee of Southern Foods is charged with a
criminal offense relating to Government business, Southern Foods will remove
that employee immediately from responsibility for or involvement with
Government business matters. If the employee is convicted or debarred, Southern
Foods policy requires that the employee will be terminated from employment with
Southern Foods. Southern Foods shall notify DLA of each such personnel action
taken, and the reasons therefore, within 15 days of the action. The salary of
any officer, employee, or consultant removed from Government contracting in
accordance with the Southern Foods' policy set forth in this paragraph shall be
unallowable for Government contracting purposes and shall not be charged either
directly or indirectly to any Government contract. Southern Foods agrees to
account separately for such costs.
14. Southern Foods has a written internal operating policy that
Southern Foods shall not knowingly form a contract with, purchase from or enter
into any business relationship with any individual or business entity that is
listed by a Federal Agency as debarred, suspended, or proposed for debarment,
unless there is a compelling reason to do so. If Southern Foods concludes that
there is a compelling reason, Southern Foods will provide notice to the
cognizant Contracting Officer and to DLA prior to entering such a business
relationship (a) of Southern Foods' intent to do so, (b) the identity of the
proposed business partner, (c) a written determination by the Southern Foods
president that a compelling reason justifies the relationship, and (d) the
procedures Southern Foods has established to protect the Government's interest.
Reasonable inquiry shall be made into the status of any potential business
partner. Such reasonable inquiry shall include, at a minimum, review of the
General Services Administration's List of Parties Excluded from Federal
Procurement or Nonprocurement Programs.
15. Southern Foods voluntarily has severed all business relations
with Mike Compton and Ken Bullard, including, but not limited to, the following
relationships: employer-employee, creditor-debtor, and owner-business entity
(including shareholder-corporation). Southern Foods agrees that it shall not
reemploy in any capacity or resume business relations with any individuals
identified to DLA as involved in or responsible for the misconduct at issue
here.
<PAGE> 10
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16. Southern Foods has and shall continuously enforce the
following policy:
A. Neither Mike Compton nor Ken Bullard shall share any
office or storage space, any building, or any computer system with Southern
Foods;
B. Mike Compton and Ken Bullard shall not be permitted
to enter the premises of Southern Foods. Within 30 days prior to the date each
report is due to DLA pursuant to Article 9, each officer or director of
Southern Foods shall be required to state in writing whether they have had any
contact during the period since the effective date of this Agreement with Mike
Compton and Ken Bullard regarding the business affairs of Southern Foods and,
if so, to state the nature and occasion of the contact. Southern Foods shall
include copies of the most recent such statements as a part of each report
pursuant to Article 9.
17. Southern Foods shall notify DLA of any proposed material
changes in the directives, instructions, or procedures implemented in
furtherance of Southern Foods' compliance program and compliance with this
Agreement. DLA, or its authorized representative, retains the right to verify,
approve, or disapprove any such changes. No such change shall be implemented
without the prior approval of DLA.
18. Within ten days of this agreement, Southern Foods shall
provide to DLA a check for $3,000, made payable to the Treasurer of the United
States to cover DLA's costs of independently reviewing this matter and
administering this Agreement.
19. Southern Foods shall not seek reimbursement from the
Government, either directly or indirectly, for legal or related costs expended
or to be expended, arising from, related to, or in connection with, the
Governments criminal investigation and Southern Foods' defense and settlement
thereof, or in connection with the Civil Settlement Agreement entered into by
Southern Foods and the United States, or DLA's independent administrative
review, or the negotiation and preparation of this Agreement, or the
performance or administration of this Agreement. Southern Foods shall treat
these costs as unallowable costs for Government contract accounting purposes.
Included in these unallowable costs are any legal or related costs expended on
behalf of any Southern Foods' employee. Southern Foods also agrees to treat as
unallowable the full salary and benefits costs of Mike Compton and Ken Bullard
during the time these individuals have been and continue to be on
administrative leave and the cost of any severance payments or early retirement
incentives paid to Mike Compton and Ken Bullard.
20. Southern Foods hereby releases the United States, its
instrumentalities, agents, and employees in their official and personal
capacities, of any and all liability or claims arising out of the
investigation, criminal prosecution, or civil settlement at issue here, or the
discussions leading to this Agreement.
<PAGE> 11
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21. When requested, Southern Foods shall cooperate fully with any
investigation of suspected irregularities involving Southern Foods' operations
or activities and shall encourage present and past employees of Southern Foods
to make a full and candid disclosure of their personal knowledge of the facts
and circumstances of any such suspected irregularities.
22. Provided that the terms and conditions of this Agreement are
faithfully fulfilled, DLA will not suspend or debar Southern Foods based on the
facts and circumstances set forth in the Plea Agreements referenced in the
Preamble herein.
23. Southern Foods' compliance with the terms and conditions of
this Agreement shall constitute an element of Southern Foods' present
responsibility for Government contracting. Southern Foods' failure to meet any
of its obligations pursuant to the terms and conditions of this Agreement
constitutes a cause for suspension and/or debarment in addition to, and
independent of, those set forth in FAR 9.4, according to procedures prescribed
by regulations.
24. DLA's decision not to suspend or debar Southern Foods upon the
facts at issue here shall not restrict DLA or any other agency of the
Government from instituting administrative actions, including, without
limitation, suspension or debarment, should new information indicating the
propriety of such action come to the attention of DLA or such other agency.
25. Southern Foods represents that all written materials and other
information supplied to DLA by its authorized representatives during the course
of discussions with DLA preceding this Agreement are true and accurate, to the
best information and belief of the Southern Foods signatories to this
Agreement. Southern Foods understands that this Agreement is executed on behalf
of DLA in reliance upon the truth and accuracy of all such representations.
26. This Agreement constitutes the entire agreement between the
parties and supersedes all prior agreements and understandings, whether oral or
written, relating to the subject matter hereof. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors and assigns.
27. The provisions of this Agreement in no way alter or diminish
the rights and responsibilities of the United States to carry out its lawful
functions in any proper manner.
<PAGE> 12
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28. F. T. Schenkel, as president of Southern Foods, is fully
authorized to execute this Agreement and represents that he has authority to
bind Southern Foods.
29. In the event that any one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect other provisions of this Agreement.
30. Any notices or information required hereunder shall be in
writing and delivered or mailed by registered or certified mail, postage
prepaid as follows:
If to Southern Foods, to: F. T. Schenkel
President
Southern Foods Groups, Inc.
3114 South Haskell
Dallas, TX 75223
If to DLA, to: Special Assistant for Contracting
Integrity
Office of General Counsel
Room 3D243
Cameron Station
Alexandria, Virginia 22304-6100
All notices mailed shall be deemed given on the date indicated by the
postmark.
31. This Agreement, including all attachments, is a public
document and may be distributed by DLA throughout the Government, and pursuant
to the Freedom of Information Act, to other interested persons upon request.
DLA understands that certain financial or commercial information submitted by
Southern Foods pursuant to this Agreement may be exempt from public disclosure
under the Freedom of Information Act, 5 U.S.C. Section 552(b)(4). In accordance
with Executive Order No.12,600, DLA shall provide predisclosure notification to
Southern Foods in the event of a determination that a disclosure of Southern
Foods's financial or commercial information under the Freedom of Information
Act may be required. Once notified, Southern Foods will have a reasonable
period of time to object to the disclosure of any requested information. DLA
will give careful consideration to Southern Foods' objections and, should such
objections not be sustained, DLA will provide Southern Foods with a written
statement of explanation.
<PAGE> 13
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32. This Agreement may be amended or modified only by a written
document signed by both parties.
Dated: October 24, 1994 DEFENSE LOGISTICS AGENCY
BY: /s/
-----------------------
Dated: October 21, 1994 SOUTHERN FOODS GROUP, INC.
BY: /s/ PETE SCHENKEL
-----------------------
TITLE: President
-------------------
<PAGE> 14
- 14 -
EXHIBITS TO DLA ADMINISTRATIVE AGREEMENT
1. Plea Agreement (Texas)
2. Information (Texas)
3. Plea Agreement (La.)
4. Information (La.)
5. Settlement Agreement
6. Code of Business Conduct and Ethics
7. Notice
8. Schedule and subject outline for management and sales employees
information and education programs
9. Certificate for each manager to certify discussion of Compliance
Program with each employee
10. List of members of Board of Directors of Southern Foods
11. Schedule of reporting dates to DLA
<PAGE> 1
EXHIBIT 10.25
PROMISSORY NOTE
For value received, I, we or all of us hereby promise to pay to the order
of WALKER RESOURCES, INC., P. O. Box 8430, Metairie, La 70003, the sum of ONE
MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 ($1,250,000.00) DOLLARS, with
interest thereon payable at the rate of Eight and 00/100 (8.0%) per cent, to be
paid as follows:
Eighty-four (84) equal, consecutive monthly installments, each in the
amount of Nineteen Thousand Four Hundred Eighty-two and 77/100 ($19,482.77)
Dollars. The first installment is due on the 1st day of December, 1993 with
subsequent installments on the 1st day of each month thereafter until paid.
Failure to pay any installment promptly when due shall, at the option of
the holder, immediately mature the entire unpaid balance, with interest thereon
from maturity until paid.
In the event it becomes necessary to place this note in the hands of an
attorney at law for collection, an attorney fee of ten (10%) per cent of the
unpaid debt and costs shall be due and payable.
In the event of the death, insolvency, act of bankruptcy or any bankruptcy
proceedings by or against the maker, endorser or surety of this note in any
capacity, this note shall immediately mature and become due and exigible at the
option of the holder hereof, without notice or demand.
The maker, endorsers and sureties hereon severally waive presentment for
payment, demand, protest, notice of protest, notice of nonpayment and all pleas
of division or discussion, and consent to any and all extensions of payment.
The obligation of all, whether maker or endorser, is in solido, as original
promisors.
Maker hereby confesses judgment in favor of holder.
The property described and listed below, and any property that may be
substituted therefor or added thereto, or any and all other property that may
now or at any time hereafter be given or left in the possession of Holder for
any purpose by the maker of makers hereof, or any of them, or any property
belonging to any maker hereof that may come or be in possession of Holder or
that may be in transit to or from Holder for any purpose, are hereby pledged
and delivered to Holder to secure the payment of this note, and of any note
given in extension or renewal hereof, as well as for the payment of any other
obligation or liability, direct or contingent, of any of the makers hereof to
said Holder whether due or to become due, and whether now existing or hereafter
arising, with loan finance charge, attorney fees, and costs. All parties hereto
severally consent and agree that the property hereby pledged may be exchanged
or surrendered from time to time without notice to, or sent from any party
hereto, and without in any manner releasing or altering the obligations hereof.
BARBE'S DAIRY, INC.
BY: /s/ VICTOR J. BARBE
---------------------------------
VICTOR J. BARBE, President
<PAGE> 2
A M O R T I Z A T I O N S C H E D U L E PAGE 1
================================================================================
- ------ PREPARED FOR ----------- ------------- PREPARED BY ---------------
BARBE'S DAIRY, INC. CONNICK, LENTINI, MOULEDOUX,
WIMBERLY & deLAUP
- ------ NAME/LOAN # ------------ 833 FOURTH STREET
GRETNA, LOUISIANA
================================================================================
PRINCIPAL amount of loan: $ 1,250,000.00 NUMBER OF PAYMENTS: 84
INTEREST (simple annual rate): 8.00000% PAYMENT AMOUNT: $ 19482.77
********************************************************************************
<TABLE>
<CAPTION>
DUE INTEREST INTEREST INTEREST PRINCIPAL LOAN DATE
DATE THIS YEAR TO DATE PAYMENT PAYMENT BALANCE PAID
<S> <C> <C> <C> <C> <C> <C>
12/01/93 8333.33 8333.33 8333.33 11149.44 1238850.56
01/01/94 16592.33 8259.00 11223.77 1227626.79
02/01/94 24776.51 8184.18 11298.59 1216328.20
03/01/94 32885.36 8108.85 11373.92 1204954.28
04/01/94 40918.39 8033.03 11449.74 1193504.54
05/01/94 48875.09 7956.70 11526.07 1181978.47
06/01/94 56754.95 7879.86 11602.91 1170375.56
07/01/94 64557.45 7802.50 11680.27 1158695.29
08/01/94 72282.09 7724.64 11758.13 1146937.16
09/01/94 79928.34 7646.25 11836.52 1135100.64
10/01/94 87495.68 7567.34 11915.43 1123185.21
11/01/94 94983.58 7487.90 11994.87 1111190.34
12/01/94 94058.19 102391.52 7407.94 12074.83 1099115.51
01/01/95 109718.96 7327.44 12155.33 1086960.18
02/01/95 116965.36 7246.40 12236.37 1074723.81
03/01/95 124130.19 7164.83 12317.94 1062405.87
04/01/95 131212.90 7082.71 12400.06 1050005.81
05/01/95 138212.94 7000.04 12482.73 1037523.08
06/01/95 145129.76 6916.82 12565.95 1024957.13
07/01/95 151962.81 6833.05 12649.72 1012307.41
08/01/95 158711.53 6748.72 12734.05 999573.36
09/01/95 165375.35 6663.82 12818.95 986754.41
10/01/95 171953.71 6578.36 12904.41 973850.00
11/01/95 178446.04 6492.33 12990.44 960859.56
12/01/95 82460.25 184851.77 6405.73 13077.04 947782.52
01/01/96 191170.32 6318.55 13164.22 934618.30
02/01/96 197401.11 6230.79 13251.98 921366.32
03/01/96 203543.55 6142.44 13340.33 908025.99
04/01/96 209597.06 6053.51 13429.26 894596.73
05/01/96 215561.04 5963.98 13518.79 881077.94
06/01/96 221434.89 5873.85 13608.92 867469.02
07/01/96 227218.02 5783.13 13699.64 853769.38
08/01/96 232909.82 5691.80 13790.97 839978.41
09/01/96 238509.68 5599.86 13882.91 826095.50
10/01/96 244016.98 5507.30 13975.47 812120.03
11/01/96 249431.11 5414.13 14068.64 798051.39
12/01/96 69899.68 254751.45 5320.34 14162.43 783888.96
01/01/97 259977.38 5225.93 14256.84 769632.12
02/01/97 265108.26 5130.88 14351.89 755280.23
03/01/97 270143.46 5035.20 14447.57 740832.66
04/01/97 275082.34 4938.88 14543.89 726288.77
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
DUE INTEREST INTEREST INTEREST PRINCIPAL LOAN DATE
DATE THIS YR. TO DATE PAYMENT PAYMENT BALANCE PAID
<S> <C> <C> <C> <C> <C> <C>
5/1/97 279924.27 4841.93 14640.84 711647.93
6/1/97 284668.59 4744.32 14738.45 696909.48
7/1/97 289314.65 4646.06 14836.71 682072.77
8/1/97 293861.80 4547.15 14935.62 667137.15
9/1/97 298309.38 4447.58 15035.19 652101.96
10/1/97 302656.73 4347.35 15135.42 636966.54
11/1/97 306903.17 4246.44 15236.33 621730.21
12/1/97 56296.59 311048.04 4144.87 15337.90 606392.31
1/1/98 315090.66 4042.62 15440.15 590952.16
2/1/98 319030.34 3939.68 15543.09 575409.07
3/1/98 322866.40 3836.06 15646.71 559762.36
4/1/98 326598.15 3731.75 15751.02 544011.34
5/1/98 330224.89 3626.74 15856.03 528155.31
6/1/98 333745.93 3521.04 15961.73 512193.58
7/1/98 337160.55 3414.62 16068.15 496125.43
8/1/98 340468.05 3307.50 16175.27 479950.16
9/1/98 343667.72 3199.67 16283.10 463667.06
10/1/98 346758.83 3091.11 16391.66 447275.40
11/1/98 349740.67 2981.84 16500.93 430774.47
12/1/98 41564.46 352612.50 2871.83 16610.94 414163.53
1/1/99 355373.59 2761.09 16721.68 397441.85
2/1/99 358023.20 2649.61 16833.16 380608.69
3/1/99 360560.59 2537.39 16945.38 363663.31
4/1/99 362985.01 2424.42 17058.35 346604.96
5/1/99 365295.71 2310.70 17172.07 329432.89
6/1/99 367491.93 2196.22 17286.55 312146.34
7/1/99 369572.91 2080.98 17401.79 294744.55
8/1/99 371537.87 1964.96 17517.81 277226.74
9/1/99 373386.05 1848.18 17634.59 259592.15
10/1/99 375116.66 1730.61 17752.16 241839.99
11/1/99 376728.93 1612.27 17870.50 223969.49
12/1/99 25609.56 378222.06 1493.13 17989.64 205979.85
1/1/00 379595.26 1373.20 18109.57 187870.28
2/1/00 380847.73 1252.47 18230.30 169639.98
3/1/00 381978.66 1130.93 18351.84 151288.14
4/1/00 382987.25 1008.59 18474.18 132813.96
5/1/00 383872.68 885.43 18597.34 114216.62
6/1/00 384634.12 761.44 18721.33 95495.29
7/1/00 385270.76 636.64 18846.13 76649.16
8/1/00 385781.75 510.99 18971.78 57677.38
9/1/00 386166.27 384.52 19098.25 38579.13
10/1/00 386423.46 257.19 19225.58 19353.55
11/1/00 8330.42 386552.48 129.02 19353.55 .00
LAST PAYMENT 19482.57
</TABLE>
<PAGE> 1
EXHIBIT 10.26
REAL ESTATE NOTE
$600,000.00 Fort Worth, Texas July 25,1994
FOR VALUE RECEIVED, I, we or either of us, promise to pay to the order of
LLOYD SMOOT, JR., at 4614 O'Conner Court, Irving, Texas 75223, Dallas County,
Texas, or such other place as the holder hereof may from time to time designate
in writing, the sum of SIX HUNDRED THOUSAND AND NO/100 DOLLARS ($600,000.00), in
lawful money of the United States, with interest thereon from date at the rate
of Eight per cent (8.00%) per annum, payable as hereinafter stipulated.
The principal of this Note shall be due and payable in 12 semi-annual
installments of $50,000.00 each, plus accrued interest to date of payment,
the first such installment being due and payable on the 25th day of
January, 1995, and one installment due and payable on the 25th day of
July, 1995, and on each subsequent January and July of each succeeding
year thereafter until July 25, 2000, when the entire balance of principal,
together with all accrued unpaid interest thereon, shall be due and
payable.
Maker(s) hereof shall have the privilege of paying all or any part of this
Note on or before its maturity without penalty.
The principal of this Note after maturity and all past due interest shall
bear interest until paid at that rate that shall be ten per cent (10%) per
annum in excess of the rate above stated, or the maximum permissible by law,
whichever is the lesser.
Default in the payment of any part of the principal or interest, when due,
or failure to comply with any of the agreements and conditions in the
instrument given to secure this Note shall, at the option of the holder hereof,
mature the whole of this Note, upon twenty days written notice.
In the event this Note is placed into the hands of an attorney for
collection, or if collected through Probate or Bankruptcy proceedings, then an
additional fifteen per cent (15%) on the amount of principal and interest then
owing hereon, shall be added to the same as attorney's fees.
To the extent permitted by law, the makers and all endorsers, sureties and
guarantors of this Note hereby severally waive notice of intention to
accelerate, notice of acceleration, presentment for payment, notice of
nonpayment, protest and diligence in bringing suit, against any party hereto,
and consent to any renewal, extension, or rearrangement, or other indulgence
with respect to this Note at any time without notice to any of them.
It is the intent of Maker and Payee in the making of the Loan to contract
in strict compliance with applicable usury law. In furtherance thereof, Maker
and Payee stipulate and agree that none of the terms and provisions contained
herein, or in any instrument executed in connection herewith, shall ever be
construed to create a contract to pay for the use, forbearance or detention of
money or to pay interest at a rate in excess of the maximum interest rate
permitted to be charged by applicable law. Neither the Maker nor any guarantors,
endorsers or other parties now or thereafter becoming liable for payment of the
Loan shall ever be required to pay interest thereon at a rate in excess of the
maximum interest that may be lawfully charged under applicable law, and the
provisions of this Note or any other instruments now or hereafter executed in
connection herewith may be in apparent conflict herewith shall be deemed
inoperative. If the maturity of the Loan shall be accelerated for any reason or
if the principal of the Loan is paid prior to the end of the term thereof, and
as a result thereof the interest received for the actual period of existence of
the Loan exceeds the applicable maximum lawful rate, the holder of the Loan
shall refund to Maker the amount of such excess or shall credit the amount of
such excess against the principal balance of the Loan then outstanding. In the
event that Payee or any other holder of the Loan shall collect monies which are
deemed to constitute interest in an amount sufficient to increase the effective
interest rate on the Loan to a rate in excess of that permitted to be charged by
applicable law, all such sums deemed to constitute interest in excess of the
lawful rate shall, upon such determination, at the option of the Payee, be
immediately returned to the Maker or credited against the principal balance of
the Loan then outstanding. The term "applicable law" as used herein shall mean
the laws of the State of Texas or the laws of the United States, whichever laws
allow the greater rate of interest, as such laws now exist or may be changed or
amended or come into effect in the future.
Real Estate Note, Page 1
<PAGE> 2
The payment of this Note is secured by the Vendor's Lion retained in
Warranty Deed of even date herewith executed and delivered by LLOYD SMOOT, JR,
to the undersigned, and is further secured by a Deed of Trust of even date
herewith executed and delivered by the undersigned to STEVEN S. McGILVRA,
Trustee, conveying real estate situated in Dallas County, State of Texas, and
being described as follows, to-wit:
BEING a tract of land situated in the THOMAS LAGOW SURVEY, ABSTRACT NO.
759, Dallas County, also being all of LOTS 1-22, BLOCK 5/2650, LOTS 1-22,
BLOCK 6/2651, of MONT CLAIR ADDITION, SECOND REVISED, an Addition to the
City of Dallas according to the Plat thereof recorded in Volume 4, Page 67,
Map Records, Dallas County, Texas, a 12 foot alley lying in Block 6/2651
which was abandoned to Lloyd Smoot on February 24, 1958 by Ordinance No.
7569, and the East 25 feet of Owenwood Avenue which was abandoned to Lloyd
Smoot on February 24, 1958 by Ordinance No. 7569, and being more
particularly described in above referenced Deed and Deed of Trust.
ATTEST: SOUTHERN FOODS GROUP, INC.
/s/ By:/s/
- ------------------ -----------------------
Secretary President
Address:
3114 South Haskell
Dallas, Texas 75223
Tel.No.
Real Estate Note, Page 2
<PAGE> 1
EXHIBIT 10.27
ASSET PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
ACADIA DAIRY, INC.
AS SELLER,
AND
SCHEPPS-FOREMOST, INC.,
AS BUYER
January 1, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
PURCHASE AND SALE; NON-COMPETITION
1.1 Sale and Purchase of Assets . . . . . . . . . . . . . . . . . . 1
(a) Real Property . . . . . . . . . . . . . . . . . . . . . 1
(b) Personal Property . . . . . . . . . . . . . . . . . . . 2
(c) Inventory . . . . . . . . . . . . . . . . . . . . . . . 2
(d) Intellectual Property . . . . . . . . . . . . . . . . . 2
(e) Customer List . . . . . . . . . . . . . . . . . . . . . 2
(f) Licenses . . . . . . . . . . . . . . . . . . . . . . . 2
(g) Prepaid Expenses . . . . . . . . . . . . . . . . . . . 2
(h) Deposits . . . . . . . . . . . . . . . . . . . . . . . 2
(i) Other Property . . . . . . . . . . . . . . . . . . . . 2
1.2 Definition of Assets. . . . . . . . . . . . . . . . . . . . . . 3
1.3 Asset Transaction . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Purchase Price; Returns; Prorations/Expenses . . . . . . . . . . 3
(a) Purchase Price . . . . . . . . . . . . . . . . . . . . 3
(b) Adjustment With Respect to Certain Returned Items . . . 5
(c) Prorations/Expenses . . . . . . . . . . . . . . . . . . 5
1.5 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 Non-Competition Agreement . . . . . . . . . . . . . . . . . . . 6
1.7 Purchase Price Allocations . . . . . . . . . . . . . . . . . . . 6
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Seller . . . . . . . . . . . . 6
(a) Organization and Standing . . . . . . . . . . . . . . . 6
(b) Power and Authority . . . . . . . . . . . . . . . . . . 7
(c) Enforceability . . . . . . . . . . . . . . . . . . . . 7
(d) Title . . . . . . . . . . . . . . . . . . . . . . . . . 7
(e) Licensing . . . . . . . . . . . . . . . . . . . . . . . 7
(f) Sufficiency and Condition of Assets . . . . . . . . . . 7
(g) Condition of Inventory; Customers . . . . . . . . . . . 8
(h) Intellectual Property . . . . . . . . . . . . . . . . . 8
(i) No Litigation . . . . . . . . . . . . . . . . . . . . . 8
(j) Parties in Possession . . . . . . . . . . . . . . . . . 8
(k) Condemnation . . . . . . . . . . . . . . . . . . . . . 8
(l) Contracts . . . . . . . . . . . . . . . . . . . . . . . 8
(m) Books and Records. . . . . . . . . . . . . . . . . . . 9
(n) Absence of Certain Changes . . . . . . . . . . . . . . 9
(o) Employees . . . . . . . . . . . . . . . . . . . . . . . 9
(p) Labor Matters . . . . . . . . . . . . . . . . . . . . . 11
(q) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 11
(r) Utilities . . . . . . . . . . . . . . . . . . . . . . . 12
(s) Environmental Matters . . . . . . . . . . . . . . . . . 12
(t) "Foreign Person" Status . . . . . . . . . . . . . . . . 12
(u) Consents . . . . . . . . . . . . . . . . . . . . . . . 12
(v) No Violation . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
(w) Finder's or Broker's Fees. . . . . . . . . . . . . . . 13
(x) Compliance With Laws . . . . . . . . . . . . . . . . . 13
2.2 Representations and Warranties of Buyer . . . . . . . . . . . . 13
(a) Organization and Standing . . . . . . . . . . . . . . . 13
(b) Power and Authority . . . . . . . . . . . . . . . . . . 13
(c) Enforceability . . . . . . . . . . . . . . . . . . . . 13
(d) Consents . . . . . . . . . . . . . . . . . . . . . . . 14
(e) No Violation . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE III
CLOSING
3.1 Date of Closing . . . . . . . . . . . . . . . . . . . . . . . . 14
3.2 Actions by Seller . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Real Property Deed. . . . . . . . . . . . . . . . . . . 14
(b) Non-Foreign Affidavit. . . . . . . . . . . . . . . . . 14
(c) Bill of Sale. . . . . . . . . . . . . . . . . . . . . 15
(d) Assignment and Assumption . . . . . . . . . . . . . . . 15
(e) Non-Competition Agreement . . . . . . . . . . . . . . . 15
(f) Certificates of Title. . . . . . . . . . . . . . . . . 15
(g) Opinion of Counsel. . . . . . . . . . . . . . . . . . 15
(h) Possession . . . . . . . . . . . . . . . . . . . . . . 15
(i) Name Change. . . . . . . . . . . . . . . . . . . . . . 15
(j) Other Agreements . . . . . . . . . . . . . . . . . . . 15
3.3 Actions by Buyer . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Payment . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Assignment and Assumption . . . . . . . . . . . . . . . 16
(c) Non-Competition Agreement . . . . . . . . . . . . . . . 16
(d) Letter of Credit. . . . . . . . . . . . . . . . . . . . 16
(e) Opinion of Counsel . . . . . . . . . . . . . . . . . . 16
(f) Other Agreements . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV
POST CLOSING AGREEMENTS AND COVENANTS
4.1 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Seller. . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Buyer . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Indemnity Procedures . . . . . . . . . . . . . . . . . 18
4.2 Environmental Survey . . . . . . . . . . . . . . . . . . . . . . 18
4.3 Setoff Rights . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.4 Accounts Payable; Accounts Receivable; Additional Prorations . . 19
(a) Accounts Payable. . . . . . . . . . . . . . . . . . . 19
(b) Accounts Receivable. . . . . . . . . . . . . . . . . . 19
(c) Additional Prorations. . . . . . . . . . . . . . . . . 20
4.5 Books and Records after the Closing. . . . . . . . . . . . . . 20
4.6 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7 Further Acts and Assurances. . . . . . . . . . . . . . . . . . . 20
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE V
MISCELLANEOUS
5.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) If to Seller: . . . . . . . . . . . . . . . . . . . . . 21
(b) If to Buyer: . . . . . . . . . . . . . . . . . . . . . 21
5.2 Survival of Representations and Warranties . . . . . . . . . . . 22
5.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 22
5.4 Binding Effect/Assignability . . . . . . . . . . . . . . . . . . 22
5.5 Full Cooperation . . . . . . . . . . . . . . . . . . . . . . . . 22
5.6 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . 22
5.7 Headings/Captions . . . . . . . . . . . . . . . . . . . . . . . 22
5.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.9 Communications . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.10 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
- iii -
<PAGE> 5
LIST OF SCHEDULES
Schedule 1.1(a) Real Property
Schedule 1.1(b) Personal Property
Schedule 1.1(e) Customer List
Schedule 1.1(f) Licenses
Schedule 1.1(g) Prepaid Expenses
Schedule 1.1(h) Deposits
Schedule 1.5 Contracts To Be Assigned By Seller
Schedule 1.7 Purchase Price Allocations
Schedule 2.1(d) Existing Exceptions to Title
Schedule 2.1(i) Litigation
Schedule 2.1(o) Employees
- iv -
<PAGE> 6
LIST OF EXHIBITS
Exhibit A Form of Non-Competition Agreement
Exhibit B Form of Special Warranty Deed
Exhibit C Form of Bill of Sale
Exhibit D Form of Assignment and Assumption
Agreement
- v -
<PAGE> 7
ASSET PURCHASE AND SALE AGREEMENT
This Asset Purchase and Sale Agreement (this "Agreement") is made as
of the 1st day of January, 1994, by and between Acadia Dairy, Inc., a Louisiana
corporation ("Seller"), and Schepps-Foremost, Inc., a Delaware corporation
("Buyer").
WHEREAS, Seller owns certain real property located in Lafourche
Parish, Louisiana and operates a dairy processing plant on such real property
under the name "Acadia Dairy" (the "Dairy Plant"); and
WHEREAS, Seller operates a wholesale dairy route service (the
"Routes") through which the dairy products produced at the Dairy Plant by
Seller are sold; and
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, such real property and certain assets of Seller used at
the Dairy Plant and in servicing the Routes, on the terms and subject to the
conditions hereinafter set forth; and
WHEREAS, in connection with such sale and purchase, Buyer and Seller
desire to enter into certain covenants not to compete and certain other
ancillary agreements, all as more particularly described herein.
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions herein contained, Seller and Buyer hereby agree as follows:
ARTICLE I
PURCHASE AND SALE; NON-COMPETITION
1.1 SALE AND PURCHASE OF ASSETS. At the Closing (hereinafter
defined) and subject to the terms and conditions hereof, Seller hereby agrees
to sell to Buyer, and Buyer hereby agrees to purchase from Seller, the
following assets:
(a) REAL PROPERTY. That certain tract of land situated
in Lafourche Parish, Louisiana more particularly described on Schedule 1.1(a)
attached hereto and incorporated herein by reference, together with all and
singular the rights and appurtenances pertaining to said real property,
including all right, title and interest of Seller in and to adjacent streets,
alleys, rights of way, and together with any buildings, structures,
improvements, and fixtures situated on said real property (collectively, the
"Real Property").
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(b) PERSONAL PROPERTY. All furniture, equipment,
leasehold improvements, fixtures, computers and related software, machinery,
supplies, signs, rolling stock, vehicles, and other tangible personal property
of any kind or character whatsoever owned by Seller (collectively, the
"Personal Property"), including, without limitation, those items listed on
Schedule 1.1(b) attached hereto and incorporated herein by reference.
(c) INVENTORY. All finished product inventory of
processed and packaged milk and other dairy products of Seller at the Dairy
Plant on the date of Closing (collectively, the "Inventory"); provided,
however, that the term "Inventory" as used herein shall not include, and Buyer
shall not be obligated to purchase hereunder, any outdated, spoiled, damaged or
unmarketable processed or packaged milk or other dairy products of Seller.
(d) INTELLECTUAL PROPERTY. All rights of Seller in and
to any trademarks, trade names, patents, trade secrets, service marks,
copyrights, processes, designs, formulae, inventions, ideas, concepts, and
advertising and media materials, owned by Seller (collectively, the
"Intellectual Property").
(e) CUSTOMER LIST. A listing (the "Customer List") of
the name of each and every customer to whom Seller sold or contracted to sell
any dairy products within the 180 day period prior to Closing and each
potential customer to whom Seller has submitted any outstanding bid to sell any
dairy products in the future (collectively, the "Customers" and individually a
"Customer"), as set forth on Schedule 1.1(e) attached hereto and incorporated
herein by reference.
(f) LICENSES. All licenses, permits, certificates and
authorizations of any kind held by Seller (collectively, the "Licenses"),
including, without limitation, those items listed on Schedule 1.1(f) attached
hereto and incorporated herein by reference, to the extent that the Licenses
may be lawfully transferred or assigned.
(g) PREPAID EXPENSES. Those certain prepaid expenses and
other items listed or referred to on Schedule 1.1(g) attached hereto and
incorporated herein by reference (collectively, the "Prepaid Expenses").
(h) DEPOSITS. Those certain deposits listed or referred
to on Schedule 1.1(h) attached hereto and incorporated herein by reference
(collectively, the "Deposits").
(i) OTHER PROPERTY. All guarantees, warranties,
blueprints, building plans and specifications, telephone exchange numbers and
listings (including, but not limited to, yellow page advertisements) and all
other personal property, whether tangible or intangible, owned by Seller and
used in the operation of its
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business, but specifically excluding post office boxes (collectively, the
"Other Property").
1.2 DEFINITION OF ASSETS. As used herein, "Assets" means the Real
Property, the Personal Property, the Inventory, the Intellectual Property, the
Customer List, the Licenses, the Prepaid Expenses, the Deposits, and the Other
Property, collectively, and does not include any of Seller's accounts
receivable, cash or cash equivalents or bank accounts.
1.3 ASSET TRANSACTION. The transactions contemplated by this
Agreement shall constitute only the purchase and sale of Assets to be conveyed
to Buyer under the express terms of this Agreement. Buyer shall not assume or
be liable for any accounts payable, obligations or liabilities of Seller,
whether direct or indirect, now existing or hereafter incurred, absolute,
accrued, contingent or otherwise, except solely for the contractual obligations
or liabilities which Buyer expressly agrees to assume under the terms of this
Agreement. Without limiting the generality of the foregoing, Buyer shall not
assume and shall have no liability for any liability or obligation based on,
arising out of or in connection with any termination or severance liability
(including, without limitation, any liability related to or arising out of the
Worker Adjustment and Retraining Notification Act, 29 U.S.C. 2101 et seq. and
any applicable state and local laws) with respect to employees who are employed
by Seller as of the date of Closing, or claims or conditions arising under or
relating to any applicable federal, state or local laws, rules or regulations,
common law or strict liability provisions, and any judicial or administrative
interpretations thereof, including any judicial or administrative orders or
judgments, relating to health, safety, industrial hygiene, pollution or
environmental matters. Seller shall not assume or be liable for any accounts
payable, obligations or liabilities of Buyer, whether direct or indirect, now
existing or hereafter incurred, absolute, accrued, contingent or otherwise.
1.4 PURCHASE PRICE; RETURNS; PRORATIONS/EXPENSES.
(a) PURCHASE PRICE. Subject to the terms and conditions
hereof and the adjustments and setoffs expressly specified in this Agreement,
the total purchase price (the "Purchase Price") for all of the Assets except
the Inventory shall be TWO MILLION FIVE HUNDRED THOUSAND AND NO/100ths DOLLARS
($2,500,000), composed of and payable as follows:
(i) At Closing an aggregate of FIVE HUNDRED
THOUSAND AND NO/100THS DOLLARS
($500,000.00) shall be paid by bank
cashiers check of immediately available
funds to Seller.
(ii) The remainder of the Purchase Price, being
TWO MILLION AND NO/100ths DOLLARS
($2,000,000) shall be paid to Seller in
four
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equal consecutive annual installments of
FIVE HUNDRED THOUSAND AND NO/100ths
DOLLARS ($500,000) each, beginning on the
first anniversary date of this Agreement
and continuing on the same date of each of
the next three (3) years thereafter. The
obligations of Buyer under this Section
1.4(a)(ii) shall be secured by an
irrevocable standby letter of credit
issued in favor of Seller by Continental
Bank, N.A. (the "Letter of Credit"). The
Letter of Credit shall be in such form and
substance as is reasonably satisfactory to
Seller. In the event of any default by
Buyer of any of its payment obligations
under this Section 1.4(a)(ii) that is not
cured within five (5) business days after
the due date of such payment, the
beneficiary of the Letter of Credit shall
be entitled to draw under the Letter of
Credit in accordance with the terms
thereof to obtain payment of all then
unpaid amounts of the Purchase Price less
any amounts then owing to Buyer pursuant
to Sections 4.1, 4.2 or 4.4(a); provided,
however, that nothing contained herein
shall give to Buyer, in the event of
default of its payment obligations, any
right to enjoin payment to
Seller/Beneficiary under the Letter of
Credit, it being clearly agreed and
understood between Buyer and Seller that
such Letter of Credit shall be independent
in every respect from this Agreement.
(iii) In addition to the payments to Seller
under Sections 1.4(a)(i) and (ii), Buyer
shall pay to Seller an additional amount
for the Inventory pursuant to this Section
1.4(a)(iii). Seller shall cause a
physical count of the Inventory to be
taken at the Dairy Plant after the close
of business on the date of Closing or as
soon thereafter as practicable, with
Buyer's representatives present and
assisting during such count. Seller and
Buyer shall mutually approve a schedule
showing the physical count of the
Inventory. The Inventory as stated in
such physical count shall be valued by
Seller and Buyer at Buyer's Brown's Velvet
Division's finished product cost for
comparable products. The aggregate value
of the Inventory as determined pursuant to
this subsection, less the amount of any
reductions pursuant to Section 1.4(b)
hereof
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in respect of returned items, shall be
payable to Seller in full by Buyer's check
within ten (10) business days after the
completion of the physical count of the
Inventory.
(b) ADJUSTMENT WITH RESPECT TO CERTAIN RETURNED ITEMS.
Buyer is not assuming any obligation to replace, or pay any refund for, any
dairy products sold by Seller to Customers prior to the Effective Time
(hereinafter defined) and thereafter returned to Seller or Buyer by such
Customers for replacement or refund. Nevertheless, in order to maintain good
relations with Customers after Closing, at its option Buyer may elect to
replace such returned dairy products with comparable dairy products of Buyer or
otherwise refund to the returning Customer the purchase price (including sales
taxes) actually paid by such Customer for the returned dairy products.
Notwithstanding anything in Section 1.4(a)(iii) to the contrary, any such
replacements or refunds effected by Buyer on or before the 10th business day
after the completion of the physical count of the Inventory as described in
Section 1.4(a)(iii) shall constitute a reduction of the amount otherwise
payable by Buyer under Section 1.4(a)(iii). The aggregate amount of such
reduction shall be the aggregate dollar amount of such refunds made by Buyer
plus the value (based on Buyer's finished product cost) of all replacement
products provided by Buyer to such Customers.
(c) PRORATIONS/EXPENSES. General real estate taxes for
the current year relating to the Real Property, property taxes for the current
year relating to Assets other than the Real Property, Prepaid Expenses for
which Buyer will receive the benefit, utility costs, and revenues and expenses
under any of the Contracts (hereinafter defined) to be assigned to Buyer
hereunder, shall be estimated and prorated as of the Effective Time
(hereinafter defined) and such prorations shall constitute adjustments to the
amount of the Purchase Price payable in cash at Closing under Section
1.4(a)(i). The Deposits credited to the account of Buyer shall be reimbursed
by Buyer at Closing as an adjustment to the amount of the Purchase Price
payable in cash at Closing under Section 1.4(a)(i). All taxes or assessments
assessed or accrued with respect to the period prior to the Effective Time
shall be paid by Seller. All sales and/or use taxes imposed with respect to
the transfer of the Assets to Buyer pursuant to this Agreement, shall be paid
by Buyer. Except as expressly otherwise provided herein, Seller and Buyer
shall each pay their own respective accounting, legal and actuary fees and
other costs and expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement.
1.5 CONTRACTS. For the same consideration, at Closing, and
subject to the terms and conditions hereof, Seller shall assign (to the extent
assignable) to Buyer, and Buyer shall assume and thereafter perform, those
certain contracts to supply products
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pursuant to bid proposals and other agreements (collectively, the "Contracts")
described in or attached to Schedule 1.5 attached hereto and incorporated by
reference; provided, however, that Buyer shall not assume or be obligated for
any obligations or liabilities of Seller arising out of the Contracts which
accrued or resulted from any transactions or any state of facts existing prior
to the Effective Time.
1.6 NON-COMPETITION AGREEMENT. As material consideration to
induce Buyer to enter into and perform this Agreement, at the Closing, and
subject to the terms and conditions hereof, Seller shall execute and deliver to
Buyer a Non-Competition Agreement in the form of Exhibit A attached hereto and
incorporated herein by reference (the "Non-Competition Agreement"). Seller
acknowledges and agrees that it shall benefit from the transactions
contemplated by this Agreement and that, but for the execution of the
Non-Competition Agreement by Seller, Buyer would not have agreed to enter into
or perform this Agreement or any of the transactions contemplated hereby.
1.7 PURCHASE PRICE ALLOCATIONS. The Purchase Price shall be
allocated in the manner set forth on Schedule 1.7 attached hereto and
incorporated herein by reference. Such agreed upon allocations are hereinafter
referred to as the "Allocations." The parties agree not to take a federal or
state income tax reporting position inconsistent with such Allocations and
further agree that such Allocations among the various categories of assets
represent reasonable estimates of the fair market values of such categories of
assets. Each party agrees to cooperate with the other so that the information
shown on Form 8594 filed with the Internal Revenue Service by such party with
respect to the transactions contemplated hereby will be consistent with the
information shown on the other party's Form 8594.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby
represents and warrants to Buyer as follows:
(a) ORGANIZATION AND STANDING. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Louisiana with full power and authority to own and operate its
properties and to carry on its business operations as presently being
conducted, and to execute, deliver and perform this Agreement and all other
documents, instruments and agreements contemplated or required by this
Agreement. Seller is duly qualified to do business and is in good standing in
each jurisdiction in which the character of the properties owned or leased by
it or the nature of the business transacted by it makes such qualification
necessary.
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(b) POWER AND AUTHORITY. Seller has all requisite
corporate power and authority to execute, deliver and perform this Agreement
and the transactions and other documents contemplated hereby. Seller has taken
all requisite corporate action necessary to authorize the execution, delivery
and performance of this Agreement and the transactions and other documents
contemplated hereby.
(c) ENFORCEABILITY. This Agreement constitutes, and the
other documents to be executed by Seller at Closing hereunder shall constitute
when executed by Seller, legal, valid and binding obligations of Seller
enforceable in accordance with their respective terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
in general and subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
(d) TITLE. Seller is the sole and unconditional legal
and equitable owner of the Assets free and clear of any and all liens, charges,
claims, security interests or encumbrances of any kind or nature whatsoever and
of any agreement or understanding with respect to the use or possession thereof
except as set forth in Schedule 2.1(d) (the "Existing Exceptions"). At the
Closing, Seller will convey to Buyer good, valid and merchantable title to the
Assets, free and clear of any and all liens, charges, claims, security
interests and encumbrances of any kind or nature whatsoever and of any such
agreement or understanding (including, without limitation, the Existing
Exceptions), except as expressly agreed to in writing by Buyer.
(e) LICENSING. Seller has received all required and
appropriate licenses, permits, authorizations, consents and approvals from all
applicable governmental agencies or authorities having jurisdiction over the
operation of Seller's business necessary for the operation of such business as
currently operated. Seller is in compliance with all terms, conditions and
provisions of such licenses, permits, authorizations, consents and approvals
and has not received notice of any deficiencies under or violations of any
applicable licensing laws, rules, regulations or requirements which have not
been corrected. Schedule 1.1(f) is a schedule of all permits, licenses, and
authorizations listing and describing each permit, license or similar
authorization from each governmental authority issued with respect to the
operation or ownership of Seller's business.
(f) SUFFICIENCY AND CONDITION OF ASSETS. The Assets to
be purchased by Buyer hereunder are sufficient in quantity to carry on the
business of Seller as heretofore conducted. The Assets include all assets
currently being utilized by Seller in operating its business. The Assets
comply in all material respects with all applicable environmental, fire,
health, safety, zoning and other
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governmental statutes, codes, rules and regulations. The Assets shall be
conveyed to Buyer at Closing with only those representations and warranties
stated in Section 2.1 hereof, and except for such representations and
warranties stated in Section 2.1 hereof, Seller shall convey the Assets to
Buyer at Closing "AS IS", "WHERE IS".
(g) CONDITION OF INVENTORY; CUSTOMERS. The Inventory
complies in all material respects with all applicable environmental, health,
safety, and other governmental statutes, codes, rules and regulations.
Schedule 1.1(e) hereto is a true and complete list of all significant customers
to whom Seller sold any dairy products within the 180 day period prior to
Closing and each potential customer to whom Seller has submitted any
outstanding bid to sell any dairy products in the future.
(h) INTELLECTUAL PROPERTY. Except for the Intellectual
Property, Seller does not own or use any registered or unregistered trademarks,
trade names or service marks in connection with the operation of Seller's
business. The operation of Seller's business as presently conducted does not
infringe upon or violate any trade name, trademark, service mark, patent,
patent application, copyrights or other property rights of another and Seller
has not received any notice of any claim of such infringement or violation.
(i) NO LITIGATION. Except as set forth in Schedule
2.1(i), there are no claims, actions, suits, arbitrations, governmental
investigations, inquiries or proceedings pending or threatened against Seller
or the Assets, at law or in equity, or before any governmental or
administrative board, agency or authority and, to the best knowledge of Seller,
there are no outstanding citations, orders, writs, injunctions, or decrees of
any court, government or governmental agency against or affecting the business,
financial condition or operations of Seller. Seller does not know of any facts
or circumstances which might reasonably form the basis for any such action,
suit, or proceeding. None of the actions described in Schedule 2.1(i), if
determined adversely to Seller, will have any material adverse impact on Buyer
or the Assets or the transactions contemplated hereby.
(j) PARTIES IN POSSESSION. There are no parties in
possession of the Real Property, or any portion thereof, as lessees, tenants at
sufferance, or trespassers.
(k) CONDEMNATION. There are no pending or, to the best
knowledge of Seller, threatened condemnation, assessment or similar proceedings
affecting or relating to the Real Property, or any portion thereof, and, to the
best knowledge of Seller after due investigation, no such proceedings are
contemplated by any governmental authority.
(l) CONTRACTS. Seller has performed all material
obligations required of it and is not in default (and no event has
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occurred which, with the passage of time or the giving of notice, or both,
would constitute a default) under any of the agreements with its Customers and
there is no asserted claim of such nonperformance or default by any Customer.
Each of the Contracts is in full force and effect. The assignment to Buyer of
the Contracts and the consummation of the transactions contemplated by this
Agreement will not cause or result in the acceleration, termination or
violation of, or default under, any of the Contracts, all of which will
continue to be binding in accordance with their terms after the consummation of
the transactions contemplated by this Agreement except as otherwise described
on Schedule 1.5.
(m) BOOKS AND RECORDS. The books and records of Seller
made available to Buyer reflect accurately and completely and in reasonable
detail valid transactions and fairly present an accurate and complete statement
of the transactions, business operations, affairs, assets, liabilities and
financial condition of Seller's business as of the respective dates thereof.
There have been no material transactions involving Seller's business which
properly should have been set forth in such books and records and which have
not been actually so set forth.
(n) ABSENCE OF CERTAIN CHANGES. Since June 1, 1993,
Seller has (i) not suffered any material adverse change outside the ordinary
course of business consistent with past practices in the condition, financial
or otherwise, business, assets, liabilities or operations of Seller, except as
otherwise indicated on the Schedules hereto, (ii) not suffered any material
damage, destruction or loss to any of the properties and assets of Seller,
whether or not covered by insurance, (iii) not increased the regular rate of
compensation payable to any non stockholder employee of Seller other than
normal merit or cost of living increases granted in the ordinary course of
business, (iv) not established or agreed to establish any pension, retirement
or welfare plan for the benefit of any of Seller's employees, (v) not
experienced any labor organizational efforts or strikes or entered into any
collective bargaining agreements with any union, (vi) not allowed any of the
Assets (real, personal or mixed, tangible or intangible) to be subjected to any
mortgage, pledge, lien, security interest, encumbrances, or restriction, except
as indicated on the Schedules hereto, (vii) not amended or terminated any
contract, agreement or license of significant value to which Seller was or is a
party, except in the ordinary course of business, (viii) not entered into a
material transaction other than in the ordinary course of business or made any
change in any method of accounting or accounting practice, or (ix) not agreed,
whether in writing or otherwise, to take any action described in this Section
2.1(n).
(o) EMPLOYEES. Schedule 2.1(o) hereto (the "Employee
Schedule") lists in true, accurate and complete detail all employees of Seller
as of the date of such Schedule, their job titles, annual rates of
compensation, accrued vacation, holiday pay
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and sick leave as of such date and other fringe benefits, if any, and a
description of any severance pay arrangements, if any, and the amounts payable
with respect to such accrued vacation, holiday pay, or sick leave and the rate
at which such accrued vacation, holiday and sick leave accrues. There are no
employees of Seller except as shown on the Employee Schedule. Seller is not
bound by any written contract of employment with any employee and all oral
employment contracts are terminable at will. Seller is not a party to any
employment or other agreement, whether written or oral, pursuant to which
Seller has agreed to make any loan to, or guarantee any loan of, an employee of
Seller or relating to any bonus, deferred compensation, severance pay or
similar plan, agreement or arrangement or understanding with any non
stockholder employees of Seller except as reflected in the Employee Schedule.
Except as listed on the Employee Schedule, Seller does not have any employee
welfare benefit plan (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), any employee
pension benefit plan (within the meaning of Section 3(2) of ERISA), or any
other type of pension, profit sharing, deferred compensation, retirement, stock
option, bonus, severance, medical, dental, life insurance, accident, or other
employee benefit or compensation plan, agreement, arrangement, practice or
policy with respect to employees of Seller. With respect to itself and its
employees, Seller has complied with all requirements of Sections 601 through
608 of ERISA and Section 4980B of the Internal Revenue Code of 1986, as amended
(the "Code"). Seller shall assume all responsibility and liability with
respect to continuation health coverage to the extent required by law and as
described in Sections 601 through 608 of ERISA and Section 4980B of the Code
for employees whose employment with Seller was terminated at or prior to the
Effective Time, including but not limited to employees of Seller who accept
employment with Buyer as contemplated below in this Section 2.1(o). At
Closing, Seller shall terminate all of its employees effective as of the
Effective Time except those listed on the Employee Schedule to whom Buyer has
indicated that it intends to offer employment. Buyer shall offer employment to
those employees of Seller listed on the Employee Schedule as being employees of
Seller to whom Buyer intends to offer employment, and those individuals who
accept such offer of employment shall become employees of Buyer and shall be
considered "new hires"; provided, however, that Seller acknowledges and agrees
that Buyer shall not assume, and shall be indemnified and held harmless by
Seller against, any liability or obligation arising out of or with respect to
(i) employment by Seller of any such employees prior to the Effective Time or
the termination of such employment at or prior to the Effective Time as
described in this Section 2.1(o), including any obligation or liability under
Section 4980B of the Code or Sections 601 through 608 of ERISA, (ii) any
pension, profit sharing, deferred compensation, retirement, stock option,
bonus, severance, medical, dental, life insurance, accident, or other employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) or employee
pension benefit plan (within the meaning of Section 3(2) of ERISA) of Seller,
or (iii)
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any other type of employee benefit or compensation plan, agreement,
arrangement, practice or policy of Seller. Furthermore, Seller shall be
responsible for paying (i) the amount of all current wages payable or accrued
to employees of Seller as of the Effective Time, and (ii) all amounts necessary
to discharge any and all accrued and/or earned fringe benefits such as vacation
pay, holiday pay or sick leave to all employees of Seller as of the Effective
Time; provided, however, Buyer shall honor any accrued vacation time with
respect to those employees of Seller to whom it offers employment and who
accept such offer of employment and Seller shall not be obligated to pay any
accrued vacation pay with respect to such employees. All amounts referred to
in clauses (i) and (ii) in the immediately preceding sentence shall be the
responsibility of and paid by Seller. Buyer acknowledges and agrees that
Seller shall not assume, and shall be indemnified and held harmless by Buyer
against, any liability or obligation arising out of or with respect to (i)
employment by Buyer of any employees of Seller who accept employment with Buyer
at or after the Effective Time as described in this Section 2.1(o), including
any obligation or liability under Section 4980B of the Code or Sections 601
through 608 of ERISA, (ii) any pension, profit sharing, deferred compensation,
retirement, stock option, bonus, severance, medical, dental, life insurance,
accident, or other employee welfare benefit plan (within the meaning of Section
3(1) of ERISA) or employee pension benefit plan (within the meaning of Section
3(2) of ERISA) of Buyer, or (iii) any other type of employee benefit or
compensation plan, agreement, arrangement, practice or policy of Buyer.
(p) LABOR MATTERS. Seller does not have any collective
bargaining agreements with any labor union or organization representing
employees of Seller and are not currently negotiating with any labor union or
organization representing employees of Seller. There is no pending or, to the
best knowledge of Seller, threatened petition by employees of Seller or unions
seeking a representation election. Seller is in material compliance with all
applicable laws respecting employment and employment practices, benefit plans,
other terms and conditions of employment and wages and hours, and is not
engaged in any discriminatory act or unfair labor practice. There is no labor
strike, dispute, slow down or stoppage actually pending or, to the best
knowledge of Seller, threatened against or affecting Seller and no charge or
matters pending or threatened before any federal, state or local agencies
alleging patterns or practices of discrimination by Seller.
(q) TAXES. Seller shall have paid in full when due all
federal and state withholding taxes, unemployment taxes, social security taxes,
franchise taxes, payroll taxes, and any other applicable federal, state or
local taxes, including, but not limited to, any ad valorem, sales, gross
receipts of excise taxes, and all penalties and interest with respect thereto,
relating to the operations of Seller which were assessed, confirmed and/or
accrued prior to the Effective Time or shall have made provision therefor and
shall pay such taxes when due if such occurs after the
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Effective Time. There are no unpaid proposed assessments for any such taxes
pending against Seller.
(r) UTILITIES. There are available at the Real Property
water and sewer lines in operating condition which provide such utility
services to the Real Property sufficient for the operation of Seller's business
as presently conducted. There are available at the Real Property electrical
and telephone services sufficient for the operation of Seller's business as
presently conducted. There is no pending or, to the best knowledge of Seller,
threatened governmental or third party proceeding which would impair or result
in the termination of such utility availability, and all requisite governmental
permits, licenses and approvals for such utility services as are necessary for
the operation of Seller's business have been obtained.
(s) ENVIRONMENTAL MATTERS. None of the Real Property is
subject to any flood plain, wetland protection, coastal zone management,
historical preservation, wildlife conservation or other applicable land use
law, statute, ordinance, rule, regulation, policy, order or determination which
could prohibit or restrict the use and enjoyment of any of the Real Property as
presently utilized by Seller. Neither the Real Property nor Seller with
respect to the operations of its business are in violation or breach of, or
subject to any pending or, to the best knowledge of Seller, threatened
investigation, inquiry, notice or remedial order under, any applicable
governmental law, rule, regulation of order pertaining to health, safety or the
environment ("Applicable Environmental Laws") and no hazardous or toxic
substances as defined under Applicable Environmental Laws have been disposed or
otherwise released on or from or exist on the Real Property. Seller is not
aware that there are any leaks or has been any leakage from the one underground
storage tank located on the Real Property (the "Underground Storage Tank"), or
that the waste water being released from the Real Property does not presently
comply with Applicable Environmental Laws.
(t) "FOREIGN PERSON" STATUS. Seller is not a "foreign
person" which would subject Buyer to the withholding tax provisions of Section
1445 of the Code.
(u) CONSENTS. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated by this
Agreement by Seller will not require any consent, approval, authorization,
order, declaration, filing or registration of or with any court, any federal,
state, or local governmental or regulatory authority, or any other person or
entity, other than those which have been, or by Closing will have been,
obtained and furnished to Buyer or which the parties have agreed not to seek to
obtain.
(v) NO VIOLATION. The execution, delivery and
performance of this Agreement and the consummation of the
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transactions contemplated by this Agreement (i) do not conflict with and will
not conflict with, or result or will result in a breach of, the Articles of
Incorporation or Bylaws of Seller, (ii) do not conflict with and will not
conflict with, or result or will result in a breach of, or constitute or will
constitute a default (or an event which, with or without notice or elapse of
time, or both, would constitute a default) under, or result or will result in a
creation of any lien or other encumbrance upon any of the Assets under, any of
the terms, conditions or provisions of any material agreement or other
instrument or obligation by which Seller is bound, and (iii) do not violate and
will not violate in any material respect any order, writ, injunction, decree,
statute, rule or regulation applicable to Seller or any of them or any of the
Assets.
(w) FINDER'S OR BROKER'S FEES. Seller is not nor will be
obligated for any finder's or broker's fee or commission in connection with
this Agreement or the transactions contemplated hereby.
(x) COMPLIANCE WITH LAWS. Seller has no knowledge of,
and have not received any notice of, any material violation of any federal,
state or local law, rule or regulation relating to Seller's business which has
not been cured.
2.2 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby
represents and warrants to Seller as follows:
(a) ORGANIZATION AND STANDING. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power and authority to own and operate its
properties and to carry on its business operations as presently being
conducted, and to execute, deliver and perform this Agreement and all other
documents, instruments and agreements contemplated or required by this
Agreement.
(b) POWER AND AUTHORITY. Buyer has the corporate power
and authority to execute and deliver and perform this Agreement and the
transactions and other documents contemplated hereby. Buyer has taken all
requisite corporate action necessary to authorize its execution, delivery and
performance of this Agreement and the transactions and other documents
contemplated hereby.
(c) ENFORCEABILITY. This Agreement constitutes, and the
other documents to be executed by Buyer at Closing hereunder shall constitute
when executed by Buyer, legal, valid and binding obligations of Buyer
enforceable in accordance with their respective terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
in general and subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
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(d) CONSENTS. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated by this
Agreement by Buyer will not require any consent, approval, authorization,
order, or declaration of any court, any federal, state, or local governmental
or regulatory authority, or any other person or entity, other than those which
have been, or by Closing will have been, obtained or which the parties have
agreed not to seek to obtain.
(e) NO VIOLATION. The execution, delivery and
performance of this Agreement by Buyer and the consummation by Buyer of the
transactions contemplated by this Agreement, (i) do not conflict with and will
not conflict with, or result or will result in a breach of, the Certificate of
Incorporation or Bylaws of Buyer, (ii) do not conflict with and will not
conflict with, or result or will result in a breach of, or constitute or will
constitute a default (or an event which, with or without notice or elapse of
time, or both, would constitute a default) under any of the terms, conditions
or provisions of any material agreement or other instrument or obligation to
which Buyer is bound, and (iii) do not violate and will not violate in any
material respect any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer or any of its properties or assets other than
those which the parties have discussed.
ARTICLE III
CLOSING
3.1 DATE OF CLOSING. Closing hereunder (the "Closing") shall take
place simultaneously with the execution and delivery of this Agreement by the
parties. The Closing and the transfer of risk of loss with respect to the
Assets, and the legal transfer of the Assets, shall be effective as of 12:01
a.m., Dallas, Texas time on the date hereof (such effective time is herein
referred to as the "Effective Time"), and all income and expense attributable
to the ownership of the Assets and under the Contracts (measured on an accrual
basis) to the Effective Time shall be for the account of Seller and thereafter
for the account of Buyer.
3.2 ACTIONS BY SELLER. At the Closing:
(a) REAL PROPERTY DEED. Seller shall deliver to Buyer a
duly executed and acknowledged special warranty deed in the form of Exhibit B
attached hereto and incorporated herein by reference conveying good and
indefeasible title in fee simple to the Real Property, free and clear of any
and all liens, claims, encumbrances, conditions, easements, assessments and
restrictions except those, if any, expressly agreed to in writing by Buyer.
(b) NON-FOREIGN AFFIDAVIT. Seller shall execute and
deliver an affidavit in form and content reasonably satisfactory to Buyer and
the Title Company certifying that Seller is not a
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"foreign person" for purposes of Section 1445 of the Internal Revenue Code.
(c) BILL OF SALE. Seller shall deliver to Buyer a duly
executed Bill of Sale in the form of Exhibit C attached hereto and incorporated
herein by reference conveying good and marketable title to all of the Personal
Property, Inventory, Customer List, Intellectual Property, Licenses, Prepaid
Expenses, Deposits and Other Property to Buyer, free and clear of any and all
liens, security interests, encumbrances, conditions and restrictions except as
expressly agreed to in writing by Buyer.
(d) ASSIGNMENT AND ASSUMPTION. Seller shall deliver to
Buyer a duly executed Assignment and Assumption Agreement in the form of
Exhibit D (the "Assignment and Assumption Agreement") attached hereto and
incorporated herein by reference conveying and assigning to Buyer all of
Seller's right, title and interest in and to the Contracts, free and clear of
any and all limitations, conditions, and restrictions except as may be approved
by Buyer in writing.
(e) NON-COMPETITION AGREEMENT. Seller shall deliver to
Buyer a duly executed counterpart of the Non-Competition Agreement.
(f) CERTIFICATES OF TITLE. Seller shall deliver to Buyer
the duly executed or endorsed originals of the Certificates of Title and other
documents required by applicable law to transfer to Buyer the rolling stock and
vehicles purchased by Buyer as part of the Assets hereunder.
(g) OPINION OF COUNSEL. Seller shall deliver to Buyer an
opinion of Block & Bouterie, counsel to Seller, dated the date of Closing, in
form and substance reasonably satisfactory to Buyer and its counsel with
respect to certain of the matters set forth in Sections 2.1(a), (b) and (c)
hereof.
(h) POSSESSION. Seller shall deliver to Buyer possession
of the Assets.
(i) NAME CHANGE. In furtherance of Buyer's purchase of
the name "Acadia Dairy, Inc." hereunder, Seller shall deliver to Buyer duly
executed original Articles of Amendment to the Articles of Incorporation of
Seller in form sufficient for filing with the Louisiana Secretary of State to
change the name of Seller to delete any reference to "Acadia Dairy", together
with a check payable to the Louisiana Secretary of State in the applicable
amount for the required filing fee. Buyer is hereby authorized to file such
Articles of Amendment with the Louisiana Secretary of State.
(j) OTHER AGREEMENTS. Seller shall perform or shall
have performed all of the covenants and agreements contained in this Agreement
to be performed or complied with by Seller at or prior to the Closing
hereunder.
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3.3 ACTIONS BY BUYER. At the Closing, Buyer shall:
(a) PAYMENT. Pay the amount due at Closing pursuant to
Section 1.4(a)(i) hereof, by bank cashiers check of immediately available funds
as provided in Section 1.4(a)(i).
(b) ASSIGNMENT AND ASSUMPTION. Deliver to Seller a duly
executed counterpart of the Assignment and Assumption Agreement.
(c) NON-COMPETITION AGREEMENT. Deliver to Seller a duly
executed counterpart of the Non-Competition Agreement.
(d) LETTER OF CREDIT. Cause to be issued and
delivered to Seller the duly executed Letter of Credit.
(e) OPINION OF COUNSEL. Deliver to Seller an opinion of
Strasburger & Price, L.L.P., counsel to Buyer, dated the date of Closing, in
form and substance reasonably satisfactory to Seller and its counsel with
respect to certain of the matters set forth in Sections 2.2(a), (b) and (c)
hereof.
(f) OTHER AGREEMENTS. Perform or shall have performed
all of the covenants and agreements contained in this Agreement to be performed
or complied with by Buyer at or prior to the Closing hereunder.
ARTICLE IV
POST CLOSING AGREEMENTS AND COVENANTS
4.1 INDEMNITY.
(a) SELLER. Seller agrees to defend, indemnify and hold
Buyer and its successors and assigns harmless from, against, and in respect of,
any loss, damage, liability, claim, demand, and expense (including, without
limitation, reasonable attorney's fees, costs, and expenses) of any kind
whatsoever arising out of or resulting from:
(i) Any material misrepresentation, breach of
warranty, or failure to fulfill any agreement or covenant of
Seller under this Agreement or under any other agreement or
document delivered by Seller at Closing hereunder.
(ii) Any and all liabilities of Seller of any
nature which existed, had been incurred, or arise out of any
transaction or any state of facts existing prior to the
Effective Time hereunder, including, without limitation,
liabilities arising prior to the Effective Time under the
Contracts, third party claims or causes of action, taxes,
indebtedness, liabilities to employees as provided
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in Section 2.1(o) or other loss resulting directly or
indirectly from the assertion of claims against Seller by any
governmental authority or agency or any other person or
entity, whether such liability may be direct or indirect,
accrued, absolute, contingent, or otherwise; except solely for
the contractual liabilities expressly assumed by Buyer at
Closing pursuant to this Agreement.
(iii) Any other matter with respect to which
Seller has agreed, either in this Agreement or in any document
or agreement executed and delivered by Seller pursuant to this
Agreement, to provide indemnity to Buyer.
(iv) Any and all liability or losses resulting
from or arising out of any noncompliance with requirements of
any bulk sales or bulk transfer laws applicable to the
transactions contemplated hereby.
(v) Any and all actions, suits, proceedings,
demands, assessments, judgments, costs and legal and other
expenses incident to the foregoing.
(b) BUYER. Buyer agrees to defend, indemnify and hold
Seller and its successors and assigns harmless from, against, and in respect
of, any loss, damage, liability, claim, demand, or expense (including, without
limitation, reasonable attorney's fees, costs and expenses) of any kind
whatsoever arising out of or resulting from:
(i) Any misrepresentation, breach of warranty, or
failure to fulfill any agreement or covenant of Buyer under
this Agreement or under any other agreement or document
delivered by Buyer at Closing hereunder.
(ii) Any and all contractual liabilities of Seller
which Buyer has expressly assumed at Closing pursuant to this
Agreement.
(iii) Any liability arising out of Buyer's use of
the Assets after the Effective Time.
(iv) Any and all actions, suits, proceedings,
demands, assessments, judgments, costs, and legal and other
expenses incident to any of the foregoing.
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(c) INDEMNITY PROCEDURES. In case any claim, demand or
action shall be brought against any party entitled to indemnity under Section
4.1(a) or 4.1(b) above, such party shall promptly notify the other party from
whom indemnity is sought in writing and the indemnifying party shall assume the
defense thereof, including the employment of counsel. In addition, in case any
party shall become aware of any facts which might result in any such claim,
demand or action, such party shall promptly notify the other party from whom
indemnity might be sought with respect thereto, which shall have the right to
take such action as it may deem appropriate to resolve such matter. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless the
employment of such counsel has been specifically authorized by the
indemnifying party. The indemnifying party shall not be liable for any
settlement of any action effected without its consent, but if settled with the
consent of the indemnifying party or if there be a final judgment for the
plaintiff in any such action, the indemnifying party shall indemnify and hold
harmless the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
4.2 ENVIRONMENTAL SURVEY. During the one hundred twenty (120)
day period immediately following Closing, Buyer may conduct such environmental
surveys or audits of the Real Property as it deems necessary, including,
without limitation, an assessment of the Underground Storage Tank, in order to
determine if there has been any violation of Applicable Environmental Laws
affecting the Real Property or any disposal or release of hazardous or toxic
substances on or from or existing on the Real Property. In the event that
during such one hundred twenty (120) day period, Buyer discovers any such
violation of Applicable Environmental Laws or the existence of hazardous or
toxic substances released on or from or existing on the Real Property, or Buyer
determines that there has been leakage from the Underground Storage Tank, that
repairs are reasonably necessary to prevent leakage therefrom, or the
Underground Storage Tank must be removed, Buyer shall promptly notify Seller of
such facts. As soon as practicable thereafter, Buyer shall consult with Seller
and the parties shall mutually agree upon an environmental cleanup firm
(Seller's agreement shall not be unreasonably withheld) to perform any
environmental cleanup or remedial work reasonably necessary on the Real
Property. Buyer shall submit all invoices for such remedial work to Seller and
Seller hereby agrees that it shall be responsible for and shall timely pay all
of such invoices. In the event that Seller fails to promptly pay any of such
invoices, then Buyer may elect to pay such invoices and be entitled to set off
such amounts in the manner permitted by Section 4.3 hereof.
4.3 SETOFF RIGHTS. Notwithstanding anything in this Agreement to
the contrary, Buyer shall be entitled to set off against the amounts payable by
it under Section 1.4(a)(ii) hereof the amount of
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all losses, damages, liabilities, costs or expenses incurred by Buyer (i) for
which Buyer is entitled to indemnity from Seller pursuant to Section 4.1
hereof, (ii) which Seller has agreed to pay but failed to do so pursuant to
Section 4.2 hereof, and (iii) as a result of Seller's failure to timely pay its
obligations under Section 4.4(a) hereof (such setoff to be made against Buyer's
payment obligations in such order and manner as Buyer, in its sole discretion,
may select). Such rights of setoff shall be cumulative of all rights of
indemnity under this Agreement and all other rights provided by applicable law;
provided, however, that nothing contained herein shall grant to Buyer in the
event of default in its payment obligations contained in Section 1.4(a)(ii)
hereof, any right to enjoin payment to Seller under the Letter of Credit
provided for herein.
4.4 ACCOUNTS PAYABLE; ACCOUNTS RECEIVABLE; ADDITIONAL PRORATIONS.
(a) ACCOUNTS PAYABLE. Except for those obligations under
the Contracts expressly assumed by Buyer at Closing, Seller will pay in a
timely manner all bills, accounts payable, notes payable, obligations,
indebtedness (including, without limitation, federal, state and local taxes)
and other liabilities of Seller due, accrued or incurred for the period prior
to the Effective Time. In the event that Seller's failure to promptly pay any
such obligations shall result in a material interference with Buyer's business
in Buyer's reasonable judgment, then Buyer shall give notice thereof to Seller
and, within ten (10) days following receipt of such notice, Seller shall either
(i) pay the particular obligations or (ii) notify Buyer in good faith that the
particular obligation is in dispute. If Seller fails to either pay the
obligation or notify Buyer that the obligation is in dispute and immediately
proceed to resolve the dispute, then Buyer may (i) pay such obligation, in
which case the amount so paid plus interest from the date of payment at the
fixed rate of four percent (4%) over the prime rate as established by
NationsBank of Texas, N.A., Dallas, Texas at the date of payment (or, if less,
the maximum lawful rate of interest under applicable law) ("Interest") shall be
immediately due from Seller, (ii) pay such obligation, in which case Buyer may
set off, in accordance with Section 4.3 hereof, the amount so paid plus
Interest against the amounts payable by Buyer pursuant to Section 1.4(a)(ii)
hereof, or (iii) exercise any other remedy available to Buyer hereunder or
under applicable law.
(b) ACCOUNTS RECEIVABLE. The accounts receivable of
Seller accrued, whether or not billed, as of the Effective Time shall be the
property of Seller. Seller shall be responsible for the billing and collection
of such accounts receivable and shall be entitled to exercise any and all of
its remedies, whether at law, in equity or pursuant to any agreement with any
obligor, against any obligor owing accounts receivable to Seller. The parties
hereby agree that for the ninety (90) day period immediately following the
Closing, Seller shall have the right to use the name
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"Acadia Dairy" and related logos only in connection with the billing and
collection of accounts receivable of Seller pursuant to this Section 4.4(b).
After the termination of such ninety (90) day period, Seller shall no longer
use such name or any of the other Intellectual Property in connection with the
billing or collection of accounts receivable or conducting, directly or
indirectly, any dairy business in the State of Louisiana. Buyer shall promptly
forward to Seller any payments received by Buyer from obligors owing money to
Seller for products sold or services rendered by Seller prior to the Effective
Time. Buyer shall not be obligated to take any action other than forwarding of
amounts received which are owed to Seller with respect to any accounts
receivable of Seller. Seller shall promptly forward to Buyer any payments
received by Seller from obligors owing money to Buyer for products sold or
services rendered by Buyer after the Effective Time.
(c) ADDITIONAL PRORATIONS. To the extent not prorated at
Closing pursuant to Section 1.4(c), (i) utility costs, property taxes and other
revenues and expenses with respect to the Assets and the Contracts shall be
prorated between Seller and Buyer as soon as reasonably practicable as of the
Effective Time, and (ii) settlement of such items shall occur within five (5)
business days after receipt of a request therefor accompanied by evidence that
such proration and payment is required hereunder.
4.5 BOOKS AND RECORDS AFTER THE CLOSING. During the three year
period immediately following Closing, all books and records of Seller with
respect to the period prior to the Effective Time, including without
limitation, all records relating to the Assets and operations of Seller, shall
be kept at the Real Property where the same are currently located for use by
Buyer in its business. During the three year period immediately after Closing,
Seller shall have the right from time to time to examine and copy, at its
expense, upon reasonable prior request during normal business hours, such books
and records with respect to the period prior to the Effective Time.
Thereafter, Seller shall keep such books and records for an additional three
year period, during which time Buyer shall have the right from time to time to
examine and copy, at its expense, and upon request during normal business
hours, such books and records.
4.6 BROKERAGE. Seller on the one hand, and Buyer, on the other,
hereby agree each with the other that they shall indemnify and hold the other
party harmless of and from any and all liability, including attorneys' fees and
other expenses, arising out of any claim for any broker's or finder's fee or
commission or any similar charge in connection with the transactions
contemplated and provided for in this Agreement, so far as such claim arises by
reason of services alleged to have been rendered to or at the instance of such
party.
4.7 FURTHER ACTS AND ASSURANCES. Seller shall from time to time
at and after the Closing, upon request of Buyer, take any
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reasonable steps necessary to vest in Buyer possession and ownership of the
Assets in accordance with the terms of this Agreement, and will do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, any reasonable further acts, deeds, assignments, transfers,
conveyances, and assurances as may be reasonably required for the transferring
and confirming to Buyer, its successors and assigns, the ownership and
possession of any or all of the Assets in accordance with terms of this
Agreement.
ARTICLE V
MISCELLANEOUS
5.1 NOTICES. All notices, claims, or demands required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or
mailed to the other party, properly addressed, certified or registered mail,
postage prepaid, return receipt requested, addressed as follows:
(a) IF TO SELLER:
Acadia Dairy, Inc.
1258 St. Charles Street
Thibodaux, Louisiana 70301
Attention: Vernon E. Toups, Jr.
With a copy to:
Block & Bouterie
504 West Second Street
Thibodaux, Louisiana 70302-0510
Attention: Richard J. Bouterie, Jr., Esq.
(b) IF TO BUYER:
Schepps-Foremost, Inc.
3114 South Haskell
Dallas, Texas 75223
Attention: Allen A. Meyer, Chairman of the Board
With a copy to:
Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Attention: Frederick J. Fowler, Esq.
Hand delivered notices shall be deemed delivered on the date the same are
delivered by hand, and mailed notices shall be deemed delivered on the date
mailed in accordance with the foregoing provisions of this Section 5.1. A
party may change the address for
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notices to be sent to it by written notice delivered pursuant to the terms of
this Section 5.1.
5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in any agreement, certificate, instrument, schedule, exhibit or
document delivered at or prior to Closing by or on behalf of any of the parties
hereto pursuant to this Agreement and the transactions contemplated hereby
shall be deemed representations and warranties by the delivering party
hereunder. All representations, warranties and agreements set forth herein or
pursuant hereto shall survive the consummation of this Agreement until the
fourth (4th) anniversary date of this Agreement with the same force and effect
as if made at the Effective Time, and shall be deemed to be material and to
have been relied upon by the parties hereto, notwithstanding any investigation
or inspection heretofore or hereafter made by or on behalf of any of such
parties.
5.3 ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject matter
hereof. No terms, conditions, warranties, other than those contained herein,
and no amendments or modifications hereto shall be valid unless made in writing
and signed by the parties hereto.
5.4 BINDING EFFECT/ASSIGNABILITY. This Agreement shall extend to and
be binding upon and inure to the benefit of the parties hereto, their
respective heirs, legal representatives, successors and permitted assigns.
Seller shall not be entitled to assign this Agreement in whole or in part.
Buyer shall have the right at any time to assign this Agreement in whole or in
part without the prior consent of any party hereto.
5.5 FULL COOPERATION. From time to time after the Effective Time,
Seller and Buyer shall cooperate and take such action, including the execution
of such other documents, as may be necessary to fully consummate the
transactions contemplated hereby, and as may be reasonably requested in order
to carry out the provisions and purposes of this Agreement.
5.6 INVALID PROVISIONS. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provisions shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof with the remaining
provisions remaining in full force and effect and not affected by the illegal,
invalid or unenforceable provision or by severance herefrom.
5.7 HEADINGS/CAPTIONS. The captions to sections and subsections of
this Agreement have been inserted solely for convenience and reference, and
shall not control or effect the
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meaning or construction of any of the provisions of this Agreement.
5.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same agreement.
5.9 COMMUNICATIONS. Seller and Buyer agree that they will prepare
and issue a mutual agreeable press release or other announcement with respect
to the transactions contemplated hereby.
5.10 WAIVER. The failure of any party to insist, in any one or more
instances, on performance of any of the terms and conditions of this Agreement
shall not be construed as a waiver or relinquishment of any rights granted
hereunder or of the future performance of any such term, covenant or condition,
but the obligations of the parties with respect thereto shall continue in full
force and effect.
5.11 GOVERNING LAW. THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS.
* * * * *
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SIGNATURE PAGE TO ASSET PURCHASE AND SALE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
SELLER:
ACADIA DAIRY, INC.
BY:/s/
------------------------------------
ITS:
------------------------------------
BUYER:
SCHEPPS-FOREMOST, INC.
BY:/s/
------------------------------------
ITS:
------------------------------------
24
<PAGE> 1
EXHIBIT 10.28
Execution Copy
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "AGREEMENT") is made and entered into as of the
_____ day of September, 1997, by and between SOUTHERN FOODS GROUP, L.P., a
Delaware limited partnership (the "EMPLOYER"), and PETE SCHENKEL (the
"EMPLOYEE").
Recitals
WHEREAS, Southern Foods Group, Inc., a Delaware corporation ("SFG
INC."), and Employee entered into that certain Executive Employment and Stock
Agreement, dated as of February 18, 1994 (the "PRIOR EMPLOYMENT AGREEMENT");
WHEREAS, Employer succeeded to the assets and liabilities of SFG Inc. on
December 31, 1994; and
WHEREAS, the parties desire to terminate the Prior Employment Agreement
and to enter into this Agreement to provide for the employment of Employee by
Employer and certain other matters as provided herein;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and promises hereinafter contained, do hereby agree as follows:
1. Employment. Employer hereby employs Employee and Employee hereby
accepts the employment, on the terms and conditions hereinafter set forth.
This Agreement supersedes and terminates the Prior Employment Agreement, and
the Prior Employment Agreement is now of no further force or effect.
2. Duties. During the term of this Agreement, Employee will serve
as the President and Chief Executive Officer of Employer and will render such
services to Employer and its affiliates of an executive and administrative
character as the general partner of Employer may from time to time reasonably
direct. Employee will devote his best efforts and substantially all of his
business time and attention (except for vacation periods and reasonable periods
of illness or other incapacity) to the business of Employer and its affiliates;
provided, however, that Employee may devote a reasonable amount of time
(consistent with Employee's past practices) to civic, charitable, political and
passive investment endeavors.
3. Employment Term. The employment term shall begin on the date
hereof and continue until the first to occur of:
(a) The fifth anniversary of the date hereof; provided,
however, that the term shall be automatically extended for one or more
one (1) year periods unless Employer or Employee, not less than ninety
(90) days prior to the commencement of any such one (1)
- 1 -
<PAGE> 2
year period, notifies the other party in writing that this Agreement
shall expire rather than be extended for additional one (1) year
periods; or
(b) The date on which the employment period is terminated
pursuant to Section 12 hereof.
4. Salary and Other Compensation. As compensation for the services
to be rendered by Employee to Employer pursuant to this Agreement and as
consideration for Employee's obligations under Sections 6 through 10 hereof,
Employee shall be paid the following compensation and other benefits:
(a) SALARY: Employer shall pay Employee an annual salary of
$359,000, or such higher compensation as may be established by Employer
from time to time (the "BASE SALARY").
(b) ANNUAL BONUS: Employer shall pay Employee an annual bonus
(each, an "ANNUAL BONUS") with respect to each Fiscal Year (as defined
in Section 5) fully completed during the term of Employee's employment
of such amount as may from time to time be determined by Employer.
(c) DISABILITY: Should Employee become disabled, which for
purposes of this subsection 4(c) means Employee's inability because of
any physical or emotional illness to perform Employee's assigned duties
under this Agreement more than 30 hours per week, Employee's Base Salary
shall nevertheless be paid at its full rate prior to the Employee's
termination pursuant to Section 12(b); provided, however, that if
Employee receives any periodic payments representing lost compensation
under any health, disability, or accident insurance policy or under any
salary continuation insurance policy, the premiums for which have been
paid by Employer or paid for by Employee but reimbursed by Employer, the
amount of salary that Employee will be entitled to receive from Employer
during the disability shall be decreased by the gross amount of such
payments (before any withholding for taxes).
(d) EMPLOYEE BENEFIT PLANS: Employee shall be eligible to
participate, to the extent Employee may be eligible, in any profit
sharing, retirement, insurance, health coverage or other employee
benefit plan maintained by Employer.
(e) FRINGE BENEFITS: Except as provided otherwise in this
Agreement, Employee shall be entitled to the fringe benefits available
to the other employees of Employer, as such benefits may be revised from
time to time.
(f) VACATIONS AND LEAVE: Employee shall be entitled to the
same vacation and leave time as the other executive officers of
Employer.
5. Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
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<PAGE> 3
(a) "TRADE SECRETS" means any scientific or technical
information, formula, design, process, procedure or improvement that is
valuable to Employer and not generally known to the competitors of
Employer. To the fullest extent consistent with the foregoing and
otherwise lawful, Trade Secrets shall include, without limitations, all
information and documentation pertaining to the invention, development,
nature, design and specifications of and the production, application and
processing techniques and procedures relating to Employer's present and
future products and processes.
(b) "CONFIDENTIAL INFORMATION" means any data or information
and documentation, other than Trade Secrets, that is valuable to
Employer and not generally known to the public. To the fullest extent
consistent with the foregoing and otherwise lawful, Confidential
Information shall include, without limitation, Employer's marketing
techniques, pricing information, business plans and opportunities, bids
in process or under consideration (regardless of whether Employer has
entered into any agreement, made any commitment, or issued any bid or
offer), financial statements and projections, specialized customer
information concerning unique or novel marketing habits, and the special
products and services Employer may offer or provide to its customers
from time to time.
(c) "CONFIDENTIAL CUSTOMER INFORMATION" means any technical or
accounting data or proprietary information or confidential business
information of any of Employer's customers.
(d) "AFFILIATE" with respect to any person or entity means any
person or entity that directly or indirectly controls, is controlled by,
or is under common control with such person or entity.
(e) "FISCAL YEAR" shall mean Employer's fiscal year for
accounting and tax purposes, and shall include any fiscal year that is
shorter or longer than twelve (12) months due to a change in the date
Employer's fiscal year ends.
6. Employer Property. With respect to any and all Trade Secrets,
Confidential Information and other processes, formulae, inventions and works
made or conceived by Employee during his employment, whether (i) solely or
jointly with any other person, firm, organization or employee, (ii) during or
after his regular hours of employment, or (iii) with or without the use of
Employer's facilities, materials or personnel:
(a) Employee will disclose promptly to Employer all such Trade
Secrets, Confidential Information and other processes, formulae,
inventions and works.
(b) Employee will execute and promptly deliver to Employer
such written instruments, and, upon the request of Employer, do such
other acts, as may be required to patent, copyright or otherwise protect
such Trade Secrets, Confidential Information and other processes,
formulae, inventions and works, and any documentation or other materials
pertaining thereto, and to vest all rights, title and interest therein
in Employer. All such Trade Secrets, Confidential Information and other
processes, formulae, inventions and works, together with any
documentation or other materials pertaining thereto, shall be
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<PAGE> 4
considered work made for hire and prepared by Employee as an employee
within the scope of his employment by Employer.
(c) Employer shall have the perpetual and unlimited right,
without cost, to make, use and sell, in whole or in part, any of such
Trade Secrets, Confidential Information or other processes, formulae,
inventions or works, and to make, use and sell any and all products,
processes and services derived from any of such Trade Secrets,
Confidential Information or other processes, formulae, inventions or
works.
7. Confidentiality. Except as required by law, during the term of
employment by Employer and thereafter, Employee shall not, without the prior
written consent of Employer, directly or indirectly use, disclose or
disseminate to any other person, firm, organization or employee, or otherwise
employ any Trade Secrets, Confidential Information or Confidential Customer
Information. This obligation shall not apply to any Trade Secrets or
Confidential Information (i) that shall have become generally known to
competitors of Employer (in the case of Trade Secrets) or to the public (in the
case of Confidential Information) through no act or omission of Employee, or
(ii) that shall have been disclosed to Employee by a person or entity
unaffiliated with Employer that has legitimate possession thereof in its
entirety, and possesses the unrestricted right to make such disclosure.
Employee acknowledges that Employer may be bound by contract with Employer's
customers not to disclose any Confidential Customer Information. Accordingly,
Employee agrees to indemnify and hold Employer harmless from and against any
claim for damages, including attorneys' fees and court costs, brought by
Employer's customers or any other interested party, and against any other claim
based on contract, tort or common law indemnity arising out of his unauthorized
disclosure of Confidential Customer Information in violation of this Section 7.
8. Return of Material to Employer. Employee will deliver to
Employer, upon termination of Employee's employment with Employer and at any
other time upon Employer's request, all memoranda, notes, records, drawings or
other documentation, whether made or compiled by him alone or with others or
made available to him while employed by Employer, pertaining to Confidential
Customer Information, Trade Secrets, Confidential Information or other
inventions and works of Employer, and all Confidential Customer Information,
Trade Secrets, Confidential Information and other inventions and works of
Employer in his possession.
9. Noncompetition. During Employee's employment by Employer and for
a period of two (2) years after Employee's termination of employment with
Employer, Employee shall not, directly or indirectly, either individually or
jointly or on behalf of or in concert with any other person or entity, as a
proprietor, partner, shareholder, member, director, officer, employee, agent,
consultant or through any other kind of ownership (other than ownership of less
than five percent (5%) of any class of outstanding securities of any company
listed on any national securities exchange or traded in the over-the-counter
market) or in any other representative or individual capacity (a) engage in any
business or render any services to any business that is in competition with the
business of Employer in Texas, Louisiana, Oklahoma or Arkansas (the
"RESTRICTIVE AREA") so long as Employer continues to conduct business in the
Restrictive Area during such two (2) year period, (b) engage in any business
which calls upon, solicits, diverts, or takes away any customer or customers of
Employer in the Restrictive Area for the purpose of selling or attempting
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<PAGE> 5
to sell to any of such customers any products similar to any products
theretofore sold or provided to any of such customers by Employer so long as
Employer continues to conduct business in the Restrictive Area during such two
(2) period, (c) solicit any present or future employee of Employer, or discuss
with any such employee termination or resignation from employment with
Employer, so that such employee may accept employment with, or engagement as a
partner, investor, shareholder or consultant with, Employee, directly or
indirectly as specified above, or (d) otherwise interfere with, disrupt or
attempt to disrupt relationships, contractual or otherwise, between Employer
and any of its lenders, customers, employees or suppliers.
10. Notice of Employment. So long as Employee is subject to the
Noncompetition provisions of Section 9, Employee shall notify Employer in
writing, within five (5) days after accepting employment with any other person,
firm or organization of the name and address of such employer and his
employment capacity with such employer.
11. Injunctive Relief. The parties recognize that irreparable damage
will result to Employer from any violation of this Agreement by Employee. The
parties expressly agree that, in addition to any and all other remedies
available to Employer for any such violation, Employer shall have the remedies
of restraining order and injunction, and any such other equitable relief as may
be declared or issued by a court to enforce the provisions of Sections 6
through 10 above, without posting any bond that might be required, and Employee
agrees not to claim in any such equitable proceedings that a remedy at law is
available to Employer. The existence of any claim or cause of action by
Employee against Employer, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by Employer of any provision
hereof. Notwithstanding anything contained herein to the contrary, and if and
only if a provision of this type contained in this Section is enforceable in
the jurisdiction in question, if any one or more of the provisions contained in
Sections 6 through 10 shall for any reason be held to be excessively broad as
to duration, geographical scope, activity or subject, such provisions shall be
construed by limiting and reducing it so as to be enforceable to the extent
compatible with the applicable law in such jurisdiction as it shall then
appear. Employee agrees to reimburse Employer for any and all expenses
incurred, including attorneys' fees, expenses, court costs and settlement
costs, in connection with the enforcement of its rights and Employee's
obligations under this Agreement.
12. Termination. Employment of Employee under this Agreement may be
terminated:
(a) By Employee's voluntary resignation after giving at least
60 days' written notice.
(b) By Employer With Cause. For purposes of this Agreement
"WITH CAUSE" shall mean:
(i) Employee's becoming Totally Disabled. For the
purposes of this Agreement, Employee will be "TOTALLY DISABLED"
if he is "totally disabled" as defined in and for the period
necessary to qualify for benefits under any long-term disability
income insurance policy then in effect that is applicable to
executive employees of Employer;
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<PAGE> 6
(ii) the dissolution and liquidation of Employer, other
than as part of a reorganization, merger, consolidation or sale
of all or substantially all of the assets of Employer whereby
Employer's business is continued;
(iii) a conviction of or a plea of guilty or nolo
contendere by Employee to a felony involving fraud, embezzlement,
theft, or dishonesty or other criminal conduct;
(iv) habitual neglect of Employee's duties or failure by
Employee to perform or observe any substantial obligation of such
employment that is not remedied within thirty (30) days after
written notice thereof from Employer; or
(v) any material breach by Employee of this Agreement
which is not cured within thirty (30) days after written notice
thereof from Employer.
(c) By Employer Without Cause. For purposes of this
Agreement, "WITHOUT CAUSE" shall mean Employee's termination by Employer
for any reason other than (i) those set forth in subsections 12(a) and
12(b), or (ii) the termination of this Agreement due to the expiration
of the term set forth in Section 3(a).
(d) By Employee due to any material breach by Employer of this
Agreement which is not cured within thirty (30) days after written
notice thereof from Employee.
In the event of termination of this Agreement other than for death, Employee
shall resign from all positions held in Employer, including without limitation
any position as a director, officer, agent, trustee or consultant of Employer
or any affiliate of Employer. Except as provided in Section 9, termination of
the employment of Employee shall not terminate or otherwise affect the party's
respective obligations under Sections 6 through 14 of this Agreement.
13. Severance Benefits.
(a) VOLUNTARY RESIGNATION: In the event this Agreement is
terminated due to Employee's voluntary resignation, Employee shall not
be entitled to any severance benefits whatsoever.
(b) DEATH: In the event this Agreement is terminated because
of Employee's death, Employer shall continue to pay to Employee's estate
or his heirs, as applicable,
(i) his full Base Salary through the first anniversary
of the date of Employee's death; and
(ii) one-half of his full Base Salary for the period
commencing on the first anniversary of the date of his death and
continuing to the second anniversary of the date of his death.
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<PAGE> 7
Except as otherwise provided for in this Section 13(b), Employer shall
have no further obligations to Employee's estate or his heirs, as
applicable, pursuant to the terms of this Agreement following the death
of Employee.
(c) TERMINATION WITH CAUSE: In the event this Agreement is
terminated With Cause, Employee shall be entitled to (i) his full Base
Salary through his date of termination (ii) any benefits or awards which
pursuant to the terms of any compensation or benefit plan have been
earned or become payable as of Employee's date of termination, but which
have not yet been paid to Employee, and (iii) the amount due to Employee
for any expenses for which Employee shall not yet have been reimbursed
by Employer as of Employee's date of termination. Except as otherwise
provided for in the immediately preceding sentence, Employee shall not
be entitled to further compensation as of the date of termination of
this Agreement With Cause (specifically including, but not limited to,
any unearned bonuses). Any termination of this Agreement With Cause
shall be without prejudice to any right or remedy to which Employee may
be entitled either at law, in equity or under this Agreement.
(d) TERMINATION WITHOUT CAUSE: In the event this Agreement is
terminated Without Cause or by Employee pursuant to Section 12(d),
Employee shall be entitled to receive as the full amount due Employee
from Employer hereunder a severance benefit in an amount equal to (i)
the Base Salary for the then remaining term of Employee's employment
determined in accordance with Section 3(a), payable in equal monthly
installments until the each of such term, plus (ii) the Annual Bonus, if
any, which would have otherwise been paid to Employee during each year
of the remaining term of Employee's employment.
14. Waiver. A party's failure to insist on compliance or enforcement
of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision
or of any other provision of this Agreement by that party or any other party.
15. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
UNDER THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF TEXAS.
16. Severability. The invalidity or unenforceability of any
provision in the Agreement shall not in any way affect the validity or
enforceability of any other provision and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision had never been in
the Agreement.
17. Notice. Any and all notices required or permitted herein shall
be deemed delivered if delivered personally or if mailed by registered or
certified mail to such party at the address hereinafter set forth following
such party's signature, or at such other address or addresses as either party
may hereafter designate in writing to the other.
18. Assignment. This Agreement, together with any amendments hereto,
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors,
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<PAGE> 8
assigns, heirs and personal representatives, except that the rights, benefits
and obligations of Employee under this Agreement are personal in nature and may
not be assigned without the prior written consent of Employer.
19. Amendments. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless in
writing, signed by the parties.
20. Entire Agreement. This Agreement contains the entire agreement
and understanding by and between the parties to the employment of Employee, and
no representations, promises, agreements, or understandings, written or oral,
relating to the employment of Employee by Employer not contained herein shall
be of any force or effect.
21. References and Headings. In construing this Agreement, feminine
or number pronouns shall be substituted for those masculine in form and vice
versa, and plural terms shall be substituted for singular and singular for
plural in any place in which the context so requires. The various headings in
this Agreement are inserted for convenience only and are not part of the
Agreement.
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<PAGE> 9
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement as of the day and year first above written.
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, sole general partner
By: /s/ PATRICK K. FORD
---------------------------------
Patrick K. Ford, Assistant
Secretary
Address for Notice Purposes:
3114 South Haskell
Dallas, Texas 75223
EMPLOYEE:
/s/ PETE SCHENKEL
---------------------------------------------
Pete Schenkel
Address for Notice Purposes:
3114 South Haskell
Dallas, Texas 75223
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<PAGE> 1
EXHIBIT 10.29
Execution Copy
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "AGREEMENT") is made and entered into as of the 4th
day of September, 1997, by and between SOUTHERN FOODS GROUP, L.P., a Delaware
limited partnership (the "EMPLOYER"), and ANTHONY R. WARD (the "EMPLOYEE").
Recitals
WHEREAS, Employee formerly was the President and Chief Executive
Officer of Borden/Meadow Gold Dairies Holdings, Inc., a Delaware corporation
("BORDEN/MEADOW GOLD"); and
WHEREAS, Employer has recently entered into a series of transactions
resulting in Employer acquiring substantially all of the assets of Borden/Meadow
Gold relating to its dairy operations located in the Western United States which
sell dairy products primarily under the Meadow Gold and Viva trademarks; and
WHEREAS, the parties desire to enter into this Agreement to provide for
the employment of Employee by Employer and certain other matters as provided
herein;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and promises hereinafter contained, do hereby agree as follows:
1. Employment. Employer hereby employs Employee and Employee
hereby accepts the employment, on the terms and conditions hereinafter set
forth.
2. Duties. Employee's principal duties and responsibilities shall
be during the employment term, to manage the Meadow Gold Dairies Division (as
hereinafter defined) of Employer and to render such services to Employer and its
affiliates of an executive and administrative character as the general partner
of Employer may from time to time reasonably direct. Employee will devote his
best efforts and substantially all of his business time and attention (except
for vacation periods and reasonable periods of illness or other incapacity) to
the business of Employer and its affiliates; provided, however, that Employee
may devote a reasonable amount of time (consistent with Employee's past
practices) to civic, charitable, political and passive investment endeavors.
3. Employment Term. The employment term shall begin on the date
hereof and continue until the first to occur of:
(a) The fifth anniversary of the date hereof; provided,
however, that the term shall be automatically extended for one or more
one (1) year periods unless Employer or Employee, not less than ninety
(90) days prior to the commencement of any such one (1) year period,
notifies the other party in writing that this Agreement shall expire
rather than be extended for additional one (1) year periods; or
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<PAGE> 2
(b) The date on which the employment period is terminated
pursuant to Section 12 hereof.
4. Salary and Other Compensation. As compensation for the
services to be rendered by Employee to Employer pursuant to this Agreement and
as consideration for Employee's obligations under Sections 6 through 10 hereof,
Employee shall be paid the following compensation and other benefits:
(a) SALARY: Employer shall pay Employee an annual salary of
$336,000, or such higher compensation as may be established by Employer
from time to time (the "BASE SALARY").
(b) ANNUAL BONUS: Employer shall pay Employee an annual bonus
(each, an "ANNUAL BONUS") with respect to each Fiscal Year (as defined
in Section 5) fully completed during the term of Employee's employment
of an amount equal to 0.66% of the Meadow Gold Dairies Division's
EBITDA (as defined in Section 5) for such Fiscal Year; provided,
however, that the Annual Bonus shall not exceed the amount of
Employee's Base Salary for such Fiscal Year. The Annual Bonus shall be
prorated for any period that this Agreement is in effect which is less
than twelve (12) months, based on the number of months during such
Fiscal Year that this Agreement is in effect.
(c) DISABILITY: Should Employee become disabled, which for
purposes of this subsection 4(c) means Employee's inability because of
any physical or emotional illness to perform Employee's assigned duties
under this Agreement more than 30 hours per week, Employee's Base
Salary shall nevertheless be paid at its full rate prior to the
Employee's termination pursuant to Section 12(b); provided, however,
that if Employee receives any periodic payments representing lost
compensation under any health, disability, or accident insurance policy
or under any salary continuation insurance policy, the premiums for
which have been paid by Employer or paid for by Employee but reimbursed
by Employer, the amount of salary that Employee will be entitled to
receive from Employer during the disability shall be decreased by the
gross amount of such payments (before any withholding for taxes).
(d) EMPLOYEE BENEFIT PLANS: Employee shall be eligible to
participate, to the extent Employee may be eligible, in any profit
sharing, retirement, insurance, health coverage or other employee
benefit plan maintained by Employer.
(e) FRINGE BENEFITS: Except as provided otherwise in this
Agreement, Employee shall be entitled to the fringe benefits available
to the other employees of Employer, as such benefits may be revised
from time to time.
(f) VACATIONS AND LEAVE: Employee shall be entitled to the
same vacation and leave time as the other executive officers of
Employer.
5. Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
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<PAGE> 3
(a) "TRADE SECRETS" means any scientific or technical
information, formula, design, process, procedure or improvement that is
valuable to Employer and not generally known to the competitors of
Employer. To the fullest extent consistent with the foregoing and
otherwise lawful, Trade Secrets shall include, without limitations, all
information and documentation pertaining to the invention, development,
nature, design and specifications of and the production, application
and processing techniques and procedures relating to Employer's present
and future products and processes.
(b) "CONFIDENTIAL INFORMATION" means any data or information
and documentation, other than Trade Secrets, that is valuable to
Employer and not generally known to the public. To the fullest extent
consistent with the foregoing and otherwise lawful, Confidential
Information shall include, without limitation, Employer's marketing
techniques, pricing information, business plans and opportunities, bids
in process or under consideration (regardless of whether Employer has
entered into any agreement, made any commitment, or issued any bid or
offer), financial statements and projections, specialized customer
information concerning unique or novel marketing habits, and the
special products and services Employer may offer or provide to its
customers from time to time.
(c) "CONFIDENTIAL CUSTOMER INFORMATION" means any technical or
accounting data or proprietary information or confidential business
information of any of Employer's customers.
(d) "AFFILIATE" with respect to any person or entity means any
person or entity that directly or indirectly controls, is controlled
by, or is under common control with such person or entity.
(e) "FISCAL YEAR" shall mean Employer's fiscal year for
accounting and tax purposes, and shall include any fiscal year that is
shorter or longer than twelve (12) months due to a change in the date
Employer's fiscal year ends.
(f) "MEADOW GOLD DAIRIES DIVISION" shall mean the dairy
operations of Borden, Inc. located in the Western United States that
manufacture and sell dairy products primarily under the Meadow Gold and
Viva trademarks which were acquired by Employer of even date herewith
from Mid-America Dairymen, Inc. ("Mid-Am") as a result of a
contribution to Employer of substantially all of the assets and
liabilities of such diary operations.
(g) "EBITDA" shall mean the net income, if any, of the Meadow
Gold Dairies Division of Employer for the Fiscal Year in question, as
adjusted to exclude the effects of (i) interest expense of the Meadow
Gold Dairies Division for such Fiscal Year, (ii) all Federal and state
taxes attributable to the operations of the Meadow Gold Dairies
Division, if any, with respect to such Fiscal Year on, or with respect
to, income or profits of the Meadow Gold Dairies Division, if any, and
(iii) all amounts attributable to depreciation and amortization for
such Fiscal Year. Such calculations shall be made in accordance with
generally accepted accounting principles of Employer consistently
applied.
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<PAGE> 4
6. Employer Property. With respect to any and all Trade Secrets,
Confidential Information and other processes, formulae, inventions and works
made or conceived by Employee during his employment, whether (i) solely or
jointly with any other person, firm, organization or employee, (ii) during or
after his regular hours of employment, or (iii) with or without the use of
Employer's facilities, materials or personnel:
(a) Employee will disclose promptly to Employer all such Trade
Secrets, Confidential Information and other processes, formulae,
inventions and works.
(b) Employee will execute and promptly deliver to Employer
such written instruments, and, upon the request of Employer, do such
other acts, as may be required to patent, copyright or otherwise
protect such Trade Secrets, Confidential Information and other
processes, formulae, inventions and works, and any documentation or
other materials pertaining thereto, and to vest all rights, title and
interest therein in Employer. All such Trade Secrets, Confidential
Information and other processes, formulae, inventions and works,
together with any documentation or other materials pertaining thereto,
shall be considered work made for hire and prepared by Employee as an
employee within the scope of his employment by Employer.
(c) Employer shall have the perpetual and unlimited right,
without cost, to make, use and sell, in whole or in part, any of such
Trade Secrets, Confidential Information or other processes, formulae,
inventions or works, and to make, use and sell any and all products,
processes and services derived from any of such Trade Secrets,
Confidential Information or other processes, formulae, inventions or
works.
7. Confidentiality. Except as required by law, during the term of
employment by Employer and thereafter, Employee shall not, without the prior
written consent of Employer, directly or indirectly use, disclose or disseminate
to any other person, firm, organization or employee, or otherwise employ any
Trade Secrets, Confidential Information or Confidential Customer Information.
This obligation shall not apply to any Trade Secrets or Confidential Information
(i) that shall have become generally known to competitors of Employer (in the
case of Trade Secrets) or to the public (in the case of Confidential
Information) through no act or omission of Employee, or (ii) that shall have
been disclosed to Employee by a person or entity unaffiliated with Employer that
has legitimate possession thereof in its entirety, and possesses the
unrestricted right to make such disclosure. Employee acknowledges that Employer
may be bound by contract with Employer's customers not to disclose any
Confidential Customer Information. Accordingly, Employee agrees to indemnify and
hold Employer harmless from and against any claim for damages, including
attorneys' fees and court costs, brought by Employer's customers or any other
interested party, and against any other claim based on contract, tort or common
law indemnity arising out of his unauthorized disclosure of Confidential
Customer Information in violation of this Section 7.
8. Return of Material to Employer. Employee will deliver to
Employer, upon termination of Employee's employment with Employer and at any
other time upon Employer's request, all memoranda, notes, records, drawings or
other documentation, whether made or
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<PAGE> 5
compiled by him alone or with others or made available to him while employed by
Employer, pertaining to Confidential Customer Information, Trade Secrets,
Confidential Information or other inventions and works of Employer, and all
Confidential Customer Information, Trade Secrets, Confidential Information and
other inventions and works of Employer in his possession.
9. Noncompetition. During Employee's employment by Employer and
for a period of two (2) years after Employee's termination of employment with
Employer, Employee shall not, directly or indirectly, either individually or
jointly or on behalf of or in concert with any other person or entity, as a
proprietor, partner, shareholder, member, director, officer, employee, agent,
consultant or through any other kind of ownership (other than ownership of less
than five percent (5%) of any class of outstanding securities of any company
listed on any national securities exchange or traded in the over-the-counter
market) or in any other representative or individual capacity (a) engage in any
business or render any services to any business that is in competition with the
business of Employer in any of the states of the United States located west of
the Mississippi River (the "RESTRICTIVE AREA") so long as Employer continues to
conduct business in the Restrictive Area during such two (2) year period, (b)
engage in any business which calls upon, solicits, diverts, or takes away any
customer or customers of Employer in the Restrictive Area for the purpose of
selling or attempting to sell to any of such customers any products similar to
any products theretofore sold or provided to any of such customers by Employer
so long as Employer continues to conduct business in the Restrictive Area during
such two (2) period, (c) solicit any present or future employee of Employer, or
discuss with any such employee termination or resignation from employment with
Employer, so that such employee may accept employment with, or engagement as a
partner, investor, shareholder or consultant with, Employee, directly or
indirectly as specified above, or (d) otherwise interfere with, disrupt or
attempt to disrupt relationships, contractual or otherwise, between Employer and
any of its lenders, customers, employees or suppliers.
10. Notice of Employment. So long as Employee is subject to the
noncompetition provisions of Section 9, Employee shall notify Employer in
writing, within five (5) days after accepting employment with any other person,
firm or organization of the name and address of such employer and his employment
capacity with such employer.
11. Injunctive Relief. The parties recognize that irreparable
damage will result to Employer from any violation of this Agreement by Employee.
The parties expressly agree that, in addition to any and all other remedies
available to Employer for any such violation, Employer shall have the remedies
of restraining order and injunction, and any such other equitable relief as may
be declared or issued by a court to enforce the provisions of Sections 6 through
10 above, without posting any bond that might be required, and Employee agrees
not to claim in any such equitable proceedings that a remedy at law is available
to Employer. The existence of any claim or cause of action by Employee against
Employer, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Employer of any provision hereof.
Notwithstanding anything contained herein to the contrary, and if and only if a
provision of this type contained in this Section is enforceable in the
jurisdiction in question, if any one or more of the provisions contained in
Sections 6 through 10 shall for any reason be held to be excessively broad as to
duration, geographical scope, activity or subject, such provisions shall be
construed by limiting and reducing it so as to be enforceable to the extent
compatible with the applicable law
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<PAGE> 6
in such jurisdiction as it shall then appear. Employee agrees to reimburse
Employer for any and all expenses incurred, including attorneys' fees, expenses,
court costs and settlement costs, in connection with the enforcement of its
rights and Employee's obligations under this Agreement.
12. Termination. Employment of Employee under this Agreement may
be terminated:
(a) By Employee's voluntary resignation after giving at least
60 days' written notice.
(b) By Employer With Cause. For purposes of this Agreement
"WITH CAUSE" shall mean:
(i) Employee's becoming Totally Disabled. For the
purposes of this Agreement, Employee will be "TOTALLY
DISABLED" if he is "totally disabled" as defined in and for
the period necessary to qualify for benefits under any
long-term disability income insurance policy then in effect
that is applicable to executive employees of Employer;
(ii) the dissolution and liquidation of Employer,
other than as part of a reorganization, merger, consolidation
or sale of all or substantially all of the assets of Employer
whereby Employer's business is continued;
(iii) a conviction of or a plea of guilty or nolo
contendere by Employee to a felony involving fraud,
embezzlement, theft, or dishonesty or other criminal conduct;
(iv) habitual neglect of Employee's duties or failure
by Employee to perform or observe any substantial obligation
of such employment that is not remedied within thirty (30)
days after written notice thereof from Employer; or
(v) any material breach by Employee of this Agreement
which is not cured within thirty (30) days after written
notice thereof from Employer.
(c) By Employer Without Cause. For purposes of this Agreement,
"WITHOUT CAUSE" shall mean Employee's termination by Employer for any
reason other than (i) those set forth in subsections 12(a) and 12(b),
or (ii) the termination of this Agreement due to the expiration of the
term set forth in Section 3(a).
(d) By Employee due to any material breach by Employer of this
Agreement which is not cured within thirty (30) days after written
notice thereof from Employee.
In the event of termination of this Agreement other than for death, Employee
shall resign from all positions held in Employer, including without limitation
any position as a director, officer, agent, trustee or consultant of Employer or
any affiliate of Employer. Except as provided in Section 9, termination of the
employment of Employee shall not terminate or otherwise affect the party's
respective obligations under Sections 6 through 14 of this Agreement.
- 6 -
<PAGE> 7
13. Severance Benefits.
(a) VOLUNTARY RESIGNATION: In the event this Agreement is
terminated due to Employee's voluntary resignation, Employee shall not
be entitled to any severance benefits whatsoever.
(b) TERMINATION WITH CAUSE: In the event this Agreement is
terminated With Cause, Employee shall be entitled to (i) his full Base
Salary through his date of termination (ii) any benefits or awards
which pursuant to the terms of any compensation or benefit plan have
been earned or become payable as of Employee's date of termination, but
which have not yet been paid to Employee, and (iii) the amount due to
Employee for any expenses for which Employee shall not yet have been
reimbursed by Employer as of Employee's date of termination. Except as
otherwise provided for in the immediately preceding sentence, Employee
shall not be entitled to further compensation as of the date of
termination of this Agreement With Cause (specifically including, but
not limited to, any unearned bonuses). Any termination of this
Agreement With Cause shall be without prejudice to any right or remedy
to which Employee may be entitled either at law, in equity or under
this Agreement.
(c) TERMINATION WITHOUT CAUSE: In the event this Agreement is
terminated Without Cause or by Employee pursuant to Section 12(d),
Employee shall be entitled to receive as the full amount due Employee
from Employer hereunder a severance benefit in an amount equal to (i)
the Base Salary for the then remaining term of Employee's employment
determined in accordance with Section 3(a), payable in equal monthly
installments until the each of such term, plus (ii) the Annual Bonus,
if any, which would have otherwise been paid to Employee during each
year of the remaining term of Employee's employment.
14. Waiver. A party's failure to insist on compliance or
enforcement of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision or
of any other provision of this Agreement by that party or any other party.
15. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED UNDER THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF
THE STATE OF TEXAS.
16. Severability. The invalidity or unenforceability of any
provision in the Agreement shall not in any way affect the validity or
enforceability of any other provision and this Agreement shall be construed in
all respects as if such invalid or unenforceable provision had never been in the
Agreement.
17. Notice. Any and all notices required or permitted herein shall
be deemed delivered if delivered personally or if mailed by registered or
certified mail to such party at the address hereinafter set forth following such
party's signature, or at such other address or addresses as either party may
hereafter designate in writing to the other.
- 7 -
<PAGE> 8
18. Assignment. This Agreement, together with any amendments
hereto, shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives, except that the rights, benefits and obligations of Employee
under this Agreement are personal in nature and may not be assigned without the
prior written consent of Employer.
19. Amendments. This Agreement may be amended at any time by
mutual consent of the parties hereto, with any such amendment to be invalid
unless in writing, signed by the parties.
20. Entire Agreement. This Agreement contains the entire agreement
and understanding by and between the parties to the employment of Employee, and
no representations, promises, agreements, or understandings, written or oral,
relating to the employment of Employee by Employer not contained herein shall be
of any force or effect.
21. References and Headings. In construing this Agreement,
feminine or number pronouns shall be substituted for those masculine in form and
vice versa, and plural terms shall be substituted for singular and singular for
plural in any place in which the context so requires. The various headings in
this Agreement are inserted for convenience only and are not part of the
Agreement.
THIS PAGE INTENTIONALLY LEFT BLANK
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement as of the day and year first above written.
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, sole general partner
By:/s/ PATRICK K. FORD
--------------------------------------
Patrick K. Ford, Assistant Secretary
Address for Notice Purposes:
c/o Pete Schenkel
3114 South Haskell
Dallas, Texas 75223
EMPLOYEE:
/s/ TONY WARD
--------------------------------------------------
Anthony R. Ward
Address for Notice Purposes:
3184 East 4100
North Liberty, Utah 84310
- 9 -
<PAGE> 1
EXHIBIT 10.30
SOUTHERN FOODS GROUP, L.P.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
OCTOBER 1996
<PAGE> 2
SOUTHERN FOODS GROUP, L.P.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Southern Foods Group, L.P. Supplemental Executive Retirement Plan
("Plan") is adopted by Southern Foods Group, L.P. (the "Partnership") for the
benefit of certain officers, key management and highly compensated employees to
be effective October 1, 1996. The Plan is intended to protect and retain
certain qualified employees and to reward those qualified employees for loyal
service to the Partnership by providing for supplemental retirement benefits in
addition to the benefits provided to those employees under the other qualified
and non-qualified retirement plans maintained by the Partnership. The Plan is
intended to be an unfunded nonqualified deferred compensation arrangement for a
select group of management or highly compensated employees.
ARTICLE I
DEFINITIONS
1.1 ACCOUNT BALANCES means the hypothetical amount that would be
credited to the individual accounts of the Participant under the MSP Plan and
the Retirement Plan (including rollover accounts from IRAs or prior plans into
the Retirement Plan) determined assuming:
a) that the maximum Participant contribution permitted under the
terms of such plans to attract a matching employer
contribution were made each year by the Participant;
b) that the maximum employer matching contribution was made by
the employer each year and allocated to the participant's
account; and
c) that an increment was credited to such account as augmented by
the assumptions set forth in (a) and (b) above, determined
using the same interest rate as is used to determine Actuarial
Equivalence hereunder.
For purposes of determining benefits under this Plan, a Participant
will be assumed to have participated in the Retirement Plan and the MSP Plan
the entire time that he was eligible, under the terms of the respective plan,
at the times in question, to so participate.
1.2 ACTUARIAL EQUIVALENCE means a form of benefit differing in
time, period, or manner of payment from the benefit provided under the Plan but
having the same value when computed by assuming a life expectancy from Normal
Retirement Date based on the 1983 Group Annuity Mortality Table and an interest
and discount rate of seven percent (7%).
1.3 ANNUAL EARNINGS means the greatest amount of Earnings received
by the Participant while working as an employee of the Partnership during any
consecutive twelve (12) calendar month period ending on or prior to the
Participant's Normal Retirement Date.
2
<PAGE> 3
1.4 BOARD means the Representative Committee of the General
Partner of the Partnership as established pursuant to the provisions of the
Limited Liability Company Agreement of the General Partner dated as of December
19, 1994, as the same may from time to time be amended.
1.5 CHANGE IN CONTROL means the occurrence of one or more of the
following events:
a) the Partnership shall not be the surviving entity in any
merger, consolidation or other reorganization;
b) the Partnership sells, leases or exchanges or agrees to sell,
lease or exchange all or substantially all of its property,
business or assets to any other person or entity;
c) the Partnership is to be dissolved and liquidated; or
d) at any time on or after February 19, 1997, the failure of
Mid-America Dairymen, Inc., directly or indirectly to own, at
least 50% of the issued and outstanding general and limited
partnership interests of the Partnership (on a fully-diluted
basis); or
e) at any time when Allen A. Meyer and Pete Schenkel, directly or
indirectly fail to own in the aggregate at least 50% of the
issued and outstanding general and limited partnership
interests of the Partnership (on a fully-diluted basis),
Mid-America Dairymen, Inc. shall fail to so own at least 50.1%
of such interests.
1.6 COMPENSATION COMMITTEE means the Human Resources and
Compensation Committee of the Partnership. Should the Human Resources and
Compensation Committee of the Partnership not be in existence, the
Representative Committee of the General Partner of the Partnership shall
exercise any function exercisable by such Committee, or shall delegate such
functions to such persons as the Representative Committee of the General
Partner at its discretion may designate.
1.7 DISABILITY DATE means the date a Participant commences
benefits under the Partnership's long-term disability insurance plan as in
effect from time to time. If the Partnership has no long-term disability plan
in effect, a Participant's Disability Date shall be the date the Participant is
determined to be disabled pursuant to the provisions of the Retirement Plan.
1.8 EARNINGS means the total base salary paid to the Participant
by the Partnership or any entity owned or controlled by the Partnership and
shall not include bonuses or any non-cash amounts (including amounts
attributable to stock options) which are required to be included in W-2
compensation. Earnings shall not be reduced by amounts excluded from gross
income pursuant to any provisions of the Internal Revenue Code of 1986, as
amended ("Code") which permit a Participant to elect to contribute or defer
earnings in connection with any employee benefit plan maintained by the
Partnership or any subsidiary .
3
<PAGE> 4
1.9 GENERAL PARTNER means SFG Management Limited Liability
Company, which is the current general partner of the Partnership, and any
successor thereto.
1.10 NORMAL RETIREMENT BENEFIT means a monthly benefit payable
hereunder beginning on the Participant's Normal Retirement Date and ending with
the last payment made prior to the Participant's death, and computed under
Section 3.1.
1.11 NORMAL RETIREMENT DATE means the first day of the month
coincident with or next following the Participant's attainment of Normal
Retirement Age as set forth in, or determined pursuant to, Section 1.13. If a
Participant continues in active employment through his 70th birthday, such
Participant shall be deemed to retire on the Participant's 70th birthday.
1.12 PARTNERSHIP means Southern Foods Group, L.P., a Delaware
limited partnership, and any successor thereto.
1.13 PARTICIPANT means the individuals who are employees of the
Partnership as set forth below, along with their respective Normal Retirement
Age for purposes of this Plan:
<TABLE>
<CAPTION>
Normal
Name Retirement Age
---- --------------
<S> <C>
Pete Schenkel 70
Allen A. Meyer 65
Jerry W. Frie 65
Stuart Gibson 65
Pat Boyle 65
James Killingsworth 70
Patrick Beaman 65
Brian Haugh 65
Lenard O. Jackson 65
Ford Kennon Davis 65
Ernest Winfrey 70
</TABLE>
Any other individual who is a key employee of the Partnership who comes within
the definition of management or highly compensated employee may be designated
as a Participant as provided in Article II. The Normal Retirement Age of such
designated Participant, unless specified in the written instrument so
designating him as a Participant, shall be age 65. A Participant shall also
include a retired or terminated Participant who continues to be entitled to
benefits under this Plan after Participant's Termination of Service.
1.14 MSP PLAN means the Southern Foods Group Management & Security
Plan established under instrument dated March 31, 1995.
4
<PAGE> 5
1.15 PLAN means this Southern Foods Group, L.P. Supplemental
Executive Retirement Plan and amendments thereto.
1.16 PROJECTED BENEFIT means seventy percent (70%) of the
Participant's Annual Earnings payable hereunder monthly for the Participant's
life.
1.17 RETIREMENT PLAN means the Southern Foods Group, L.P. Employees
Savings and Profit Sharing Plan, as amended from time to time.
1.18 TERMINATION OF SERVICE DATE means the first day of the month
next following the involuntary termination of a Participant's employment.
1.19 TRUST means the trust established by the Partnership and
maintained for the benefit of the Participants hereunder.
1.20 TRUST ACCUMULATION ACCOUNT means the account established and
maintained for a Participant under the Trust.
ARTICLE II
DESIGNATION OF PARTICIPANTS AND ELIGIBILITY FOR BENEFITS
2.1 DESIGNATION OF PARTICIPANTS. The Participants shall be those
key employees of the Partnership designated in or pursuant to Section 1.13 and
any other key employees designated by the Compensation Committee from time to
time as Participants in the Plan; provided that this plan is intended to
benefit only those employees who shall be designated as a Participant and are
also within a "select group of management or highly compensated employees"
within the meaning of such expression in Section 201(2), 301(a)(3), and
401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
2.2 ELIGIBILITY FOR BENEFITS. Benefits under this Plan shall be
payable to a Participant upon:
a) The Participant's Normal Retirement Date;
b) The Participant's Disability Date which occurs before
Participant's Normal Retirement Date and while actively
employed by the Partnership;
c) The Participant's Termination of Service Date before Normal
Retirement Date and while actively employed by the
Partnership.
5
<PAGE> 6
ARTICLE III
BENEFITS
3.1 BENEFIT. (a) The monthly benefit payable for a
Participant's life, beginning upon a Participant's retirement at or after his
Normal Retirement Date shall be an amount equal to the difference between the
Participant's Projected Benefit as of his Normal Retirement Date less the sum
of (i) and (ii) where:
i) is the monthly amount that could be payable for the
Participant's life from the Participant's Account
Balances projected to his Normal Retirement Date,
using the same interest assumption and mortality
tables as would be used in deriving an Actuarial
Equivalence, and
ii) is the monthly retirement benefit payable to the
Participant from the Social Security Administration
as of the Participant's Normal Retirement Date,
whether or not actually paid.
b) The monthly benefit payable for a Participant's life,
beginning upon a Participant's Disability Date shall be an
amount equal to the difference between 10% of 1/12th of the
Participant's Annual Earnings as of his Disability Date less
the sum of (i) and (ii) where:
i) is the monthly amount that could be payable for the
Participant's life from the Participant's Account
Balances projected to his Disability Date, using the
same interest assumption and mortality tables as
would be used in deriving an Actuarial Equivalence,
and
ii) is the monthly disability benefit, if any, payable to
the Participant from the Social Security
Administration on account of the Participant's
Disability Date, whether or not actually paid.
c) The monthly benefit payable for a Participant's life when such
Participant's employment terminates involuntarily for reasons
other than Disability shall be an amount equal to the
difference between Participant's Projected Benefit as of his
Termination of Service Date less the sum of (i) and (ii)
where:
i) is the monthly amount that could be payable for the
Participant's life from the Participant's Account
Balances projected to his Termination of Service
Date, using the same interest assumption and
mortality tables as would be used in deriving an
Actuarial Equivalence, and
6
<PAGE> 7
ii) is the projected monthly retirement benefit payable
to the Participant from the Social Security
Administration as of the Participant's Normal
Retirement Date, whether or not actually paid.
3.2 VESTED PERCENTAGE. All Participants' benefits payable under
the terms of this Plan shall be one hundred percent (100%) vested at all
times. Notwithstanding anything else in this Plan to the contrary, a
Participant's vested benefit shall be forfeited upon his death, his voluntary
termination of service, or his involuntary termination of service on account of
a conviction of a felony or crime of moral turpitude. The amount of such
forfeited benefit shall be used to reduce the obligation of the Partnership to
contribute to the Trust, pursuant to Section 3.3, for the year in which such
forfeiture occurs.
3.3 PARTNERSHIP CONTRIBUTIONS. The Partnership may, in the sole
discretion of the Board, for each calendar year, contribute to the Trust for
each Participant that amount which is required to provide, at his Normal
Retirement Date, a single sum which is the Actuarial Equivalence of the
projected benefit provided for such Participant under Section 3.1 above, less
the sum of the projected amount, as of such date, of the Participant's Trust
Accumulation Account; provided, however, that in the event of a Change in
Control, the Partnership shall within 90 days thereafter contribute to the
Trust for each Participant (less any contributions that have previously been
made) and thereafter immediately pay to each Participant in a lump sum, an
amount equal to the Actuarial Equivalence of the benefits which have accrued
under the Plan for the account of such Participant as of the day of any Change
in Control.
Annual contributions to the Trust shall be made as soon as
administratively feasible after the end of each calendar year, but in any event
prior to March 31st.
3.4 TRUST ASSETS. Except as provided in Section 4.3, all
Partnership contributions shall be held by the Trustee as a single investment
fund. However, the Trustee shall maintain separate Trust Accumulation Accounts
for the benefit of each Participant which shall be credited with the
Partnership contributions allocated to each such Participant and the earnings
attributable thereto. Except as provided in Section 4.3, each Participant's
Trust Accumulation Account shall be each allocated its pro rata share of all
earnings, interest, gain and losses, as of the last day of each calendar year.
It is expressly acknowledged that the assets of the Trust are and will remain
subject to the creditors of the Partnership as set forth in the Trust
Agreement.
7
<PAGE> 8
ARTICLE IV
PAYMENT OF BENEFITS
4.1 PAYMENT OF BENEFITS UPON NORMAL RETIREMENT. Upon the
Participant's attainment of his Normal Retirement Date, he shall be paid a
Normal Retirement Benefit as computed under Section 3.1(a). All payments of
Normal Retirement Benefits shall be reduced by the amount of applicable
federal, state and local withholding taxes, specifically including FICA and
FUTA taxes, attributable thereto.
4.2 PAYMENT OF BENEFITS UPON VOLUNTARY TERMINATION OF SERVICE.
Except in the case of Termination of Service on account of Disability pursuant
to Section 4.4, no benefit shall be paid to any Participant who voluntarily
terminates employment prior to attainment of his Normal Retirement Age.
4.3 PAYMENT OF BENEFITS UPON TERMINATION OF SERVICE DUE TO DEATH.
No benefit shall be payable from the Plan in the event of a Participant's
Termination of Service due to Death.
4.4 PAYMENT OF BENEFITS UPON TERMINATION OF SERVICE DUE TO
DISABILITY. Upon the Participant's Disability Date, he shall be paid a benefit
on account of Disability, as computed under Section 3.1(b). All payments of
benefits on account of Disability shall be reduced by the amount of applicable
federal, state and local withholding taxes, specifically including FICA and
FUTA taxes, attributable thereto. Payment of Disability benefits shall be made
monthly and shall begin on the first day of the month coincident with or next
following the Participant's Disability Date. The last payment of benefits on
account of Disability shall be the last monthly payment made prior to or
coincident with the Participant's death.
4.5 PAYMENT OF BENEFITS UPON INVOLUNTARY TERMINATION OF SERVICE.
Upon the Participant's Termination of Service Date, he shall be paid a benefit
on account of involuntary termination of service for reasons other than
Disability, as computed under Section 3.1(c). All payments of benefits on
account of an involuntary termination of service shall be reduced by the amount
of applicable federal, state and local withholding taxes, specifically
including FICA and FUTA taxes, attributable thereto. Payment of benefits on
account of involuntary termination of service for reasons other than Disability
shall be made monthly and shall begin on the first day of the month coincident
with or next following the Participant's Normal Retirement Date. The last
payment of benefits on account of involuntary termination of service shall be
the last monthly payment made prior to or coincident with the Participant's
death.
ARTICLE V
MISCELLANEOUS
5.1 AMENDMENT AND TERMINATION. The Representative Committee of
the General Partner may at any time, or from time to time, amend this Plan in
any respect or terminate this Plan without restriction and without consent of
any Participant or beneficiary; provided, any such
8
<PAGE> 9
amendment or termination shall not impair or adversely affect the right of any
Participant or any beneficiary of any deceased Participant to receive benefits
vested hereunder prior to such amendment or termination without the consent of
such Participant or such beneficiary . Any amendment or termination of the
Plan which would reduce the amount of benefit payable to a Participant if such
Participant's Termination of Service Date occurred immediately prior to such
amendment or termination will be deemed to impair or adversely affect the right
to receive benefits vested hereunder.
5.2 PLAN ADMINISTRATION. The Compensation Committee is authorized
to take such actions as may be necessary to carry out the provisions and
purposes of the Plan and shall have the authority to control and manage the
operation and administration of the Plan. In order to effectuate the purposes
of the Plan, the Committee shall have the fiduciary power to construe and
interpret the Plan, to supply any omissions therein, to reconcile and correct
any errors or inconsistencies, to decide any questions in the administration
and application of the Plan, and to make equitable adjustments for any mistakes
or errors made in the administration of the Plan. All such actions or
determinations made by the Committee, and the application of rules and
regulations to a particular case or issue by the Committee, in good faith,
shall not be subject to review by anyone, but shall be final, binding and
conclusive on all persons ever interested hereunder. In construing the Plan
and in exercising its fiduciary power under provisions requiring Committee
approval, the Committee shall attempt to ascertain the purpose of the
provisions in question and when such purpose is known or reasonably
ascertainable, such purpose shall be given effect to the extent feasible.
Likewise, the Committee is, in the exercise of its fiduciary powers, authorized
to determine all questions with respect to the individual rights of all
Participants under this Plan, including, but not limited to, all issues with
respect to eligibility, Earnings, valuation of Accounts, allocation of
contributions and Trust earnings, and Disability, retirement or Termination of
Service, and shall direct the Trustee concerning the allocation, payment and
distribution of all funds held in trust for purposes of the Plan. The
Committee, in the exercise of any discretionary powers hereunder, shall not
exercise that discretion so as to discriminate against employees who are
similarly situated. The Committee shall establish investment objectives and
monitor, or cause to be monitored, the investment performance of the Trustee or
any investment manager which may be appointed with respect to any assets of the
Trust, and shall make such reports and give such recommendations to the Board
as it requests with respect thereto. The Committee shall have authority to
make, and from time to time, revise rules and regulations for the
administration of the Plan.
5.3 NO GUARANTEE OF EMPLOYMENT. Nothing contained herein shall be
construed as a contract of employment or give any Participant the right to be
retained in the employ of the Partnership, or to interfere with the rights of
the Partnership to discharge any individual at any time, with or without cause.
5.4 ALIENATION OF BENEFITS. No Participant shall have any right
to assign, transfer, appropriate, encumber, commute or anticipate his interest
in the Plan, or any payments to be made hereunder, and no benefits or payments,
rights, or interests of any such person of any kind or nature, shall be in any
way subject to any legal or equitable process or writ by way of levy,
garnishment, execution or attachment for payment of any claim against any such
person, nor shall any such person
9
<PAGE> 10
have any right of any kind whatsoever with respect to the Trust, or any estate
or interest therein, or with respect to any other property or rights, other
than the right to receive such distributions as are lawfully made under the
Plan, as when the same, respectively, are due and payable, under the terms of
this Plan. The Trustee shall not recognize any attempted alienation or
encumbrance of the right or interest hereunder of any Participant. The
foregoing provisions shall not, however, apply to withholding of any
applicable taxes. Neither the Plan or Trust nor any benefits hereunder shall
be liable for or subject to the debts, contracts, liabilities, engagements, or
torts of any person to whom such benefits or funds are payable, nor shall the
Trust or any benefits hereunder be considered an asset of such person in the
event of his bankruptcy. The interests of all Participants shall be subject
to a "spendthrift trust". The provisions of this Section 5.4 shall not in any
way cause the assets of the Trust not to be subject to creditors of the
Partnership as provided in Section 3.4 above.
5.5 PAYMENT TO REPRESENTATIVES. The Committee may, in such event,
in its sole discretion, direct all or any portion of such payments to be made
in any one or more of the following ways: (i) directly to such person, (ii) to
the guardian of his person or of his estate, even if appointed by a court other
than a Texas state court, (iii) to a custodian under any applicable Uniform
Gifts to Minors act or Uniform Transfers to Minors Act, or (iv) to a person
appointed by the guardian of his person or of his estate through a Power of
Attorney. Notwithstanding the foregoing, the Committee may elect to have a
court of applicable jurisdiction determine to whom a payment or payments
should be made. The decision of the Committee, in each case, will be final,
binding and conclusive upon all persons ever interested hereunder, and the
Committee shall not be obliged to see to the proper application or expenditure
of any payments so made. Any payment made pursuant to the power herein
conferred upon the Committee shall operate as a complete discharge of all
obligations of the Trustee and the Committee, to the extent of the amounts so
paid.
5.6 GOVERNING LAW. Except where inconsistent with the express
provisions hereof, or where preempted by ERISA, the powers and duties of the
Committee and all questions of interpretation, construction, operation and
effect of this Plan shall be governed by the laws of the State of Texas. All
contributions to the Trust shall be deemed to take place in the State of Texas;
and, except for such matters as may arise under ERISA, the Committee and
Trustee shall be liable to account only in the courts of that state.
5.7 GENDER AND NUMBER. The masculine pronoun wherever used shall
include the feminine. Wherever any words are used herein in the singular, they
shall be construed as though they were also used in the plural in all cases
where they shall so apply.
5.8 TITLES AND HEADINGS. The titles to articles and headings of
sections are for convenience of reference and, in case of any conflict, the
text of Plan rather than such titles and headings shall control.
5.9 RESOLUTION OF DISPUTES. Any dispute between a Participant and
the Partnership, or any successor, shall be first submitted to mediation under
the Commercial Mediation Rules of the American Arbitration Association, which
may be initiated by a written request by Participant or the Partnership. If
such dispute is not resolved within sixty (60) days of the written request for
10
<PAGE> 11
mediation, it shall be submitted to arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. In connection with such mediation and
arbitration, the following rules shall apply:
i) Any mediation or arbitration shall be held in the
city in which the Participant resides at the time of
submission to mediation;
ii) Any mediation or arbitration shall be conducted by a
single person who shall serve as both mediator and
arbitrator;
iii) The costs of any mediation and arbitration shall be
borne by the Partnership.
11
<PAGE> 1
EXHIBIT 10.31
BORDEN, INC.
EXECUTIVES SUPPLEMENTAL PENSION PLAN
Amended and Restated as of December 9, 1993
With Amendments Through 9/27/94
<PAGE> 2
FOREWORD
Effective as of January 30, 1973, Borden, Inc. adopted the Borden, Inc.
Executives Supplemental Pension Plan (the "Plan") for the benefit of certain of
its executives. The Plan has been amended from time to time thereafter.
Effective as of January 1, 1988, January 1, 1989 and December 9, 1993 the Plan
has been further amended, and has been restated herein.
The purposes of the Plan as amended and restated January 1, 1988 are (a) to
provide retired participants and their joint annuitants and beneficiaries under
the Borden, Inc. Employees Retirement Income Plan ("Borden ERIP") with the
amount of retirement income that is not provided under the Borden ERIP by reason
of the participant having been granted a deferred award under the Management
Incentive Plan and having elected to defer compensation under this Plan, (b) to
permit Executive Employees' and certain other managerial employees to elect to
have payment of a portion of current compensation deferred until a later year
and to provide a "matching credit" with respect to all or a portion of such
deferred compensation, and (c) to provide retired participants and their joint
annuitants and beneficiaries under the Borden ERIP with the amount of retirement
income that is not provided under the Borden ERIP by reason of the limit on
recognized compensation required by Section 401(a)(17) of the Internal Revenue
Code.
It is intended that the Plan be a deferred compensation plan for "a select group
of management or highly compensated employees," as that term is used in the
Employee Retirement Income Security Act of 1974.
Except to the extent otherwise indicated, and except to the extent otherwise
inappropriate, the Borden ERIP and the Borden RSP, and the provisions thereof,
hereby are incorporated by reference.
<PAGE> 3
SECTION ONE
Definitions
1.1 Except to the extent otherwise indicated herein, and except to the extent
otherwise inappropriate in the context, the definitions contained in
Section A1 of the Borden ERIP are applicable under the Plan.
1.2 "Accrued Regular Benefit" means the amount of retirement income payable to
or with respect to a participant on termination of employment, or earlier
date requiring payment under this Plan, under the ERIP and Borden Excess
Benefits Plan.
1.3 "Accrued Supplemental Benefit" means the excess, if any, of (i) the
retirement income payable to or with respect to a participant under the
Borden ERIP and Borden Excess Benefits Plan (to the extent applicable)
which would have been accrued by the participant had the amount of
deferred awards under the Management Incentive Plan, Deferred
Compensation, and Excluded Compensation been recognized as "Compensation"
under the Borden ERIP over (ii) the participant's Accrued Regular Benefit.
1.4 "Board of Directors" means the Board of Directors of the Corporation.
1.5 "Borden Excess Benefits Plan" means the Borden, Inc. Excess Benefits Plan.
1.6 "Borden ERIP" means the Borden, Inc. Employees Retirement Income Plan.
1.7 "Borden RSP" means the Borden, Inc. Retirement Savings Plan and effective
January 1, 1989 the Borden, Inc. Consolidated Retirement Savings and
Employee Stock Ownership Plan.
1.8 "Corporation" means Borden, Inc. and any successor to such corporation by
merger, purchase or otherwise.
1.9 "Deferred Compensation" means (i) the amount of an Executive Employee's
compensation for a year after 1987 that such Executive Employee has
deferred until a later year pursuant to an election under Section 2.2 of
this Plan, and/or (ii) the amount of an Executive Employee's Elective
Salary Deferral for the 1987 calendar year, and/or (iii) the amount of
Excluded Compensation deferred by a Highly Paid Executive under Section
2.2 of this Plan.
1
<PAGE> 4
1.10 "Elective Salary Deferral" means the amount of salary deferral elected by
an Executive Employee pursuant to a salary reduction agreement for 1987
for amounts which would otherwise have been Tax Deferred Contributions
pursuant to Section 3.2 of the Borden RSP but for the $7,000 Limit in such
Section.
1.11 "Excluded Compensation" means; that part of total compensation to a Highly
Paid Executive earned from the Corporation which (i) if the year is 1989,
exceeds $200,000 or (ii) if the year is subsequent to 1989, exceeds the
dollar limit for such year under Section 401(a)(17) of the Internal
Revenue Code of 1986 as from time to time amended.
1.12 "Executive Employee" means an individual employed by the Corporation or a
subsidiary thereof in a key executive or managerial position and who is in
the group designated by the Chief Executive Officer as the ROSE group.
1.13 "Highly Paid Executive" means an individual employed by the Corporation or
a subsidiary thereof in a key executive or managerial position who during
the calendar year is not an Executive Employee but earns Excluded
Compensation.
1.14 "New Executive" means an individual employed by the Corporation or a
subsidiary thereof in a key executive or managerial position designated by
the Chief Executive Officer of the Corporation for participation in the
benefit described in Section 3.3.
1.15 "Management Incentive Plan" means the Borden, Inc. Management Incentive
Plan and any other executive incentive plan that provides for deferred
awards, other than the Long-Term Performance Improvement Program.
1.16 "Pension Committee" means the Pension Committee of the Board of Directors.
1.17 "Plan" means the Borden, Inc. Executives Supplemental Pension Plan as from
time to time in effect.
2
<PAGE> 5
SECTION TWO
Participation
2.1 Eligibility to Participate
Participation in the plan shall be limited to:
(a) those participants in the Borden ERIP and their joint annuitants and
beneficiaries who as a result of the participant having been granted a
deferred award under the Management Incentive Plan or having elected
Deferred Compensation receive, or will receive, a lesser amount of
retirement income under the Borden ERIP than otherwise would be paid
or payable in the absence of such deferrals;
(b) those Executive Employees who elect Deferred Compensation;
(c) those Highly Paid Executives who elect Deferred Compensation;
(d) those participants in the Borden ERIP who have Excluded Compensation,
and their joint annuitants and beneficiaries; and
(e) New Executives.
2.2 Election of Deferred Compensation
Elections of Deferred Compensation shall be made only by Executive
Employees or Highly Paid Executives and shall be on forms furnished by the
Pension Committee. A Deferred Compensation election shall apply only to
compensation (as defined below) for the particular year specified in the
election, and (i) for Executive Employees shall specify the percentage of
such compensation to be deferred under the election, which percentage may
be any whole percentage that is not greater than twenty-five percent (25%)
and (ii) for Highly Paid Executive shall be the "Matchable Portion" as
defined in the Borden RSP of Excluded Compensation. For purposes of the
preceding sentence, the term "compensation" means the total earned income
that would be currently payable to the participant but for his or her
Deferred Compensation election hereunder, and shall include Tax Deferred
Contributions under the Borden RSP, salary reduction Employer
Contributions under the Borden, Inc. Flexible Benefits Plan and incentive
bonuses earned under the corporate management incentive compensation
programs which are paid in the first year in which such bonuses are
payable, but shall exclude incentive bonuses earned under the Long Term
Incentive Payment Plan. A Deferred Compensation election with respect to
compensation for a
3
<PAGE> 6
particular calendar year (i) must be made before January 1 of such
calendar year, (ii) for Executive Employees, must specify (from the
available alternatives) the date such Deferred Compensation is to be paid
(or commence to be paid) and the number of annual installments (not to
exceed 10) in which such Deferred Compensation is to be paid, and (iii)
once made, cannot be changed or revoked. Deferred Compensation for Highly
Paid Executives is payable only as a lump sum after termination of
employment. Subject to such conditions regarding continued employment as
may be imposed by the Corporation, Executive Employees, during the month
of December 1992, may change any prior election in respect of the date
Deferred Compensation is to be paid (or commence to be paid) and the
number of annual installments (not to exceed 10) in which such Deferred
Compensation is to be paid. Once made, such election shall be
irrevocable.
A separate subaccount shall be maintained under the participant's
"Participant Deferred Account" (see Section 3.3(b)) with respect to
Deferred Compensation for each calendar year for which the participant
makes a Deferred Compensation election.
4
<PAGE> 7
SECTION THREE
Amount of Supplemental Benefits and Supplemental Contributions
3.1 Supplemental Benefits
The aggregate amount, if any, of retirement income payable under the
Borden ERIP to a participant therein, or to his or her joint annuitant or
beneficiary, which is not paid under the Borden ERIP as a result of the
fact that the amount of deferred awards under the Management Incentive
Plan, Deferred Compensation, and Excluded Compensation are not recognized
as "Compensation" under the Borden ERIP, shall be termed a "Supplemental
Benefit" and shall be paid directly to such participant, or to his or her
joint annuitant or beneficiary, as applicable, from the general assets of
the Corporation in accordance with Section 3.4.
3.2 Grandfather Benefit
(a) The amount described below in Section 3.2(b) less the amount payable
under the Borden ERIP shall be termed a "Grandfather Benefit".
Participants who are Executive Employees designated as members of
the Corporation's Core Management Group on July 1, 1992, who have
attained age 55, whose combined age and years of service at
termination of employment (in years and completed months) with the
Corporation equal or exceed 85 and who do not qualify for a benefit
under Section A3.7 of the Borden ERIP are eligible for this
Grandfather Benefit. Executive Employees who are designated as members
of the Corporation's Core Management Group after July 1, 1992 who
otherwise would be eligible for this benefit shall only be so when
such eligibility is authorized in writing by the Chief Executive
Officer of the Corporation. Executive Employees not terminated "for
cause" as defined in their Core Arrangement who are otherwise eligible
for this benefit but whose combined age and years of service at
Termination is less than 85 shall be eligible for this benefit if such
combined age and years of service (in years and completed months) at
Termination equal or exceed 80. The combination of age and service
which equal or exceed 80 shall be determined at the end of the
calendar year of the termination as if the employee were actively
employed throughout the year in which the termination occurred. The
Grandfather Benefit shall be paid directly to such participant, or to
his or her joint annuitant or beneficiary, as applicable, from the
general assets of the Corporation in accordance with Section 3.4.
5
<PAGE> 8
(b) The amount is as follows:
(i) For service under the Borden ERIP prior to January 1, 1988, one
and one-half percent (1.5%) of the portion of the Employee's
Average Final Compensation in excess of the estimated age 65
Social Security Benefit in effect on January 1, 1988 multiplied
by the years and months of credited Service (as defined in the
Borden ERIP) completed as of December 31, 1987; plus
(ii) For service under the Borden ERIP after December 31, 1987
through December 31, 1996, one percent (1%) of each year's
earnings up to that year's taxable Social Security Wage Base plus
one and one-half percent (1.5%) of each year's earning in excess
of that year's taxable Social Security Wage Base.
"Average Final Compensation" is the average of the participant's
highest five consecutive years of earnings with the Corporation
during the participant's last ten (10) calendar years of
employment with the Corporation prior to January 1, 1998. For
this purpose, any incentive bonuses which are included in
Compensation shall be averaged separately from the balances of
such Compensation.
3.3 Supplemental Contributions
(a) Supplemental Company Contributions
The excess, if any, of (i) the amount of matching Employer
contributions which would have been made on behalf of a participant
pursuant to Section 4.1 of the Borden RSP had the participant's
Deferred Compensation been contributed by the participant to the
Borden RSP over (ii) the amount of matching Employer contributions
actually made on behalf of the participant to the Borden RSP,
together with "deemed earnings" on such excess, shall be termed
"Supplemental Company Contributions" and shall be paid to the
participant or his or her beneficiary, as applicable, from the general
assets of the Corporation in accordance with Section 3.4. For all plan
years after 1988, the Supplemental Company Contributions shall be in
the form of cash and common shares of the Corporation in the same
proportion as matching employer contributions are made to Fund A and
D, respectively, under the Borden RSP provided, however, that for
plan years after 1991 for officers of the Corporation subject to the
reporting and holding requirements of Section 16 of the Securities and
Exchange
6
<PAGE> 9
Commission Act such contributions shall be in the form of cash.
"Deemed earnings" for Supplemental Company Contributions for cash and
common stock shall be earnings at the rate of investment return during
the comparable period of time for Fund A (cash) and Fund D (stock),
respectively, under the Borden RSP. A bookkeeping account
("Supplemental Company Contributions Account") shall be maintained for
each affected participant to record the amount of such Supplemental
Company Contributions.
(b) Deferred Compensation
The aggregate of the amounts of Deferred Compensation and "deemed
earnings" on such amounts (referred to as 'Deferred Amounts") shall be
paid to the participant or his or her beneficiary, as applicable, from
the general assets of the Corporation in accordance with Section 3.3.
"Deemed earnings" with respect to Deferred Compensation shall be
earnings at the rate of investment return on Fund A under the Borden
RSP. A bookkeeping account ("Participant Deferred Account") shall be
maintained for each affected participant to record the amount of such
Deferred Compensation and deemed earnings thereon.
(c) Supplemental Match
The excess, if any, of (i) the amount of Matching Employer
Contributions which would have been made an behalf of a participant
who is a New Executive pursuant to Section 4.1 of the Borden RSP had
the participant had more than twelve months of service with the
Corporation over (ii) the amount of Matching Employer Contributions
actually made on behalf of the participant to the Borden RSP, together
with "deemed earnings" on such excess, shall be termed "Supplemental
Match" and shall be paid to the participant or his or her beneficiary,
as applicable, from the general assets of the Corporation in
accordance with Section 3.3. For all plan years after 1988, the
Supplemental Match shall be in the form of cash and common shares of
the Corporation in the same proportion as matching employer
contributions are made to Fund A and D, respectively, under the Borden
RSP provided, however, that for plan years after 1991 for officers of
the Corporation subject to the reporting and holding requirements of
Section 16 of the Securities and Exchange Commission Act such
contributions shall be in the form of cash. "Deemed earnings" for
Supplemental Match for cash and common stock shall be earnings at the
rate of investment return during the comparable period of time for
Fund A (cash) and Fund D (stock), respectively, under the Borden RSP.
A bookkeeping account ("Supplemental Match
7
<PAGE> 10
Account") shall be maintained for each affected participant to record
the amount of such Supplemental Match.
3.4 General Provisions
(a) The Corporation shall make no provision for the funding of any
Supplemental Benefits, Grandfather Benefits, Supplemental Company
Contributions Accounts, Supplemental Match Accounts or Participant
Deferred Accounts payable hereunder that (i) would cause the Plan to
be a funded plan for purposes of section 404(a)(5) of the Internal
Revenue Code of 1986, as amended, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or (ii) would
cause the Plan to be other than an "unfunded and unsecured promise to
pay money or other property in the future" under Treasury Regulations
section 1.83-3(e); and shall have no obligation to make any
arrangement for the accumulation of funds to pay any amounts under
this Plan. Subject to the restrictions of the preceding sentence, the
Corporation, in its sole discretion, may establish a grantor trust
described in Treasury Regulations sections 1.677(a)-1(d) to
accumulate funds to pay amounts under this Plan, provided that the
assets of the trust shall be required to be used to satisfy the claims
of the Corporation's general creditors in the event of the
Corporation's bankruptcy or insolvency.
(b) In the event that the Corporation shall decide to establish an
advance accrual reserve on its books against the future expense of
paying Supplemental Benefits, Grandfather Benefits, Supplemental
Company Contributions Accounts, Supplemental Match Accounts or
Participant Deferred Accounts, such reserve shall not under any
circumstances be deemed to be an asset of this Plan but, at all times,
shall remain a part of the general assets of the Corporation, subject
to claims of the Corporation's creditors.
(c) A person entitled to any amount under this Plan shall be a general
unsecured creditor of the Corporation with respect to such amount
Furthermore:
(i) Subject to the provisions of subsections (e), (f), (g) and (h)
below, a person entitled to a Supplemental Benefit or Grandfather
Benefit shall have a claim upon the Corporation only to the extent
of the monthly payments thereof, if any, due up to and including
the then current month and shall not have
8
<PAGE> 11
a claim against the Corporation for any subsequent monthly
payment unless and until such payment shall become due and
payable;
(ii) Subject to the provisions of subsections (e), (f) and (h) below,
a person entitled to Supplemental Company Contributions shall have
a claim upon the Corporation only to the extent of the
Supplemental Company Contributions Account, and the amount of such
Account shall be paid to the participant or beneficiary in the
same manner and at the same time as the distribution or the
participant's accounts under the Borden RSP;
(iii) Subject to the provisions of subsections (e), (f) and (h) below,
a person entitled to Deferred Amounts shall have a claim upon the
Corporation only to the extent of the Participant Deferred Account
and the amount of such Account shall be paid to the participant or
beneficiary in accordance with the terms of the participant's
Deferred Compensation election or elections under Section 2.2; and
(iv) Subject to the provisions of subsections (e), (f) and (h) below,
a person entitled to Supplemental Match shall have a claim upon
the Corporation only to the extent of the Supplemental Match
Account, and the amount of such Account shall be paid to the
participant or his or her beneficiary, as applicable, in the same
manner and at the same time as the distribution of the
participant's accounts under the Borden RSP.
(d) In the event that the Borden ERIP shall be terminated in accordance
with Section C6 thereof, Supplemental Benefits and Grandfather Benefits
shall continue to be paid directly by the Corporation but only to the
same extent and for the same duration as that part of the payee's
benefit from the Pension Fund of the Borden ERIP, which is directly
related to such Supplemental Benefit or Grandfather Benefit, is
continued to be provided by the assets of the Pension Fund of the
Borden ERIP; but such continued payment of Supplemental Benefits or
Grandfather Benefits shall still be subject to the conditions specified
in subsections (a), (b) and (c) above.
In the event that the Borden RSP shall be terminated in accordance
with Section 13 thereof, Supplemental Company Contributions Accounts
shall be paid directly by the Corporation in the same manner as the
distribution of the participant's accounts under the Borden RSP.
9
<PAGE> 12
(e) Notwithstanding any other provision hereof, there shall become
immediately due and payable to or with respect to a participant a lump
sum equal to the Supplemental Company Contributions Account plus the
Supplemental Match Account plus the Participant Deferred Account plus
the present actuarial value (determined as hereinafter provided) of the
participant's Accrued Supplemental Benefit and Grandfather Benefit if:
(i) the Corporation refuses to make any payments due hereunder to any
participant, unless refusal to make payment to a particular participant
is based on facts and circumstances with respect to such participant
which reasonably justifies such refusal, based on the participant
engaging in conduct harmful to the interests of the Corporation; (ii)
the Corporation makes a general assignment for the benefit of
creditors; (iii) any proceedings under the Bankruptcy Act are
instituted by the Corporation or, if instituted against the
Corporation, is consented to or acquiesced in by it or remains
undismissed for 60 days; or (iv) a receiver or trustee in bankruptcy is
appointed for the Corporation. In addition, in the event of any such
proceeding by or against the Corporation under the Bankruptcy Act, or
any such assignment, a participant or his or her joint annuitant or
beneficiary shall be entitled to prove a claim for any unpaid portion
of the benefit provided hereunder and, if the claim is not discharged
in full in any such proceeding or assignment, it will survive any
discharge of the Corporation under any such proceeding or assignment.
The present actuarial value of the Accrued Supplemental Benefit and
Grandfather Benefit shall be calculated on the basis of the 1976-80 GAM
Mortality Table and an interest rate, compounded monthly, equal to the
yield of the most recently issued 30-year maturity U.S. Treasury issue
as reported as of the business day on which the valuation is performed
as published in the Midwest edition of the Wall Street Journal, If the
valuation is not performed on a business day, the immediately preceding
business day report shall be used for the purposes of determining the
interest rate to be used in the valuation.
(f) In the event of the application of subsection (e) above, the affected
participants (or, in the case of deceased participants, their joint
annuitants and beneficiaries) (the "Claimants") shall appoint a single
representative to pursue their respective claims against the
Corporation. Such representative shall be a person or entity selected
by, or agreed upon, by Claimants with unpaid benefits under the Plan
equal to more than fifty percent (50%) of the total amount of unpaid
benefits under the Plan.
10
<PAGE> 13
(g) A participant's Supplemental Benefit and Grandfather Benefit shall be
paid to the participant in the same form and at the same time as the
participant's Accrued Regular Benefit.
(h) The participant's beneficiary under this Plan with respect to his or
her Participant Deferred Account shall be the person or persons
designated as beneficiary by the participant by filing with the Pension
Committee a written beneficiary designation on a form provided by, or
acceptable to, such Pension Committee. In the event the participant
does not make an effective designation of a beneficiary with respect to
his or her Participant Deferred Account, the participant's beneficiary
with respect to his or her Participant Deferred Account shall be the
beneficiary of such participant's beneficiary under the Borden RSP.
The Participant's beneficiary or joint annuitant under this Plan with
respect to his or her Supplemental Benefit shall be the person who is
entitled to benefit payments under the Borden ERIP on account of the
death of the participant.
The participant's beneficiary under this Plan with respect to his or
her Supplemental Company Contributions Account and Supplemental Match
Account shall be the person who is entitled to benefit payments under
the Borden RSP on account of the death of the participant.
(i) Wherever in this Section Three reference is made to "Supplemental
Benefits" or "Accrued Supplemental Benefits" such terms shall be deemed
to include any special supplemental benefits payable pursuant to
Appendix A.
(j) If the amount credited to the Participant's Deferred Account is
$10,000 or less at the time he or she retires or otherwise terminates
employment, then the Participant shall be paid, as soon as practicable
after termination of employment, an amount equal to the amount in the
Participant's Deferred Account as of his or her termination of
employment.
(k) A participant's benefit in the Plan shall be vested to the same extent
that his or her corresponding benefit under the Borden ERIP or Borden
RSP is vested. The minimum benefit under the Plan shall equal the value
of the vested accrued benefit as of December 31, 1993.
11
<PAGE> 14
APPENDIX A
Special Supplemental Benefits
For Certain Core Management Employees
1. This Appendix shall apply only to each participant who was a member of the
Core Management Group of the Corporation as of January 1, 1983, and who
(a) retires under the Borden ERIP at or after age 65, (be) dies after age
55 and completion of at least 10 years of Service (as that term is defined
in the Borden ERIP while in active employment with the Corporation, (c)
becomes totally and permanently disabled after completion of at least 10
years of Service (as that term is defined in the Borden ERIP) while in
active employment with the Corporation, (d) retires with the approval of
the Chief Executive Officer of the Corporation between the ages of 55 and
64 inclusive after completion of at least 10 years of Service (as that
term is defined in the Borden ERIP or (e) is terminated without cause at
any age after completion of at least 10 years of Service (as that term is
defined in the Borden ERIP). Members of the Core Management Group are
those members who are designated as such by the Chief Executive Officer of
the Corporation.
For the purpose of determining whether there has been a termination
without cause, if the termination is after a Change in Control as defined
in the Corporation's Supplemental Benefit Trust Agreement with the
Wachovia Bank and Trust Co. dated September 27, 1988 as amended from time
to time, then any termination in the following circumstances shall be a
"termination without cause"; (i) a termination by the Corporation not for
"cause" as defined in either (a) the Core Management Arrangements dated
March 15,1988 between the Corporation and participant members of the Core
Management Group as they now exist or are hereafter amended from time to
time or (be the Team Agreement dated January 1, 1989 among the Corporation
and members of the Core Management Group as it now exists or is
hereinafter amended from time to time (the "Team Agreement"); or (ii) a
Permitted Termination under the Team Agreement. Otherwise, "cause" shall
have the meaning as defined in the Core Management arrangement dated March
15, 1988 between the Corporation and participant members of the Core
Management Group as those arrangements now exist or are hereafter amended
from time to time.
2. In addition to any other amount payable under this Executives Supplemental
Pension Plan, there shall be payable to or with respect to each
participant referred to in paragraph 1 above, the excess, if any of the
amount in (a) below over the amount in (b) below:
<PAGE> 15
(a) the sum of:
(i) the retirement income which would have been payable to or with respect
to such participant under the Borden ERIP (and the Borden Excess
Benefits Plan and the other provisions of this Executives Supplemental
Pension Plan) had the terms and provisions of such plans as in effect
on December 31, 1982 remained unchanged and had Section 5.1(b)(i) of
the Borden ERIP as in effect on December 31, 1982 provided a benefit
percentage of 1.5% for each year of Credited Service, including years
before 1972; and
(ii) the "pension equivalent" (as hereinafter defined in (c) below) of the
amount that would have been standing to such participant's credit
in his or her Employer Account (as defined in the Borden RSP) at
retirement or other termination of employment under the Borden RSP had
the Borden RSP as in effect on January 1 1983 remained unchanged and
had the Employer contributions after January 1, 1984 been equal to 55%
of such participant's "contributions" not in excess of 6% of his or
her compensation. For purposes of the foregoing, such participant's
contributions shall be deemed to have been at the 6% level from
January 1, 1984 forward. For purposes of determining the amount deemed
to be credited to such participant's Employer Account (as defined in
the Borden RSP), earnings on the Employer contributions deemed made
pursuant to this paragraph 2(a)(ii) shall be at the same rate as the
actual earnings on such participant's actual Employer Account (as
defined in the Borden RSP.)
(b) The sum of:
(i) the retirement income payable to or with respect to such participant
under the Borden ERIP (and the Borden Excess Benefits Plan and the
other provisions of this Executives Supplemental Pension Plan); and
(ii) the pension equivalent (as herein defined in (c) below) of the amount
that would have been standing to such participant's credit in his or
her Employer Account (as defined in the Borden RSP) as retirement or
other termination of employment under the Borden RSP had the
participant contributed at the maximum permitted rate subject to
Company matching contributions from January 1, 1984 forward.
- 2 -
<PAGE> 16
(c) For purpose of this paragraph 2, pension equivalent shall be the
amount of retirement income payable to, or with respect to, the
participant under a Life annuity form, determined on the basis of the
1976-80 Basic GAM Mortality Table (the 1971 GAM Table with margins
remove, projected to 1978 with Scale E) and an interest rate of 7-3/4%
per annum, compounded monthly.
- 3 -
<PAGE> 17
APPENDIX B
1. Benefits payable after termination of active employment to the following
executives under written employment agreements dated as indicated:
- Anthony S. D'Amato
December 3, 1990 as amended September 24, 1991,
June 22, 1993, September 30, 1993, and December 9, 1993
- Ervin R. Shames, June 24, 1993
- Robert Allen, August 24, 1993
- George Morris, August 25, 1993
- James Van Meter, July 7, 1994
2. The amount of Supplemental Company contributions under Section 3.3(a) of
the Plan and the amount of Supplemental Match under Section 3.3(c) of the
Plan for the following participants shall be determined effective with
their first day of employment as if their applicable percentage pursuant to
Section 4.1 of the Borden RSP was the percentage appearing opposite their
name below.
<TABLE>
<CAPTION>
Participant Applicable Percentage
----------- ---------------------
<S> <C>
Ervin R. Shames 7
Randy D. Kautto 7
Robert W. Allen 7
George P. Morris 5
James Van Meter 7
</TABLE>
<PAGE> 1
EXHIBIT 10.32
BORDEN, INC.
EXECUTIVES EXCESS BENEFITS PLAN
Amended and Restated as of January 1, 1988
As amended through December 9, 1993
<PAGE> 2
FOREWORD
Effective as of January 1, 1976, Borden, Inc. adopted the Borden, Inc.
Executives Excess Benefits Plan (the "Plan") for the benefit of certain of its
executives. The Plan has been amended from time to time thereafter.
Effective as of January 1, 1988 the Plan has been further amended, and has been
restated as set forth herein.
It is intended that the Plan be an "excess benefits plan" as that term is
defined in Section 3(36) of the Employee Retirement Income Security Act of
1974.
The purpose of the Plan is to (a) provide retired participants and their joint
annuitants and beneficiaries under the Borden, Inc. Employees Retirement Income
Plan ("Borden ERIP") and the Borden, Inc. Retirement Savings Plan ("Borden
RSP") with the amount of company-provided benefits that are not provided under
the Borden ERIP and/or Borden RSP because such amounts exceed the limitations
imposed by Section 415 of the Internal Revenue Code, and (b) effective May 1,
1986 through December 31, 1987, provide for elective salary deferrals by
participants in the Borden RSP who are in the Core Management Group and whose
tax deferrals under the Borden RSP are limited by reason of limitations imposed
by Section 415 of the Internal Revenue Code.
Except to the extent otherwise indicated, and except to the extent otherwise
inappropriate, the Borden ERIP and the Borden RSP and the provisions thereof
are hereby incorporated by reference.
<PAGE> 3
SECTION ONE
Definitions
1.1 Except to the extent otherwise indicated herein, and except to the
extent otherwise inappropriate in the context, the definitions
contained in Section A1 of the Borden ERIP and Section I of the Borden
RSP are applicable under the Plan.
1.2 "Accrued ERIP Benefit" means the amount of retirement income payable
to or with respect to a participant on termination of employment, or
earlier date requiring payment under this Plan, under the Borden ERIP.
1.3 "Accrued Excess Benefit" means the excess, if any, of (i) the
retirement income payable to or with respect to a participant under
the Borden ERIP which would have been accrued by the participant had
the limitation on benefits imposed by Section C9 of the Borden ERIP
not been applicable over (ii) the participant's Accrued ERIP Benefit.
1.4 "Board of Directors" means the Board of Directors of the Corporation.
1.5 "Borden ERIP" means the Borden, Inc. Employees Retirement Income Plan.
1.6 "Borden RSP" means the Borden, Inc. Retirement Savings Plan.
1.7 "Core Management Group" means individuals employed by the Corporation
or a subsidiary thereof in a key executive or managerial position who
are designated as members of the Core Management Group of the
Corporation by the Chief Executive Officer.
1.8 "Corporation" means Borden, Inc. and any successor to such corporation
by merger, purchase or otherwise.
1.9 "Plan" means the Borden, Inc. Executives Excess Benefits Plan as from
time to time in effect.
<PAGE> 4
SECTION TWO
Participation
Participation in the Plan shall be limited to:
(a) those participants in the Borden ERIP and their joint annuitants and
beneficiaries who, as a result of the limits on benefits that may be
paid under the Borden ERIP (Section C9) by reason of Section 415 of
the Internal Revenue Code, receive or will receive a lesser amount of
retirement income under the Borden ERIP than otherwise would be paid
or payable in the absence of such limitations,
(b) those participants and their beneficiaries in the Borden RSP who, as a
result of the limits on amounts that may be contributed under the
Borden RSP (Section 4.3) by reason of Section 415 of the Internal
Revenue Code, receive a smaller matching Employer contribution under
the Borden RSP with respect to their actual contributions thereunder
than otherwise would be paid or payable in the absence of such
limitation, and
(c) those participants in the Borden RSP who are members of the Core
Management Group and who made salary deferral elections for calendar
years before 1988 for amounts which would have been Tax Deferred
Contributions under Section 3.2 of the Borden RSP but for the
limitations imposed by Section 4.3 of the Borden RSP by reason of
Section 415 of the Internal Revenue Code, and the beneficiaries of
such participants.
2
<PAGE> 5
SECTION THREE
Amount of Excess Benefits and Excess Contributions
3.1 Excess Benefits
The aggregate amount, if any, of retirement income payable under the
Borden ERIP to a participant therein, or to his or her joint annuitant
or beneficiary, which is not paid under the Borden ERIP on account of
the limitations on benefits imposed by Section C9 of the Borden ERIP,
shall be termed an "Excess Benefit" and shall be paid directly to such
participant, or to his or her joint annuitant or beneficiary, as
applicable, from the general assets of the Corporation in accordance
with Section 3.3.
3.2 Excess Contributions
(a) Excess Company Contributions Account
The aggregate amount, if any, of matching Employer
contributions which would have been contributed with respect
to a participant pursuant to Section 4.1 of the Borden RSP on
account of the participant's actual contributions thereto but
for the limitation imposed by Section 4.3 of the Borden RSP,
together with "deemed earnings" on such contributions, shall
be termed Excess Company Contributions and shall be paid to
the participant or his or her beneficiary, as applicable, from
the general assets of the Corporation in accordance with
Section 3.3. "Deemed earnings" for Excess Company
Contributions shall be earnings at the rate of investment
return on Fund A under the Borden RSP. A bookkeeping account
("Excess Company Contributions Account") shall be maintained
for each affected participant to record the amount of such
Excess Company Contributions.
(b) Excess Salary Deferrals Account
The aggregate of the amounts, if any, of salary deferral
elected by a participant in the RSP who is a member of the
Core Management Group pursuant to a salary reduction agreement
or agreements for amounts which would otherwise have been Tax
Deferred Contributions on the participant's behalf pursuant to
Section 3.2 of the Borden RSP for calendar years before 1988
but for the limitation imposed by Section 4.3 of the Borden
RSP, together with "deemed earnings" on such amounts, shall be
termed Excess Salary Deferrals and shall be paid to the
participant or his or her beneficiary, as applicable, from the
3
<PAGE> 6
general assets of the Corporation in accordance with Section
3.3. "Deemed earnings" for Excess Salary Deferrals shall be
earnings at the rate of investment return on Fund A under the
Borden RSP. A bookkeeping account ("Excess Salary Deferrals
Account") shall be maintained for each affected participant to
record the amount of such Excess Salary Deferrals.
(c) Excess Contributions Account
The term Excess Contributions Account shall mean the sum of a
participant's Excess Company Contributions Account, if any, and that
participant's Salary Deferrals Account, if any.
3.3 General Provisions
(a) The Corporation shall make no provision for the funding of any
Excess Benefits or Excess Contributions Accounts payable
hereunder that (i) would cause the Plan to be a funded plan
for purposes of section 404(a)(5) of the Internal Revenue Code
of 1986, as amended ("Code"), or Title I of the Employee
Retirement Income Security Act of 1974 ("ERISA") or (ii) would
cause the Plan to be other than an "unfunded and unsecured
promise to pay money or other property in the future" under
Treasury Regulations section 1.83-3(e); and shall have no
obligation to make any arrangement for the accumulation of
funds to pay any amounts under this Plan. Subject to the
restrictions of the preceding sentence and paragraph (c)
below, the Corporation, in its sole discretion, may establish
a grantor trust described in Treasury Regulations sections
1.677(a)-1(d) to accumulate funds to pay amounts under this
Plan, provided that the assets of the trust shall be required
to be used to satisfy the claims of the Corporation's general
creditors in the event of the Corporation's bankruptcy or
insolvency.
(b) In the event that the Corporation shall decide to establish an
advance accrual reserve on its books against the future
expense of Accrued Excess Benefit payments or Excess
Contributions Accounts, such reserve shall not under any
circumstances be deemed to be an asset of this Plan but, at
all times, shall remain a part of the general assets of the
Corporation, subject to claims of the Corporation's creditors.
(c) A person entitled to any amount under this Plan shall be a
general unsecured creditor of the Corporation with respect to
such amount. Furthermore:
(i) Subject to the provisions of subsections (e), (f),
(g) and (h)
4
<PAGE> 7
below, a person entitled to an Accrued Excess Benefit
shall have a claim upon the Corporation only to the
extent of the monthly payments thereof, if any, due
up to and including the then current month and shall
not have a claim against the Corporation for any
subsequent monthly payment unless and until such
payment shall become due and payable; and
(ii) Subject to the provisions of subsections (e), (f) and
(h) below, a person entitled to Excess Contributions
shall have a claim upon the Corporation only to the
extent of the Excess Contributions Account, and the
amount of such Account shall be paid to the
participant or beneficiary in the same manner as the
distribution of the participant's accounts under the
Borden RSP.
(d) In the event that the Borden ERIP shall be terminated in
accordance with Section C6 thereof, Accrued Excess Benefits
shall continue to be paid directly by the Corporation but only
to the same extent and for the same duration as that part of
the payee's benefit from the Pension Fund of the Borden ERIP,
which is directly related to such Accrued Excess Benefit, is
continued to be provided by the assets of the Pension Fund of
the Borden ERIP; but such continued payment of Accrued Excess
Benefit shall still be subject to the conditions specified in
subsections (a), (b) and (c) above.
In the event that the Borden RSP shall be terminated in
accordance with Section 13 thereof, Excess Contributions
Accounts shall be paid directly by the Corporation in the same
manner as the distribution of the participant's accounts under
the Borden RSP.
(e) Notwithstanding any other provision hereof, there shall become
immediately due and payable to or with respect to a
participant a lump sum equal to the Excess Contributions
Account plus the present actuarial value (determined as
hereinafter provided) of the participant's Accrued Excess
Benefit if: (i) the Corporation refuses to make any payments
due hereunder to any participant, unless refusal to make
payment to a particular participant is based on facts and
circumstances with respect to such participant which
reasonably justifies such refusal, based on the participant
engaging in conduct harmful to the interest of the
Corporation; (ii) the Corporation makes a general assignment
for the benefit of creditors; (iii) any proceedings under the
Bankruptcy Act are instituted by the Corporation, or if
instituted against the Corporation, is consented to or
acquiesced in by it or remains undismissed for 60 days; or
(iv) a receiver or trustee in
5
<PAGE> 8
bankruptcy is appointed for the Corporation. In addition, in
the event of any such proceeding by or against the Corporation
under the Bankruptcy Act, or any such assignment, a
participant or his or her joint annuitant or beneficiary shall
be entitled to prove a claim for any unpaid portion of the
benefit provided hereunder and, if the claim is not discharged
in full in any such proceeding, or assignment, it will survive
any discharge of the Corporation under any such proceeding or
assignment. The present actuarial value of the Accrued
Supplemental Benefit shall be calculated on the basis of the
1976-80 Basic GAM Mortality Table and an interest rate,
compounded monthly, equal to the yield of the most recently
issued 30-year maturity US Treasury issue as reported as of
the business day on which the valuation is performed as
published in the Midwest edition of the Wall Street Journal.
If the valuation is not performed on a business day, the
immediately preceding business day report shall be used for
the purposes of determining the interest rate to be used in
the valuation.
(f) In the event of the application of subsection (e) above, the
affected participants (or, in the case of deceased
participants, their joint annuitants and beneficiaries) (the
"Claimants") shall appoint a single representative to pursue
their respective claims against the Corporation. Such
representative shall be a person or entity selected by, or
agreed upon, by Claimants with unpaid benefits under the Plan
equal to more than fifty percent (50%) of the total amount of
unpaid benefits under the Plan.
(g) A participant's Accrued Excess Benefit shall be paid to the
participant in the same form and at the same time as the
participant's Accrued ERIP Benefit.
(h) The participant's beneficiary or joint annuitant under this
Plan with respect to his or her Accrued Excess Benefit shall
be the person who is entitled to benefit payments under the
Borden ERIP on account of the death of the participant.
The participant's beneficiary under this Plan with respect to
his or her Excess Contributions Account shall be the person
who is entitled to benefit payments under the Borden RSP on
account of the death of the participant.
(i) A participant's benefit in the Plan shall be vested to the
same extent that his or her corresponding benefit under the
Borden ERIP or Borden RSP is vested. The minimum benefit under
the Plan shall equal the value of the vested accrued benefit
as of December 31, 1993.
6
<PAGE> 9
SECTION FOUR
Administration
4.1 Plan Administrator
The Corporation shall be the "administrator" of the Plan within the
meaning of ERISA.
4.2 Pension Committee
Subject to the provisions of Section 4.1, the Pension Committee of the
Board of Directors shall be vested with the general administration of
the Plan. The Pension Committee shall have the exclusive right to
interpret the Plan. The decisions, actions and records of the Pension
Committee shall be conclusive and binding upon the Corporation and all
persons having or claiming to have any right or interest in or under
the Plan.
The Pension Committee may delegate to such officers, employees or
departments of the Corporation such authority, duties, and
responsibilities of the Pension Committee as it, in its sole
discretion, considers necessary or appropriate for the proper and
efficient operation of the Plan, including, without limitation, (i)
interpretation of the Plan, (ii) approval and payment of claims, and
(iii) establishment of procedures for administration of the Plan.
7
<PAGE> 10
SECTION FIVE
Amendment and Termination
5.1 Amendment of the Plan
Subject to the provisions of Section 5.3, the Plan may be wholly or
partially amended or otherwise modified at any time by the Board of
Directors.
5.2 Termination of the Plan
Subject to the provisions of Section 5.3, the Plan may be terminated
at any time by the Board of Directors.
5.3 No Impairment of benefits
Notwithstanding the provisions of Sections 5.1 and 5.2, no amendment
to or termination of the Plan shall impair any rights to benefits
which have accrued hereunder.
8
<PAGE> 11
BORDEN, INC.
SPECIAL RETIREMENT WINDOW PROGRAM
The Borden, Inc. Special Retirement Window Program (SRWP) is a non-qualified
plan that has been designed and adopted to provide special benefits for certain
employees who have elected to retire under the Borden, Inc. Employees
Retirement Income Plan (ERIP) as of November 1, 1985. Such special benefits and
those employees to whom they will be paid are as specified on the schedule and
copies of employee communications attached hereto.
The SRWP is designed to operate in conjunction with the ERIP and, in connection
with the adoption of the SRWP, the ERIP was amended to provide special
provisions applicable to those employees who elected to retire under the SRWP.
3.3 General Provisions
(a) The Corporation shall make no provision for the funding of any
Excess Benefits or Excess Contributions Accounts payable
hereunder that (i) would cause the Plan to be a funded plan
for purposes of section 404(a)(5) of the Internal Revenue Code
of 1986, as amended ("Code"), or Title I of the Employee
Retirement Income Security Act of 1974 ("ERISA") or (ii) would
cause the Plan to be other than an "unfunded and unsecured
promise to pay money or other property in the future" under
Treasury Regulations section 1.83-3(e); and shall have no
obligation to make any arrangement for the accumulation of
funds to pay any amounts under this Plan. Subject to the
restrictions of the preceding sentence and paragraph (c)
below, the Corporation, in its sole discretion, may establish
a grantor trust described in Treasury Regulations sections
1.677(a)-1(d) to accumulate funds to pay amounts under this
Plan, provided that the assets of the trust shall be required
to be used to satisfy the claims of the Corporation's general
creditors in the event of the Corporation's bankruptcy or
insolvency.
(c) A person entitled to any amount under this Plan shall be a
general unsecured creditor of the Corporation with respect to
such amount. Furthermore:
(i) Subject to the provisions of subsections (e), (f),
(g) and (h) below, a person entitled to an Accrued
Excess Benefit shall have a claim upon the
Corporation only to the extent of the monthly
payments thereof, if any, due up to and including the
then current month and shall not have a claim against
the Corporation for any subsequent monthly payment
unless and
9
<PAGE> 12
until such payment shall become due and payable; and
(ii) Subject to the provisions of subsections (e), (f) and
(h) below, a person entitled to Excess Contributions
shall have a claim upon the Corporation only to the
extent of the Excess Contributions Account, and the
amount of such Account shall be paid to the
participant or beneficiary in the same manner as the
distribution of the participant's accounts under the
Borden RSP.
10
<PAGE> 13
Schedule 1
WHEREAS, Richard Walrack was employed in the Corporate Group as a
result of the acquisition of the Meadow Gold Dairies from the Beatrice
Companies on December 16, 1986; and
WHEREAS, Mr. Walrack also had a continuing employment consulting
agreement with the Beatrice Company dated June 26, 1984, which continued from
December 16, 1986 through August 31, 1989; and
WHEREAS, Mr. Walrack also had another employment agreement dated
December 3, 1985 with Beatrice U.S. Foods (Foods) which guaranteed that his
reemployment in the Dairy Unit of Foods would not affect his status under the
1984 agreement; and
WHEREAS, Beatrice, in connection with the acquisition of Meadow Gold
Dairies, did not disclose to Borden the existence of either of the above
described agreements and transferred to the Company's pension plan an amount
woefully inadequate to fund Mr. Walrack's pension; and
WHEREAS, Mr. Walrack has asserted through legal action pension rights
from Beatrice:
NOW, THEREFORE, Mr. Richard Walrack is excluded as a Participant of
this Plan for any and all purposes.
11
<PAGE> 1
EXHIBIT 10.33
BORDEN, INC.
EXECUTIVE FAMILY SURVIVOR PROTECTION PLAN
Amended as of January 1, 1987
Conformed through December 9, 1993
<PAGE> 2
FOREWORD
Effective as of January 1, 1981, Borden, Inc. has adopted the Borden, Inc.
Executive Family Survivor Protection Plan (the "Plan") for the benefit of
certain of its executives. The purpose of the Plan is to provide certain
executives and retired executives with additional protection for their eligible
surviving dependents in the event of death during their active careers or after
retirement, and additional protection in the event of disability during their
active careers.
<PAGE> 3
INDEX
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
ONE DEFINITIONS I
TWO PARTICIPATION 3
THREE DEATH AND DISABILITY BENEFITS 4
FOUR EVENTS CAUSING LOSS OF COVERAGE 9
FIVE ADMINISTRATION 10
SIX AMENDMENT AND TERMINATION 12
</TABLE>
<PAGE> 4
SECTION ONE
Definitions
The following definitions shall apply:
1.1 "Borden ERIP" means the Borden, Inc. Employees Retirement Income Plan.
1.2 "Borden RSP" means the Borden, Inc. Retirement Savings Plan.
1.3 "Chief Executive Officer" means the Chief Executive Officer of the
Corporation.
1.4 "Core Management Group" means the Executive Employees designated as
members of the Core Management Group of the Corporation by the Chief
Executive Officer.
1.5 "Corporate Group" means the Corporation and any of its subsidiaries.
1.6 "Corporation" means Borden, Inc. and any successor to such corporation
by merger, purchase or otherwise.
1.7 "Effective Date" means January 1, 1981.
1.8 "Executive Employee" means an individual employed by a member of the
Corporate Group in a key executive or managerial position and who is
in the group designated by the Chief Executive Officer as the ROSE
group.
1.9 "Final Average Pay" means an amount equal to the highest average which
can be produced by averaging an Executive Employee's compensation (as
hereinafter defined) for any five consecutive calendar years within the
last ten calendar years prior to his or her death or earlier
retirement. For this purpose, compensation shall mean the total
compensation paid in a calendar year to an Executive Employee by the
Corporate Group before reduction for Tax-Deferred contributions under
the Borden, Inc. Retirement Savings Plan and for Elective Salary
Deferrals (as defined in the Borden, Inc. Executives Supplemental
Pension Plan), exclusive of incentive bonuses deferred from earlier
years at the election of the Executive Employee and specifically
excluding Long Term Incentive Earnings. In computing the highest
average, any incentive bonuses included in compensation shall be
averaged separately from the balance of such compensation.
1
<PAGE> 5
1.10 "Minor Child or Children" with respect to a Participant means each
person who is the natural or legally adopted son or daughter of the
Participant or of his or her Spouse and who has not yet attained his or
her eighteenth birthday.
1.11 "Participant" means each Executive Employee who is an Active or
Retired Participant in accordance with the provisions of Section Two of
the Plan.
1.12 "Plan" means this Executive Family Survivor Protection Plan as from
time to time in effect.
1.13 "Spouse" means the spouse who is legally married to the Participant at
the earlier of the death of the Participant or the Participant's
retirement.
2
<PAGE> 6
SECTION TWO
Participation
2.1 Active Participant
An Executive Employee shall become an Active Participant covered under
this Plan only if he or she is so designated by the Chief Executive
Officer. Such designation shall be evidenced by a written statement to
the Active Participant summarizing the coverage provided under the
Plan for such Active Participant. Each Executive Employee designated
an Active Participant shall remain an Active Participant until the
earlier of (i) the date as of which his or her coverage under the Plan
has been terminated at the direction of the Chief Executive Officer
(which can be done at any time at his or her discretion) or (ii) the
date his or her employment with the Corporate Group terminates.
2.2 Retired Participant
An Active Participant who retires on or after the Effective Date and
on or after his or her sixty-fifth birthday shall become a Retired
Participant. An Active Participant who retires before his or her
sixty-fifth birthday shall become a Retired Participant only if so
specifically designated by the Chief Executive Officer in writing and
such designation remains in effect after his or her retirement. Such
designation shall be completely at the discretion of the Chief
Executive Officer who may take into consideration any of the following
circumstances: the length of service of the Active Participant,
whether such early retirement is voluntary or involuntary, whether it
is anticipated that the Active Participant will engage in competitive
employment, how close to normal retirement the Active Participant is
at the time of his or her retirement, and any other relevant
circumstances. The listing of considerations which may be considered
by the Chief Executive Officer is not intended to require or imply
that all or any of them shall be considered in any particular case.
3
<PAGE> 7
SECTION THREE
Death and Disability Benefits
3.1 Death of Active Participant
(a) Lump Sum Benefits
Upon the death after June 30, 1986 of an Active Participant who
at such time was a member of the Core Management Group, or upon
the death after December 31, 1986 of any other Active
Participant, his or her beneficiary, as designated under the
Basic/Supplemental Life portions of the Borden, Inc. Total
Family Protection Plan ("Group Life Plan"), or, if no such
beneficiary exists, the beneficiary under the High Limit
Accidental Death and Dismemberment portion of the Borden, Inc.
Total Family Protection Plan, shall be entitled to receive a
lump sum payment equal to one times the Participant's Annual
Earnings, as defined in the Group Life Plan, rounded to the
next higher $100 if not already a multiple of $100.
(b) Monthly Benefits
Upon the death of an Active Participant prior to attaining age
65, his or her surviving Spouse shall be entitled to a monthly
benefit commencing on the first day of the month next
following the Active Participant's death and payable through
the month in which the death of the surviving Spouse or
remarriage of such surviving Spouse occurs. Upon the death of
an Active Participant on or after attaining age 65, his or her
surviving Spouse shall be entitled to a monthly benefit
commencing on the first day of the month next following the
Active Participant's death and payable through the month in
which the death of the surviving spouse occurs. If at any time
on or after the Active Participant's death there is no
surviving Spouse entitled to receive a benefit but there are
one or more Minor Children of the Active Participant, an
amount equal to fifty percent of the benefit which was or
would have been payable to the Active Participant's Spouse
entitled to receive a benefit shall be divided equally among
the Minor Children, and such fifty percent of the benefit
shall be payable through the month in which the last of the
Minor Children reach their majority or decease. The share of
any child who reaches majority shall thereafter be divided
equally among any remaining Minor Children.
4
<PAGE> 8
The amount of monthly benefit payable to the surviving Spouse
shall be equal to one-twelfth of a percentage of the Active
Participant's Final Average Pay, such percentage depending on
the age at which the Active Participant's death occurs and
whether the Active Participant was a member of the Core
Management Group as follows:
<TABLE>
<CAPTION>
Percentage of Final Average Pay
Active Participants in Other Active
Core Management Group Participants
---------------------- ------------
<S> <C> <C>
Before age 55 25% 20%
After age 55 and before age 56 25% 20%
After age 56 and before age 57 24% 19%
After age 57 and before age 58 23% 18%
After age 58 and before age 59 22% 17%
After age 59 and before age 60 21% 16%
After age 60 and before age 61 20% 15%
After age 61 and before age 62 19% 14%
After age 62 and before age 63 18% 13%
After age 63 and before age 64 17% 12%
After age 64 and before age 65 16% 11%
After age 65 15% 10%
</TABLE>
3.2 Death of Retired Participant
(a) Lump Sum Benefits
Upon the death of a Retired Participant who at time of
retirement was a member of the Core Management Group, his or
her beneficiary, as designated under the Group Life Plan, shall
be entitled to receive a lump sum payment equal to the
difference between the amount which would have been payable
under the terms of the Group Life Plan as in effect on June
30, 1986, and the amount actually payable under the terms of
the Group Life Plan as in effect after June 30, 1986.
(b) Monthly Benefits
Unless waived in accordance with subsection (c) below, upon
the death of a Retired Participant who was an Active
Participant and had attained the age of 60 as of June 30,
1986, his or her surviving Spouse shall be entitled to a
monthly benefit in accord with this paragraph commencing on
the first day of the month next following the Retired
Participant's death. If the Retired Participant retired prior
to attaining age 65, the monthly benefit shall be payable
through the earlier of the
5
<PAGE> 9
month in which the death of the surviving Spouse or the
remarriage of such the surviving Spouse occurs. If the
Retired Participant retired on or after attaining age 65, the
monthly benefit shall be payable through the month in which
the death of the surviving Spouse occurs. If at any time on or
after the Retired Participant's death there is no surviving
Spouse or the Spouse has remarried entitled to receive a
benefit but there are one or more Minor Children, an amount
equal to fifty percent of the benefit which was or would have
been payable to the Retired Participant's Spouse entitled to
receive a benefit shall be divided equally among the Minor
Children, and such fifty percent of the benefit shall be
payable through the month in which the last of the Minor
Children reach their majority or decease. The share of any
child who reaches majority shall thereafter be divided equally
among any remaining Minor Children.
The amount of monthly benefit payable to the surviving Spouse
shall be equal to fifteen percent of the Retired Participant's
Final Average Pay if such Retired Participant was a member of
the Core Management Group and ten percent of the Retired
Participant's Final Average Pay if not a member of the Core
Management Group.
(c) Waiver of Coverage
An Active Participant who is age 60 or older as of June 30,
1986 may elect in writing, prior to such date, to waive the
coverage described in subsection (b) above. If such waiver is
elected, such Participant shall be eligible for the benefits
described in Section 3.4.
3.3 Disability of Active Participant
Upon the disability of an Active Participant such that he or she is
entitled to benefits under the Borden, Inc. Long Term Disability
Benefits Plan ("LTD Plan"), a benefit shall be payable under this
Plan, in the same manner and under the same conditions as that payable
under Schedule I of the LTD Plan. The amount of benefit payable under
this Plan shall be the difference between the benefit payable under
the LTD Plan and what would have been payable under the LTD Plan had
the maximums referred to in Schedule I been as follow:
6
<PAGE> 10
<TABLE>
<CAPTION>
where stated where stated
maximum is maximum is
$3,000 $2,250
------------ ------------
<S> <C> <C>
If Active Participant
is a member of the
Core Management Group $6,000 $4,500
All other Participants $4,000 $3,000
</TABLE>
3.4 Survivor Accumulation Account
All Active Participants who are under the age of 60 as of June 30,
1986, and all Active Participants who, in accordance with subsection
3.3(c), elect to waive the coverage described in subsection 3.3(b)
shall be entitled to have Survivor Accumulation Credits established on
their behalf. The Credits shall be equal to 1% (2% for periods of
employment as a member of the Core Management Group) of Compensation
as recognized under the Borden RSP, credited on a monthly basis. The
aggregate amount of Credits, together with "deemed earnings" on such
Credits, to the extent vested, shall be paid to the participant or his
or her beneficiary, as applicable, from the general assets of the
Corporation in accordance with Section 5.1 in a lump sum at the time
of the Participant's termination of employment. "Deemed earnings" for
Survivor Accumulation Credits shall be earnings at the rate of
investment return on Fund A under the Borden RSP. A bookkeeping
account ("Survivor Accumulation Account") shall be maintained for each
affected Participant to record the amount of such Survivor
Accumulation Credits. Vesting in the Survivor Accumulation Account
shall be the same as if such Account were a benefit under Section A3.2
of the Borden ERIP.
7
<PAGE> 11
3.5 Medical Accumulation Account
An Active Participant who is a member of the Core Management Group
shall be entitled to have Medical Accumulation Credits established on
his or her behalf unless he or she shall have elected to participate
in the Corporation's Executive Health Care Plan. The Credits shall be
equal to S350 for each month as an Active Participant and member of
the Core Management Group. The aggregate amount of Credits, together
with "deemed earnings" on such Credits, shall be paid to the
participant or his or her beneficiary, as applicable, from the general
assets of the Corporation in accordance with Section 5.1 in a lump sum
at the time of the Participant's termination of employment. "Deemed
earnings" for Medical Accumulation Credits shall be earnings at the
rate of investment return on Fund A under the Borden RSP. A
bookkeeping account ("Medical Accumulation Account") shall be
maintained for each affected Participant to record the amount of such
Medical Accumulation Credits. Participants shall always be 100%
vested in the value of their Medical Accumulation Account.
8
<PAGE> 12
SECTION FOUR
Events Causing Loss of Coverage or Benefits
4.1 Loss of Coverage for Retired Participants
Coverage under the Plan of a Retired Participant shall be contingent
upon such Retired Participant's:
(i) refraining, after the expiration of a period of thirty days
from the mailing to him or her of written notice from the
Corporation of a direction to do so, from engaging in the
operation or management of a business, whether as owner,
stockholder, partner, officer, employee or otherwise, which at
the time of his or her retirement shall be in competition with
any member of the Corporate Group;
(ii) refraining from disclosing to unauthorized persons information
relative to the business of any member of the Corporate Group
which be or she shall have reason to believe is confidential;
and
(iii) refraining from otherwise acting or conducting himself or
herself in a manner which a reasonable business person would
find to be inimical or contrary to the best interests of the
Corporate Group.
In the event that the Retired Participant shall fail to comply with
the provisions of this Section 4.1, his or her coverage under this
Plan shall cease and no benefits shall be payable upon the death of
such Retired Participant.
4.2 Remarriage of Surviving Spouse
All monthly benefit payments to the surviving spouse of a Participant
who either died or retired prior to attaining age 65 shall cease upon
the remarriage of such Spouse. If there are Minor Children of the
Participant at the time of such disqualifying remarriage payments
shall be made to such Minor Children in accordance with the provisions
of Section 3.1 and 3.2 until they reach their majority or decease.
9
<PAGE> 13
SECTION FIVE
Administration
5.1 Payment of Benefits
All benefits payable under the Plan shall be paid by the Corporation
from the general assets of the Corporation; provided, however, that:
(a) The Corporation shall make no provision for the funding of any
benefits payable hereunder.
(b) In the event that the Corporation shall decide to establish an
advance accrual reserve on its books against the future
expense of benefit payments, such reserve shall not under any
circumstances be deemed to be an asset of this Plan but, at
all times, shall remain a part of the general assets of the
Corporation, subject to claims of the Corporation's creditors.
(c) Subject to the provisions of subsections (d) and (e) below, a
person entitled to a benefit hereunder shall have a claim upon
the Corporation only to the extent of the monthly payments
thereof, if any,due up to and including the then current month
and shall not have a claim against the Corporation for any
subsequent monthly payment unless and until such payment shall
become due and payable.
(d) Notwithstanding any other provision hereof, all benefits which
are being paid, or are then payable hereunder, the amount of
all Survivor Accumulation Accounts and Medical Accumulation
Accounts, and the value of reversionary annuities with respect
to then Retired Participants shall become immediately due and
payable to a surviving Spouse or Minor Children or to the
Active or Retired Participant, as applicable, in a lump sum if:
(i) the Corporation refuses to make any payments due
hereunder; (ii) the Corporation makes a general assignment for
the benefit of creditors; (iii) any proceedings under the
Bankruptcy Act are instituted by the Corporation or, if
instituted against the Corporation, is consented to or
acquiesced in by it or remains undismissed for 60 days; or
(iv) a receiver or trustee in bankruptcy is appointed for the
Corporation. In addition, in the event of any such proceeding
by or against the Corporation under the Bankruptcy Act, or any
such assignment, a surviving Spouse, Minor Child or Active or
Retired Participant shall be entitled to prove a claim for any
unpaid portion of the benefit provided hereunder and,
10
<PAGE> 14
if the claim is not discharged in full in any such proceeding,
or assignment, it will survive any discharge of the
Corporation under any such proceeding or assignment. The
present actuarial value of the Accrued Supplemental Benefit
shall be calculated on the basis of the 1976-80 GAM Mortality
Table and an interest rate, compounded monthly, equal to the
yield of the most recently issued 30-year maturity U.S.
Treasury issue as reported as of the business day on which the
valuation is performed as published in the Midwest edition of
the Wall Street Journal. If the valuation is not performed on a
business day, the immediately preceding business day report
shall be used for the purposes of determining the interest
rate to be used in the valuation.
(e) In the event of the application of subsection (d) above, a
representative of the affected surviving Spouses, Minor
Children and Active and Retired Participants (collectively)
shall be appointed to pursue their respective claims against
the Corporation.
5.2 Plan Administration
The Corporation shall be the 'Administrator' of the Plan within the
meaning of the Employee Retirement Income Security Act of 1974 and
shall have the exclusive right to interpret the Plan. The decisions,
actions and records of the Corporation shall be conclusive and binding
upon the Corporation, the Corporate Group, and all persons having or
claiming to have any right or interest in or under the Plan.
11
<PAGE> 15
SECTION SIX
Amendment and Termination
6.1 Amendment of the Plan
The Plan may be wholly or partially amended or otherwise modified at
any time by the Board of Directors.
6.2 Termination of the Plan
The Plan may be terminated at any time by the Board of Directors.
6.3 No impairment Benefits
Notwithstanding the provisions of Sections 6.1 and 6.2, no amendment
or termination of the Plan shall impair the rights to benefits
hereunder for surviving Spouses or Minor Children or Active
Participants in receipt of (or entitled to) benefits at the date of
amendment or termination and the rights to benefits with respect to
those who are Retired Participants at the date of such amendment or
termination.
12
<PAGE> 1
EXHIBIT 10.34
EXECUTION COPY
SOUTHERN FOODS GROUP, L.P.
SFG CAPITAL CORPORATION
$150,000,000
9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
PURCHASE AGREEMENT
August 27, 1997
CHASE SECURITIES INC.
270 Park Avenue
4th floor
New York, New York 10017
Ladies and Gentlemen:
Southern Foods Group, L.P., a Delaware limited partnership
("SFG"), and SFG Capital Corporation, a Delaware corporation ("SFG Capital"
and, together with SFG, the "Issuers"), propose jointly to issue and sell
$150,000,000 aggregate principal amount of their 9 7/8% Senior Subordinated
Notes due 2007 (the "Securities"). The Securities will be issued pursuant to
an indenture to be dated as of September 4, 1997 (the "Indenture"), among the
Issuers and Texas Commerce Bank National Association, as trustee (the
"Trustee").
Substantially simultaneously with the consummation of the
sale of the Securities hereunder and pursuant to a Stock Purchase and Merger
Agreement dated as of May 22, 1997, among Mid-America Dairymen, Inc., a Kansas
cooperative marketing association ("Mid-Am"), Borden/Meadow Gold Dairies
Holdings, Inc., a Delaware corporation ("Holdings"), BDH Two, Inc., a Delaware
corporation ("BDH"), and Borden, Inc., a New Jersey corporation (together with
BDH, "Borden"), Mid-Am will acquire (the "Acquisition") all of the outstanding
capital stock of Holdings and SFG will obtain the license (the "Borden
License") to use the Borden and Elsie trademarks for certain products produced
by Holdings (the "Borden Trademarks"). Immediately following the Acquisition,
Mid-Am will contribute (the "Meadow Gold Dairies Contribution") substantially
all of the assets (other than the Meadow Gold Trademarks (as defined below))
and liabilities of the dairy operations of Borden owned by Holdings that are
located in the Western United States (the "Meadow Gold Dairies"), which dairy
operations manufacture and sell dairy products primarily under the Meadow Gold
and Viva trademarks (the "Meadow Gold Trademarks"), to SFG in exchange for (a)
the assumption by SFG of the obligations of Mid-Am with respect to the senior
secured credit facilities in an aggregate principal amount of up to
$250,000,000 to be provided by a syndicate of lenders for which The Chase
Manhattan Bank will serve as the administrative agent (the "New Senior Bank
Facilities") and (b) the issuance by SFG to Mid-Am of $90,000,000 in stated
amount of new Series B 10% payment-in-kind preferred limited partnership
interests (the "Series B Mid-Am New Preferred Interests"). In addition, SFG
will acquire the Meadow Gold
<PAGE> 2
2
Trademarks from Borden/Meadow Gold Dairies Investments, Inc., a Delaware
corporation ("Investments"). The acquisitions of the Borden License from
Borden and the Meadow Gold Trademarks from Investments are collectively
referred to herein as the "Trademark Acquisitions".
In connection with the Meadow Gold Dairies Contribution,
Mid-Am Capital, L.L.C., a Delaware limited liability company ("Mid-Am
Capital"), will make a $45,000,000 cash investment in SFG through the purchase
of $15,000,000 in stated amount of Series C 10% payment-in-kind preferred
limited partnership interests (the "10% Mid-Am Capital New Preferred
Interests") and $30,000,000 in stated amount of Series D 9.5% preferred limited
partnership interests (the "9.5% Mid-Am Capital New Preferred Interests").
In connection with the Transactions, SFG will authorize a
series of additional payment-in-kind preferred limited partnership interests
consisting of its Series E 10% payment-in-kind preferred limited partnership
interests (the "Series E New Preferred Interests"). Initially, the Series E
New Preferred Interests will be issued in a stated amount of $2.6 million to
Mid-Am and F.T. Pete Schenkel, the President and Chief Executive Officer of
SFG, each of whom will immediately recontribute $400,000 of such interests to
SFG. The Series B Mid-Am New Preferred Interests, the 10% Mid-Am Capital New
Preferred Interests, the 9.5% Mid-Am Capital New Preferred Interests and the
Series E New Preferred Interests are collectively referred to herein as the
"New Preferred Interests".
The foregoing transactions, together with each of the other
Transactions described in the preliminary offering memorandum dated July 31,
1997 (the "Preliminary Offering Memorandum") and the offering memorandum dated
the date hereof (the "Offering Memorandum"), are collectively referred to
herein as the "Transactions".
The Issuers hereby confirm their agreement with Chase
Securities Inc. (the "Initial Purchaser") concerning the purchase of the
Securities from the Issuers by the Initial Purchaser.
The Securities will be offered and sold to the Initial
Purchaser without being registered under the Securities Act of 1933, as amended
(the "Securities Act"), in reliance upon an exemption therefrom. The Issuers
have prepared the Preliminary Offering Memorandum and the Issuers will prepare
the Offering Memorandum setting forth information concerning the Issuers and
the Securities. Copies of the Preliminary Offering Memorandum have been, and
copies of the Offering Memorandum will be, delivered by the Issuers to the
Initial Purchaser pursuant to the terms of this Agreement. Any references
herein to the Preliminary Offering Memorandum and the Offering Memorandum shall
be deemed to include all amendments and supplements thereto, unless otherwise
noted. The Issuers hereby confirm that they have authorized the use of the
Preliminary Offering Memorandum and the Offering Memorandum in connection with
the offering and resale of the Securities by the Initial Purchaser in
accordance with Section 2.
Holders of the Securities (including the Initial Purchaser and
its direct and indirect transferees) will be entitled to the benefits of an
Exchange and Registration Rights Agreement, substantially in the form attached
hereto as Annex A (the "Registration Rights
<PAGE> 3
3
Agreement"), pursuant to which the Issuers will agree jointly to file with the
Securities and Exchange Commission (the "Commission") (i) a registration
statement under the Securities Act (the "Exchange Offer Registration
Statement") registering a joint issue of senior subordinated notes of the
Issuers (the "Exchange Securities") which are identical in all material
respects to the Securities (except that the Exchange Securities will not
contain terms with respect to transfer restrictions) and (ii) under certain
circumstances, a shelf registration statement pursuant to Rule 415 under the
Securities Act (the "Shelf Registration Statement").
Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Offering Memorandum.
1. Representations, Warranties and Agreements of the Issuers.
Each of the Issuers, jointly and severally, represents and warrants to, and
agrees with, the Initial Purchaser on and as of the date hereof and the Closing
Date (as defined in Section 3) that:
(a) each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its respective date, did not, and the
Offering Memorandum on the Closing Date will not, contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided that neither of the Issuers makes any
representation or warranty as to information contained in, or omitted
from, the Preliminary Offering Memorandum or the Offering Memorandum
in reliance upon, and in conformity with, written information
furnished to such Issuer by or on behalf of the Initial Purchaser
specifically for use therein (the "Initial Purchaser's Information");
(b) each of the Preliminary Offering Memorandum and the
Offering Memorandum, as of its respective date, contains all of the
information that, if requested by a prospective purchaser of the
Securities, would be required to be provided to such prospective
purchaser pursuant to Rule 144A(d)(4) under the Securities Act;
(c) assuming the accuracy of the representations and
warranties of the Initial Purchaser contained in Section 2 and its
compliance with the agreements set forth therein, it is not necessary,
in connection with the issuance and sale of the Securities to the
Initial Purchaser and the offer, resale and delivery of the Securities
by the Initial Purchaser in the manner contemplated by this Agreement
and the Offering Memorandum, to register the Securities under the
Securities Act or to qualify the Indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act");
(d) each of the Issuers and SFG Management Limited Liability
Company, a Delaware limited liability company and the general partner
of SFG ("SFG LLC"), has been duly formed or incorporated, as the case
may be, and is validly existing as a limited partnership, a
corporation or a limited liability company, as the case may be, in
good standing under the laws of its jurisdiction of formation or
incorporation, as the case may be, is duly qualified to do business
and is in good standing as a foreign limited partnership, a foreign
corporation or a foreign limited liability company, as the
<PAGE> 4
4
case may be, in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification,
and has all power and authority necessary to own or hold its
properties and to conduct the business in which it is engaged, except
where the failure to so qualify or have such power or authority would
not, singularly or in the aggregate, have a material adverse effect on
the condition (financial or otherwise), results of operations,
business or prospects of the Issuers taken as a whole after giving
effect to the Transactions (a "Material Adverse Effect");
(e) on June 30, 1997, on a historical basis and after giving
pro forma effect to the Transactions, SFG had a capitalization as set
forth in the Offering Memorandum under the heading "Capitalization",
all of the outstanding partnership interests of SFG have been, and,
upon consummation of the Transactions, all of the outstanding
partnership interests of SFG (including the New Preferred Interests)
will be, duly and validly authorized and issued, and, upon
consummation of the Transactions, the capital structure of SFG will
conform in all material respects to the description thereof contained
in the Offering Memorandum; SFG Capital has the authorized capital
stock as set forth in its Certificate of Incorporation, all of the
outstanding shares of capital stock of SFG Capital have been duly and
validly authorized and issued, are fully paid and non- assessable and
are owned directly by SFG, free and clear of any lien, charge,
encumbrance, security interest, restriction upon voting or transfer or
any other claim of any third party, other than liens arising under the
New Senior Bank Facilities, and SFG Capital was incorporated on July
24, 1997, has no prior operating history and, since the date of its
incorporation, has had no operations; SFG LLC has the authorized
limited liability company interests as set forth in its Limited
Liability Company Agreement, as amended and restated (the "Limited
Liability Company Agreement"), and all of the outstanding limited
liability company interests of SFG LLC have been duly and validly
authorized and issued;
(f) each of the Issuers has full right, power and authority
to execute and deliver this Agreement, the Registration Rights
Agreement, the Indenture, the Securities and each of the other
material agreements relating to the Transactions listed on Schedule 1
hereto (collectively, the "Transaction Documents") to which it is a
party, and the consent decrees to be entered into with the State of
Texas and the Department of Justice, and to perform its obligations
hereunder and thereunder; and all action required to be taken for the
due and proper authorization, execution and delivery of each of the
Transaction Documents to which it is a party, and the consent decrees
to be entered into with the State of Texas and the Department of
Justice, and the consummation of the transactions contemplated thereby
have been, or on or prior to the Closing Date will be, duly and
validly taken;
(g) this Agreement has been duly authorized, executed and
delivered by each of the Issuers and constitutes a valid and legally
binding agreement of each of the Issuers, except to the extent that
such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws affecting creditors' rights generally and by
general equitable principles (whether considered in a proceeding in
equity or at law) and except to the extent that the indemnification
and contribution provisions thereof may be unenforceable;
<PAGE> 5
5
(h) the Registration Rights Agreement has been duly
authorized by each of the Issuers and, when duly executed and
delivered in accordance with its terms by each of the parties thereto,
will constitute a valid and legally binding agreement of each of the
Issuers enforceable against each of the Issuers in accordance with its
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether
considered in a proceeding in equity or at law) and except to the
extent that the indemnification and contribution provisions thereof
may be unenforceable;
(i) the Indenture has been duly authorized by each of the
Issuers and, when duly executed and delivered in accordance with its
terms by each of the parties thereto, will constitute a valid and
legally binding agreement of each of the Issuers enforceable against
each of the Issuers in accordance with its terms, except to the extent
that such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws affecting creditors' rights generally and by
general equitable principles (whether considered in a proceeding in
equity or at law); on the Closing Date, the Indenture will conform in
all material respects to the requirements of the Trust Indenture Act
and the rules and regulations of the Commission applicable to an
indenture which is qualified thereunder;
(j) the Securities have been duly authorized by each of the
Issuers and, when duly executed, authenticated, issued and delivered
as provided in the Indenture, and paid for as provided herein, will be
duly and validly issued and outstanding and will constitute valid and
legally binding obligations of each of the Issuers entitled to the
benefits of the Indenture and enforceable against each of the Issuers
in accordance with their terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar
laws affecting creditors' rights generally and by general equitable
principles (whether considered in a proceeding in equity or at law);
(k) each of the other Transaction Documents has been duly
authorized by SFG and, when duly executed and delivered in accordance
with its terms by each of the parties thereto, will constitute a valid
and legally binding agreement of SFG, enforceable against SFG in
accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar
laws affecting creditors' rights generally and by general equitable
principles (whether considered in a proceeding in equity or at law);
(l) each Transaction Document, to the extent described in the
Offering Memorandum, conforms in all material respects to such
description;
(m) except as disclosed in the Offering Memorandum, the
execution, delivery and performance by each of the Issuers of each of
the Transaction Documents to which it is a party, the issuance,
authentication, sale and delivery of the Securities and compliance by
each of the Issuers with the terms thereof and the consummation of the
<PAGE> 6
6
transactions contemplated by the Transaction Documents will not
conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, or, except as
contemplated by the New Senior Bank Facilities, result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of such Issuer pursuant to, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which such
Issuer is a party or by which such Issuer is bound or to which any of
the property or assets of such Issuer is subject which breach or
violation would have a Material Adverse Effect, nor will such actions
result in any violation of the provisions of any of the governing
documents of such Issuer or any statute or any judgment, order,
decree, rule or regulation of any court or arbitrator or governmental
agency or body having jurisdiction over such Issuer or any of its
properties or assets which would have a Material Adverse Effect; and
no consent, approval, authorization or order of, or filing or
registration with, any such court or arbitrator or governmental agency
or body under any such statute, judgment, order, decree, rule or
regulation is required for the execution, delivery and performance by
such Issuer of each of the Transaction Documents, the issuance,
authentication, sale and delivery of the Securities and compliance by
such Issuer with the terms thereof and the consummation of the
transactions contemplated by the Transaction Documents, except for
such consents, approvals, authorizations, filings, registrations or
qualifications (i) which shall have been obtained or made prior to the
Closing Date, (ii) the failure to obtain which would not have a
Material Adverse Effect or any material adverse effect on the ability
of the Issuers to perform their obligations under the Transaction
Documents and (iii) as may be required to be obtained or made under
the Securities Act and applicable state securities laws as provided in
the Registration Rights Agreement;
(n) Price Waterhouse LLP are independent accountants with
respect to SFG (and its predecessors) within the meaning of Rule 101
of the Code of Professional Conduct of the American Institute of
Certified Public Accountants ("AICPA") and its interpretations and
rulings thereunder, and Deloitte & Touche LLP are independent
certified public accountants with respect to the Meadow Gold Dairies
(and its predecessors) within the meaning of Rule 101 of the Code of
Professional Conduct of the AICPA; the historical financial statements
(including the related notes) contained in the Offering Memorandum
have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods covered thereby
and fairly present in all material respects the financial position of
the entities purported to be covered thereby at the respective dates
indicated and the results of their operations and their cash flows for
the respective periods indicated; and the financial information
contained in the Offering Memorandum under the headings "Summary--
Summary Historical Financial Information: Southern Foods Group,
L.P.", "Summary--Summary Historical Financial Information: Meadow
Gold Dairies", "Capitalization", "Selected Historical Financial Data:
Southern Foods Group, L.P.", "Selected Historical Financial Data:
Meadow Gold Dairies", "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and
"Management--Executive Compensation" are derived from the accounting
records of SFG (and its predecessors) and the accounting records of
the Meadow Gold Dairies (and its predecessors) and fairly present the
information purported to be shown thereby; the pro forma financial
<PAGE> 7
7
information contained in the Offering Memorandum has been prepared on
a basis consistent with the historical financial statements contained
in the Offering Memorandum (except for the pro forma adjustments
specified therein), includes all material adjustments to the
historical financial information required to reflect the transactions
described in the Offering Memorandum, gives effect to assumptions made
on a reasonable basis and fairly presents in all material respects the
historical and proposed transactions contemplated by the Offering
Memorandum and the Transaction Documents; and the other historical
financial and statistical information and data included in the
Offering Memorandum are, in all material respects, fairly presented;
(o) except as disclosed in the Offering Memorandum, there are
no pending actions or suits or judicial, arbitral, rule-making,
administrative or other proceedings to which either of the Issuers is
a party or of which any property or assets of either the Issuers is
the subject, which, singularly or in the aggregate, if determined
adversely to such Issuer, could reasonably be expected to have a
Material Adverse Effect; and to the best knowledge of each of the
Issuers, except as disclosed in the Offering Memorandum, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others;
(p) no action has been taken and no statute, rule, regulation
or order has been enacted, adopted or issued by any governmental
agency or body which prevents the issuance of the Securities or
suspends the sale of the Securities in any jurisdiction; no
injunction, restraining order or order of any nature by any federal or
state court of competent jurisdiction has been issued with respect to
either of the Issuers which would prevent or suspend the issuance or
sale of the Securities or the use of the Preliminary Offering
Memorandum or the Offering Memorandum in any jurisdiction; except as
disclosed in the Offering Memorandum, no action, suit or proceeding is
pending against or, to the best knowledge of each of the Issuers,
threatened against such Issuer before any court or arbitrator or any
governmental agency, body or official, domestic or foreign, which
could reasonably be expected to interfere with or adversely affect the
issuance of the Securities or in any manner draw into question the
validity or enforceability of any of the Transaction Documents or any
action taken or to be taken pursuant thereto; and each of the Issuers
has complied in all material respects with any and all requests by any
securities authority in any jurisdiction for additional information to
be included in the Preliminary Offering Memorandum and the Offering
Memorandum;
(q) none of the Issuers or SFG LLC is, and, upon consummation
of the Transactions, none of the Issuers or SFG LLC will be, (i) in
violation of its governing documents, (ii) in default in any material
respect, and no event has occurred which, with notice or lapse of time
or both, would constitute such a default, in the due performance or
observance of any term, covenant or condition contained in any
material indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which it is a party or by which it
is bound or to which any of its property or assets is subject or (iii)
in violation in any material respect of any law, ordinance,
governmental rule, regulation or court decree to which it or its
property or assets may be subject, except for any such violation
specified in
<PAGE> 8
8
clause (ii) or (iii) which would not have a Material Adverse Effect or
any material adverse effect on the ability of the Issuers to perform
their obligations under the Transaction Documents;
(r) except as disclosed in the Offering Memorandum, each of
the Issuers possesses, and, upon consummation of the Transactions,
each of the Issuers will possess, all material licenses, certificates,
authorizations and permits issued by, and have made, and, upon the
consummation of the Transactions, will have made, all declarations and
filings with, the appropriate federal, state or foreign regulatory
agencies or bodies which are necessary for the ownership of its
properties or the conduct of its business as described in the Offering
Memorandum, except where the failure to possess or make the same would
not, singularly or in the aggregate, have a Material Adverse Effect,
and neither of the Issuers has received notification of any revocation
or modification of any such material license, certificate,
authorization or permit or has any reason to believe that any such
material license, certificate, authorization or permit will not be
renewed in the ordinary course;
(s) except as disclosed in the Offering Memorandum, each of
the Issuers and SFG LLC has filed all federal, state, local and
foreign income and franchise tax returns required to be filed through
the date hereof, except to the extent the failure to make any such
filing would not have a Material Adverse Effect, and each of the
Issuers has paid all taxes due thereon (other than those being
contested in good faith), and no tax deficiency has been determined
adversely to either of the Issuers or SFG LLC or which has had (nor
does either of the Issuers of SFG LLC have any knowledge of any tax
deficiency which, if determined adversely to such Issuer or SFG LLC,
could reasonably be expected to have) a Material Adverse Effect;
(t) neither of the Issuers is, and, upon consummation of the
Transactions, neither of the Issuers will be, (i) an "investment
company" or a company "controlled by" an investment company within the
meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the rules and regulations of the
Commission thereunder or (ii) a "holding company" or a "subsidiary
company" of a holding company or an "affiliate" thereof within the
meaning of the Public Utility Holding Company Act of 1935, as amended
(the "Public Utility Holding Company Act");
(u) each of the Issuers and SFG LLC maintains a system of
internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's general or specific authorization
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences;
<PAGE> 9
9
(v) each of the Issuers has, and, upon consummation of the
Transactions, each of the Issuers will have, insurance covering its
properties, operations, personnel and business, which insurance is,
and, upon consummation of the Transactions, will be, in amounts and
insures against such losses and risks as are deemed by management of
SFG to be reasonable and prudent in light of customary industry
practices;
(w) except as disclosed in the Offering Memorandum, each of
the Issuers owns or possesses, and, upon consummation of the
Transactions, each of the Issuers will own or possess, adequate rights
to use all material patents, patent applications, trademarks, service
marks, trade names, trademark registrations, service mark
registrations, copyrights, licenses and know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) necessary for the
conduct of its business; and the conduct of its business does not and
will not conflict in any material respect with, and neither of the
Issuers has received any notice of any material claim of conflict
with, any such rights of others;
(x) except as disclosed in the Offering Memorandum, each of
the Issuers has, and, upon consummation of the Transactions, each of
the Issuers will have, good and marketable title in fee simple to, or
has, and, upon consummation of the Transactions, will have, valid
rights to lease or otherwise use, all items of real and personal
property which are material to the business of such Issuer, in each
case free and clear of all liens, encumbrances, claims and defects and
imperfections of title except such as (i) contemplated by the New
Senior Bank Facilities, (ii) do not materially interfere with the use
made and proposed to be made of such property by such Issuer or (iii)
could not reasonably be expected to have a Material Adverse Effect;
(y) except as disclosed in the Offering Memorandum, no labor
disturbance by or dispute with the employees of either of the Issuers
exists or, to the best knowledge of each of the Issuers, is
contemplated or threatened which could reasonably be expected to have
a Material Adverse Effect;
(z) except as disclosed in the Offering Memorandum, no
"prohibited transaction" (as defined in Section 406 of the Employee
Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), or
Section 4975 of the Internal Revenue Code of 1986, as amended from
time to time (the "Code")), or "accumulated funding deficiency" (as
defined in Section 302 of ERISA) or any of the events set forth in
Section 4043(b) of ERISA (other than events with respect to which the
30-day notice requirement under Section 4043 of ERISA has been waived)
has, or, upon consummation of the Transactions, will have, occurred
with respect to any employee benefit plan of either of the Issuers
which could reasonably be expected to have a Material Adverse Effect;
each such employee benefit plan is, and, upon consummation of the
Transactions, will be, in compliance in all material respects with
applicable law, including ERISA and the Code; neither of the Issuers
has incurred, and neither of the Issuers expects to incur, liability
under Title IV of ERISA with respect to the termination of, or
withdrawal from, any pension plan for which such Issuer would have any
liability; and each such pension plan that is intended to be qualified
under Section 401(a) of the Code is so qualified in
<PAGE> 10
10
all material respects and nothing has occurred, whether by action or
by failure to act, which could reasonably be expected to cause the
loss of such qualification;
(aa) except as disclosed in the Offering Memorandum, there
has been no storage, generation, transportation, handling, treatment,
disposal, discharge, emission or other release of any kind of toxic or
other wastes or other hazardous substances by, due to or caused by
either of the Issuers (or, to the best knowledge of each of the
Issuers, any other entity (including any predecessor) for whose acts
or omissions either of the Issuers could reasonably be expected to be
liable) upon any of the property now or previously owned or leased by
either of the Issuers, or upon any other property, in violation of any
statute or any ordinance, rule, regulation, order, judgment, decree or
permit or which would, under any statute or any ordinance, rule
(including rule of common law), regulation, order, judgment, decree or
permit, give rise to any liability, except for any violation or
liability which could not reasonably be expected to have, singularly
or in the aggregate with all such violations and liabilities, a
Material Adverse Effect; and, to the best knowledge of each of the
Issuers, there has been no disposal, discharge, emission or other
release of any kind onto such property or into the environment
surrounding such property of any toxic or other wastes or other
hazardous substances, except for any such disposal, discharge,
emission or other release of any kind which could not reasonably be
expected to have, singularly or in the aggregate with all such
discharges and other releases, a Material Adverse Effect;
(bb) none of the Issuers nor, to the best knowledge of each
of the Issuers, any partner, director, officer, agent, employee or
other person associated with or acting on behalf of such Issuer has
(i) used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political
activity, (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate
funds, (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977 or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment;
(cc) on and immediately after the Closing Date, each of the
Issuers (after giving effect to the issuance of the Securities, the
Transactions and any other transactions related thereto as described
in the Offering Memorandum) will be Solvent; as used in this
paragraph, the term "Solvent" means, with respect to an entity on a
particular date, that on such date (i) the present fair market value
(or present fair saleable value) of the assets of such entity is not
less than the total amount required to pay the probable liabilities of
such entity on its total existing debts and liabilities (including
contingent liabilities) as they become absolute and matured, (ii) such
entity is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and commitments as they mature and
become due in the normal course of business, (iii) assuming the sale
of the Securities as contemplated by this Agreement and the Offering
Memorandum, such entity is not incurring debts or liabilities beyond
its ability to pay as such debts and liabilities mature and (iv) such
entity is not engaged in any business or transaction, and is not about
to engage in any business or transaction, for which its property would
constitute unreasonably small capital after giving due consideration
to the prevailing practice in the industry in which such entity is
engaged; in computing the amount of
<PAGE> 11
11
such contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in the light of all
the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability;
(dd) except as disclosed in the Offering Memorandum, there
are, and, upon consummation of the Transactions, there will be, no
outstanding subscriptions, rights, warrants, calls or options to
acquire, or instruments convertible into or exchangeable for, or
agreements or understandings with respect to the sale or issuance of,
any partnership interests in, or shares of capital stock of, or other
ownership or equity interest in, either of the Issuers;
(ee) neither of the Issuers owns, and, upon consummation of
the Transactions, neither of the Issuers will own, any "margin
securities" as that term is defined in Regulations G and U of the
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), and none of the proceeds of the sale of the Securities will
be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security, for the purpose of reducing or retiring
any indebtedness which was originally incurred to purchase or carry
any margin security or for any other purpose which might cause any of
the Securities to be considered a "purpose credit" within the meanings
of Regulation G, T, U or X of the Federal Reserve Board;
(ff) neither of the Issuers is a party to any contract,
agreement or understanding with any person (other than you or your
affiliates) that would give rise to a valid claim against such Issuer
or the Initial Purchaser for a brokerage commission, finder's fee or
like payment in connection with the offering and sale of the
Securities;
(gg) the Securities satisfy the eligibility requirements of
Rule 144A(d)(3) under the Securities Act;
(hh) none of the Issuers or any affiliate thereof has,
directly or through any agent, sold, offered for sale, solicited
offers to buy or otherwise negotiated in respect of, any security (as
such term is defined in the Securities Act), which is or will be
integrated with the sale of the Securities in a manner that would
require registration of the Securities under the Securities Act;
(ii) none of the Issuers or any affiliate thereof or any
other person acting on its or their behalf has engaged, in connection
with the offering of the Securities, in any form of general
solicitation or general advertising within the meaning of Rule 502(c)
under the Securities Act; provided that no representation is made as
to the Initial Purchaser or any person acting on its behalf;
(jj) there are no securities of either of the Issuers
registered under the Exchange Act of 1934, as amended (the "Exchange
Act"), or listed on a national securities exchange or quoted in a U.S.
automated inter- dealer quotation system;
<PAGE> 12
12
(kk) neither of the Issuers has taken, and neither of the
Issuers will take, directly or indirectly, any action prohibited by
Regulation M under the Exchange Act ("Regulation M") in connection
with the offering of the Securities;
(ll) no forward-looking statement (within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act)
contained in the Preliminary Offering Memorandum or the Offering
Memorandum has been made or reaffirmed without a reasonable basis or
has been disclosed other than in good faith;
(mm) neither of Issuers does business with the government of
Cuba or with any person or affiliate located in Cuba within the
meaning of Florida Statutes Section 517.075; and
(nn) since the date as of which information is given in the
Offering Memorandum, except as otherwise stated therein, (i) there has
been no material adverse change or any development involving a
prospective material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs, management or
business prospects of either of the Issuers, whether or not arising in
the ordinary course of business, (ii) neither of the Issuers has
incurred any material liability or obligation, direct or contingent,
other than in the ordinary course of business, (iii) neither of the
Issuers has entered into any material transaction other than in the
ordinary course of business and (iv) there has not been any change in
the capitalization or long-term debt of either of the Issuers, or any
distribution or dividend of any kind declared, paid or made by either
of the Issuers on any class of partnership interests or capital stock,
as applicable.
2. Purchase and Resale of the Securities. (a) On the basis
of the representations, warranties and agreements contained herein, and subject
to the terms and conditions set forth herein, the Issuers agree jointly to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Issuers, the principal amount of Securities set forth
opposite its name on Schedule 2 hereto at a purchase price equal to 97% of the
principal amount thereof. The Issuers shall not be obligated to deliver any of
the Securities except upon payment for all of the Securities to be purchased as
provided herein.
(b) The Initial Purchaser has advised the Issuers that it
proposes to offer the Securities for resale upon the terms and subject to the
conditions set forth herein and in the Offering Memorandum. The Initial
Purchaser represents and warrants to, and agrees with, the Issuers that (i) it
is purchasing the Securities pursuant to a private sale exempt from
registration under the Securities Act, (ii) it has not solicited offers for, or
offered or sold, and will not solicit offers for, or offer or sell, the
Securities by means of any form of general solicitation or general advertising
within the meaning of Rule 502(c) of Regulation D under the Securities Act
("Regulation D") or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act and (iii) it has solicited and
will solicit offers for the Securities only from, and has offered or sold and
will offer, sell or deliver the Securities, as part of its initial offering,
only to persons whom it reasonably believes to be qualified institutional
buyers ("Qualified Institutional Buyers") as defined in Rule 144A under the
Securities Act, or if any such person is buying for one or more institutional
accounts for which
<PAGE> 13
13
such person is acting as fiduciary or agent, only when such person has
represented to it that each such account is a Qualified Institutional Buyer to
whom notice has been given that such sale or delivery is being made in reliance
on Rule 144A and in each case in transactions in accordance with Rule 144A.
The Initial Purchaser agrees that, prior to or simultaneously with the
confirmation of sale by the Initial Purchaser to any purchaser of any of the
Securities purchased by the Initial Purchaser from the Issuers pursuant hereto,
the Initial Purchaser shall furnish to that purchaser a copy of the Offering
Memorandum (and any amendment or supplement thereto that the Issuers shall have
furnished to the Initial Purchaser prior to the date of such confirmation of
sale). In addition to the foregoing, the Initial Purchaser acknowledges and
agrees that the Issuers and, for purposes of the opinions to be delivered to
the Initial Purchaser pursuant to Sections 5(d) and (e), counsel for the
Issuers and for the Initial Purchaser, respectively, may rely upon the accuracy
of the representations and warranties of the Initial Purchaser and its
compliance with its agreements contained in this Section 2, and the Initial
Purchaser hereby consents to such reliance.
(c) Each of the Issuers acknowledges and agrees that the
Initial Purchaser may sell Securities to any affiliate of the Initial Purchaser
and that any such affiliate may sell Securities purchased by it to the Initial
Purchaser.
3. Delivery of and Payment for the Securities. (a) Delivery
of and payment for the Securities shall be made at the offices of Cravath,
Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York, or at
such other place as shall be agreed upon by the Initial Purchaser and the
Issuers, at 10:00 a.m., New York City time, on September 4, 1997, or at such
other time or date, not later than seven full business days thereafter, as
shall be agreed upon by the Initial Purchaser and the Issuers (such date and
time of payment and delivery being referred to herein as the "Closing Date").
(b) On the Closing Date, payment of the purchase price for
the Securities shall be made to the Issuers by wire or book-entry transfer of
same-day funds to such account or accounts as SFG shall specify prior to the
Closing Date or by such other means as the parties hereto shall agree prior to
the Closing Date against delivery to the Initial Purchaser of the certificates
evidencing the Securities. Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligations of the Initial Purchaser hereunder. Upon delivery, the
Securities shall be in global form, registered in such names and in such
denominations as the Initial Purchaser shall have requested in writing not less
than two full business days prior to the Closing Date. Each of the Issuers
agrees to make one or more global certificates evidencing the Securities
available for inspection by the Initial Purchaser in New York, New York at
least 24 hours prior to the Closing Date.
4. Further Agreements of the Issuers. Each of the Issuers
agrees with the Initial Purchaser:
(a) to advise the Initial Purchaser promptly and, if
requested, confirm such advice in writing, of the happening of any
event which makes any statement of a material fact made in the
Offering Memorandum untrue or which requires the making of any
additions to or changes in the Offering Memorandum (as amended or
supplemented from time to time) in order to make the statements
therein, in the light of
<PAGE> 14
14
the circumstances under which they were made, not misleading; to
advise the Initial Purchaser promptly of any order preventing or
suspending the use of the Preliminary Offering Memorandum or the
Offering Memorandum, of any suspension of the qualification of the
Securities for offering or sale in any jurisdiction and of the
initiation or threatening of any proceeding for any such purpose; and
to use its best efforts to prevent the issuance of any such order
preventing or suspending the use of the Preliminary Offering
Memorandum or the Offering Memorandum or suspending any such
qualification and, if any such suspension is issued, to obtain the
lifting thereof at the earliest possible time;
(b) to furnish promptly to the Initial Purchaser and counsel
for the Initial Purchaser, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum (and any
amendments or supplements thereto) as may be reasonably requested;
(c) prior to making any amendment or supplement to the
Offering Memorandum, to furnish a copy thereof to the Initial
Purchaser and counsel for the Initial Purchaser and not to effect any
such amendment or supplement to which the Initial Purchaser shall
reasonably object by notice to SFG after a reasonable period to
review;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchaser, any event shall occur or
condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Initial Purchaser or counsel for the
Issuers, to amend or supplement the Offering Memorandum in order that
the Offering Memorandum will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances
existing at the time it is delivered to a purchaser, not misleading,
or if it is necessary to amend or supplement the Offering Memorandum
to comply with applicable law, to promptly prepare such amendment or
supplement as may be necessary to correct such untrue statement or
omission or so that the Offering Memorandum, as so amended or
supplemented, will comply with applicable law;
(e) for so long as the Securities are outstanding and are
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, to furnish to holders of the Securities and
prospective purchasers of the Securities designated by such holders,
upon request of such holders or such prospective purchasers, the
information required to be delivered pursuant to Rule 144A(d)(4) under
the Securities Act, unless each of the Issuers is then subject to, and
in compliance with, Section 13 or 15(d) of the Exchange Act (the
foregoing agreement being for the benefit of the holders from time to
time of the Securities and prospective purchasers of the Securities
designated by such holders);
(f) for so long as the Securities or the Exchange Securities
are outstanding, to furnish to the Initial Purchaser copies of any
annual reports, quarterly reports and current reports filed by either
of the Issuers with the Commission on Forms 10-K, 10-Q and 8-K, or
such other similar forms as may be designated by the Commission, and
such other documents, reports and information as shall be furnished by
either of the
<PAGE> 15
15
Issuers to the Trustee or to the holders of the Securities pursuant to
the Indenture or the Exchange Act or any rule or regulation of the
Commission thereunder;
(g) to promptly take from time to time such actions as the
Initial Purchaser may reasonably request to qualify the Securities for
offering and sale under the securities or blue sky laws of such
jurisdictions as the Initial Purchaser may designate and to continue
such qualifications in effect for so long as required for the resale
of the Securities; and to arrange for the determination of the
eligibility for investment of the Securities under the laws of such
jurisdictions as the Initial Purchaser may reasonably request;
provided that neither of the Issuers shall be obligated to qualify as
a foreign limited partnership or a foreign corporation, as applicable,
in any jurisdiction in which it is not so qualified or to file a
general consent to service of process in any jurisdiction;
(h) to assist the Initial Purchaser in arranging for the
Securities to be designated Private Offerings, Resales and Trading
through Automated Linkages ("PORTAL") Market securities in accordance
with the rules and regulations adopted by the National Association of
Securities Dealers, Inc. ("NASD") relating to trading in the PORTAL
Market and for the Securities to be eligible for clearance and
settlement through The Depository Trust Company ("DTC");
(i) not to, and to cause its affiliates not to, sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of
any security (as such term is defined in the Securities Act) which
could be integrated with the sale of the Securities in a manner which
would require registration of the Securities under the Securities Act;
(j) except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the
case may be, not to, and to cause its affiliates not to, and not to
authorize or knowingly permit any person acting on its or their behalf
to, solicit any offer to buy or offer to sell the Securities by means
of any form of general solicitation or general advertising within the
meaning of Regulation D or in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act; and not to
offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, any securities under circumstances where such offer, sale,
contract or disposition would cause the exemption afforded by Section
4(2) of the Securities Act to cease to be applicable to the offering
and sale of the Securities as contemplated by this Agreement and the
Offering Memorandum;
(k) for a period of 90 days from the date of the Offering
Memorandum, not to offer for sale, sell, contract to sell or otherwise
dispose of, directly or indirectly, or file a registration statement
for, or announce any offer, sale, contract for sale of or other
disposition of any debt securities issued or guaranteed by such Issuer
(other than the Securities) without the prior written consent of the
Initial Purchaser;
(l) during the period from the Closing Date until two years
after the Closing Date, without the prior written consent of the
Initial Purchaser, not to, and not permit any of its affiliates (as
defined in Rule 144 under the Securities Act) to, resell any of the
Securities that have been reacquired by them, except for Securities
purchased by
<PAGE> 16
16
such Issuer or any of its affiliates and resold in a transaction
registered under the Securities Act;
(m) not to, for so long as the Securities are outstanding, be
or become, or be or become owned by, an open-end investment company,
unit investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the Investment Company
Act, and to not be or become, or be or become owned by, a closed-end
investment company required to be registered, but not registered
thereunder;
(n) in connection with the offering of the Securities, until
the Initial Purchaser shall have notified SFG of the completion of the
resale of the Securities, not to, and to cause its affiliated
purchasers (as defined in Regulation M) not to, either alone or with
one or more other persons, bid for or purchase, for any account in
which it or any of its affiliated purchasers has a beneficial
interest, any Securities, or attempt to induce any person to purchase
any Securities; and not to, and to cause its affiliated purchasers not
to, make bids or purchases for the purpose of creating actual, or
apparent, active trading in, or of raising the price of, the
Securities;
(o) in connection with the offering of the Securities, to
make its partners, directors, officers, employees, independent
accountants and legal counsel, and to use its best efforts to cause
each of Mid-Am, SFG LLC, Borden and the Meadow Gold Dairies to make
its directors, officers, employees, independent accountants and legal
counsel, reasonably available upon request by the Initial Purchaser;
(p) to furnish to the Initial Purchaser on the date hereof a
copy of each of the independent accountants' reports included in the
Offering Memorandum signed by the accountants rendering such report;
(q) to do and perform all things required to be done and
performed by it that are within its control, and to use its best
efforts to cause Mid-Am to do and perform all things required to be
done and performed by it that are within its control, under the
agreement governing the New Senior Bank Facilities to cause the New
Senior Bank Facilities to become effective on the Closing Date, all
conditions precedent to the initial borrowing under the New Senior
Bank Facilities to be satisfied on or prior to the Closing Date and
the initial borrowing under the New Senior Bank Facilities and the
assumption of the New Senior Bank Facilities by SFG as contemplated in
the Offering Memorandum to occur on the Closing Date;
(r) to do and perform all things required to be done and
performed by it that are within its control to cause the Trademark
Acquisitions to be consummated on the Closing Date;
(s) to do and perform all things required to be done and
performed by it that are within its control to cause the New Preferred
Interests to be issued on the Closing Date;
<PAGE> 17
17
(t) to do and perform all things required to be done and
performed by it under this Agreement that are within its control prior
to, on or after the Closing Date, and to use its best efforts to
satisfy all conditions precedent on its part to the delivery of the
Securities;
(u) prior to the Closing Date, not to issue any press release
or other communication, directly or indirectly, or hold any press
conference with respect to SFG, its condition, financial or otherwise,
or earnings, business affairs or business prospects (except for
routine oral marketing communications in the ordinary course of
business and consistent with its past practices), without the prior
written consent of the Initial Purchaser, unless in the judgment of
SFG and its counsel, and after notification to the Initial Purchaser,
such press release or communication is required by law, and to use its
reasonable best efforts to cause Borden not to make any news release
or public announcement pertaining to the Transactions, without the
prior written consent of the Initial Purchaser, unless such news
release or public announcement is required by law; and
(x) to apply the net proceeds from the sale of the Securities
as set forth in the Offering Memorandum under the heading "Use of
Proceeds".
5. Conditions of Initial Purchaser's Obligations. The
obligations of the Initial Purchaser hereunder are subject to the accuracy, on
and as of the date hereof and the Closing Date (including after giving effect
to the Transactions), of the representations and warranties of each of the
Issuers contained herein, to the accuracy of the statements of the each of the
Issuers and its officers made in any certificates delivered pursuant hereto, to
the performance by each of the Issuers of its obligations hereunder, and to
each of the following additional terms and conditions:
(a) the Offering Memorandum (and any amendments or
supplements thereto) shall have been printed and copies distributed to
the Initial Purchaser as promptly as practicable on or following the
date of this Agreement or at such other date and time as to which the
Initial Purchaser may agree; and no stop order suspending the sale of
the Securities in any jurisdiction shall have been issued and no
proceeding for that purpose shall have been commenced or shall be
pending or threatened;
(b) the Initial Purchaser shall not have discovered and
notified SFG in writing on or prior to the Closing Date that the
Offering Memorandum or any amendment or supplement thereto contains an
untrue statement of a fact which, in the opinion of counsel for the
Initial Purchaser, is material or omits to state any fact which, in
the opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading;
(c) all proceedings and other legal matters incident to the
authorization, form and validity of each of the Transaction Documents
and the Offering Memorandum, and all other legal matters relating to
the Transaction Documents and the transactions contemplated thereby,
shall be satisfactory in all material respects to the Initial
<PAGE> 18
18
Purchaser, and each of the Issuers shall have furnished to the Initial
Purchaser all documents and information that it or its counsel may
reasonably request to enable it to pass upon such matters;
(d) Strasburger & Price, L.L.P. shall have furnished to the
Initial Purchaser their written opinion, as counsel to the Issuers,
addressed to the Initial Purchaser and dated the Closing Date, in form
and substance reasonably satisfactory to the Initial Purchaser,
substantially to the effect set forth in Annex B-1 hereto, Richards,
Layton & Finger shall have furnished to the Initial Purchaser their
written opinion, as special Delaware counsel to the Issuers, addressed
to the Initial Purchaser and dated the Closing Date, in form and
substance reasonably satisfactory to the Initial Purchaser,
substantially to the effect set forth in Annex B-2 hereto, and Coudert
Brothers shall have furnished to the Initial Purchaser their written
opinion, as special counsel to the Issuers, addressed to the Initial
Purchaser and dated the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchaser, substantially to the effect set
forth in Annex B-3 hereto;
(e) the Initial Purchaser shall have received from Cravath,
Swaine & Moore, counsel for the Initial Purchaser, such opinion or
opinions, dated the Closing Date, with respect to such matters as the
Initial Purchaser may reasonably require, and each of the Issuers
shall have furnished to such counsel such documents and information
as they reasonably request for the purpose of enabling them to pass
upon such matters;
(f) SFG shall have furnished to the Initial Purchaser a
letter (the "SFG Initial Letter") of Price Waterhouse LLP, addressed
to the Initial Purchaser and dated the date hereof, in form and
substance satisfactory to the Initial Purchaser, substantially to the
effect set forth in Annex C-1 hereto, and SFG shall have furnished to
the Initial Purchaser a letter (the "Meadow Gold Dairies Initial
Letter") of Deloitte & Touche LLP, addressed to the Initial Purchaser
and dated the date hereof, in form and substance satisfactory to the
Initial Purchaser, substantially to the effect set forth in Annex C-2
hereto;
(g) SFG shall have furnished to the Initial Purchaser a
letter (the "SFG Bring-Down Letter") of Price Waterhouse LLP,
addressed to the Initial Purchaser and dated the Closing Date, (i)
confirming that they are independent accountants with respect to SFG
(and its predecessors) within the meaning of Rule 101 of the Code of
Professional Conduct of the AICPA and its interpretations and rulings
thereunder, (ii) stating, as of the date of the SFG Bring-Down Letter
(or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is
given in the Offering Memorandum, as of a date not more than three
business days prior to the date of the SFG Bring-Down Letter), that
the conclusions and findings of such accountants with respect to the
financial information and other matters covered by the SFG Initial
Letter are accurate and (iii) confirming in all material respects the
conclusions and findings set forth in the SFG Initial Letter; and SFG
shall have furnished to the Initial Purchaser a letter (the "Meadow
Gold Dairies Bring-Down Letter") of Deloitte & Touche LLP, addressed
to the Initial Purchaser and dated the Closing Date, (i) confirming
that they are independent certified public accountants with
<PAGE> 19
19
respect to the Meadow Gold Dairies (and its predecessors) within the
meaning of Rule 101 of the Code of Professional Conduct of the AICPA
and its interpretations and rulings thereunder, (ii) stating, as of
the date of the Meadow Gold Dairies Bring-Down Letter (or, with
respect to matters involving changes or developments since the
respective dates as of which specified financial information is given
in the Offering Memorandum, as of a date not more than three business
days prior to the date of the Meadow Gold Dairies Bring-Down Letter),
that the conclusions and findings of such accountants with respect to
the financial information and other matters covered by the Meadow Gold
Dairies Initial Letter are accurate and (iii) confirming in all
material respects the conclusions and findings set forth in the Meadow
Gold Dairies Initial Letter;
(h) SFG shall have furnished to the Initial Purchaser a
certificate, dated the Closing Date, of its chief executive officer
and its chief financial officer stating that (i) such officers have
carefully examined the Offering Memorandum, (ii) in their opinion, the
Offering Memorandum, as of its date, did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, and since the date of the Offering
Memorandum, no event has occurred which should have been set forth in
a supplement or amendment to the Offering Memorandum so that the
Offering Memorandum (as so amended or supplemented) would not include
any untrue statement of a material fact and would not omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading and (iii) as of the Closing Date,
the representations and warranties of the Issuers in this Agreement
are true and correct in all material respects, the Issuers have
complied with all agreements and satisfied all conditions on their
part to be performed or satisfied hereunder in all material respects
on or prior to the Closing Date, and subsequent to the date of the
most recent financial statements contained in the Offering Memorandum,
if any, there has been no material adverse change in the financial
position or results of operations of the Issuers, or any change, or
any development including a prospective change, in or affecting the
condition (financial or otherwise), results of operations, business or
prospects of the Issuers, except as set forth in the Offering
Memorandum;
(i) the Initial Purchaser shall have received a counterpart
of the Registration Rights Agreement which shall have been executed
and delivered by a duly authorized officer of each of the Issuers;
(j) the Indenture shall have been duly executed and delivered
by each of the Issuers and the Trustee, and the Securities shall have
been duly executed and delivered by each of the Issuers and duly
authenticated by the Trustee;
(k) each of the other Transaction Documents to which SFG is a
party shall have been executed and delivered by a duly authorized
officer of SFG;
<PAGE> 20
20
(l) the Securities shall have been approved by the NASD for
trading in the PORTAL Market;
(m) if any event shall have occurred that requires the
Issuers under Section 4(d) to prepare an amendment or supplement to
the Offering Memorandum, such amendment or supplement shall have been
prepared, the Initial Purchaser shall have been given a reasonable
opportunity to comment thereon, and copies thereof shall have been
delivered to the Initial Purchaser reasonably in advance of the
Closing Date;
(n) there shall not have occurred any invalidation of Rule
144A under the Securities Act by any court or any withdrawal or
proposed withdrawal of any rule or regulation under the Securities Act
or the Exchange Act by the Commission or any amendment or proposed
amendment thereof by the Commission which in the judgment of the
Initial Purchaser would materially impair the ability of the Initial
Purchaser to purchase, hold or effect resales of the Securities as
contemplated hereby;
(o) subsequent to the execution and delivery of this
Agreement or, if earlier, the dates as of which information is given
in the Offering Memorandum (exclusive of any amendment or supplement
thereto), there shall not have been any change in the capital
structure or long-term debt or any change, or any development
involving a prospective change, in or affecting the condition
(financial or otherwise), results of operations, business or prospects
of the Issuers, the effect of which, in any such case described above,
is, in the judgment of the Initial Purchaser, so material and adverse
as to make it impracticable or inadvisable to proceed with the sale or
delivery of the Securities on the terms and in the manner contemplated
by this Agreement and the Offering Memorandum (exclusive of any
amendment or supplement thereto);
(p) no action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency or body which would, as of the Closing Date,
prevent the issuance or sale of the Securities; and no injunction,
restraining order or order of any other nature by any federal or state
court of competent jurisdiction shall have been issued as of the
Closing Date which would prevent the issuance or sale of the
Securities;
(q) subsequent to the execution and delivery of this
Agreement (i) no downgrading shall have occurred in the rating
accorded the Securities or any of the other debt securities or
preferred partnership interests or preferred stock, as applicable, of
either of the Issuers by any "nationally recognized statistical rating
organization", as such term is defined by the Commission for purposes
of Rule 436(g)(2) of the rules and regulations of the Commission under
the Securities Act, and (ii) no such organization shall have publicly
announced that it has under surveillance or review (other than an
announcement with positive implications of a possible upgrading) its
rating of the Securities or any of the other debt securities or
preferred partnership interests or preferred stock, as applicable, of
either of the Issuers;
(r) subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following: (i)
trading in securities generally on the New York
<PAGE> 21
21
Stock Exchange, the American Stock Exchange or the over-the-counter
market shall have been suspended or limited, or minimum prices shall
have been established on any such exchange or market by the
Commission, by any such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in any
securities of either of the Issuers on any exchange or in the
over-the-counter market shall have been suspended or (ii) any
moratorium on commercial banking activities shall have been declared
by federal or New York state authorities or (iii) an outbreak or
escalation of hostilities or a declaration by the United States of a
national emergency or war or (iv) a material adverse change in general
economic, political or financial conditions the effect of which is (or
the effect of international conditions on the financial markets in the
United States shall be), in the case of this clause (iv), in the
judgment of the Initial Purchaser, so material and adverse as to make
it impracticable or inadvisable to proceed with the sale or the
delivery of the Securities on the terms and in the manner contemplated
by this Agreement and in the Offering Memorandum (exclusive of any
amendment or supplement thereto);
(s) all conditions to the agreements with the Department of
Justice and the State of Texas entered into in connection with the
Transactions shall have been satisfied and the waiting period under
the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended,
shall have expired or been terminated, in each case in all material
respects in accordance with the terms described in the Offering
Memorandum; and
(t) substantially simultaneously with the consummation of
the sale of the Securities hereunder (but in the order and at the
times contemplated by the Offering Memorandum), each of the
Transactions shall have been consummated.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Initial Purchaser.
6. Termination. The obligations of the Initial Purchaser
hereunder may be terminated by the Initial Purchaser, in its absolute
discretion, by notice given to and received by SFG prior to delivery of and
payment for the Securities if, prior to that time, any of the events described
in Section 5(n), (o), (p), (q) or (r) shall have occurred and be continuing.
7. Reimbursement of Initial Purchaser's Expenses. If (a)
this Agreement shall have been terminated pursuant to Section 6, (b) the
Issuers shall fail to tender the Securities for delivery to the Initial
Purchaser, other than as a result of a default by the Initial Purchaser, or (c)
the Initial Purchaser shall decline to purchase the Securities for any reason
permitted under this Agreement, the Issuers shall reimburse the Initial
Purchaser for such out-of-pocket expenses (including reasonable fees and
disbursements of counsel) as shall have been reasonably incurred by the Initial
Purchaser in connection with this Agreement and the proposed purchase and
resale of the Securities.
8. Indemnification. (a) Each of the Issuers, jointly and
severally, shall indemnify and hold harmless the Initial Purchaser, its
affiliates, their respective directors, officers, employees, representatives
and agents, and each person, if any, who controls the
<PAGE> 22
22
Initial Purchaser within the meaning of the Securities Act or the Exchange Act
(collectively referred to for purposes of this Section 8(a) and Section 9 as
the Initial Purchaser) from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, without
limitation, any loss, claim, damage, liability or action relating to purchases
and sales of the Securities), to which the Initial Purchaser may become
subject, whether commenced or threatened, under the Securities Act, the
Exchange Act, any other federal or state statutory law or regulation, at common
law or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Memorandum
or the Offering Memorandum or in any amendment or supplement thereto or in any
information provided by either of the Issuers pursuant to Section 4(d) or (ii)
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and
shall reimburse the Initial Purchaser promptly upon demand for any legal or
other expenses reasonably incurred by the Initial Purchaser in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that neither of the
Issuers shall be liable in any such 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 in, or omission or alleged omission from,
any of such documents in reliance upon and in conformity with any Initial
Purchaser's Information; and provided, further, that with respect to any such
untrue statement in, or omission from, the Preliminary Offering Memorandum, the
indemnity agreement contained in this Section 8(a) shall not inure to the
benefit of the Initial Purchaser to the extent that the sale to the person
asserting any such loss, claim, damage, liability or action was an initial
resale by the Initial Purchaser and any such loss, claim, damage, liability or
action of, or with respect to, the Initial Purchaser results from the fact that
both (A) to the extent required by applicable law, a copy of the Offering
Memorandum was not sent or given to such person at or prior to the written
confirmation of the sale of such Securities to such person and (B) the untrue
statement in, or omission from, the Preliminary Offering Memorandum was
corrected in the Offering Memorandum unless, in either case, such failure to
deliver the Offering Memorandum was a result of non-compliance by the Issuers
with Section 4(b).
(b) The Initial Purchaser shall indemnify and hold harmless
each of the Issuers, its affiliates, their respective partners, directors,
officers, employees, representatives and agents, and each person, if any, who
controls such Issuer within the meaning of the Securities Act or the Exchange
Act (collectively referred to for purposes of this Section 8(b) and Section 9
as an Issuer), from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which such Issuer may become
subject, whether commenced or threatened, under the Securities Act, the
Exchange Act, any other federal or state statutory law or regulation, at common
law or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Memorandum
or the Offering Memorandum or in any amendment or supplement thereto or (ii)
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, but in
each case only to the extent that the untrue statement or alleged
<PAGE> 23
23
untrue statement or omission or alleged omission was made in reliance upon, and
in conformity with, the Initial Purchaser's Information, and shall reimburse
such Issuer for any legal or other expenses reasonably incurred by such Issuer
in connection with investigating or defending or preparing to defend against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party pursuant to Section 8(a) or 8(b), notify the
indemnifying party in writing of the claim or the commencement of that action;
provided, however, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have under this Section 8 except to
the extent that it has been materially prejudiced (through the forfeiture of
substantive rights or defenses) by such failure; and, provided, further, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 8. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this Section 8 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that an indemnified party shall have the
right to employ its own counsel in any such action, but the fees, expenses and
other charges of such counsel for the indemnified party will be at the expense
of such indemnified party unless (i) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party,
(ii) the indemnified party has reasonably concluded (based upon advice of
counsel to the indemnified party) that there may be legal defenses available to
it or other indemnified parties that are different from, or in addition to,
those available to the indemnifying party, (iii) a conflict or potential
conflict exists (based upon advice of counsel to the indemnified party) between
the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (iv) the indemnifying party has not in
fact employed counsel reasonably satisfactory to the indemnified party to
assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action, in each of which cases the reasonable
fees, disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 8(a) and 8(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement of any such action effected without
its written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment for the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless
<PAGE> 24
24
any indemnified party from and against any loss or liability by reason of such
settlement or judgment. No indemnifying party shall, without the prior written
consent of the indemnified party (which consent shall not be unreasonably
withheld), effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party unless
such settlement includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such proceeding.
The obligations of the Issuers and the Initial Purchaser in
this Section 8 and in Section 9 are in addition to any other liability that the
Issuers or the Initial Purchaser, as the case may be, may otherwise have,
including in respect of any breaches of representations, warranties and
agreements made herein by any such party.
9. Contribution. If the indemnification provided for in
Section 8 is unavailable or insufficient to hold harmless an indemnified party
under Section 8(a) or 8(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such loss, claim, damage or liability,
or action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Issuers (it being understood that
the benefit to either Issuer shall be considered a benefit to both Issuers), on
the one hand, and the Initial Purchaser, on the other, from the offering of the
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Issuers (it being understood that the fault of either
Issuer shall be considered the fault of both Issuers), on the one hand, and the
Initial Purchaser, on the other, with respect to the statements or omissions
that resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Issuers, on the one hand, and the Initial Purchaser,
on the other, with respect to such offering shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Securities
purchased under this Agreement (before deducting expenses) received by or on
behalf of the Issuers, on the one hand, and the total discounts and commissions
received by the Initial Purchaser with respect to the Securities purchased
under this Agreement, on the other, bear to the total gross proceeds from the
sale of the Securities under this Agreement, in each case as set forth in the
table on the cover page of the Offering Memorandum. The relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to the Issuers or information supplied by the
Issuers, on the one hand, or to the Initial Purchaser's Information, on the
other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Issuers and the Initial Purchaser agree that it would not be
just and equitable if contributions pursuant to this Section 9 were to be
determined by pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to above in
this Section 9 shall be deemed to include, for purposes of this Section 9, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending or preparing to defend any such
action or claim. Notwithstanding the provisions of this Section 9, the Initial
Purchaser
<PAGE> 25
25
shall not be required to contribute any amount in excess of the amount by which
the total discounts and commissions received by the Initial Purchaser with
respect to the Securities purchased by it under this Agreement exceeds the
amount of any damages which the Initial Purchaser has otherwise paid or become
liable to pay by reason of any untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
10. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of, and be binding upon, the Initial Purchaser, the
Issuers and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except as
provided in Sections 8 and 9 with respect to affiliates, partners, directors,
officers, employees, representatives, agents and controlling persons of the
Issuers and the Initial Purchaser and in Section 4(e) with respect to holders
and prospective purchasers of the Securities. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 10, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
11. Expenses. The Issuers jointly agree with the Initial
Purchaser to pay (a) the costs incident to the authorization, issuance, sale,
preparation and delivery of the Securities and any taxes payable in that
connection, (b) the costs incident to the preparation, printing and
distribution of the Preliminary Offering Memorandum, the Offering Memorandum
and any amendments or supplements thereto, (c) the costs of reproducing and
distributing each of the Transaction Documents, (d) the costs incident to the
preparation, printing and delivery of the certificates evidencing the
Securities, including stamp duties and transfer taxes, if any, payable upon
issuance of the Securities, (e) the fees and expenses of the Issuers' counsel
and independent accountants, (f) the fees and expenses of qualifying the
Securities under the securities laws of the several jurisdictions as provided
in Section 4(g) and of preparing, printing and distributing blue sky memoranda
(including related fees and expenses of counsel for the Initial Purchaser), (g)
any fees charged by rating agencies for rating the Securities, (h) the fees and
expenses of the Trustee and any paying agent (including related fees and
expenses of any counsel to such parties), (i) all expenses and application fees
incurred in connection with the application for the inclusion of the Securities
on the PORTAL Market and the approval of the Securities for book-entry transfer
by DTC and (j) all other costs and expenses incident to the performance of the
obligations of the Issuers under this Agreement which are not otherwise
specifically provided for in this Section 11; provided, however, that except as
provided in this Section 11, the Initial Purchaser shall pay its own costs and
expenses.
12. Survival. The respective indemnities, rights of
contribution, representations, warranties and agreements of the Issuers and the
Initial Purchaser contained in this Agreement or made by or on behalf of the
Issuers or the Initial Purchaser pursuant to this Agreement or any certificate
delivered pursuant hereto shall survive the delivery of and payment for the
Securities and shall remain in full force and effect, regardless of any
termination or cancelation of this Agreement or any investigation made by or on
behalf of any of them or any of their respective affiliates, partners,
directors, officers, employees, representatives, agents or controlling persons.
<PAGE> 26
26
13. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Initial Purchaser, shall be delivered or sent by
mail or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New
York, New York 10017, Attention: James C. Neary (telecopier no.: (212)
270-0994); or
(b) if to the Issuers, shall be delivered or sent by mail or
telecopy transmission to the address of SFG set forth in the Offering
Memorandum, Attention: Pete Schenkel (telecopier no.: (212) 821-1686);
provided that any notice to the Initial Purchaser pursuant to Section 8(c)
shall also be delivered or sent by mail to the Initial Purchaser at its address
set forth on the signature page hereof. Any such statements, requests, notices
or agreements shall take effect at the time of receipt thereof.
14. Definition of Terms. For purposes of this Agreement, (a)
the term "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth
in Rule 405 under the Securities Act and (c) except where otherwise expressly
provided, the term "affiliate" has the meaning set forth in Rule 405 under the
Securities Act.
15. Initial Purchaser's Information. The parties hereto
acknowledge and agree that, for all purposes of this Agreement, the Initial
Purchaser's Information consists solely of the following information in the
Preliminary Offering Memorandum and the Offering Memorandum: (i) the last
paragraph on the front cover page concerning the terms of the offering by the
Initial Purchaser, (ii) the legend on the inside front cover page concerning
over-allotment and trading activities by the Initial Purchaser and (iii) the
statements concerning the Initial Purchaser contained in the third, fourth,
seventh and eighth paragraphs under the heading "Plan of Distribution".
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
17. Counterparts. This Agreement may be executed in one or more
counterparts (which may include counterparts delivered by telecopier) and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
18. Amendments. No amendment or waiver of any provision of this
Agreement, nor any consent or approval to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
parties hereto.
<PAGE> 27
27
19. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement among the Issuers and the Initial
Purchaser in accordance with its terms. Very truly yours,
SOUTHERN FOODS GROUP, L.P.,
by SFG Management Limited Liability Company,
its General Partner,
by /s/ PETE SCHENKEL
-----------------------------------
Name: Pete Schenkel
Title:President & CEO
SFG CAPITAL CORPORATION,
by /s/ PETE SCHENKEL
-----------------------------------
Name: Pete Schenkel
Title:President & CEO
Accepted:
CHASE SECURITIES INC.,
by /s/
-----------------------------
Authorized Signatory
1 Chase Plaza
25th floor
New York, New York 10081
Attention: Legal Department
<PAGE> 28
SCHEDULE 1
1. Credit Agreement, dated as of the Closing Date, to be entered into by
Southern Foods Group, L.P., Mid-America Dairymen, Inc., the lenders
party thereto and The Chase Manhattan Bank, as Administrative Agent, and
each of the Loan Documents (as defined therein).
2. Capital Contribution, Assignment and Assumption Agreement, dated as of
the Closing Date, to be entered into by Mid-America Dairymen, Inc. and
Southern Foods Group, L.P.
3. Capital Contribution Agreement, dated as of the Closing Date, to be
entered into by Mid-Am Capital, L.L.C. and Southern Foods Group, L.P.
4. Assignment and Assumption Agreement Relating to Stock Purchase and
Merger Agreement, dated as of the Closing Date, to be entered into by
Mid-America Dairymen, Inc. and Southern Foods Group, L.P.
5. Trademark License Agreement, dated as of the Closing Date, to be entered
into by BDH Two, Inc., Borden, Inc. and Southern Foods Group, L.P.
6. Asset Purchase Agreement, dated as of the Closing Date, to be entered
into by Borden/Meadow Gold Dairies Investments, Inc., Mid-America
Dairymen, Inc. and Southern Foods Group, L.P.
7. Equipment Sub-Lease Agreement, dated as of the Closing Date, to be
entered into by Mid-America Dairymen, Inc. and Southern Foods Group,
L.P.
8. Second Amended and Restated Agreement of Limited Partnership of Southern
Foods Group, L.P. dated as of the Closing Date.
9. Second Amended and Restated Limited Liability Company Agreement of SFG
Management Limited Liability Company dated as of the Closing Date.
<PAGE> 29
SCHEDULE 2
<TABLE>
<CAPTION>
Principal
Amount
Initial Purchaser of Securities
----------------- -------------
<S> <C>
Chase Securities Inc. $150,000,000
</TABLE>
<PAGE> 30
ANNEX A
Form of Exchange and Registration Rights Agreement
<PAGE> 31
ANNEX B-1
Form of Opinion of Counsel to SFG
Strasburger & Price, L.L.P. shall have furnished to the Initial
Purchaser their written opinion, as counsel to SFG, addressed to the Initial
Purchaser and dated the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchaser, substantially to the effect set forth
below:
(i) each of SFG and SFG LLC has been duly formed and is validly
existing as a limited partnership or a limited liability company, as the
case may be, in good standing under the laws of its jurisdiction of
formation, is duly qualified to do business and is in good standing as a
foreign limited partnership or a foreign limited liability company, as
the case may be, in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification, and
has requisite partnership or limited liability company, as the case may
be, power and authority necessary to own, lease and operate its
properties and to conduct its business, except where the failure to so
qualify or have such power or authority would not have a Material
Adverse Effect;
(ii) SFG has an authorized capitalization as set forth in the
Second Amended and Restated Agreement of Limited Partnership of SFG, all
of the outstanding partnership interests of SFG (including the New
Preferred Interests) have been duly authorized and validly issued, and
the capital structure of SFG conforms in all material respects to the
description thereof contained in the Offering Memorandum; SFG LLC has
the authorized limited liability company interests as set forth in the
Second Amended and Restated Limited Liability Company Agreement of SFG
LLC, and all of the outstanding limited liability company interests of
SFG LLC have been duly authorized and validly issued; and SFG owns of
record all of the outstanding shares of capital stock of SFG Capital, to
the knowledge of such counsel, free and clear of any lien, charge,
encumbrance, security interest, restriction upon voting or transfer or
any other claim of any third party, other than restrictions imposed by
the Transactions Documents and liens arising under the New Senior Bank
Facilities;
(iii) the descriptions in the Offering Memorandum of statutes,
contracts and other documents, and the matters described with respect to
the Department of Justice and the State of Texas, and, to the knowledge
of such counsel, other legal and governmental proceedings (other than
the description of certain federal income tax consequences as to which
it need not express an opinion) are accurate in all material respects;
and such counsel does not have actual knowledge of any current or
pending legal or governmental actions, suits or proceedings which would
be required to be described in the Offering Memorandum if the Offering
Memorandum were a prospectus included in a registration statement on
Form S-1 which are not described as so required;
(iv) SFG LLC has requisite limited liability company power and
authority to act as General Partner of SFG and in such capacity has
requisite partnership power and authority to execute and deliver each of
the Transaction Documents on behalf of SFG
<PAGE> 32
2
and to perform its obligations thereunder; the execution and delivery by
SFG LLC of each of the Transaction Documents and the performance by SFG
LLC of its obligations thereunder, on behalf of SFG, have been duly
authorized by requisite limited liability company action on the part of
SFG LLC; and all partnership action required to be taken for the
consummation of the transactions contemplated by the Transaction
Documents has been duly and validly taken;
(v) each of the Purchase Agreement and the Registration Rights
Agreement has been duly authorized by requisite partnership action on
the part of SFG and constitutes a valid and legally binding agreement of
SFG enforceable against SFG in accordance with its terms, except to the
extent that such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights generally and by general equity
principles and except to the extent that rights to indemnity and
contribution may be limited by applicable law;
(vi) the Indenture has been duly authorized, executed and
delivered by requisite partnership action on the part of SFG and,
assuming due authorization, execution and delivery thereof by the
Trustee, constitutes a valid and legally binding obligation of SFG
enforceable against SFG in accordance with its terms, except to the
extent that such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights generally and by general equity
principles;
(vii) the Securities have been duly authorized and issued by
requisite partnership action on the part of SFG and, assuming due
authentication thereof by the Trustee and upon payment and delivery in
accordance with the Purchase Agreement, will constitute valid and
legally binding obligations of SFG entitled to the benefits of the
Indenture and enforceable against SFG in accordance with their terms,
except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equity principles;
(viii) each of the Transaction Documents to which SFG is a party
has been duly authorized, executed and delivered by requisite
partnership action on the part of SFG and constitutes a valid and
legally binding agreement of SFG enforceable against SFG in accordance
with its terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equity principles;
(ix) the execution, delivery and performance by each of the
Issuers of each of the Transaction Documents to which such Issuer is a
party, the issuance, authentication, sale and delivery of the Securities
and compliance by the Issuers with the terms thereof and the
consummation of the transactions contemplated by the Transaction
Documents will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or,
except as contemplated by the New Senior Bank
<PAGE> 33
3
Facilities, result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of either of the Issuers
pursuant to, any material indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument to which either of
the Issuers is a party or by which either of the Issuers is bound or to
which any of the property or assets of either of the Issuers is subject
that are identified on a schedule certified by the Issuers and attached
as an exhibit to such opinion as a material agreement (the "Material
Agreements"), which conflict, breach, default, lien, charge or
encumbrance would have a Material Adverse Effect, nor will such actions
result in any violation of the provisions of any of the governing
documents of either of the Issuers, nor will such actions result in any
violation of any statute, rule or regulation of the State of Texas or
the United States of America (it being understood that no opinion is
expressed with respect to any violation of any state securities law) or,
to the knowledge of such counsel, any judgment, order or decree of any
court or arbitrator or governmental agency or body having jurisdiction
over either of the Issuers or any of their respective properties or
assets which violation would have a Material Adverse Effect; and no
consent, approval, authorization or order of, or filing or registration
with, any such court or arbitrator or governmental agency or body under
any such statute, judgment, order, decree, rule or regulation is
required for the execution, delivery and performance by either of the
Issuers of each of the Transaction Documents, the issuance,
authentication, sale and delivery of the Securities and compliance by
either of the Issuers with the terms thereof and the consummation of the
transactions contemplated by the Transaction Documents, except for such
consents, approvals, authorizations, filings, registrations or
qualifications (i) which shall have been obtained or made prior to the
Closing Date, (ii) the failure to obtain which would not have a Material
Adverse Effect or a material adverse effect on the ability of either of
the Issuers to perform their respective obligations under the
Transaction Documents and (iii) as may be required to be obtained or
made under the Securities Act and applicable state securities laws as
provided in the Registration Rights Agreement;
(x) to the knowledge of such counsel, except as disclosed in the
Offering Memorandum, there are no pending actions or suits or judicial,
arbitral, rule-making, administrative or other proceedings to which
either of the Issuers is a party or of which any property or assets of
either of the Issuers is the subject, which, singularly or in the
aggregate, if determined adversely to either of the Issuers, could
reasonably be expected to have a Material Adverse Effect; and to the
knowledge of such counsel, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(xi) none of the Issuers or SFG LLC is (A) to the knowledge of
such counsel, in violation of its governing documents, (B) to the
knowledge of such counsel, in default in any material respect, and no
event has occurred which, with notice or lapse of time or both, would
constitute such a default, in the due performance or observance of any
term, covenant or condition contained in any Material Agreement, except
as would not have a Material Adverse Effect or any material adverse
effect on the ability of the Issuers or SFG LLC to perform their
obligations under the Transaction Documents or (C) to the knowledge of
such counsel, except as described in the Offering Memorandum, in
violation in any material respect of any law, ordinance,
<PAGE> 34
4
governmental rule, regulation or court decree to which it or its
property or assets may be subject, except as would not have a Material
Adverse Effect or any material adverse effect on the ability of the
Issuers or SFG LLC to perform their obligations under the Transaction
Documents;
(xii) SFG is not (A) an "investment company" or a company
"controlled by" an investment company within the meaning of the
Investment Company Act and the rules and regulations of the Commission
thereunder or (B) a "holding company" or a "subsidiary company" of a
holding company or an "affiliate" thereof within the meaning of the
Public Utility Holding Company Act; and
(xiii) neither the consummation of the Transactions nor the
sale, issuance, execution or delivery of the Securities will violate
Regulation G, T, U or X of the Federal Reserve Board.
Such counsel shall also state that (a) they have participated in
conferences with representatives of the Issuers, representatives of their
affiliates, their independent accountants, representatives of their special
counsel and representatives of the Initial Purchaser and its counsel at which
the contents of the Offering Memorandum and any amendment and supplement
thereto were discussed, (b) because the primary purpose of such counsel's
professional engagement was not to establish or confirm factual matters or
financial, accounting or statistical matters and because of the wholly or
partially non-legal character of many of the statements contained in the
Offering Memorandum, such counsel has not passed upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Offering Memorandum or any amendment or supplement thereto
(except as set forth in clause (iii) above), and such counsel makes no
representation that it has independently verified the accuracy, completeness or
fairness of such statements, (c) based on the information such counsel gained
the services referred to above, nothing has come to the attention of such
counsel that has caused it to believe that the Offering Memorandum, as of the
date thereof and as of the Closing Date, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and (d) notwithstanding the
foregoing, such counsel need not express any opinion or belief as to the
financial statements or other financial, accounting or statistical data
contained in the Offering Memorandum or any amendment or supplement thereto.
The opinions referred to above regarding the Loan Documents may be set
forth in a separate opinion letter delivered pursuant to Section 4.01(b) of the
Credit Agreement (which specifically provides that the Initial Purchaser may
rely on such opinion letter) which may contain qualifications customarily
included in opinions of such kind.
In rendering such opinion, such counsel may rely as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible
officers of the Issuers and SFG LLC and public officials which are furnished to
the Initial Purchaser. In addition, such counsel may rely as to all matters of
Delaware law on the opinion of Richards, Layton & Finger, substantially to the
effect set forth in Annex B-2, and such counsel may rely as to all matters of
<PAGE> 35
5
New York law and as to any matters of Delaware law relating to SFG Capital on
the opinion of Coudert Brothers, substantially to effect set forth in Annex
B-3.
<PAGE> 36
ANNEX B-2
Form of Opinion of Special Delaware Counsel to the SFG
Richards, Layton & Finger shall have furnished to the Initial Purchaser
their written opinion, as special counsel to SFG, addressed to the Initial
Purchaser and dated the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchaser, substantially to the effect set forth
below:
(i) SFG been duly formed and is validly existing in good
standing as a limited partnership under the Delaware Revised Uniform
Limited Partnership Act (the "LP Act");
(ii) under the LP Act and the Partnership Agreement, SFG has
requisite partnership power and authority to own, lease and operate its
properties and to conduct its business, all as described in the
Partnership Agreement;
(iii) the Partnership Interests issued and sold by SFG to the
partners have been duly authorized by the Partnership Agreement and are
validly issued;
(iv) under the LP Act and the Partnership Agreement, SFG has
requisite partnership power and authority to execute and deliver, and to
perform its obligations under, the Purchase Agreement, the Indenture,
the Securities, the Credit Agreement and the Registration Rights
Agreement (the "Operative Documents");
(v) under the LP Act and the Partnership Agreement, the
execution and delivery by SFG of the Operative Documents, and the
performance by SFG of its obligations thereunder, have been duly
authorized by requisite partnership action on the part of SFG;
(vi) no authorization, consent, approval or order of any
Delaware court or any Delaware government or Delaware administrative
body is required to be obtained by SFG solely as a result of the
execution, delivery and performance by SFG of the Operative Documents or
the issuance and sale by SFG of the Securities;
(vii) the execution, delivery and performance by SFG of the
Operative Documents and the issuance and sale by SFG of the Securities
do not violate (i) any Delaware law, rule or regulation, or (ii) the
Partnership Agreement;
(viii) SFG LLC has been duly formed and is validly existing in
good standing as a limited liability company under the Delaware Limited
Liability Company Act (the "LLC Act");
(ix) under the LLC Act and the LLC Agreement, SFG LLC has
requisite limited liability company power and authority to own, lease
and operate its properties and to conduct its business, all as described
in the LLC Agreement;
<PAGE> 37
2
(x) the LLC Interests issued and sold by SFG LLC to the members
have been duly authorized by the LLC Agreement and are validly issued;
(xi) under the LLC Act and the LLC Agreement and the consents,
SFG LLC has requisite limited liability company power and authority to
execute and deliver, and to perform its obligations under, the Operative
Documents on behalf of SFG;
(xii) under the LLC Act and the LLC Agreement and the consents,
the execution and delivery by SFG LLC of the Operative Documents, and
the performance by SFG LLC of its obligations thereunder, on behalf of
SFG, have been duly authorized by requisite limited liability company
action on the part of SFG LLC;
(xiii) no authorization, consent, approval or order of any
Delaware court or any Delaware governmental or Delaware administrative
body is required to be obtained by SFG LLC solely as a result of the
execution, delivery and performance by SFG LLC of the Operative
Documents on behalf of SFG; and
(xiv) the execution, delivery and performance by SFG LLC of the
Operative Documents on behalf of SFG do not violate (i) any Delaware
law, rule or regulation or (ii) the LLC Agreement.
<PAGE> 38
ANNEX B-3
Form of Opinion of Special Counsel for the Issuers
Coudert Brothers shall have furnished to the Initial Purchaser
their written opinion, as special counsel to the Issuers, addressed to the
Initial Purchaser and dated the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchaser, substantially to the effect set forth
below:
(i) SFG Capital has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware and
has all corporate power and authority necessary to conduct its business
as described in the Offering Memorandum, except where the failure to
have such power or authority would not have a Material Adverse Effect;
(ii) SFG has the authorized capital stock as set forth in its
Certificate of Incorporation, and all of the outstanding shares of
capital stock of SFG Capital have been duly and validly authorized and
issued, are fully paid and non-assessable;
(iii) SFG Capital has duly authorized, executed and delivered
the Indenture, the Securities, the Registration Rights Agreement, the
Purchase Agreement, and the Loan Documents to which it is a party;
(iv) assuming due authorization by the parties thereto (other
than SFG Capital) (as to which authorization such counsel need not
express any opinion), the Securities, upon payment and delivery in
accordance with the Purchase Agreement, will constitute valid and
legally binding obligations of SFG Capital entitled to the benefits of
the Indenture, the Indenture is a valid and legally binding obligation
of SFG Capital, and the Securities and the Indenture are enforceable in
accordance with their terms against SFG Capital, subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting creditor rights generally
and to general equity principles, including, without limitation, (i) the
possible unavailability of specific performance, injunctive relief or
any other equitable remedy and (ii) concepts of materiality,
reasonableness, good faith and fair dealing;
(v) assuming due authorization by the parties thereto (other
than SFG Capital) (as to which such authorization such counsel need not
express any opinion) each of the Purchase Agreement, the Registration
Rights Agreement and the Loan Documents to which SFG Capital is a party
constitutes a valid and legally binding agreement of SFG Capital
enforceable against SFG Capital in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and other similar laws relating to or
affecting creditors rights general and to general equity principles,
including, without limitation, (i) the possible unavailability of
specific performance, injunctive relief or any other equitable remedy
and (ii) concepts of materiality, reasonableness, good faith and fair
dealing; and provided further that (x) rights to indemnity and
contribution may be limited by applicable law and (y) such counsel need
express no opinion as to the creation, validity, enforceability,
perfection,
<PAGE> 39
2
non-perfection or priority of any security interest or lien purported to
be created by the Loan Documents or any remedies with respect thereto;
(vi) the execution, delivery and performance by SFG Capital of
each of the Indenture, the Registration Rights Agreement, the Purchase
Agreement and the Loan Documents to which it is a party, the issuance,
authentication, sale and delivery of the Securities and compliance by
SFG Capital with the terms thereof and the consummation of the
transactions contemplated thereby will not conflict with or result in a
breach or violation of the Certificate of Incorporation or By-Laws of
SFG Capital; no consent, approval, authorization, order, filing,
registration or qualification of or with any New York or federal court
or any New York or federal governmental agency or administrative body is
required to be obtained by SFG Capital solely as a result of its
execution, delivery and performance of the Indenture, the Securities,
the Purchase Agreement and the Registration Rights Agreement, except for
such consents, approvals, authorizations, filings, registrations or
qualifications (i) which shall have been obtained or made prior to the
Closing Date, (ii) the failure to obtain which would not have a Material
Adverse Effect or a material adverse effect on the ability of SFG
Capital to perform its obligations under such agreements or the
Securities, (iii) as may be necessary or advisable in connection with
the grant, recordation or perfection of any security interest granted by
the Loan Documents or (iv) as may be required to be obtained or made
under the Securities Act and applicable state securities laws as
provided in the Registration Rights Agreement;
(vii) the execution, delivery and performance by SFG Capital of
the Indenture, the Securities, the Registration Rights Agreement, the
Purchase Agreement and the Loan Documents to which it is a party do not
violate any New York or Federal law, rule or regulation;
(viii) SFG Capital is not (A) an "investment company" or a
company "controlled by" an investment company within the meaning of the
Investment Company Act and the rules and regulations of the Commission
thereunder or (B) a "holding company" or a "subsidiary company" of a
holding company or an "affiliate" thereof within the meaning of the
Public Utility Holding Company Act;
(ix) the statements in the Offering Memorandum under the heading
"Certain Federal Income Tax Considerations", to the extent that they
constitute summaries of matters of federal income tax law or regulations
or legal conclusions, have been reviewed by such counsel and fairly
summarize the matters described therein in all material respects;
(x) the Indenture conforms in all material respects with the
requirements of the Trust Indenture Act and the rules and regulations of
the Commission applicable to an indenture which is qualified thereunder;
(xi) the Indenture and the Securities conform in all material
respects to the description thereof contained in the Offering Memorandum
under the caption "Description of the Notes", and the Registration
Rights Agreement conforms in all
<PAGE> 40
3
material respects to the description thereof under the caption "Exchange
and Registration Rights Agreement"; and
(xii) assuming the accuracy of the representations, warranties
and agreements of each of the Issuers and the of the Initial Purchaser
contained in the Purchase Agreement, no registration of the Securities
under the Securities Act or qualification of the Indenture under the
Trust Indenture Act is required in connection with the issuance and sale
of the Securities by the Issuers and the offer, resale and delivery of
the Securities by the Initial Purchaser in the manner contemplated by
the Purchase Agreement and the Offering Memorandum.
Such counsel shall also state that (a) they have participated in
conferences with representatives of the Issuers, their independent
accountants, representatives of their counsel and representatives of the
Initial Purchaser and its counsel at which contents of the Offering
Memorandum and any amendment or supplement thereto were discussed, (b)
because the primary purpose of such counsel's professional engagement
was not to establish or confirm factual matters or financial, accounting
or statistical matters and because of the wholly or partially non-legal
character of many of the statements contained in the Offering
Memorandum, such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Offering Memorandum or any amendment or
supplement thereto (except as expressly provided in clause (ix) and (xi)
above), and makes no representation that such counsel has independently
verified the accuracy, completeness or fairness of such statements, (c)
based on the information which such counsel gained in the course of
rendering the services referred above, nothing has come to the attention
of such counsel that has caused it to believe that the Offering
Memorandum or any amendment or supplement thereto as of the date thereof
and as of the Closing Date, contained or contains an untrue statement of
a material fact or omitted or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and (d) notwithstanding the
foregoing, such counsel does not express any opinion or belief as to the
financial statements or other financial or statistical data contained in
the Offering Memorandum.
The opinions referred to above regarding the Loan Documents may
be set forth in a separate opinion letter delivered pursuant to Section
4.01(b) of the Credit Agreement (which specifically provides that the
Initial Purchaser may rely on such opinion letter) which may contain
qualifications customarily included in opinions of such kind.
In rendering such opinion, such counsel may state that such
opinion is limited to the law of the State of New York, the General
Corporation law of the State of Delaware and the federal law of the
United States. Such counsel may rely, to the extent such counsel deems
proper, on information supplied by officers of the Issuers, public
officials and other sources believed by such counsel to be responsible,
including certificates of responsible officers of the Issuers and public
officials which are furnished to the Initial Purchaser.
<PAGE> 41
ANNEX C-1
Form of SFG Initial Letter
SFG shall have furnished to the Initial Purchaser a letter
of Price Waterhouse LLP, addressed to the Initial Purchaser and dated
the date of the Purchase Agreement, in form and substance satisfactory
to the Initial Purchaser, substantially to the effect set forth below:
(i) they are independent accountants with respect to SFG (and
its predecessors) within the meaning of Rule 101 of the Code of
Professional Conduct of the AICPA and its interpretations and rulings
thereunder;
(ii) based upon a reading of the latest unaudited financial
statements made available by SFG, the procedures of the AICPA for a
review of interim financial information as described in Statement of
Auditing Standards No. 71, a reading of the minutes of the meetings of
the Representative Committee of SFG LLC and inquiries of certain
officials of SFG who have responsibility for financial and accounting
matters and certain other limited procedures requested by the Initial
Purchaser and described in detail in such letter, nothing has come to
their attention that causes them to believe that any material
modifications should be made to the unaudited financial statements in
respect of SFG included in the Offering Memorandum for them to be in
conformity with generally accepted accounting principles;
(iii) based upon the procedures detailed in such letter with
respect to the period subsequent to the date of the last available
balance sheet for SFG, including a reading of the minutes of the
meetings of the Representative Committee of SFG LLC and inquiries of
certain officials of SFG who have responsibility for financial and
accounting matters, nothing has come to their attention that causes them
to believe that (A) at a specified date not more than three business
days prior to the date of such letter, there was any change in capital
structure, increase in long-term debt or decrease in net current assets
of SFG as compared with the amounts shown in the June 30, 1997 unaudited
balance sheet included in the Offering Memorandum or (B) for the period
from July 1, 1997 to a specified date not more than three business days
prior to the date of such letter, there were any decreases, as compared
with the corresponding period in the preceding year, in net sales,
income from operations, EBITDA or net income, except in all instances
for changes, increases or decreases that the Offering Memorandum
discloses have occurred or which are set forth in such letter, in which
case the letter shall be accompanied by an explanation by SFG as to the
significance thereof unless said explanation is not deemed necessary by
the Initial Purchaser;
(iv) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of SFG) set forth in the Offering Memorandum
agrees with the accounting records of SFG, excluding any questions of
legal interpretation; and
<PAGE> 42
2
(v) on the basis of a reading of the unaudited pro forma
financial information in respect of SFG included in the Offering
Memorandum, carrying out certain specified procedures, a reading of the
minutes of meetings of the Representative Committee of SFG LLC and
inquiries of certain officials of SFG who have responsibility for
financial and accounting matters and proving the arithmetic accuracy of
the application of the pro forma adjustments to the historical amounts
in such pro forma financial information, nothing came to their attention
which caused them to believe that such pro forma financial information
is not properly compiled on a pro forma basis as described in the notes
included in the Offering Memorandum.
<PAGE> 43
ANNEX C-2
Form of Meadow Gold Dairies Initial Letter
SFG shall have furnished to the Initial Purchaser a letter
of Deloitte & Touche LLP, addressed to the Initial Purchaser and dated
the date of the Purchase Agreement, in form and substance satisfactory
to the Initial Purchaser, substantially to the effect set forth below:
(i) they are independent certified public accountants with
respect to the Meadow Gold Dairies (and its predecessors) within the
meaning of Rule 101 of the Code of Professional Conduct of the AICPA and
its interpretations and rulings thereunder;
(ii) based upon a reading of the latest unaudited financial
statements made available by the Meadow Gold Dairies, the procedures of
the AICPA for a review of interim financial information as described in
Statement of Auditing Standards No. 71, a reading of the minutes of the
meetings of the members of the board of directors of the Meadow Gold
Dairies and inquiries of certain officials of the Meadow Gold Dairies
who have responsibility for financial and accounting matters and certain
other limited procedures requested by the Initial Purchaser and
described in detail in such letter, nothing has come to their attention
that causes them to believe that any material modifications should be
made to the unaudited financial statements in respect of the Meadow Gold
Dairies included in the Offering Memorandum for them to be in conformity
with generally accepted accounting principles;
(iii) based upon the procedures detailed in such letter with
respect to the period subsequent to the date of the last available
balance sheet for the Meadow Gold Dairies, including a reading of the
minutes of the meetings of the members of the board of directors of the
Meadow Gold Dairies and inquiries of certain officials of the Meadow
Gold Dairies who have responsibility for financial and accounting
matters, nothing has come to their attention that causes them to believe
that (A) at a specified date not more than three business days prior to
the date of such letter, there was any change in capital structure,
increase in long-term debt or decrease in net current assets as compared
with the amounts shown in the June 30, 1997 unaudited balance sheet
included in the Offering Memorandum or (B) for the period from July 1,
1997 to a specified date not more than three business days prior to the
date of such letter, there were any decreases, as compared with the
corresponding period in the preceding year, in net sales, income from
operations, EBITDA or net income, except in all instances for changes,
increases or decreases that the Offering Memorandum discloses have
occurred or which are set forth in such letter, in which case the letter
shall be accompanied by an explanation by the Meadow Gold Dairies as to
the significance thereof unless said explanation is not deemed necessary
by the Initial Purchaser; and
(iv) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Meadow Gold Dairies) set forth in the
Offering
<PAGE> 44
2
Memorandum agrees with the accounting records of the Meadow Gold
Dairies, excluding any questions of legal interpretation.
<PAGE> 1
EXHIBIT 10.35
MILK SUPPLY AGREEMENT*
This Agreement is entered into as of the 17th day of February, 1998,
by and between Dairy Farmers of America, Inc. ("Seller") and Southern Foods
Group, L.P. ("Buyer"). Seller is in the business of marketing unprocessed Grade
A milk ("Milk"). [omitted pursuant to a request for confidential treatment]
1. Requirements.
[omitted pursuant to a request for confidential treatment]
2. Sources of Supply.
[omitted pursuant to a request for confidential treatment]
3. Prices.
[omitted pursuant to a request for confidential treatment]
* Portions of the Milk Supply Agreement have been omitted pursuant to a request
for confidential treatment. The omitted portions will be filed separately with
the Commission.
<PAGE> 2
4. Term.
(a) The initial term of this Agreement shall commence on
January 1, 1998, and shall, unless earlier terminated as provided herein,
continue through December 31, 1998. This Agreement shall continue on a yearly
basis thereafter, unless either party elects to terminate this Agreement by
giving twelve (12) months prior written notice to the other party specifying a
termination date.
5. Manner of Payment.
Buyer shall pay Seller for all Milk received during any calendar month
at Seller's address set forth in Section 26 below, or at such other location
designated by Seller from time to time. The payment dates and the other terms
of payment shall be governed by the applicable Federal Milk Marketing Order. If
such Federal Milk Marketing Order is terminated, payment due dates in this
Agreement will be the same as specified in the terminated Federal Milk
Marketing Order.
6. Transportation of Milk.
Seller shall be responsible for the transportation and delivery of
Milk purchased and sold hereunder to Buyer. Transportation and delivery of
Milk shall be at Seller's sole risk and expense, and Seller shall have full
control over the method of transportation.
7. Schedule of Deliveries.
(a) Buyer will order its weekly Milk requirements for the
Plant from Seller on Thursday for delivery the following Sunday through
Saturday. Buyer shall specify the schedule and times of delivery.
(b) The parties hereto recognize that due to normal but
unanticipated business occurrences, it may be necessary from time to time for
Buyer to increase or decrease the amount of Milk ordered during the week it is
to be delivered. Buyer agrees to minimize these occurrences as much as possible
under the circumstances, and Seller agrees on such occasions to accommodate
Buyer's needs as rapidly as possible under the circumstances.
(c) Seller will make all reasonable efforts to supply
Buyer's Milk every day with loads from the same producers.
8. Insufficient Milk Supply.
In the event that Seller does not, at any time during the term of this
Agreement or any extension hereof, have on hand sufficient supplies of milk to
meet all of its outstanding obligations, including Buyer's requirements of Milk
hereunder, Seller shall be obligated to
2
<PAGE> 3
acquire from other sources sufficient supplies of milk of the same quality as
contracted for hereunder to satisfy Buyer's requirements of Milk, and Seller's
failure to do so hereunder shall entitle Buyer, in its sole discretion, to (a)
terminate this Agreement in accordance with the provisions of Section 16
hereunder, or (b) purchase Milk from other suppliers, in which event (i)
Buyer's obligation to purchase its requirements of Milk from Seller as provided
in Section 1 hereof shall be reduced to the extent of any such purchases from
other suppliers, and (ii) Seller shall pay Buyer for the difference in price
(including, without limitation, the cost for hauling the Milk to the Plant from
up to 2,000 miles away) between what Buyer would have paid hereunder and what
Buyer has to pay such other suppliers.
9. Quality of Milk.
Seller represents, warrants and agrees that:
(a) Seller shall comply with all laws and governmental
rules and regulations applicable to the production, storage and delivery of
Milk to be delivered to Buyer hereunder, and shall use reasonable commercial
efforts to assure that the dairy farmers producing Seller's milk do likewise;
(b) all Milk purchased and sold hereunder shall, when
delivered, meet all standards for Grade A fluid milk as prescribed under the
applicable laws, as amended from time to time, of the United States and the
respective states in which the Plant to which such Milk is delivered hereunder
is located, and the laws or ordinances of any municipalities or other political
subdivisions in which the Milk is produced or sold;
(c) all Milk purchased and sold hereunder shall, when
delivered, be reasonably acceptable as to flavor, odor and appearance;
(d) Seller will make all reasonable efforts to insure
that all Milk purchased and sold hereunder shall be shipped directly by Seller
from dairy farmers; and
(e) all Milk, when delivered, shall meet the following
standards of Buyer in addition to those set forth in subparagraphs 9(a) - 9(c)
above;
(i) the temperature shall be no greater than 40
degrees F., but Buyer may allow exceptions to this requirement on a
reasonable number of loads when circumstances make it impossible to
meet this requirement;
(ii) The titratable acidity ("T.A.") shall not
exceed .16% (unless a T.A. variance has been granted by Buyer for a
particular area);
(iii) the sediment test shall be less than #3 pad;
(iv) the freezing point shall be lower than or
equal to -.530 degrees C.; and
3
<PAGE> 4
(v) the standard plate count ("SPC") shall be
less than 100,000 bacteria per milliliter;
(vi) the somatic cell count shall be less than
750,000 per milliliter.
10. Indemnification.
(a) Seller agrees to defend, indemnify and hold harmless
Buyer, its subsidiaries and affiliates and its and their agents, officers,
directors, employees, representatives, successors and permitted assigns from
and against all obligations, liabilities, damages, penalties, fines,
violations, claims, causes of action, suits, judgments, costs and expenses
(including, without limitation, reasonable attorneys' fees) (together,
"Losses") that Buyer may suffer, arising out of, resulting from or connected
with (i) the negligent acts or omissions of Seller in the performance of this
Agreement, and/or (ii) Seller's breach of the representations, warranties and
agreements set forth in Section 9 hereof.
(b) Buyer agrees to defend, indemnify and hold harmless
Seller, its subsidiaries and its affiliates and its and their agents, officers,
directors, employees, representatives, successors and permitted assigns from
and against all Losses that Seller may suffer arising out of, resulting from or
connected with the negligent acts or omissions of Buyer in the production and
sale of products containing Milk to third parties.
(c) The obligations of Seller and Buyer in this Section
10 shall survive the termination or cancellation of this Agreement for any
reason whatsoever.
11. Testing and Rejection of Milk.
Before pumping Milk into Buyer's first receiving tank, Buyer shall (a)
test Milk for antibiotics using the Charm or Snap tests, and (b) sample Milk
for flavor, odor, appearance, aridity, temperature, freezing point and
sediment. Prior to title to the Milk passing to Buyer as provided in Section
12, Buyer shall have the right to reject any and all Milk which does not meet
the requirements of Section 9. Repeated tests of Milk from a dairy farmer route
(such as, but not limited to, 3 out of 5 consecutive loads of Milk) exceeding
the specifications of Section 9(d)(v) for SPC shall constitute grounds for
Buyer's rejection of any future loads of Milk from such route until Buyer is
satisfied that such route's SPC has been improved to meet the standards set
forth in Section 9(d)(v). Buyer shall promptly give notice to Seller of any
rejection of Milk and the reasons for such rejection. Provided that (i) Seller
has supplied all of Buyer's requirements for Milk at a particular Plant for a
particular period and (ii) Buyer has not commingled such Milk with Milk
purchased from another supplier as permitted under the terms of this Agreement,
Buyer may, within a reasonable time after delivery, reject Milk which does not
comply with the requirements set forth in Section 9 ("Returned Milk") for which
title has passed to Buyer as provided in Section 12, and such Returned Milk
shall be disposed of by Buyer in accordance with timely instructions, if any,
from Seller. Seller agrees to pay Buyer for all reasonable costs actually
incurred by Buyer in storing, handling and disposing of Returned Milk. The
disposition of Returned Milk shall be under the control of Seller unless, within
12 hours after notice of
4
<PAGE> 5
rejection is given to Seller by Buyer, Seller fails to furnish Buyer with
instructions regarding the disposal of Returned Milk, in which event Buyer
shall dispose of the Returned Milk at Seller's expense without liability
therefor. The foregoing obligation of Buyer to dispose of Milk, however, shall
be subject to Buyer's right to reject immediately any tanker which contains
Milk that fails to meet the requirements of Section 9.
12. Title.
Title and risk of loss to all Milk delivered to Buyer hereunder shall
remain with Seller until such Milk is delivered to Buyer's Plant, Buyer's hose
is connected to the tanker, and the tanker valve has been opened, at which time
title shall pass to Buyer.
13. Excuse for Nonperformance.
In the event that either Buyer or Seller is unable to perform
hereunder due to a strike, lockout, other labor trouble, riot, war, enemy act,
blackout, rebellion, quarantine of plant, fire, earthquake, or other Act of God
(a "Force Majeure Event"), such party shall not be liable hereunder for
nonperformance of this Agreement during the time or continuance of such Force
Majeure Event. The party who is unable to perform due to a Force Majeure Event
agrees to use reasonable efforts to mitigate any hardship suffered by the other
party during any period when performance is excused under the provisions of
this Section. Failure on the part of Seller to deliver or on the part of Buyer
to receive Milk for any of the reasons set forth in this Section 13 shall not
be deemed a ground for the termination or cancellation of this Agreement;
provided, however, if Seller is unable to deliver Milk due to a Force Majeure
Event, Buyer may purchase the same from other suppliers, in which event Buyer's
obligation to purchase its requirements of Milk from Seller as provided in
Section 1 above shall be temporarily reduced to the extent of any such
purchases from such other suppliers. Buyer's obligation to purchase its
requirement of Milk from Seller as provided in Section 1 above shall resume
upon Seller providing Buyer with written notice that the Force Majeure Event
which prevented Seller from delivering Milk to Buyer no longer exists.
14. Weights and Butterfat Tests.
Seller's invoices to Buyer shall, in support of payment by Buyer for
the prices charged therein, set forth for each delivery all weights and
butterfat tests of all Milk delivered. Seller's weights and butterfat tests
shall be used as the purchase weight and butterfat tests, subject to adjustment
by the Federal Milk Market Administrator.
15. Compliance With All Laws, Rules and Regulations.
Buyer and Seller each warrants that it will in every manner of its
business comply with and conform to all federal, state and local laws, rules
and regulations governing the subject matter of this Agreement. Any breach of
said warranty or claim of breach shall be the sole responsibility of the party
in breach, or claimed to be in breach, and said party shall, for said breach,
indemnify, defend and hold the other party free and harmless from and against
any loss
5
<PAGE> 6
or expense arising therefrom. The foregoing indemnity shall be in addition to
and not in limitation of the indemnities provided in Section 10 hereof and
shall survive the termination or cancellation of this Agreement for any reason
whatsoever.
16. Default or Breach.
Excepting out Section 3 and subject to Section 13 hereof, if either of
the parties hereto shall breach any of the provisions hereof or default in the
performance of any of the terms, conditions, covenants, obligations or
agreements herein made or agreed to be kept or performed under the terms of
this Agreement by said party, and such default or breach shall continue for a
period of thirty (30) consecutive days after written notice to said party
specifying the default or breach, then the party not in default may declare
this Agreement terminated and shall be under no further obligation hereunder,
and/or the party not in default may take such other action as may be available.
Notwithstanding the foregoing and subject to Section 13 hereof, in the event
that Seller does not deliver sufficient supplies of Milk to meet Buyer's
requirements hereunder, whether from Seller's own sources or from third parties
as required by Section 8 hereof, Buyer, in its sole discretion, may declare
Seller in default under this Agreement and may terminate this Agreement within
24 hours if such default is not remedied within such 24 hour period and/or
Buyer may take such other action as may be available to Buyer.
17. Sale of Plant.
Notwithstanding anything contained in this Agreement to the contrary,
upon the sale, exchange or closing of any Plant by Buyer during the term of
this Agreement or any extension hereof, Buyer and Seller shall have the option,
following thirty (30) days' notice to Seller, to either (a) terminate this
Agreement with respect to such Plant, or (b) subject to the prior written
approval of Seller, which approval will not be reasonably withheld, assign this
Agreement (as it relates to such Plant) to the purchaser of such Plant. In the
event that Buyer acquires a Plant or sells, replaces or exchanges a Plant for
another milk plant (individually "New Milk Plant", collectively "New Milk
Plants") in the same geographic area, Buyer shall substitute such New Milk
Plant for such Plant under the terms hereunder, and in such event this
Agreement shall continue in full force and effect and shall thereafter include
the New Milk Plant.
18. Arbitration.
Excepting out Section 3 and unless otherwise provided herein, should
any controversy arise between the parties relating to this Agreement, it shall
be settled by arbitration as provided herein. Each party will select and
appoint one arbitrator who is a person familiar with the subject of this
Agreement. The two arbitrators so appointed will select and appoint a third
arbitrator who possesses like qualifications within ten (10 days after the date
on which the last of these first two such arbitrators was appointed. If the
arbitrators fail to appoint a third, then such arbitrator shall be appointed in
accordance with Section 15 of the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"). A decision in writing of any two of the
arbitrators will be binding and conclusive on both parties to this Agreement.
If either party fails to appoint an arbitrator as required by this Section
within ten (10) days after receiving written notice from
6
<PAGE> 7
the other party to do so, then the arbitrator for such party shall be selected
by the AAA in the method designated for selecting a neutral arbitrator. Such
neutral arbitrator shall thereafter be considered the appointed arbitrator for
such party. The costs, expenses and fees of the arbitrators will be borne
equally by the parties. The arbitration proceedings shall be held in Dallas
County, Texas. This Section 18 shall constitute a written agreement to submit
to arbitration. Except as modified herein, arbitration shall be governed by
the provisions of the Commercial Arbitration Rules of the AAA.
19. Confidentiality.
Buyer and Seller agree to keep the terms and conditions of this
Agreement confidential. Nothing in this Agreement shall prevent either party
from disclosing the existence or terms and conditions of this Agreement to its
Board of Directors, officers and employees or to proper governmental regulatory
authorities, if requested to do so; however, such disclosure shall be made only
after notification to the other party and after notifying the Board of
Directors, officers and employees or to the governmental regulatory authority
that the document is to be treated as a confidential business record not to be
disclosed to competitors of Buyer or Seller.
20. Assignment.
Subject to Buyer's right to assign this Agreement as provided in
Section 17 hereof, neither party to this Agreement may transfer, assign or
otherwise convey any rights or delegate any duties or obligations hereunder
without the prior written consent of the other party.
21. No Waiver, Amendment.
The failure of any party hereto at any time or times to require
performance of any provision hereof will in no manner affect its right at any
later time to enforce such provision. No waiver by either party of any
condition or of any breach of any term, covenant or representation or warranty
contained in this Agreement will be effective unless given in writing, and no
waiver in any one or more instances will be deemed to be a further or
continuing waiver of any such condition or breach in other instances or waiver
of any other condition or breach of any other term, covenant, representation or
warranty. The remedies available hereunder are cumulative, and the exercise of
any one or more of the remedies provided herein or otherwise available in law
or in equity shall not be construed as a waiver of any of the other remedies
available. Except as otherwise specified in Section 3 hereof or elsewhere
herein, this Agreement can be amended only by a writing signed by both parties
hereto. If Buyer acquires or otherwise begins to operate one or more New Milk
Plant(s) after the date hereof, Buyer shall promptly give Seller notice of such
fact and the addresses of such New Milk Plant(s), and such New Milk Plant(s)
shall automatically be added to Schedule A hereto as plants to be covered by
this Agreement.
22. Governing Law.
This Agreement and its application shall be governed by the laws of
the State of Texas.
7
<PAGE> 8
23. Captions.
Any captions to or headings of the Sections of this Agreement are
solely for the convenience of the parties, are not a part of this Agreement,
and shall not be used for interpretation or determination of the validity of
this Agreement or any part thereof.
24. Severability.
All provisions of this Agreement, and all portions of such provisions,
are intended to be, and shall be, independent and severable, and in the event
that any provision or portion thereof is determined to be unlawful, invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other provision, or portion thereof, of this Agreement,
and all other provisions and portions thereof shall continue to be valid and
enforceable.
25. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which when so executed shall be deemed an original, but all of which taken
together shall constitute but one and the same instrument.
26. Notice.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand, sent by telecopy, or sent by United States mail, first class, registered
or certified, return receipt requested, with proper postage prepaid, in each
case to the following addresses of the respective parties.
If to Buyer:
Southern Foods Group, L.P.
3114 South Haskell
Dallas, TX 75223
Attention: Pete Schenkel
Fax: (214) 824-1526
If to Seller:
Dairy Farmers of America, Inc.
3253 East Chestnut Expressway
Springfield, Missouri 65802
Attention: David A. Geisler
Fax: (417) 865-1093
The parties agree that any notice required or permitted by this
Agreement may be made by a facsimile to be confirmed in writing within ten (10)
days to the fax numbers set forth above.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
DAIRY FARMERS OF AMERICA, INC. SOUTHERN FOODS GROUP, L.P.
By: /s/ By: /s/ PETE SCHENKEL
------------------------ ------------------------
Its: President & CEO Its: President & CEO
------------------------ ------------------------
Date: February 11, 1998 Date: February 17, 1998
------------------------ ------------------------
9
<PAGE> 10
SCHEDULE A
PLANTS
[omitted pursuant to a request for confidential treatment]
10
<PAGE> 11
SCHEDULE B
PLANTS
[omitted pursuant to a request for confidential treatment]
12
<PAGE> 12
SCHEDULE C
PLANTS
[omitted pursuant to a request for confidential treatment]
13
<PAGE> 1
EXHIBIT 10.36
LINCOLN, NEBRASKA
================================================================================
BF PROPERTIES COMPANY,
AS LESSOR
AND
FORMERLY BEATRICE FOODS CO., NOW BEATRICE COMPANIES, INC.
AS LESSEE
ASSIGNED TO BEATRICE DAIRY PRODUCTS, INC.
------------
LEASE AND AGREEMENT
------------
DATED AS OF FEBRUARY 15, 1972
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Heading Page
- --------- ------- ----
<S> <C> <C>
Parties ........................................................... 1
1. Demise............................................................. 1
2. Title; Condition .................................................. 1
3. Use ............................................................... 1
4. Term .............................................................. 2
5. Rent .............................................................. 2
6. Net Lease; Non-Terminability ...................................... 3
7. Taxes and Other Charges; Compliance with Law and Agreements........ 5
8. Liens ............................................................. 6
9. Indemnification ................................................... 6
10. Maintenance and Repair ............................................ 7
11. Alterations and Additions; Reimbursement for Certain Costs and
Expenses .......................................................... 8
12. Condemnation and Casualty ......................................... 11
13. Insurance ......................................................... 13
14. Termination for Uneconomic Use .................................... 16
15. Purchase Option; Right of First Refusal ........................... 16
16. Purchase by Lessee ................................................ 17
17. Termination ....................................................... 18
18. Subletting; Assignment ............................................ 18
19. Advances by Lessor; Permitted Contests ............................ 19
20. Conditional Limitations -- Events of Default and Remedies ......... 20
21. Notices ........................................................... 26
22. Estoppel Certificates ............................................. 27
23. No Merger ......................................................... 27
24. Surrender ......................................................... 27
25. Separability ...................................................... 28
26. Binding Effect; Merger, Consolidation and Disposition of Assets ... 28
27. Lessee Empowered to Grant or Release Easements .................... 29
28. Certain Definitions ............................................... 29
29. Lessor's Covenants ................................................ 31
30. Miscellaneous ..................................................... 32
Execution Page .................................................... 33
Acknowledgments ...................................................
Schedule A -- Description of the Property
Schedule B -- Business Terms
</TABLE>
<PAGE> 3
LEASE AND AGREEMENT dated as of February 15, 1972 (herein, as the same may
be amended or supplemented from time to time as permitted hereby, called "this
Lease"), between BF Properties Company, an Ohio limited partnership, as lessor
(herein called "Lessor"), having an address at 20 Exchange Place, New York, N.Y.
10005, and Beatrice Foods Co., a Delaware corporation, as lessee (herein,
together with any corporation succeeding thereto by merger, consolidation or
acquisition of all or substantially all of its assets, called "Lessee"), having
an address at 120 South LaSalle Street, Chicago, Illinois 60603.
Lessor and Lessee hereby agree as follows:
1. Demise:
For and in consideration of the rents and other amounts hereinafter
stipulated to be paid and the provisions of this Lease hereinafter stipulated to
be observed and performed by Lessee, Lessor hereby demises and lets to Lessee,
and Lessee hereby takes and leases from Lessor, for the term described in
paragraph 4 and subject to the provisions hereinafter set forth, the parcel of
land described in Schedule A hereto, all buildings and other improvements
constructed and which may be constructed thereon and all easements, rights and
appurtenances thereto (herein called the "Property").
2. Title; Condition:
The Property is demised and let in its present condition without
representation or warranty by Lessor, subject to the rights of any parties in
possession thereof and to the state of the title thereto existing at the
commencement of the term of this Lease, to any state of facts which an accurate
survey or physical inspection might show, and to all applicable laws, rules,
regulations, ordinances and restrictions now in effect. Lessee has examined the
Property and Lessor's title thereto and has found the same satisfactory for all
purposes of this Lease.
3. Use:
Lessee shall have the right to occupy and use the Property for any purpose
not prohibited by any applicable laws, rules, regulations, ordinances or
restrictions, or agreements (including, without limitation, insurance policies),
now or hereafter in effect.
<PAGE> 4
2
4. Term:
(a) Subject to the provisions of this Lease, Lessee shall have and hold
the Property for the term of this Lease, which shall commence on February 25,
1972 and end at midnight on February 25, 2002 (such period herein called "the
Basic Term"), unless extended as provided in paragraph 4(b).
(b) Lessee shall have the right to extend the term of this Lease beyond
the Basic Term for six separate and additional successive periods of five years
each (each such period herein called an "Extended Term"). Each Extended Term
shall be at the sole option of Lessee, and Lessee shall exercise its option to
extend the term of this Lease for the next succeeding Extended Term by notice to
Lessor, given not less than 90 days prior to the expiration of the term of this
Lease then in effect. If Lessee elects not to exercise any such option, Lessee
shall not have the right to exercise any such option thereafter. The term of
this Lease may not be extended beyond the thirtieth anniversary of the last day
of the Basic Term.
5. Rent:
(a) During the term of this Lease, Lessee shall pay to Lessor, in lawful
money of the United States and in immediately available funds, at Lessor's
address set forth above or at such other place or to such other person as Lessor
from time to time may designate, the rental provided for in Schedule B hereto
which is then applicable (such rental herein called "Basic Rent"). Basic Rent
shall be payable by Lessee in instalments in the amounts provided for in
Schedule B hereto and be due and payable on the dates (herein called "Payment
Dates") provided for in Schedule B hereto.
(b) All sums, liabilities, obligations and other amounts which Lessee is
required to pay or discharge pursuant to this Lease in addition to Basic Rent
(other than any amount payable as the purchase price for the Property or a part
thereof pursuant to any provision of this Lease and any amount payable as
liquidated damages pursuant to paragraph 20(b)(ii)(B)), together with any
interest, penalty, or other sum which may be added for late payment thereof,
shall constitute additional rent hereunder (herein called "Additional Rent"). In
the event of any failure on the part of Lessee to pay or discharge any of the
foregoing, Lessor shall have all rights, powers and remedies pro-
<PAGE> 5
3
vided for herein or by law or equity or otherwise in the case of non-payment of
Basic Rent. Lessee may pay Additional Rent directly to the person entitled
thereto, provided Lessee shall not be in default hereunder. Lessee will pay to
Lessor, on demand, interest at the rate of 8 1/2% per annum (or at the highest
rate not prohibited by applicable law, whichever is less) on (i) overdue
installments of Basic Rent, from the due date thereof until paid, and (ii) any
amounts which Lessor shall have paid and which shall be payable by Lessee as
Additional Rent, from the date of payment thereof by Lessor until repaid to
Lessor by Lessee.
6. Net Lease; Non-Terminability:
(a) This Lease is a net lease and, except as otherwise in this Lease
expressly provided, Lessee shall pay all costs, taxes, assessments and other
expenses of every character, foreseen or unforeseen, for the payment of which
Lessor or Lessee is or shall become liable by reason of its estate or interest
in the Property, or which are connected with or arise out of the possession,
use, occupancy, maintenance, repair or rebuilding of the Property or any
portion thereof, including, without limitation, those specifically referred to
in this Lease. Basic Rent, Additional Rent and any and all other amounts
payable by Lessee hereunder, including, without limitation, the purchase price
and other amounts which may become payable pursuant to paragraph 12(b) or
paragraph 14, shall be paid by Lessee without notice or demand except as
otherwise in this Lease expressly provided, and without any set-off,
counterclaim, deduction, defense, abatement or reduction of any kind or for any
reason except as otherwise provided in paragraph 29.
(b) Except as otherwise expressly provided in paragraph 11(c), 12(b), 14,
15(a), 16(b), 17 and 20 of this Lease, this Lease shall not terminate nor shall
Lessee have any right to terminate this Lease or to be released or discharged
from any obligations or liabilities hereunder for any reason including, without
limitation, any damage to, or destruction of, the Property or any portion
thereof; any limitation, restriction, deprivation (including eviction) or
prevention of, or any interference with, any use or the occupancy or possession
of the Property or any portion thereof (whether due to any defect in or
impairment of, or the partial or complete failure of, Lessor's title to the
Property or otherwise); any condemnation, confiscation, requisition or
<PAGE> 6
other taking or sale of the possession, use, occupancy or title to the Property
or any portion thereof; any action, omission or breach on the part of Lessor
under this Lease or under any other agreement at the time existing between
Lessor and Lessee; the inadequacy, incorrectness or failure of the description
of the Property or any portion thereof to demise and let to Lessee the property
intended to be leased hereby; any claim as a result of any other business
dealings of Lessor and Lessee; Lessee's acquisition of ownership of the
Property or any portion thereof or any sale or other disposition of the
Property or any portion thereof; the impossibility of performance by Lessor or
Lessee or both; force majeure; any action or threatened or pending action of
any court, administrative agency or other governmental authority; or any other
cause, whether similar or dissimilar to the foregoing, any present or future
law notwithstanding.
(c) Lessee will remain obligated under this Lease in accordance with its
terms, and will not take any action to terminate (except in accordance with the
express provisions hereof), rescind or avoid this Lease for any reason,
notwithstanding any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution or other proceeding affecting Lessor or
any assignee of Lessor, or any action with respect to this Lease which may be
taken by any receiver, trustee or liquidator (or other similar official) or by
any court. All payments by Lessee of Basic Rent, Additional Rent and other
amounts payable by Lessee hereunder shall be final and Lessee will not seek to
recover any such payment or any part thereof for any reason. Lessee waives all
rights now or hereafter conferred by statute or otherwise to quit, terminate
or surrender this Lease, or to any abatement or reduction of Basic Rent,
Additional Rent or other amounts payable by Lessee hereunder, or for damage,
loss, cost or expense suffered by Lessee, on account of any of the reasons
referred to in paragraph 6(b) or this paragraph 6(c) or otherwise.
(d) If for any reason the Basic Rent payable under this Lease shall be
diminished or subject to diminution through attachment, demand, lien, levy,
process or otherwise, by reason of any taxes, costs, expenses, indebtedness,
obligations or liabilities of any character incurred by any person, or by
reason of any demands, charges or liens of any nature against any person or
against such Basic Rent, so that such Basic Rent shall be rendered inadequate
to pay when due the payments
<PAGE> 7
5
of interest and principal on the indebtedness secured by the Mortgage, or if
the application of such Basic Rent by the Trustees to the payments of interest
and principal on the Notes shall be delayed, hindered or prevented, or the
right of the Trustees to apply the same shall be in any way adversely affected,
or if the registered owners of the Notes shall be subject to any liability to
refund or pay over the same, Lessee will indemnify the Trustees against any
liability which may arise from any such application to payments on the Notes
and will indemnify the registered owners of the Notes from any obligation to
refund or pay over any such amount, and will pay an additional sum payable on
each Payment Date under this Lease sufficient to pay and discharge all such
taxes, costs, expenses, indebtedness, obligations, liabilities, claims,
demands, charges and liens, and to eliminate or prevent such delay, hindrance,
obstacle or liability, and to protect fully such right.
7. Taxes and Other Charges; Compliance With Law and Agreements:
(a) Subject to the provisions of paragraph 19(b), Lessee shall pay and
discharge, prior to the imposition of any interest or penalty for delinquency
in payment, all taxes, assessments, fees, water and sewer rents and other
governmental and similar charges, general and special, ordinary or
extraordinary, and any interest and penalties thereon, which are levied or
assessed against (i) Lessor, (ii) the Property or any portion thereof or the
interest of Lessee or Lessor therein or in respect thereof, (iii) Basic Rent,
Additional Rent or any or all other amounts payable by Lessee hereunder, (iv)
this Lease or the interest of Lessee or Lessor hereunder, (v) the possession,
use, occupancy, construction, maintenance, repair or rebuilding of the Property
or any portion thereof, (vi) gross receipts from the Property or any portion
thereof, or (vii) the earnings arising from the possession, use or occupancy
thereof; but nothing in this Lease shall require payment by Lessee of any
franchise, estate, inheritance, succession, transfer (other than pursuant to
paragraph 16(b)), income or profits taxes of Lessor (but such enumeration of
taxes not required to be paid by Lessee shall not include any tax computed as a
percentage of gross receipts from any Basic Rent or Additional Rent), unless
such tax is in lieu of or a substitute for another tax or assessment which, if
such other tax or assessment were in effect, would be payable by Lessee. If any
tax or assessment levied or assessed against the Property may legally be
<PAGE> 8
6
paid in installments, Lessee shall have the option to pay such tax or assessment
in installments, and Lessee shall be obligated to pay only such installments as
shall be properly allocated to periods within the term hereof.
(b) Lessee shall pay all charges for utility, communication and other
services rendered or used on or about the Property.
(c) Lessee shall at its cost and expense, comply with, and cause the
Property to comply with, all applicable laws, rules, regulations, ordinances
and restrictions and insurance policies, now or hereafter in effect, all
applicable agreements affecting the Property to which Lessee is a party or by
which it is bound, now or hereafter in effect, and all applicable agreements
legally affecting the Property of which Lessee now has notice and which are now
in effect, including those which require the making of any structural,
unforeseen or extraordinary changes.
(d) Lessee shall furnish to Lessor, within 10 days after demand by
Lessor, proof of the payment of any such tax, assessment, fee, water or sewer
rent or other governmental or similar charge, or any such other charge, which is
payable by Lessee.
8. LIENS:
Subject to the provisions of paragraph 19(b), Lessee will remove and
discharge promptly, at its cost and expense, all liens, encumbrances and
charges upon the Property or any part thereof, Lessee's leasehold interest
therein or the Basic Rent or Additional Rent, which arise for any reason
whatever, including all such liens, encumbrances and charges which arise out of
the ownership, possession, use, occupancy, construction, maintenance, repair or
rebuilding of the Property or by reason of labor or materials furnished or
claimed to have been furnished to Lessee or otherwise, but excluding Permitted
Liens and all liens, encumbrances, and charges upon the Property created by
Lessor, or created by the Trustees other than those created by them in the
exercise of their rights as assignee of the rights of Lessor under this Lease.
9. INDEMNIFICATION;
Lessee shall pay, and shall protect, indemnify and hold Lessor, the
Mortgagee and the Trustees harmless from and against, any and all liabilities,
losses, damages, costs, expenses (including attorneys'
<PAGE> 9
7
fees and expenses), causes of action, suits, claims, demands or judgements of
any nature arising, or alleged to rise, from or in connection with (a) any
injury to, or the death of, any person or any damage to or loss of property on
or near the Property in any manner growing out of or connected with, or alleged
to grow out of or be connected with, the ownership, possession, use, occupancy,
construction, maintenance, repair or rebuilding of the Property or any portion
thereof, or the adjoining land, or of any other real or personal property used
or occupied in connection with the Property or any portion thereof (whether
owned or under the control of Lessee or any other person) or resulting, or
alleged to result, from the condition of any thereof; (b) violation, or alleged
violation, of any provision of this Lease or of any law, rule, regulation,
ordinance, restriction, or insurance policy, now or hereafter in effect, or of
any agreement to which Lessee is a party or by which it is bound, now or
hereafter in effect, or of any agreement of which Lessee now has notice and
which is now in effect, legally affecting or applicable to the Property or any
portion thereof or the ownership, possession, use, occupancy, construction,
maintenance, repair or rebuilding thereof or of adjoining passageways, sidewalks
or streets; (c) any contest permitted by paragraph 19(b); or (d) Lessee's
failure to pay any Additional Rent when and as the same shall become due and
payable; except that Lessee shall not be obligated to pay, or to indemnify any
other person against, any liabilities, losses, damages, costs, expenses,
attorneys' fees and expenses, causes of action, suits, claims, demands or
judgments arising from or growing out of the wilful conduct or negligence of
Lessor or of the Trustees.
10. Maintenance and Repair
(a) Lessee will, at its cost and expense, keep and maintain the Property
in good repair and condition, except for ordinary wear and tear, and will
promptly make all structural and non-structural, and ordinary and extraordinary
changes and repairs of every kind which may be required to be made upon or in
connection with the buildings and other improvements to the Property in order
to keep the same in good repair and condition. Lessor shall not be required to
maintain, alter, repair, rebuild or replace any buildings or other improvements
to the Property or to maintain the Property in any way, and Lessee expressly
waives the right to make repairs at the expense of Lessor which may be provided
for in any law now or hereafter in effect.
<PAGE> 10
8
(b) If any present or future improvement to the Property shall encroach
upon any property or street adjacent to the Property, or shall violate any
agreement or condition contained in any restrictive covenant affecting or
applicable to the Property, or shall impair the rights of others under any
easement or right-of-way to which the Property is subject, then upon request of
Lessor, Lessee shall, at its cost and expense, take such action as shall be
necessary to remove such encroachment or end such violation or impairment. Any
such action shall be taken in conformity with the requirements of paragraph
11(a). Notwithstanding the foregoing, Lessee shall not be required to remove
any such encroachment, or end any such violation or impairment existing on the
date of commencement of the term of this Lease: (i) unless and until required
so to do by the provisions of a judgment or decree entered in legal proceedings
instituted by the owner of the property encroached upon or the public authority
having jurisdiction of any such street or the party entitled to enforce any
such restriction, as the case may be, provided Lessee shall in good faith and
with due diligence contest such proceedings and prevent any forfeiture of the
Property and hold Lessor harmless for all damages, fines, costs and expenses
arising from such proceedings; or (ii) if Lessee has or obtains such easements,
licenses or similar rights as may be necessary to permit such encroachment to
remain.
11. Alterations and Additions; Reimbursement for Certain Costs and
Expenses:
(a) Lessee may, at its cost and expense, make additions, substitutions,
replacements or improvements to or alterations of the buildings and other
improvements to the Property (and may demolish such buildings and
improvements), in conformity with the requirements of this paragraph 11(a). If
such additions, substitutions, replacements or improvements result in costs and
expenses to Lessee in excess of $100,000, Lessee shall notify Lessor that such
additions, substitutions, replacements or improvements have been or are being
made to the Property. Title to all additions, improvements, substitutions,
replacements and alterations, and to all new buildings, structures and
improvements constructed on the Property from time to time, including any and
all fixtures located therein or thereon, shall immediately vest in Lessor and
such additions, improvements, alterations, buildings, structures,
substitutions, replacements and improvements shall be a part of
<PAGE> 11
9
the Property. Any action shall be deemed to have been taken in conformity with
the requirements of this paragraph 11(a), if (i) the market value of the
Property shall not be materially lessened by reason thereof, (ii) such action
shall have been expeditiously completed in a good and workmanlike manner in
compliance with all applicable laws, rules, regulations, ordinances,
restrictions, insurance policies and agreements to which Lessee is a party or
by which it is bound, then in effect, and all applicable agreements legally
affecting the Property of which Lessee has notice and are then in effect, (iii)
in the case of any total or material demolition of the buildings or other
improvements, Lessee shall, prior to the commencement thereof, furnish Lessor
with an acceptable surety bond or bonds, or other security satisfactory to
Lessor, the acceptance of which bond, bonds or other security by Lessor shall
not be unreasonably withheld, to assure the reconstruction of alterations,
additions, substitutions or replacements, the fair market value of which shall
be not less than the fair market value of the buildings or other improvements
to be demolished, (iv) Lessee shall have procured and paid for all permits and
licenses required in connection therewith, and (v) during the period when any
addition, improvement, substitution, replacement or alteration is being made or
when any demolition or rebuilding is taking place, Lessee has maintained or
caused to be maintained, in addition to the insurance required to be maintained
under paragraph 13, such contingent liability, public liability, completed
value builder's risk, workmen's compensation and other similar insurance as is
customarily maintained, or caused to be maintained by Lessee with respect to
similar activities on properties owned by it.
(b) All machinery, equipment and trade fixtures constituting personal
property and which are installed by Lessee or by a subtenant of Lessee, the
cost of which shall not have been paid by Lessor, regardless of how attached or
affixed to the Property, shall be deemed to remain personal property and,
together with all other goods and personal property of Lessee or of a
subtenant, however attached or affixed, may be removed prior to the termination
of this Lease, but Lessee shall pay the entire cost and expense of any such
removal and shall immediately repair at its cost and expense all damage to the
Property caused thereby. Lessee may, at its cost and expense, install or place
or reinstall or replace upon and remove from the Property any trade fixtures,
machinery and equipment, and other personal property used
<PAGE> 12
10
or useful in Lessee's business, in conformity with the requirements of
paragraph 11(a). Any such trade fixtures, machinery and equipment, and other
personal property shall not become the property of Lessor (other than
replacements of trade fixtures, machinery and equipment, and other personal
property which are the property of Lessor, which replacements shall also be the
property of Lessor).
(c) From time to time, in addition to any rights granted to Lessee by
paragraph 11(a), Lessee may request Lessor to pay the costs and expenses
incurred by Lessee in the construction of buildings, structures or other
improvements made to or erected on the Property and, if Lessee shall so elect,
on one or more of the Other Properties within the 24-month period next
preceding the date of such request, and not required to be made or erected
under any provision of this Lease or the respective lease or leases of any such
Other Properties. Such request shall specify the one or more properties with
respect to which such request is being made and shall set forth in reasonable
detail the aggregate amount of such costs and expenses (which aggregate amount
shall be not less than $100,000) and in reasonable detail the amount of such
costs and expenses allocable to each such property. Upon receipt of any such
request, Lessor agrees to make every reasonable effort to arrange for the
financing of such improvements at the lowest interest rate then practically
obtainable for such financing. Lessor and Lessee shall negotiate in good faith
concerning the financing by Lessor of such costs and expenses and the amendment
of this Lease and such other lease or leases. Since Lessor's likely source of
funds to finance such costs and expenses will be the sale of its evidences of
indebtedness to the Mortgagee and the simultaneous sale by Mortgage of
Improvement Notes (as defined in Section 2.03 of the Indenture), the parties
hereto recognize that such amendment or amendments to this Lease and such other
lease or leases must provide (i) for increases in the Basic Rent and in the
purchase prices payable by Lessee upon the termination thereof, so as to assure
to the purchasers of such evidences of indebtedness the repayment of all
principal, interest and premium, if any, due thereon, and (ii) that such
evidences of indebtedness must be issued within six months after completion of
construction of such improvements. If Lessor shall be unable to arrange such
financing or if, after negotiating in good faith, Lessor and Lessee shall be
unable to agree upon the terms thereof, then this Lease shall continue in full
force and effect, and Lessor shall have no obligation to pay such costs and
<PAGE> 13
11
expenses unless Lessee shall arrange for such financing and such financing
shall be consummated; provided, that if, at any time during the last 15 years of
the Basic Term, Lessee shall make any such request with respect to the Property,
and if Lessor shall be unable to arrange such financing or if, after
negotiating in good faith, Lessor and Lessee shall be unable to agree upon the
terms thereof, then Lessee may, at its option, give notice to Lessor of
Lessee's intention to purchase the Property on the Payment Date first occurring
at least 30 days after such notice is given at a purchase price therefor equal
to the greater of (x) the then Fair Market Value of the Property or (y) the
purchase price for the Property determined in accordance with Part IV of
Schedule B. On such purchase date, Lessor shall transfer, and Lessee shall
purchase, the Property in accordance with paragraph 16. There shall be deducted
from the Fair Market Value of the Property the Fair Market Value at the time of
such purchase of all additions or improvements made by Lessee to the Property
which are not in substitution for other improvements owned by Lessor, and the
cost of which has not been paid by Lessor.
12. Condemnation and Casualty:
(a) Lessee hereby assigns to Lessor (except to the extent that loss
proceeds under certain insurance policies are made payable to Lessee pursuant
to paragraph 13(c)) any award, compensation or other payment to which Lessee may
become entitled, whether the same shall be payable in respect of Lessee's
leasehold interest hereunder or otherwise, (i) if the Property or any portion
thereof is damaged or destroyed due to fire or other casualty or cause, or (ii)
by reason of any condemnation, confiscation, requisition or other taking or
sale of the possession, use, occupancy or title to the Property or any portion
thereof in, by or on account of any completed, pending or threatened eminent
domain proceedings or other action by any governmental authority or other
person having the power of eminent domain. Lessee is hereby authorized and
empowered, at its cost and expense, in the name and behalf of Lessor, Lessee or
otherwise, to appear in any such proceedings or other action, to negotiate,
accept, file and prosecute any claim for any award, compensation or other
payment on account of any such loss, damage, destruction, condemnation,
confiscation, requisition or other taking or sale, and to collect and receipt
for any such award,
<PAGE> 14
12
compensation or other payment. All amounts so paid or payable to or received or
receivable by Lessor or Lessee shall be retained by such party or paid over to
the other party in accordance with the provisions of this paragraph 12. Lessee
shall take such action in connection with each such claim, proceedings or other
action as shall be appropriate to protect the interests of Lessor and Lessee.
Lessee shall pay all fees, costs and other expenses which may become payable as
a result of or in connection with the subject matter of this paragraph 12.
(b) If, after any occurrence of the character referred to in clause (i) or
(ii) of paragraph 12(a), the Property has been thereby rendered no longer
economically useful in the business of Lessee, Lessee, after the lapse of such
period of time as may be reasonably necessary for Lessee to evaluate the effect
of such occurrence, shall promptly give notice to Lessor of Lessee's intention
to terminate this Lease. Such notice shall (i) specify such termination date,
which shall be the Payment Date first occurring at least 60 days after such
notice is given, (ii) contain a certification by Lessee that the board of
directors of Lessee has made a determination that the Property has been
rendered no longer economically useful in the business of Lessee by an
occurrence of the character referred to in clause (i) or (ii) of paragraph
12(a), and that, on or before such termination date, Lessee will discontinue
the use of the Property in Lessee's business, (iii) contain a brief description
of such occurrence and of the basis for such determination by Lessee, and (iv)
contain the irrevocable offer of Lessee to purchase the Property (and/or the
Net Award hereinafter referred to) on such termination date at a purchase price
therefor equal to the then Unamortized Cost of the Property as determined in
accordance with Part III of Schedule B. If the sum of the Net Award hereinafter
referred to plus the then Fair Market Value of the portion of the Property, if
any, remaining after such occurrence (less the then Fair Market Value of all
additions or improvements made by Lessee to the Property which were not in
substitution for other improvements owned by Lessor and the cost of which was
not paid by Lessor), exceeds the then Unamortized Cost of the Property (such
excess of the sum of such Net Award plus such Fair Market Value over such
Unamortized Cost being herein called the "Excess"), then the purchase price
for the property referred to in the preceding sentence shall be increased by an
amount (not exceeding the amount of the Excess) equal to the sum of (x) the
lesser of (1) the Lessor's Original Equity or (2)
<PAGE> 15
13
the Excess, plus (y) an amount equal to the product of the then Lessor's
Percentage times the excess, if any, of the Excess over the Lessor's Original
Equity (such excess of the Excess over the Lessor's Original Equity being
herein called the "Remaining Excess"). If Lessor shall reject such offer by
notice given to Lessee not later than 30 days prior to such termination date,
then this Lease shall terminate on such termination date and a portion of the
Net Award hereinafter referred to, equal to the product of the then Lessee's
Percentage times the Remaining Excess, if any, shall be paid and belong to
Lessee, and the remainder of the Net Award shall be paid and belong to Lessor.
Unless Lessor shall have rejected such offer as provided in the preceding
sentence, Lessor shall be conclusively presumed to have accepted such offer
and, on such termination date, Lessor shall transfer, and Lessee shall
purchase, the Property (and/or the Net Award hereinafter referred to) in
accordance with paragraph 16. Upon completion of such purchase the entire
award, compensation or other payment, if any, on account of any such occurrence
less any expenses incurred by Lessor in collecting such award, compensation or
other payment and not paid (or reimbursed to Lessor) by Lessee pursuant to the
last sentence of paragraph 12(a), shall be paid and belong to Lessee (such
award, compensation or other payment, less such expenses, being herein called
the "Net Award").
(c) If, after any occurrence of the character referred to in paragraph
12(a), Lessee is not required to give notice of its intention to terminate this
Lease, then (i) this Lease shall continue in full effect, (ii) Lessee shall,
promptly after any such occurrence and at its cost and expense, repair and
rebuild the Property, in conformity with the requirements of paragraph 11(a),
to at least the extent necessary and practicable to restore the Property to the
condition and market value thereof immediately prior to such occurrence, and
(iii) upon the completion of such repair and rebuilding and if no event of
default shall then exist under this Lease, the entire Net Award shall be paid
and belong to Lessee.
13. Insurance:
(a) Lessee will, at all times during the term hereof and at its cost and
expense, maintain insurance of the following character:
(i) Insurance against loss by fire and lightning and insurance
against risks customarily covered by standard extended coverage
<PAGE> 16
14
endorsement, including but not limited to loss by windstorm, hail,
explosion, riot (including riot attending a strike), civil commotion,
aircraft, vehicles, smoke damage, and vandalism and malicious mischief in
amounts sufficient to prevent Lessor or Lessee from becoming a co-insuror
of any loss under the applicable policies, but in any event in amounts not
less than the full insurable value of all buildings and other improvements
constituting part of the Property. The term "full insurable value" as
used herein means actual replacement cost, including the costs of debris
removal, less physical depreciation.
(ii) General public liability insurance covering the legal liability
of Lessor and Lessee against claims for bodily injury, death or property
damage, occurring on, in or about the Property and the adjoining land, in
the minimum amounts of $1,000,000 for each claim with respect to any one
death or bodily injury, $1,000,000 with respect to any one occurrence, and
$50,000 for all claims for property damage with respect to any one
occurrence.
(iii) Workmen's compensation insurance. Lessee shall comply with
applicable workmen's compensation laws of the state in which the Property
is located, and shall maintain such insurance if and to the extent
necessary for such compliance.
(iv) Such other insurance, in such amounts and against such risks, as
is customarily maintained by Lessee with respect to similar properties
owned by it.
Such insurance shall be written by companies of recognized financial standing
which are well rated by national rating organizations and are legally qualified
to issue such insurance, and shall name as the insured parties Lessor and
Lessee as their interests may appear. Such insurance may provide for such
reasonable deductible amounts as are customarily provided for in insurance
maintained by Lessee with respect to similar properties owned by it, and may be
obtained by Lessee by endorsement on its blanket insurance policies, provided
that such policies satisfy the requirements specified above in this paragraph
13(a). Lessor shall not be required to prosecute any claim against any insurer
or to contest any settlement proposed by any insurer, provided that Lessee may,
at its cost and expense, prosecute
<PAGE> 17
15
any such claim or contest any such settlement, and in such event Lessee may
bring any such prosecution or contest in the name of Lessor, Lessee or both,
and Lessor will join therein at Lessee's request upon receipt by Lessor of an
indemnity from Lessee against all cost, liabilities and expenses in connection
with such prosecution or contest.
(b) Insurance claims by reason of damage or destruction to any portion of
the Property shall be adjusted by Lessee.
(c) Every insurance policy (other than any liability or workmen's
compensation policy) maintained pursuant to paragraph 11(a) or this paragraph 13
shall bear a first mortgage endorsement in favor of the Mortgagee, and loss
proceeds under any such policy in excess of $100,000 with respect to any loss
shall be made payable to such mortgagee or its assignee, if any, provided that
recoveries under any such policy shall be applied by such mortgagee or assignee
as provided in paragraph 12. Loss proceeds under any such policy of $100,000 or
less with respect to any loss shall be made payable to Lessee if no event of
default shall then exist under this Lease. Every such policy shall provide that
the issuer thereof waives all rights of subrogation against Lessor, any
successor to Lessor's interest in the Property, and any such mortgagee or
assignee, that 10 days' prior written notice of cancellation shall be given to
any such mortgagee or assignee and that such insurance, as to the interest of
any such mortgagee or assignee therein, shall not be invalidated by any act or
neglect of Lessor or Lessee or any owner of the Property or of any interest
therein, nor by any foreclosure or any other proceedings or notices thereof
relating to the Property or any interest therein, nor any change in the title
or ownership of the Property or any interest therein, nor by occupation of the
Property for purposes more hazardous than are permitted by such policy. No such
policy shall contain a provision relieving the issuer thereof of liability for
any loss by reason of the existence of other policies of insurance covering the
Property against the peril involved.
(d) Lessee shall deliver to Lessor promptly after the execution and
delivery of this Lease original or duplicate policies, or certificates of
insurers satisfactory to such mortgagee or assignee, if any, evidencing all the
insurance which is then required to be maintained by Lessee, and Lessee shall,
within 30 days prior to the expiration of any such
<PAGE> 18
16
insurance, deliver other original or duplicate policies or certificates of the
insurers evidencing the renewal of such insurance.
(e) Lessee shall not obtain or carry separate insurance concurrent in form
or contributing in the event of loss with that required in this paragraph 13 to
be furnished by Lessee unless Lessor is included therein as a named insured,
with loss payable as in this Lease provided. Lessee shall immediately notify
Lessor whenever any such separate insurance is obtained and shall deliver to
Lessor the policy or policies or certificates evidencing the same.
14. Termination for Uneconomic Use:
If, at any time on or after February 25, 1982, the Property is no longer
useful to Lessee, Lessee may give notice to Lessor of Lessee's intention to
terminate this Lease. Such notice shall (a) specify such termination date, which
shall be the Payment Date first occurring at least 60 days after such notice is
given, (b) contain a certification by Lessee that the board of directors of
Lessee has made a determination that the Property is no longer useful to Lessee
and that Lessee will discontinue the use of the Property in Lessee's business on
or before such termination date, provided, that such certification shall include
a statement to the effect that, in making its determination that the Property is
no longer useful to Lessee, the board of directors of Lessee gave no
consideration to the amount of the Basic Rent or to interest rates or effective
interest costs to Lessee with a view to refinancing the Property or financing a
comparable facility, and (c) contain the irrevocable offer of Lessee to purchase
the Property on such termination date at a purchase price therefor determined in
accordance with Part V of Schedule B. If Lessor shall reject such offer by
notice given to Lessee not later than 30 days prior to such termination date,
then this Lease shall terminate on such termination date. Unless Lessor shall
have rejected such offer as provided in the preceding sentence, Lessor shall be
conclusively presumed to have accepted such offer and, on such termination date
Lessor shall transfer, and Lessee shall purchase, the Property in accordance
with paragraph 16.
15. Purchase Option; Right of First Refusal:
(a) Lessee shall have the right to purchase the Property on the last day
of the Basic Term or on the last day of any Extended Term at a purchase price
therefor equal to the then Fair Market Value of
<PAGE> 19
17
the Property. There shall be deducted from the Fair Market Value of the
Property the Fair Market Value at the time of such purchase of all additions or
improvements made by Lessee to the Property which are not in substitution for
other improvements owned by Lessor and the cost of which has not been paid by
Lessor, Lessee shall exercise its option to purchase the Property by notice to
Lessor, given not less than ninety days prior to the expiration of the term of
this Lease then in effect. If Lessee shall have exercised such option, then on
such expiration date Lessor shall transfer, and Lessee shall purchase, the
Property in accordance with paragraph 16.
(b) If at any time during the term of this Lease Lessor shall receive and
wish to accept a bona fide offer from a third party to purchase Lessor's
interest in the Property, other than a bid or offer to purchase such interest
at any sale incidental to the exercise of any remedy provided for in this Lease
or the Mortgage, or if Lessor shall offer to sell its interest in the Property
to any third party, Lessor shall promptly transmit to Lessee its irrevocable
offer to sell such interest to Lessee upon the same terms and conditions as are
set forth in such offer to purchase or offer to sell, as the case may be,
together with a true and complete copy of such offer. Lessee shall exercise its
option to accept Lessor's offer by notice to Lessor, given not more than sixty
days after receipt thereof by Lessee. If Lessee shall have accepted such offer,
then Lessor shall transfer, and Lessee shall purchase, the Property in
accordance with paragraph 16, but subject to this Lease and any assignment of
Lessor's rights hereunder and to the Mortgage, and this Lease shall continue in
full force and effect.
16. Purchase by Lessee:
(a) In the event of the purchase of the Property (and/or the Net Award) by
Lessee pursuant to any provision of this Lease, Lessor shall give the same
title thereto as existed at the commencement of the term of this Lease, subject
to all liens, encumbrances, charges, exceptions and restrictions attaching
thereto after the commencement of the term of this Lease which were not created
or caused by Lessor or the Trustees, to any action taken by Lessee pursuant to
pargraph 27, and to all applicable laws, rules, regulations, ordinances and
restrictions then in effect, and Lessee shall accept such title. The quality
and condition of Lessor's title shall be evidenced by a commitment to insure
<PAGE> 20
18
the same issued (at the expense of Lessee) by a title insurance company of
recognized financial responsibility.
(b) On the date fixed for the purchase of the Property (and/or the Net
Award) by Lessee pursuant to any provision of this Lease, Lessee shall pay to
Lessor, in lawful money of the United States, at its address for purposes of
this Lease or at any other place in the United States designated by Lessor, the
purchase price therefor provided for herein, and Lessor shall there deliver to
Lessee an appropriate deed and/or other instrument or instruments of transfer,
with covenants against acts of Lessor, which shall transfer the title described
in paragraph 16(a). Lessee shall also pay all charges incident to such
transfer, including all recording fees, attorneys' fees and expenses, title
insurance premiums and federal, state and local taxes (other than Lessor's
income taxes). Upon completion of any such purchase other than a purchase
pursuant to paragraph 15(b), but not prior thereto (regardless of the reason
for any delay which may occur in consummating such purchase and whether or not
such delay is due to the fault of Lessor or the inability to transfer the title
described in paragraph 16(a)), this Lease shall terminate.
17. Termination:
(a) In the event of the termination of this Lease as herein provided,
whether upon a purchase of the Property by Lessee or otherwise, the obligations
and liabilities of Lessee, actual or contingent, under this Lease which arose
prior to such termination shall survive such termination.
(b) If any termination of this Lease shall occur on a Payment Date (i)
Basic Rent due and payable on such Payment Date shall remain due and payable on
such Payment Date without reduction or abatement, and (ii) all amounts payable
by Lessee in connection with any purchase of the Property or any portion
thereof on such Payment Date shall be in addition to the amount then due and
payable as Basic Rent.
18. Subletting; Assignment:
(a) Lessee may sublet the Property or any part thereof, provided that each
sublease shall expressly be made subject to the provisions of this Lease, and
may assign its interest under this Lease. No such
<PAGE> 21
19
sublease or assignment shall affect or reduce any obligations of Lessee or
rights of Lessor hereunder, and all obligations of Lessee hereunder shall
continue in full effect as the obligations of a principal and not of a
guarantor or surety, as thought no subletting or assignment had been made.
Neither this Lease nor the term hereby demised shall be mortgaged by Lessee,
nor shall Lessee mortgage or pledge the interest of Lessee in and to any
sublease of the Property or any portion thereof or the rentals payable
thereunder. Any such mortgage or pledge, and any such sublease or assignment
made otherwise then as permitted by this paragraph 18, shall be void. Lessee
shall, within 10 days after the execution of any such sublease or assignment,
deliver a conformed copy thereof to Lessor, and to any mortgage of the Property
or its assignee.
(b) Lessor may mortgage, assign, convey or otherwise transfer its estate,
right, title and interest hereunder or in the Property or any portion thereof
without the consent of Lessee. If any such assignment is made as collateral
security, the execution and deliver thereof shall not in any way impair or
diminish any obligations of Lessor under this Lease nor impose any of such
obligations on the assignee. Any estate, right, title or interest assigned as
permitted by this paragraph 18(b) may be assigned and reassigned in like manner
by any assignee thereof.
19. Advances by Lessor; Permitted Contests:
(a) If Lessee shall fail to make or perform any payment or act on its part
to be made or performed under this Lease, then, subject to the provisions of
paragraph 19(b), Lessor may (but need not), after 3 days' prior notice to Lessee
(but no notice shall be necessary if such failure by Lessee might result in
civil or criminal penalties being imposed on Lessor, the Property not being
insured as provided in this Lease or Lessor's title to the Property being lost
in legal proceedings or otherwise) and without waiving any default or releasing
Lessee from any obligation, make such payment or perform such act for the
account and at the cost and expense of Lessee. All amounts so paid by Lessor
and all necessary and incidental costs and expenses (including attorneys' fees
and expenses) incurred in connection with the performance of any such act by
Lessor, together with interest at the rate of 8-1/2% per annum (or at the
highest rate not prohibited by applicable law, whichever is less) from the date
of the making of such payment
<PAGE> 22
20
or of the incurring of such costs and expenses by Lessor, shall be payable by
Lessee to Lessor on demand.
(b) Lessee shall not be required, nor shall Lessor have the right, to pay,
discharge or remove, any tax, charge, levy, assessment or lien, or any other
imposition or encumbrance on or against the Property or any portion thereof, so
long as Lessee shall, at its cost and expense, contest the existence, amount or
validity thereof by appropriate proceedings which shall operate to prevent the
collection of or other realization upon the tax, charge, levy, assessment or
lien, or other imposition or encumbrance so contested, and the sale, forfeiture
or loss of the Property or any portion thereof, or of the Basic Rent or any
Additional Rent or portion thereof, to satisfy the same, and which shall not
affect the payment in full of any Basic Rent payable hereunder or any use or
disposition thereof by Lessor; provided, however, that Lessee shall have given
such security as may be required in the proceedings and such reasonable
security as may be demanded by Lessor to insure such payment and to prevent any
sale or forfeiture of the Property or any portion thereof by reason of such
nonpayment; and, provided further, that Lessor would not be in any danger of
criminal liability by reason of such nonpayment.
20. Conditional Limitations -- events of Default and Remedies:
(a) Any of the following occurrences or acts shall constitute an "event
of default" under this Lease;
(i) if Lessee shall
(A) default in making payment when due of any Basic Rent,
Additional Rent or any other amount payable by Lessee hereunder, or
(B) default in the observance or performance of any provision of
any instrument pursuant to which Lessee undertakes obligations, or
makes agreements, for the benefit of Lessor or any assignee of
Lessor's rights as lessor under this Lease, or
(C) default in the observance or performance of any other
provision of this Lease to be observed or performed by Lessee
hereunder,
<PAGE> 23
21
and if such default shall continue as to subclause (A) or (B) above for 1
business day after Lessee shall have received notice from Lessor specifying
such default and demanding that the same be cured, or as to subclause (C) above
for 30 days after Lessor shall have given to Lessee notice specifying such
default and demanding that the same be cured (or, if by reason of the nature
thereof, such default cannot be cured by the payment of money and cannot with
due diligence be wholly cured within such period of 30 days, if Lessee shall
fail to proceed promptly to cure the same and thereafter prosecute the curing
of such default with all due diligence, it being intended in connection with a
default not susceptible of being wholly cured with due diligence within such
period that the time within which to cure the same shall be extended for such
period as may be necessary to complete the curing of the same with all due
diligence); or
(ii) if the Property shall remain substantially unoccupied and
unattended for a period of 90 consecutive days and during such period
Lessee shall not have delivered to Lessor a certificate of Lessee to the
effect that Lessee has been prevented from occupying the Property by
circumstances beyond its control, that the Property is being maintained in
accordance with the provisions of this Lease and that Lessee intends to
reoccupy the Property upon termination of such circumstances; or
(iii) if the Lessee hereinabove named, or any corporation succeeding
thereto by merger, consolidation or acquisition of all or substantially all
of its assets, shall file a petition in bankruptcy or for reorganization or
for an arrangement pursuant to the Bankruptcy Act or under any similar
federal or state law now or hereafter in effect, or shall be adjudicated a
bankrupt or become insolvent, or shall make an assignment for the benefit
of its creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall be dissolved, or shall suspend
payment of its obligations, or shall take any corporate action in
furtherance of any of the foregoing; or
(iv) if a petition or answer shall be filed proposing the
adjudication of the Lessee hereinabove named, or any corporation succeeding
thereto by merger, consolidation or acquisition of all or substantially all
of its assets, as a bankrupt or its reorganization pursuant to the
Bankruptcy Act or any similar federal or state law,
<PAGE> 24
22
now or hereafter in effect, and (A) such Lessee or successor corporation shall
consent to the filing thereof, of (B) such petition or answer shall not be
discharged or denied within 60 days after the filing thereof; or
(v) if a receiver, trustee or liquidator (or other similar official) shall
be appointed for or take possession or charge of the Lessee hereinabove named,
or any corporation succeeding thereto by merger, consolidation or acquisition
of all or substantially all of its assets, or of all or substantially all of
the business or assets of such Lessee or successor corporation or of such
Lessee's or successor corporation's estate or interest in the Property, and
shall not be discharged within 60 days thereafter or if such Lessee or
successor corporation shall consent to or acquiesce in such appointment; or
(vi) if the estate or interest of Lessee in the Property or any sublease
thereof shall be levied upon or attached in any proceeding and such process
shall not be vacated or discharged within 60 days after such levy or
attachment, unless Lessee shall be contesting such levy or attachment in
accordance with the requirements of paragraph 19(b); or
(vii) if the Lessee hereinabove named, or any corporation succeeding
thereto by merger, consolidation or acquisition of all or substantially all of
its assets, shall default in the payment of principal, premium or interest on
any note, bond, debenture or other evidence of indebtedness upon which such
Lessee or successor corporation may be or become liable beyond any period of
grace provided with respect thereto, or shall fail to comply with any provision
of any such evidence of indebtedness or any instrument under which or pursuant
to which any such evidence of indebtedness may be issued, if the effect of such
failure is to cause, or permit the holder or holders thereof (or a trustee or
agent, on behalf of such holder or holders) to cause, not less than $1,000,000
in aggregate principal amount of such evidence or evidences of indebtedness to
become due prior to the stated maturity thereof, or if such Lessee or successor
corporation shall fail to pay any rent under any lease of any property, real or
personal, having an original cost to the lessor thereunder of not less than
$1,000,000, if the effect of such failure is to cause, or permit the lessor
thereunder
<PAGE> 25
23
(or a trustee or agent on behalf of such lessor) to cause, such lease or
the term thereof to be terminated prior to the date fixed for the expiration
thereof.
(b) This Lease and the term and estate hereby granted are subject to the
limitation that whenever an event of default shall have occurred, Lessor may, as
its election, during the continuance of such event of default:
(i) proceed by appropriate judicial proceedings, either at law or in
equity, to enforce performance or observance by Lessee of the applicable
provisions of this Lease or to recover damages for the breach thereof; or
(ii) by notice to Lessee terminate the term of this Lease, whereupon
Lessee's estate and all right of Lessee to the use of the Property shall
forthwith terminate as though this Lease had never been made, but Lessee
shall remain liable as hereinafter provided; and thereupon Lessor shall
have the immediate right of re-entry and possession of the Property and
the right to remove all persons and property therefrom; and Lessor may
thenceforth hold, possess and enjoy the Property (including the right to
sell the Property or any portion thereof upon any terms deemed satisfactory
to Lessor) free from any rights of Lessee and any person claiming through
or under Lessee; but Lessor shall, nevertheless, have the right to recover
forthwith from Lessee:
(A) any and all Basic Rent and Additional Rent and all other
amounts payable by Lessee hereunder which may then be due and unpaid
or which may then be accrued and unpaid,
(B) as liquidated damaged for loss of the bargain and not a
penalty, an amount equal to the excess of the aggregate of all unpaid
Basic Rent and Additional Rent which would have been payable if this
Lease had not been terminated prior to the end of the term of this
Lease then in effect over the aggregate fair rental value of the
Property at the date of termination of this Lease for the period from
such termination date to the end of the term of this Lease then in
effect, both
<PAGE> 26
24
discounted in accordance with accepted financial practice at the rate
of 5% per annum to then present worth, and*
(C) any and all other damages and expenses (including, without
limitation, attorneys' fees and expenses), which Lessor shall have
sustained by reason of the breach of any provision of this Lease; or
(iii) declare all Basic Rent for the balance of the term of this Lease
then in effect, discounted in accordance with accepted financial practice
at the rate of 5% per annum to then present worth, to be immediately due
and payable, as though expressly made payable in advance prior to the
occurrence of such event of default, in which case Basic Rent so becoming
due and payable in advance may be recovered in any suit, action or other
legal proceeding, provided, that if Lessor shall exercise such remedy and
Lessee shall have paid in full all Basic Rent so declared due and payable,
Lessee shall thereafter have the right to possession of the Property for
the entire period in respect of which Basic Rent shall have been so
accelerated by Lessor, unless and until a further event of default (other
than an event of default of the character specified in clause (iii), (iv),
(v) or (vii) of paragraph 20(a)) shall occur.
Lessee hereby waives to the full extent not prohibited by law, any right it may
now or hereafter have to require the sale, in mitigation of damages, of the
Property or any portion thereof.
- -------------
* If the Property is located in the State of California, subparagraph (B)
above is replaced by the following paragraph:
"(B) As liquidated damages for loss of the bargain and not as a
penalty, (1) an amount equal to the excess of the aggregate of all unpaid
Basic Rent and Additional Rent which would have become due after
termination until the time of award over the amount of rental loss that
Lessee proves could have been reasonably avoided, plus (2) an amount equal
to the excess of the aggregate of all unpaid Basic Rent and Additional Rent
which would have become due after the time of award until the end of the
stated term hereof over the amount of rental loss that Lessee proves could
have been reasonably avoided both discounted in accordance with accepted
financial practice at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus 1%, and"
<PAGE> 27
25
(c) Nothing herein contained shall limit or prejudice the right of Lessor,
in any legal, administrative or other proceedings, to prove for and obtain as
liquidated damages by reason of the termination of the term of this Lease
pursuant to paragraph 20(b)(ii), an amount equal to the maximum allowed by such
proceedings, or by any statute, regulation or rule governing the proceedings in
which such damages are to be proved, whether or not such amount shall be greater
or less than the amount referred to in paragraph 20(b)(ii)(B).
(d) Unless the term of this Lease shall have terminated as in paragraph
20(b)(ii) provided or as permitted by law, if Lessor shall obtain possession of
the Property or any portion thereof following an event of default hereunder,
Lessor shall have the right, without notice, to repair or alter the Property or
any portion thereof in such manner as to Lessor may seem appropriate to put the
same in good order and to make the same rentable, and shall have the right, at
Lessor's option, to re-let the Property or any portion thereof, and Lessee
agrees to pay to Lessor on demand all fees, costs and expenses incurred by
Lessor in obtaining possession, and in altering, repairing and putting the
Property or any portion thereof in good order and condition, and in reletting
the Property or any portion thereof, including reasonable fees and expenses of
attorneys, engineers, mechanics, and other skilled persons, and other
reasonable expenses and commissions, and to pay to Lessor upon the Payment
Dates occurring thereafter until the end of the term of this Lease then in
effect the amounts of money herein specified to be payable by Lessee as Basic
Rent hereunder upon such Payment Dates and all amounts then payable as
Additional Rent hereunder (for all of which amounts Lessee agrees to remain
liable, to the extent provided in this paragraph 20(d), even though Lessor
obtains possession of the Property or any portion thereof as permitted by this
Lease), deducting any rent which Lessor shall actually receive in the meantime
from any reletting of the Property or any portion thereof, and Lessor shall
have the right from time to time to begin and maintain successive legal
proceedings against Lessee for the recovery of any such deficiency or damages,
and to recover the same upon the liability of Lessee herein provided, which
liability it is expressly agreed shall survive the institution of any action to
secure possession of the Property or any portion thereof. Nothing herein
contained shall require Lessor to wait to begin such legal proceedings until
the end of the stated term of this Lease. No such taking of pos-
<PAGE> 28
26
session of the Property or any portion thereof by Lessor shall be construed as
an election on Lessor's part to terminate the term of this Lease unless notice
of such intention be given to Lessee or unless such termination be decreed by a
court of competent jurisdiction.
(e) To the full extent not prohibited by law, Lessee hereby waives and
releases all rights now or hereafter conferred by statute or otherwise which
would have the effect of limiting or modifying any of the provisions of this
paragraph 20. Lessee will execute, acknowledge and deliver any instruments
which Lessor may request, whether before or after the occurrence of an event of
default hereunder, evidencing such waiver or release. At the request of Lessor
upon the occurrence of an event of default hereunder, Lessee will quit and
surrender the Property to Lessor or its agents, and Lessor may without further
notice enter upon, re-enter and repossess the Property by summary proceedings,
ejectment or otherwise. The words "enter", "re-enter", and "re-entry" are not
restricted to their technical legal meaning.
(f) If Lessee shall be in default in the observance or performance of any
provision of this Lease, and an action shall be brought for the enforcement
thereof in which it shall be determined that Lessee was in default, Lessee
shall pay to Lessor all fees, costs and other expenses which may become payable
as a result thereof or in connection therewith, including attorney's fees and
expenses. If Lessor shall without fault on its part be made a party to any
litigation commenced against Lessee, and if Lessee shall not provide Lessor
with counsel satisfactory to Lessor, Lessee shall pay all costs and attorneys'
fees incurred or paid by Lessor in connection with such litigation.
(g) No right or remedy herein conferred upon or reserved to Lessor is
intended to be exclusive of any other right or remedy, and every right and
remedy shall be cumulative and in addition to any other legal or equitable
right or remedy given hereunder, or now or hereafter existing. The failure of
Lessor to insist upon the strict performance of any provision or to exercise
any option, right, power or remedy contained in this Lease shall not be
construed as a waiver or a relinquishment thereof for the future. Receipt by
Lessor of any Basic Rent or Additional Rent payable hereunder with knowledge of
the breach of any provision contained in this Lease shall not constitute a
waiver of such breach (other than the prior failure to pay such Basic Rent or
Addi-
<PAGE> 29
27
tional Rent), and no waiver by Lessor of any provision of this Lease shall be
deemed to have been made unless made under signature of an authorized
representative of Lessor. Lessor shall be entitled, to the extent permitted by
law, to injunctive relief in case of the violation, or attempted or threatened
violation, of any provision of this Lease, or to a decree compelling observance
or performance of any provision of this Lease, or to any other legal or
equitable remedy.
21. Notices:
All notices and other instruments or communications given or made pursuant
to this Lease shall be in writing and shall be validly given if sent by prepaid
United States registered or certified mail, return receipt requested, addressed
to the person entitled to receive the same. Lessor and Lessee, and any other
person to whom any such writing is to be given hereunder, shall each have the
right to specify, from time to time, as its address for purposes of this Lease,
any address in the United States upon giving 15 days' written notice thereof to
each other person then entitled to receive notices and other instruments or
communications hereunder. The addresses of Lessor and Lessee for purposes of
this Lease, until notice has been given as above provided, shall be as follows:
Lessor: BF Properties Company
c/o Kidder Peabody Realty Corporation
20 Exchange Place
New York, N.Y. 10005
Lessee: Beatrice Foods Co.
120 South LaSalle Street
Chicago, Illinois 60603
Attention: Law Department
Each such writing given by Lessee pursuant to this Lease shall be signed by an
officer or employee of Lessee authorized by its board of directors to sign such
a writing in the name and on behalf of Lessee.
22. Estoppel Certificates:
Lessee will, from time to time upon not less than 10 days' prior request
by Lessor, execute, acknowledge and deliver to Lessor a statement of Lessee,
signed by one of its Vice Presidents and currently
<PAGE> 30
28
dated, certifying, if such is the fact, that this Lease is unmodified and in
full effect (or, if there have been modifications, that this Lease is in full
effect as modified, and setting forth such modifications) and the dates to
which the Basic Rent and Additional Rent and other amounts payable by Lessee
hereunder have been paid, and either stating that to the knowledge of the
signer of such certificate no default exists in the observance or performance
of any provision contained in this Lease and no event of default hereunder has
occurred and is continuing, or specifying each such default or event of default
of which the signer may have knowledge, it being intended that any such
statement delivered pursuant to this paragraph may be relied upon by any
mortgage or by any prospective purchaser of the Property or any assignee of
such mortgagee.
23. No Merger:
There shall be no merger of this Lease or of the leasehold estate hereby
created with the fee estate in the Property or any portion thereof by reason of
the fact that the same person may acquire or hold, directly or indirectly, all
or part of such fee estate and this Lease or the leasehold estate hereby created
or any interest in this Lease, and this Lease shall not be terminated for any
cause except as expressly provided herein.
24. Surrender:
(a) Upon the expiration or earlier termination of the term of this Lease,
Lessee shall surrender the Property to Lessor in the same condition in which
the Property was originally received from Lessor except as repaired, rebuilt,
restored, altered or added to pursuant to any provision of this Lease, and
except for ordinary wear and tear. Lessee shall remove from the Property on or
prior to such expiration or earlier termination all property situated thereon
which is not owned by Lessor, and at its cost and expense shall repair any
damage caused by such removal. Property not so removed shall become the
property of Lessor, which may thereafter cause such property to be removed from
the Property and disposed of, but the cost of any such removal and disposition
as well as the cost of repairing any damage caused by such removal shall be
borne by Lessee.
(b) Except for surrender upon the expiration of earlier termination of the
term hereof, no surrender to Lessor of this Lease or of the Property or any
portion thereof or of any interest therein shall be
<PAGE> 31
29
valid or effective unless agreed to and accepted under signature of an
authorized representative of Lessor, and no act by Lessor or by any other
representative of Lessor, other than such an agreement and acceptance so
signed, shall constitute an acceptance by Lessor of any such surrender.
25. Separability:
Each provision contained in this Lease shall for all purposes be construed
to be separate and independent and the breach of any such provision by Lessor
shall not discharge or relieve Lessee from Lessee's obligation to observe and
perform each provision of this Lease to be observed or performed by Lessee. If
any provision of this Lease or the application thereof to any person or
circumstance shall to any extent be invalid and unenforceable, the remainder of
this Lease, or the application of such provision to persons or circumstances
other than those as to which it is invalid or unenforceable, shall not be
affected thereby, and each provision of this Lease shall be valid and shall be
enforceable to the extent permitted by law.
26. Binding Effect; Merger, Consolidation and Disposition of Assets:
All provisions contained in this Lease shall (subject to the provisions of
paragraph 18) be binding upon, inure to the benefit of and be enforceable by,
the respective successors and permitted assigns of Lessor and Lessee to the same
extent as if each such successor or assign were named as a party to this Lease.
If Lessee shall merge into another corporation, or consolidate with one or more
corporations in a consolidation in which Lessee shall not be the surviving
entity, or sell or otherwise dispose of all or substantially all its assets, the
surviving entity or transferee of assets, as the case may be, shall deliver to
Lessor an acknowledged instrument in recordable form assuming all obligations,
covenants and responsibilities of Lessee hereunder, and Lessee covenants that it
will not so merge or consolidate or sell or otherwise dispose of all or
substantially all its assets unless such instrument shall have been so
delivered. This Lease embodies the entire agreement between Lessor and Lessee
relating to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter. Neither this Lease nor any
provision hereof may be amended, modified, waived, discharged or terminated
orally, but only as expressly provided herein or by an instrument signed by
Lessor and Lessee.
<PAGE> 32
30
27. Lessee Empowered to Grant or Release Easements:
Lessee may grant easements, licenses and rights-of-way (and other rights
and privileges in the nature thereof, or may release existing easements or
appurtenances for the benefit of the Property, to any person, with or without
consideration. If any consideration in excess of $5,000 is paid for any such
grant, such consideration in excess of $5,000 shall be paid to Lessor. If Lessee
shall have made any such payments, Lessee shall be entitled to recover the
aggregate amount of such payments by deducting such amount from the purchase
price paid by Lessee upon a purchase of the Property (except a purchase price
calculated pursuant to Part IX of Schedule B), provided that no such reduction
of the purchase price shall reduce the purchase price below the amount necessary
to make the payment of the balance of the indebtedness evidenced by the Owner's
Note, including principal, interest and premium, if any, payable thereon on the
day of purchase. Lessee is hereby empowered to take any such action without the
consent or joinder of Lessor or of the mortgagee, trustee or beneficiary under
any mortgage or deed of trust subordinate to this Lease (including, without
limitation, the Mortgage). Lessee hereby agrees that it will not take any such
action without the consent of Lessor and the Trustees under the Indenture which,
viewed either by itself or together with all other action taken by Lessee
pursuant to this paragraph 27, would either materially affect the marketability
of title to the Property or materially impair the fair market value of the
Property or the use thereof for the purposes for which it is held by Lessee.
28. Certain Definitions:
As used in this Lease the following terms have the meanings set forth
below:
Additional Rent: as defined in paragraph 5(b).
Applicable Premium: the applicable premium determined in accordance
with Schedule B hereto.
Basic Rent: as defined in paragraph 5(a).
Basic Term: as defined in paragraph 4(a).
Capitalized Cost: the capitalized cost of the Property set forth in
Schedule B hereto.
certificate: a certificate executed by the President or any Vice
President of Lessee.
<PAGE> 33
31
event of default: as defined in paragraph 20(a).
Excess: as defined in paragraph 12(b).
Extended Term: as defined in paragraph 4(b).
Fair Market Value: the fair market value of the Property
determined in accordance with Schedule B hereto.
Indenture: the Collateral Trust Indenture dated as of February
15, 1972 between Mortgagee and Bankers Trust Company and S. Burg, as
Trustees, securing the Notes, as the same may be amended or
supplemented from time to time as permitted thereby.
Lessee: as defined on page 1.
Lessee's Percentage: the Lessee's percentage determined in
accordance with Schedule B hereto.
Lessor: as defined on page 1.
Lessor's Original Equity: Lessor's original equity in the
Property set forth in Schedule B hereto.
Lessor's Percentage: Lessor's percentage determined in accordance
with Schedule B hereto.
Mortgage: mortgage or deed of trust of the Property dated as of
February 15, 1972, made by Lessor to Mortgagee, as the same may be
amended or supplemented from time to time as permitted thereby.
Mortgagee: BF Properties Corporation, a Delaware corporation, as
beneficiary or mortgagee under the Mortgage, and any assignee of the
rights of BF Properties Corporation as such beneficiary or mortgagee.
Net Award: as defined in paragraph 12(b).
Note Purchase Agreement: the Note Purchase Agreement dated
February 15, 1972, between Lessor and each of the addressees listed in
Annex I thereto.
Notes; outstanding: all 7 1/2 Collateral Trust Notes due February
25, 2002 and all Improvement Notes from time to time issued by
Mortgagee under the Indenture; when used with respect to Notes, the
term "outstanding" shall have the meaning designated in the Indenture.
<PAGE> 34
32
Other Properties: all parcels of land (in each case together with the
buildings and other improvements thereon and the easements, rights and
appurtenances thereto) which are under lease from Lessor, as lessor, to
Lessee, as lessee, and Mortgages of which are pledged by Mortgagee under
the Indenture.
Owner's Note: The note executed by Lessor and secured by the Mortgage.
Payment Dates: as defined in paragraph 5(a).
Permitted Liens: Encumbrances permitted under the Mortgage.
Property: as defined in paragraph 1.
Remaining Excess: as defined in paragraph 12(b).
Trustees: the Trustees under the Indenture.
Unamortized Cost: the unamortized cost of the Property determined in
accordance with Schedule B hereto.
29. Lessee's Remedies:
If (i) Lessee shall pay any moneys by reason of the provisions of
paragraph 6(d) of this Lease and such payment would not have been required but
for the fact that taxes, costs, expenses, indebtedness, obligations or
liabilities of any character were incurred by Lessor, or (ii) if Lessee's use
and quiet enjoyment of the Property shall be interfered with by Lessor or by
parties claiming by, through or under Lessor while Lessee is paying the Basic
Rent and other sums required to be paid by Lessee pursuant to this Lease (other
than sums described in clause (i) above) and is keeping and performing the
covenants and agreements herein required to be kept and performed by Lessee,
then and in such event but subject to the provisions of paragraph 6:
(A) Lessee shall have and may assert a claim against Lessor for the
aggregate of the amounts so paid or incurred by Lessee by reason of the
occurrences described above, provided that in exercising any remedy
available to Lessee, Lessee may exercise such remedy only if, and to the
extent that, and in such manner that, such exercise will not, directly or
indirectly, prevent payment to the holders of the Notes of any amounts due
or to become due on the Notes or payment to the Trustees of any amounts due
to them from
<PAGE> 35
33
time to time for services, expenses and indemnification pursuant to the
Indenture, and Lessee covenants that it will not exercise any remedy so as
to, directly or indirectly, prevent any such payment to the holders of the
Notes or to the Trustee;
(B) If Lessee shall purchase the Property pursuant to the provisions
of this Lease, Lessee shall have the right to apply in payment of the
purchase price, to the extent thereof, the aggregate of the amounts so paid
or incurred by Lessee, together with interest on the amount of each such
payment at the rate of 8 1/2% per annum from the date of such payment to
the date of payment of the purchase price, provided that no such
application of amounts so paid or incurred by Lessee to payment of the
purchase price for the Property may be made unless, prior to such purchase
of the Property (or unless through application of an advance of a portion
of the purchase price payable by Lessee upon such purchase of the
Property), the Notes shall have been fully paid and the Indenture shall
have been satisfied and discharged;
(C) During any Extended Term, provided that the notes have been fully
paid and the Indenture has been satisfied and discharged, Lessee shall have
the right to apply, to the extent thereof, the aggregate of the amounts so
paid or incurred by Lessee, together with interest on the amount of each
such payment, at the rate of 8 1/2% per annum from the date of such payment
to the date of such application, in payment of any rents due during such
Extended Term.
Notwithstanding any other provision of this Lease, Lessee agrees that
Lessor shall incur no personal liability pursuant to this Lease, that Lessee
will look solely to the Property and the proceeds of the sale of the Property in
satisfaction of all obligations of lessor under this Lease, and that no other
property or assets of Lessor or of any partner of Lessor shall be subject to
levy, execution or enforcement procedure for the satisfaction of the claims of
Lessee, and while Lessee may bring or maintain suits, actions or other
proceedings against Lessor, no judgment or decree in the nature of a deficiency
judgment shall be asked for or take against Lessor or any partner of Lessor, and
any judgment or decree shall be satisfied from, and only from, the Property and
the proceeds of sale thereof, subject to the provisions of subparagraphs (A),
(B) and (C) above.
<PAGE> 36
34
30. Miscellaneous:
The table of contents preceding this Lease and the headings to the various
paragraphs of this Lease have been inserted for convenient reference only and
shall not modify, define, limit or expand the express provisions of this Lease.
IN WITNESS WHEREOF, Lessor and Lessee hereto have each caused this Lease
to be duly executed and delivered in their respective names and behalf, as of
the day and year first above written.
BF Properties Company
By KIDDER PEABODY REALTY
CORPORATION
General Partner
By [ILLEGIBLE]
-------------------------------
President
Witnesses:
[ILLEGIBLE]
-------------------------------
[ILLEGIBLE]
-------------------------------
BEATRICE FOODS CO.
By [ILLEGIBLE]
-------------------------------
Vice President
[CORPORATE SEAL]
Attest:
[ILLEGIBLE]
-------------------------------
Secretary
Witnesses:
[ILLEGIBLE]
-------------------------------
-------------------------------
This instrument was prepared by D. Barry O'Connor, attorney-at-law, whose
address is 140 Broadway, New York, N.Y. 10005.
----------------------
<PAGE> 37
35
SCHEDULE A
DESCRIPTION OF THE PROPERTY
(SEE FOLLOWING PAGES)
<PAGE> 38
SCHEDULE A
Property Number 1 - Lincoln, Nebraska
Parcel 1:
Lots 1, 2, 3, 4, 5, 6 and 7, Lincoln Land Company's Subdivision of Lot 7,
Block 71, Lincoln; and all of Lot 8, Block 71, Lincoln.
Parcel 2:
Lots 1, 2, 3, 4, 7, 8, 9 and 10, Block 84, Lincoln; Lots 1, 2, 3, 4, 5, 6
and 7, Lincoln Land Company's Subdivision of Lots 5 and 6, Block 84, Lincoln;
The South 9 feet 3 inches of M Street lying North and adjacent to Lot 1,
Lincoln Land Company's Subdivision of Lots 5 and 6, Block 84, Lincoln; Lots
1, 2, and 3, Lincoln Land Company's Subdivision of Lots 11 and 12, Block 84,
Lincoln; The West 55 feet of Lots 4, 5 and 6, Lincoln Land Company's
subdivision of Lots 11 and 12, Block 84, Lincoln; and all that part of the West
55 feet of Lot 7, Lincoln Land Company's Subdivision of Lots 11 and 12, Block
84, Lincoln, lying Westerly of a line drawn 12 feet radically distant westerly
of the center line of the most westerly tracts of the Chicago Burlington &
Quincy Railroad Company (now Burlington Northern) crossing said Lot 7; and the
vacated North-South alley bounded on the West by Lots 1 through 7 Lincoln Land
Company's Subdivision of Lots 5 and 6, Block 84, and bounded on the East by Lot
4, Block 84, Lincoln, vacated by Ordinance No. 8252; and the vacated East-West
alley in Block 84, Lincoln vacated by Ordinance No. 4434;
Parcel 3:
Lots 1, 2, 3, 4, 5, 6 and 7, Lincoln Land Company's Subdivision of Lots 1
and 2, Block 103, Lincoln; and that part of Lot 3, Block 103 Lincoln, described
as beginning at the Southwest corner of said Lot 3, thence East along the South
line thereof 50 feet, thence North along the East line thereof 142 feet, thence
West along the North line thereof 15.5 feet, thence Southwesterly in a straight
line to a point on the West line of said Lot 3, 116 feet North of the point of
beginning, thence South along the West line thereof 116 feet to the point of
beginning, and the vacated alley lying between the West line of Lots
1, 2, 3, 4, 5, 6 and 7, Lincoln Land Company's Subdivision of Lots 1 and 2,
Block 103, Lincoln, and the East line of Lot 3, Block 103, Lincoln, all of the
above described property being located in Lancaster County, Nebraska.
<PAGE> 39
SCHEDULE B
BUSINESS TERMS
PART I: PAYMENT DATES
The Payment Dates for purposes of this Lease shall be May 25, 1972 and each
August 25, November 25, February 25 and May 25 thereafter during the term of
this Lease.
PART II: CAPITALIZED COST; ACQUISITION COST
(a) The Capitalized Cost of the Property is $1,518,100.00.
(b) The Acquisition Cost of the Property is $1,583,120.00
PART III: UNAMORTIZED COST
The Unamortized Cost of the Property as of a particular Payment Date shall
be determined by the applicable percentage set forth below.
<TABLE>
<CAPTION>
QUARTERS ELAPSED QUARTERS ELAPSED
SINCE BEGINNING OF SINCE BEGINNING OF
BASIC TERM PERCENTAGE BASIC TERM PERCENTAGE
- ------------------ ---------- ------------------ ----------
<S> <C> <C> <C>
1................................. 95.6761 17................................ 91.5985
2................................. 95.4552 18................................ 91.3011
3................................. 95.2302 19................................ 90.9982
4................................. 95.0009 20................................ 90.6896
5................................. 94.7674 21................................ 90.3752
6................................. 94.5294 22................................ 90.0549
7................................. 94.2870 23................................ 89.7286
8................................. 94.0401 24................................ 89.3962
9................................. 93.7885 25................................ 89.0576
10................................ 93.5322 26................................ 88.7126
11................................ 93.2711 27................................ 88.3611
12................................ 93.0051 28................................ 88.0030
13................................ 92.7342 29................................ 87.6383
14................................ 92.4581 30................................ 87.2667
15................................ 92.1769 31................................ 86.8881
16................................ 91.8904 32................................ 86.5024
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
QUARTERS ELAPSED QUARTERS ELAPSED
SINCE BEGINNING OF SINCE BEGINNING OF
BASIC TERM PERCENTAGE BASIC TERM PERCENTAGE
- ------------------ ---------- ------------------ ----------
<S> <C> <C> <C>
33................................ 86.1095 67................................ 67.3104
34................................ 85.7092 68................................ 66.5576
35................................ 85.3015 69................................ 65.7908
36................................ 84.8860 70................................ 65.0095
37................................ 84.4628 71................................ 64.2136
38................................ 84.0317 72................................ 63.4028
39................................ 83.5925 73................................ 62.5768
40................................ 83.1450 74................................ 61.7353
41................................ 82.6891 75................................ 60.8780
42................................ 82.2247 76................................ 60.0046
43................................ 81.7516 77................................ 59.1149
44................................ 81.2696 78................................ 58.2085
45................................ 80.7786 79................................ 57.2850
46................................ 80.2784 80................................ 56.3443
47................................ 79.7688 81................................ 55.3859
48................................ 79.2496 82................................ 54.4096
49................................ 78.7207 83................................ 53.4150
50................................ 78.1819 84................................ 52.4017
51................................ 77.6330 85................................ 51.3694
52................................ 77.0738 86................................ 50.3177
53................................ 76.5041 87................................ 49.2464
54................................ 75.9237 88................................ 48.1549
55................................ 75.3325 89................................ 47.0430
56................................ 74.7301 90................................ 45.9102
57................................ 74.1165 91................................ 44.7562
58................................ 73.4914 92................................ 43.5806
59................................ 72.8545 93................................ 42.3829
60................................ 72.2057 94................................ 41.1627
61................................ 71.5447 95................................ 39.9197
62................................ 70.8714 96................................ 38.6534
63................................ 70.1854 97................................ 37.3633
64................................ 69.4865 98................................ 36.0490
65................................ 68.7746 99................................ 34.7101
66................................ 68.0493 100............................... 33.3461
</TABLE>
<PAGE> 41
38
<TABLE>
<CAPTION>
Quarters Elapsed
Since Beginning of
Basic Term Percentage
- ------------------ ----------
<S> <C>
101................ 31.9565
102................ 60.5409
103................ 29.0987
104................ 27.6295
105................ 26.1327
106................ 24.6079
107................ 23.0545
108................ 21.4719
109................ 19.8597
110................ 18.2172
</TABLE>
<TABLE>
<CAPTION>
Quarters Elapsed
Since Beginning of
Basic Term Percentage
------------------ ----------
<S> <C>
111.................16.5440
112.................14.8393
113.................13.1028
114.................11.3336
115................. 9.5313
116................. 7.6952
117................. 5.8246
118................. 3.9190
119................. 1.9777
120................. 0.0000
</TABLE>
PART IV: PURCHASE PURSUANT TO PARAGRAPH 11(C)
The purchase price payable pursuant to paragraph 11(c) shall be determined
by multiplying the Acquisition Cost of the Property by the applicable
percentage set forth below.
<TABLE>
<CAPTION>
Quarters Elapsed
Since Beginning of
Basic Term Percentage
------------------ ----------
<S> <C>
61..................73.5569
62..................72.8646
63..................72.1594
64..................71.4409
65..................70.4940
66..................69.7505
67..................68.9932
68..................68.2216
69..................67.2299
70..................66.4316
71..................65.6183
72..................64.7897
73..................63.7501
74..................62.8928
75..................62.0194
76..................61.1297
</TABLE>
<TABLE>
<CAPTION>
Quarters Elapsed
Since Beginning of
Basic Term Percentage
------------------ ----------
<S> <C>
77..................60.0386
78..................59.1180
79..................58.1801
80..................57.2247
81..................56.0783
82..................55.0897
83..................54.0827
84..................53.0567
85..................51.8510
86..................50.7895
87..................49.7080
88..................48.6064
89..................47.3370
90..................46.1972
91..................45.0359
92..................43.8529
</TABLE>
<PAGE> 42
39
<TABLE>
<CAPTION>
Quarters Elapsed
Since Beginning of
Basic Term Percentage
------------------ ----------
<S> <C>
93..................42.5153
94..................41.2914
95..................40.0445
96..................38.7742
97..................37.3633
98..................36.0490
99..................34.7101
100..................33.3461
101..................31.9565
102..................30.5409
103..................29.0987
104..................27.6295
105..................26.1327
106..................24.6079
</TABLE>
<TABLE>
<CAPTION>
Quarters Elapsed
Since Beginning of
Basic Term Percentage
------------------ ----------
<S> <C>
107.................23.0545
108.................21.4719
109.................19.8597
110.................18.2172
111.................16.5440
112.................14.8393
113.................13.1028
114.................11.3336
115..................9.5313
116..................7.6952
117..................5.8246
118..................3.9190
119..................1.9777
120..................0.0000
</TABLE>
PART V: PURCHASE PURSUANT TO PARAGRAPH 14
The purchase price payable pursuant to paragraph 14 shall be determined by
multiplying the Acquisition Cost of the Property by the applicable percentage
set forth below.
<TABLE>
<CAPTION>
Quarters Elapsed
Since Beginning of
Basic Term Percentage
------------------ ----------
<S> <C>
41..................90.4139
42..................89.9292
43..................89.4353
44..................88.9323
45..................88.1673
46..................87.6468
47..................87.1165
48..................86.5762
49..................85.7799
50..................85.2208
51..................84.6513
52..................84.0712
</TABLE>
<TABLE>
<CAPTION>
Quarters Elapsed
Since Beginning of
Basic Term Percentage
------------------ ----------
<S> <C>
53..................83.2410
54..................82.6407
55..................82.0291
56..................81.4061
57..................80.5397
58..................79.8951
59..................79.2383
60..................78.5692
61..................77.6640
62..................76.9717
63..................76.2664
64..................75.5479
</TABLE>
<PAGE> 43
40
<TABLE>
<CAPTION>
Quarters Elapsed Quarters Elapsed
Since Beginning of Since Beginning of
Basic Term Percentage Basic Term Percentage
- ------------------ ---------- ------------------ ----------
<S> <C> <C> <C>
65 ----------------- 74.6010 93 ----------------- 46.6224
66 ----------------- 73.8576 94 ----------------- 45.3985
67 ----------------- 73.1002 95 ----------------- 44.1515
68 ----------------- 72.3287 96 ----------------- 42.8813
69 ----------------- 71.3370 97 ----------------- 41.4704
70 ----------------- 70.5387 98 ----------------- 40.1561
71 ----------------- 69.7254 99 ----------------- 38.8172
72 ----------------- 68.8968 100 ----------------- 37.4532
73 ----------------- 67.8572 101 ----------------- 36.0636
74 ----------------- 66.9999 102 ----------------- 34.6480
75 ----------------- 66.1265 103 ----------------- 33.2058
76 ----------------- 65.2368 104 ----------------- 31.7366
77 ----------------- 64.1456 105 ----------------- 30.2398
78 ----------------- 63.2251 106 ----------------- 28.7150
79 ----------------- 62.2872 107 ----------------- 27.1616
80 ----------------- 61.3318 108 ----------------- 25.5790
81 ----------------- 60.1854 109 ----------------- 23.9668
82 ----------------- 59.1968 110 ----------------- 22.3243
83 ----------------- 58.1897 111 ----------------- 20.6511
84 ----------------- 57.1638 112 ----------------- 18.9464
85 ----------------- 55.9581 113 ----------------- 17.2099
86 ----------------- 54.8966 114 ----------------- 15.4407
87 ----------------- 53.8151 115 ----------------- 13.6384
88 ----------------- 52.7135 116 ----------------- 11.8023
89 ----------------- 51.4441 117 ----------------- 9.9371
90 ----------------- 50.3042 118 ----------------- 8.0261
91 ----------------- 49.1430 119 ----------------- 6.0848
92 ----------------- 47.9600 120 ----------------- 4.1071
</TABLE>
Part VI: Lessor's Original Equity
The Lessor's Original Equity in the Property is $65,0200.00.
<PAGE> 44
41
PART VII: Lessor's Percentage; Lessee's Percentage
The Lessor's Percentage and the Lessee's Percentage during the respective
periods indicated shall be as set forth below:
Lessor's Lessee's
Period Percentage Percentage
------ ---------- ----------
February 25, 1972 to
February 25, 1977 -------------------- 20% 80%
February 25, 1977 to
February 25, 1982 -------------------- 25% 75%
February 25, 1982 to
February 25, 1987 -------------------- 30% 70%
February 25, 1987 to
February 25, 1992 -------------------- 35% 65%
February 25, 1992 to
February 25, 1997 -------------------- 40% 60%
February 25, 1997 to
February 25, 2002 -------------------- 45% 55%
February 25, 2002 to
February 25, 2007 -------------------- 50% 50%
February 25, 2007 to
February 25, 2012 -------------------- 60% 40%
February 25, 2012 to
February 25, 2017 -------------------- 70% 30%
February 25, 2017 to
February 25, 2022 -------------------- 80% 20%
February 25, 2022 to
February 25, 2027 -------------------- 90% 10%
February 25, 2027 to
February 25, 2032 -------------------- 100% 0%
<PAGE> 45
42
PART VIII: BASIC RENT
Basic Rent under this Lease shall be payable by Lessee during the term of
this Lease in installments in the dollar amounts, and shall be due and payable
on the Payment Dates, as specified below:
(i) the dollar amount of each of the installments of Basic Rent
payable on each Payment Date during the Basic Term, commencing on May 25,
1972 and continuing to and including February 25, 2002 shall be equal to
$32,709.74;
(ii) the dollar amount of each of the installments of Basic Rent
payable on each Payment Date during the first and second Extended Terms
shall be equal to $11,873.40;
(iii) the dollar amount of each of the installments of Basic Rent
payable on each Payment Date during the third and fourth Extended Terms
shall be equal to $9,894.50 and
(iv) the dollar amount of each of the installments of Basic Rent
payable on each Payment Date during the fifth and sixth Extended Terms
shall be equal to $7,915.60.
PART IX: FAIR MARKET VALUE
Unless Lessor and Lessee each shall otherwise agree in writing, the Fair
Market Value of the Property shall be determined by appraisal as follows:
Lessor and Lessee shall each appoint an appraiser, and if the
appraisers so appointed are unable to agree upon such value, then such
value shall be determined by a third appraiser to be selected by such
appraisers. In the event that such appraisers are unable to agree upon a
third appraiser, such third appraiser shall be appointed by the senior
Federal District Court judge, or such other Federal District Court judge
for the District in which the property is located as may be designated by
such senior Federal District Court judge, acting in his non-judicial
capacity.
<PAGE> 46
43
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
BE IT REMEMBERED that I, the undersigned, a Notary Public duly qualified,
commissioned, sworn and acting in and for the County and State aforesaid, hereby
certify that on the 1st day of February, 1972, there appeared before me
_____________, known to me to be the President of Kidder Peabody Realty
Corporation, the general partner of BF Properties Company, an Ohio limited
partnership, and being a party to the foregoing instrument:
(Pennsylvania, Nebraska, Wisconsin, and Kentucky)
Before me appeared the above-named person, known to me to be the President
of Kidder Peabody Realty Corporation, the general partner of the above-named
partnership and acknowledged before me the foregoing instrument, on the date set
forth above, on behalf of said partnership.
Witness my hand and notarial seal the day and year last above written.
(Ohio)
Before me personally appeared the above-named person, known to me to be the
President of Kidder Peabody Realty Corporation who, as such officer of the
general partner of the above-named limited partnership which executed the
foregoing instrument, signed the same and acknowledged to me that he did so sign
said instrument in the name of and on behalf of said limited partnership as such
officer of its general partner, that the same is his free act and deed as such
officer of its general partner and the free act and deed of said partnership.
In testimony whereof, I have hereunto subscribed my name and affixed my
official seal, on the date set forth above.
(Florida)
Before me personally appeared the above-named person, to me known and known
to be the person described in and who executed the foregoing instrument as such
officer of the general partner of the
<PAGE> 47
44
limited partnership named above, and acknowledged before me that he executed the
same as such officer of such general partner in the name and on behalf of said
general partnership.
Witness my hand and official seal in the County and State aforesaid, on the
date set forth above.
(California)
Before me personally appeared the above-named person, known to me to be
such officer of the general partner of the limited partnership that executed the
within instrument, and acknowledged to me that such partnership executed the
same.
In Wintess Whereof, I have hereunto set my hand and affixed my official
seal in this certificate, on the date set forth above.
/s/ DANIEL S. O'CONNOR
--------------------------------------
NOTARY PUBLIC
[NOTARIAL SEAL] DANIEL S. O'CONNOR
NOTARY PUBLIC, STATE OF NEW YORK
NO. 31-812_____
MY COMMISSION EXPIRES QUALIFIED IN NEW YORK COUNTY
------------------ COMMISSION EXPIRES MARCH 30, 1972
<PAGE> 48
45
STATE OF ILLINOIS )
) ss.:
COUNTY OF COOK )
BE IT REMEMBERED that I, the undersigned, a Notary Public duly qualified,
commissioned, sworn and acting in and for the County and State aforesaid, hereby
certify that on the 23rd day of February, 1972, there appeared before me the
following persons, the designated officers of the corporation set opposite their
names, such corporation being a corporation of the State of Delaware and being a
party to the foregoing instrument:
/s/ PAUL T. KESSLER JR., Vice President
/s/ WILLIAM G. MITCHELL, Secretary
BEATRICE FOODS CO.
(Ohio)
Before me personally appeared the above-named persons, known to me to be
the persons who, as the respective officers of the corporation set forth above,
the corporation which executed the foregoing instrument, signed the same, and
acknowledged to me that they did so sign said instrument in the name and upon
behalf of said corporation as such officers, respectively, that the same is
their free act and deed as such officers, respectively, and the free and
corporate act and deed of said corporation, that they were duly authorized
thereunto by its board of directors, and that the seal affixed to said
instrument is the corporate seal of said corporation.
(Nebraska and Kentucky)
The foregoing instrument was acknowledged before me by the above-named
persons of the corporation set forth above, on behalf of said corporation.
(Wisconsin and Pennsylvania)
Before me personally appeared the above-named persons, who acknowledged
themselves to be the designated officers of the corporation set out above
opposite their names, and that they, as such officers,
<PAGE> 49
46
being authorized so to do, executed the foregoing instrument for the purposes
therein contained, by signing the name of the corporation by themselves as such
officers.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal, in the
County and State aforesaid, on the date set forth above.
(Florida)
Before me personally appeared the above-named persons to me well known and
known to be the persons described in and who executed the foregoing instrument,
as such officers of the corporation set forth above, and severally acknowledged
before me, that they executed the same as such officers in the name and on
behalf of said corporation.
Witness my hand and official seal in the County and State aforesaid, on
the date set forth above.
(California)
Before me personally appeared the above-named persons, known to me to be
the persons who, as the respective officers of the corporation set forth above
executed the within instrument, known to me to be the persons who executed the
within instrument on behalf of said corporation, and acknowledged to me that
said corporation executed the same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, on the date set forth above.
/s/ LOLOTTE M. OLKOWSKI
--------------------------------
Notary Public
[NOTARIAL SEAL]
My commission expires March 16, 1975
--------------
<PAGE> 1
EXHIBIT 10.37
================================================================================
LEASE AGREEMENT
between
LPD SALT LAKE ASSOCIATES,
as Lessor
and
SAFEWAY STORES, INCORPORATED
as Lessee
Dated as of March 15, 1978
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE FIRST (Property Description) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE SECOND (Rent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE THIRD (Taxes, Utility Charges, Etc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE FOURTH (Installation and Signs, Etc.; Removal or Fixtures; Painting). . . . . . . . . . . . . . . . . . . . 2
ARTICLE FIFTH (Lessee's Assumption of Liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE SIXTH (Repairs, Alterations and Improvements; State of Repair on Termination; Future Development and
Lessee's Options with Respect Thereto) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE SEVENTH (Assigning and Subletting) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE EIGHTH (Holding Over) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE NINTH (Quiet Possession) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE TENTH (Lessee's Default) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE ELEVENTH (Damage by Fire, Etc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE TWELFTH (Condemnation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE THIRTEENTH (Notices) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE FOURTEENTH (Lessee's Right of Termination) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE FIFTEENTH (Bankruptcy) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE SIXTEENTH (Lessee's Option Privileges) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE SEVENTEENTH (Compliance with Laws) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE EIGHTEENTH (Remedies Cumulative) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE NINETEENTH (Additional Rent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE TWENTIETH (No Waiver) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE TWENTY-FIRST (Definitions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE TWENTY-SECOND (Article Headings) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE TWENTY-THIRD (Separability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE TWENTY-FOURTH (Successors and Assigns) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE TWENTY-FIFTH (Lessor's Inspections) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE TWENTY-SIXTH (Release of Lessor) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE TWENTY-SEVENTH (Use of Leased Premises) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SCHEDULE A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SCHEDULE B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
i
<PAGE> 3
THIS LEASE, dated as of March 15, 1978, between LPD SALT LAKE ASSOCIATES,
a Maryland limited partnership (hereinafter referred to as Lessor), having an
address c/o Lee P. Der, Inc., Suite 201, 1517 Reisterstown Road, Baltimore,
Maryland 21208, and SAFEWAY STORES, INCORPORATED, a Maryland corporation
(hereinafter referred to as Lessee), having its principal place of business at
Fourth and Jackson Streets, Oakland, California 94660:
WITNESSETH: That in consideration of the mutual agreements herein
contained, the parties hereto do hereby covenant to and with each other as
follows:
ARTICLE FIRST
PROPERTY DESCRIPTION
Lessor does hereby lease to Lessee the real property described in Schedule
A hereto and the buildings, structures and other improvements thereon (including
all building equipment and building fixtures owned by Lessor, if any, but
excluding Lessee's trade equipment and trade fixtures).
Said premises are hereinafter referred to as the "leased premises" and are
leased subject to such defects in Lessor's title, encumbrances, covenants,
conditions, restrictions, easements, reservations and rights of way, if any, as
are now existing with respect to said premises, any state of facts an accurate
survey might show, zoning rules, restrictions, regulations, resolutions and
ordinances, and building restrictions and governmental regulations now in
effect or hereafter adopted by any governmental authorities having jurisdiction.
TO HAVE AND TO HOLD the above described premises, together with the
tenements, hereditaments, appurtenances and easements thereunto beholding, at
the rental and upon the terms and conditions herein stated, for a preliminary
term commencing with the 5th day of May 1978, and extending to and including
the thirty-first day of May, 1978, and for an original term of twenty-five (25)
years, commencing with the first day of June, 1978, and extending to and
including the thirty-first day of May, 2003. The purpose of this Lease is for
business or commercial use.
ARTICLE SECOND
RENT
Lessee does hereby agree to pay without offset to Lessor, as the rent of
the leased premises:
(a) For the period from May 5, 1978 through May 31, 1978, the amount of
$16,715.25 payable on June 1, 1978;
(b) For the period from June 1, 1978 through May 31, 1979, the amount of
$51,147.72 payable in equal monthly installments of $4,262.31 each of July 1,
1978, and on the first day of each month thereafter to and including June 1,
1979;
(c) For the period from June 1, 1979, through May 31, 2003, the amount of
$360,033.12 per annum payable in equal monthly installments of $30,002.76 each
on July 1, 1979, and on the first day of each month thereafter to and including
June 1, 2003.
Said payments shall be made to The Western Saving Fund Society of Philadelphia,
as beneficiary (the Beneficiary) under the Deed of Trust, dated as of March 15,
1978 (the Indenture), from Lessor to Western States Title Company, as Trustee
(the Trustee) and mailed to Beneficiary at Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107, Attention: Mortgage Department, in such
manner that the Beneficiary shall have "collected funds" on the date on which
such sums are due and payable, or by checks or drafts made payable to any other
payee or mailed to any other address which Lessor, or any successor in interest
of Lessor, may in writing designate.
<PAGE> 4
ARTICLE THIRD
Taxes, Utility Charges, Etc.
Lessee agrees that it will pay all charges for electricity, water, gas,
telephone and other utility services used on the leased premises. Lessee
further agrees to pay all taxes, assessments, personal property taxes, water
rents, rates and charges, sewer rents, and other governmental impositions and
charges of every kind and nature whatsoever, extraordinary as well as ordinary,
and each and every instalment thereof, which shall or may during the term
hereof be charged, levied, assessed, imposed, become due and payable, or liens
upon, or arise in connection with the use, occupancy or possession of or grow
due or payable out of, or for the leased premises during the lease term or any
renewal thereof. Lessee further agrees to pay all taxes which may be levied,
assessed or imposed by the state in which the leased premises are located or by
any political or taxing subdivision thereof, upon or measured by the rents
hereunder or the income arising therefrom, to the extent and only to the extent
that such taxes are in lieu of or a substitute for any tax upon the leased
premises which, if such taxes were in effect, would be payable by Lessee under
the provisions hereof, but it is not intended that Lessee shall be required to
pay any taxes of Lessor which are presently denominated as income or franchise
taxes or excise taxes imposed on Lessor's privilege to do business, provided
that Lessee shall pay all general excise or other taxes (save and except net
income taxes) measured by and payable with respect to this Lease, including
Lessor's receipt of revenues paid to reimburse such general excise or other
taxes. Taxes, water rents, rates and charges, sewer rents and other
governmental impositions and charges assessed during the term, but payable in
whole or in instalments after the termination of this Lease and assessments
which are covered by bond, shall be adjusted and prorated and Lessor shall pay
the prorated share thereof for the period subsequent to the term, and Lessee
shall pay the prorated share thereof for the term of this Lease. Lessee shall
have the right to apply for the conversion of any special assessment for local
improvements in order to cause the same to be payable in instalments, and upon
such conversion Lessee shall be obligated to pay and discharge punctually only
such of said instalments as shall become due and payable during the term.
At the written request of Lessor, Lessee shall within sixty (60) days
after such request produce and exhibit to Lessor satisfactory evidence of the
payment of any tax, assessment, or other charge constituting a lien on the
leased premises which has become due and payable.
ARTICLE FOURTH
Installation and Signs, Etc.;
Removal of Fixtures; Painting
Lessee may place or install on and/or in the leased premises such fixtures
and equipment as it shall deem desirable for the conduct of business therein,
and may paint the building improvements such colors as it elects. Lessee shall
have the exclusive right, provided that it shall first obtain any permits
required by any governmental authorities having jurisdiction of the leased
premises, to paint and erect or authorize signs in and over the leased premises
and on the outside of the building improvements thereon, and upon the written
request of Lessor will remove any such signs upon the expiration or the sooner
termination of this Lease. Personal property, fixtures and equipment used in
the conduct of Lessee's business (as distinguished from fixtures and equipment
used in connection with the operation and maintenance of the building
improvements) placed by Lessee or any subtenant or any predecessor in interest
on or in said premises (even though placed prior to the commencement of said
term), shall not become a part of the realty, even if nailed or screwed or
otherwise fastened to the premises, but shall retain their status as personalty
and may be removed by Lessee at any time. Lessee may obliterate any signs or
color effects installed by it. Any damage caused the leased premises by the
removal of such property or the obliteration of any signs or color effects
shall be repaired by Lessee at its expense. Any trade fixtures or personal
property not used in connection with the operation of the leased premises and
belonging to Lessee or to any subtenant, if not removed within twenty (20) days
after expiration or the sooner termination of this Lease, shall be deemed
abandoned and shall become the property of Lessor without any payment or offset
therefor, or Lessor at its
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option may elect to remove the same and Lessee shall reimburse Lessor for the
cost of such removal and the repair of any damage occasioned thereby.
ARTICLE FIFTH
LESSEE'S ASSUMPTION OF LIABILITY
Lessee agrees that it will indemnify and save Lessor harmless from any and
all liability, damage, expense, cause of action, suits, claims, or judgments
arising from injury to person or property on the leased premise, or upon the
adjoining streets and sidewalks. Lessee further agrees to indemnify and save
Lessor harmless from any and all liability arising from any failure by Lessee to
perform any of the agreements, terms, covenants or conditions of this Lease on
Lessee's part to be performed. In addition, Lessee agrees to maintain with
respect to the leased premises (whether by specific insurance policies or as
part of blanket coverage of its operations) public liability insurance with
limits of not less than $5,000,000 for injury or death per person and $5,000,000
for injury or death per occurrence and with limits of not less than $1,000,000
for property damage per occurrence. Lessee shall procure policies for such
insurance which shall be for periods of not less than one year and shall provide
that the same may not be cancelled or adversely modified except on not less than
10 days' prior written notice to Lessor and Lessor's mortgagee; and Lessee
shall furnish Lessor and Lessor's mortgagee with duplicate policies or
certificates or such insurance extending to Lessor the coverages thereof as
aforesaid.
ARTICLE SIXTH
REPAIRS, ALTERATIONS, AND IMPROVEMENTS; STATE OF REPAIR
ON TERMINATION; FUTURE DEVELOPMENT AND LESSEE'S
OPTIONS WITH RESPECT THERETO
Lessee agrees that Lessor shall be under no obligation to rebuild, replace,
maintain or make any repairs to the leased premises, or to the improvements
thereon, during the lease term or any renewal thereof. Lessee shall, at all
times during the lease term or any renewal thereof, and at its own cost and
expense, put, keep, replace and maintain in thorough repair and good, safe and
substantial order and condition, except for ordinary wear and tear, all
buildings and improvements erected on the leased premises, or forming a part
thereof (including all building equipment which is an integral part of the
building structures), both inside and outside, structural and non-structural,
extraordinary and ordinary. Lessor agrees that Lessee may make or permit to be
made such alterations and improvements to the leased premises as Lessee may deem
desirable for the use thereof and may, at Lessee's option and without cost to
Lessor, at any time and from time to time during the original lease term, or
during any option period hereinafter provided for, do any one or more of the
following, to wit:
I. Alter or remodel any building or improvements on the leased premises,
provided the market value of any building or improvements so altered or
remodeled is not adversely affected thereby; and/or
II. Construct an addition, or additions thereto; and/or
III. Raze any building or improvement situated on the leased premises and
erect on the leased premises a new building or improvement which shall be of a
value not less than the market value of the building or improvement so razed at
the time of its demolition; and/or
IV. Construct an additional new building or buildings on the leased
premises;
provided that Lessee shall first obtain any building and alteration permits that
may be required by any governmental authorities having jurisdiction and provided
further that Lessee shall complete construction of the new building or
improvement required by clause III above within
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one year (which period shall be extended for delays, other than financial
delays, beyond the reasonable control of Lessee) after any building or
improvement shall have been razed pursuant to said clause III. At the
expiration or termination of this Lease, or any extension or renewal thereof,
Lessee shall leave the leased premises in good condition, allowance being made
for ordinary wear and tear and damage by fire or by other casualty, if Lessee
is not required by the by the terms of this Lease to repair the same, excepted,
and, except as herein provided, Lessee shall not be required to restore the
leased premises to the condition in which the leased premises are in as of the
commencement of the term hereof, it being agreed that Lessor shall accept the
leased premises with such alterations, remodeling, additions, or new
construction as may have been made pursuant to the authorization contained in
this paragraph. Lessee agrees that it will not permit any mechanics',
materialmen's or other liens to stand against the leased premises for work or
materials furnished Lessee in connection with any such alterations, remodeling,
additions or new construction, it being provided, however, that Lessee shall
have the right to contest the validity of any such lien or claim, but upon a
final determination of the validity thereof, Lessee shall immediately pay any
judgment or decree rendered against Lessee, with all proper costs and charges,
and shall cause any such lien to be released of record without cost to Lessor.
In the event the estimated cost of any item of work pursuant to
subparagraphs I or II hereof should exceed $100,000, Lessee shall, prior to
commencement of the work, notify Lessor of the contemplated work and either
certify that the work shall not cause the value of the Leased Premises to be
decreased or obtain the written consent of Lessor thereto, which consent Lessor
shall not unreasonably withhold. Lessee shall, before commencing any razing or
construction of any new building or improvements contemplated by subparagraphs
III or IV hereof, obtain Lessor's consent therefor, which consent Lessor shall
not unreasonably withhold, and otherwise comply with the provisions of this
ARTICLE SIXTH. If required by Beneficiary, before the commencement of the razing
of any building or improvement pursuant to subparagraph III hereof, Lessee
shall furnish to Lessor and Beneficiary a surety company completion bond, or
such comparable security acceptable to Lessor and Beneficiary, guaranteeing the
full completion of the new building or improvement, and payment therefor, free
and clear of all liens, encumbrances, chattel mortgages, conditional bills of
sale or other charges. Lessee shall, in the course of any of the work
contemplated by this Article, diligently proceed with and complete the same as
soon as possible and according to good workmanlike standards, with the
completed work being of a quality and value at least equal to that of the
present improvements on the Leased Premises.
Should Lessee, during the original term hereof, alter, remodel or add to
the improvements or construct new improvements either on the leased premises
pursuant to the provisions of subparagraphs I, II, III and/or IV hereof (such
alteration, remodeling, addition and construction being herein called the
Additions), Lessee may, on completion of said Additions, give written notice
thereof to Lessor and require that Lessor and Lessee enter into negotiations
with respect to the financing of the cost of such Additions provided that the
cost of such Additions is TWO HUNDRED FIFTY THOUSAND AND 00/100 ($250,000), or
more, and further provided, in each case, that such cost has been incurred
during a period which shall be not longer than twenty-four (24) consecutive
months and which shall not have ended earlier than six (6) months prior to the
date of such notice. Within sixty (60) days of the date of such notice, Lessor
and Lessee shall enter into good faith negotiations looking toward the
execution and delivery of a written agreement of modification of this Lease,
which agreement shall provide for (1) a payment by Lessor to Lessee of such
cost, (2) an increase of the annual extended term rentals provided for in
Article Sixteenth hereof by an amount equal to such cost, multiplied by the
rental rate as provided for in said Article Sixteenth, (3) an increase in the
monthly original term rental sufficient to reimburse Lessor for such cost,
together with interest at a rate sufficient to finance said additional
payments, over a term of not less than fifteen nor more than twenty years, (4)
increases in the purchase prices set forth in Schedule B attached hereto and
hereby made a part hereof which shall be sufficient, at any given time, to
allow Lessor to recover the unamortized amount of such cost, together with
accrued interest thereon at a reasonable rate, and (5) such other changes and
amendments to this Lease as may be necessary and appropriate in view of such
payment by Lessor to Lessee. Since Lessor's most likely source of funds to make
payment for such cost will be the issuance and sale of non-recourse notes
(herein called Improvement Notes).
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the parties agree that the obligation of Lessor to make such payment shall be
conditioned upon the sale of Improvement Notes and that the changes and
amendments to this Lease will be of such nature as will (a) permit Lessor to
sell Improvement Notes, and (b) provide increases in the original term rents
and the purchase prices set forth in Schedule B, so as to assure the purchasers
of Improvement Notes the payment of interest and principal due thereon during
the original term. If (i) Lessor and Lessee are unable to agree upon the terms
of modification of this Lease, (ii) Lessee shall have delivered to Lessor an
executed copy of a bona fide offer (the Other Offer) from an Investor or
investors to make (pursuant to the purchase of notes in a lease financing
arrangement based upon Lessee's lease credit and the sale of Lessor's notes in
the same manner as in the Basic Financing, as hereinafter defined) such payment
for such Additions (the Additional Payment) upon terms and conditions more
advantageous to Lessee than those which Lessor offered to Lessee and (iii)
Lessor does not, within 30 days after receipt of the Other Offer, make an offer
upon substantially the same terms and conditions contained in the Other Offer
with respect to the Additional Payment, then Lessor and Lessee shall use their
best efforts to cause the Additions to be financed pursuant to the Other Offer
and, in such connection, enter into a written agreement of the nature described
in the second sentence of this paragraph. It is understood and agreed by
Lessor and Lessee, in connection with all of the foregoing, that (a) the manner
in which Lessor shall finance the cost of acquiring the leased premises will be
to issue its non-recourse Note (as defined in the Indenture), mortgage its
interest in the leased premises and assign its rights under this lease to an
institutional lender (the Basic Financing), (b) the consummation of the
financing of any of the Additions is contingent upon the satisfaction of
certain terms and provisions of the Basic Financing related thereto whether or
not the financing of any such new improvements shall occur which, inter alia,
contemplate the continuation of the Basic Financing, (c) that Lessor and Lessee
are familiar with such terms and provisions of the Basic Financing, which are
not in conflict with the terms and provisions hereof and (d) Lessee will pay
all costs and expenses, including reasonable attorneys' fees and premiums for
mortgagee's title insurance, incurred by Beneficiary or any purchaser of the
Improvement Notes issued by Lessor in connection with any such financing, but
Lessee will not be obligated for Lessor's attorney's fees or any premium for
owner's title insurance. Notwithstanding any of the provisions of this
Article, if Lessor does not make a payment to Lessee pursuant to this Article
Sixth, this Lease shall continue in effect without any modification or change
whatsoever.
Any financing of Additions pursuant to and as provided in this Article
Sixth shall relate solely to the cost incurred by Lessee in connection with (x)
the construction of an addition or additions to, and an additional new building
or buildings on, the leased premises pursuant to subparagraphs II and IV,
respectively, of this Article Sixth, (y) the construction of a new building or
improvement pursuant to subparagraph III of this Article Sixth solely to the
extent that the fair market value of the new building or improvement exceeds the
fair market value of any building or improvement razed pursuant to said
subparagraph III, as such fair market values shall have been determined by an
appraiser selected by Lessee and satisfactory to Lessor and Beneficiary, and (z)
altering or remodeling any building or improvement on the leased premises
pursuant to subparagraph I of this Article Sixth to the extent that such
remodeling and altering shall have increased the fair market value of the leased
premises as determined by an appraiser selected by Lessee and satisfactory to
Lessor and Beneficiary.
ARTICLE SEVENTH
ASSIGNING AND SUBLETTING
Lessee shall have the right to assign this Lease or to sublet the whole
or any part of any said leased premises for a period not extending beyond the
expiration of the original term of this Lease or of any renewal term then in
effect.
Should Lessee assign this Lease or sublet the whole or any part of said
leased premises, it shall nevertheless remain primarily liable to Lessor as a
principal and not as a guarantor or a surety for full payment of the rent and
the performance and observance of Lessee's other obligations under this Lease.
Lessee agrees to notify lessor in writing of any assignment or subletting,
within thirty (30) days thereafter, and, on the request of Lessor, to furnish
Lessor with a
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conformed copy of any sublease which may be made. In the event of Lessee's
default in any of the provisions hereof, after the leased premises have been
sublet by Lessee, Lessor may collect rent from the sublessee but any collection
of rent from an assignee or sublessee shall not be deemed a waiver of the
primary liability of Lessee or as an acceptance by Lessor of the assignee or
sublessee as lessee. Any such sublease shall be subject to termination by
Lessor at its option on termination of this Lease except in the instance in
which this Lease is terminated and the leased premises purchased by Lessee.
ARTICLE EIGHTH
HOLDING OVER
If Lessee holds over or remains in possession of the leased premises
after expiration of this Lease or after any sooner termination thereof, without
any new lease of said premises being entered into between the parties hereto,
or any option hereinafter contained being exercised by written notice, such
holding over or continued possession shall, if rent is paid by Lessee and
accepted by Lessor for or during any period of time Lessee holds over or
remains in possession, create only a month-to-month tenancy at the last monthly
rental and upon the terms (other than length of term, or option for renewal,
purchase or cancellation) herein specified, which may at any time be terminated
by either party by thirty (30) days' written notice given to the other party.
ARTICLE NINTH
QUIET POSSESSION
Lessor covenants that Lessor is seized of the leased premises and has full
right to make this Lease, and that so long as Lessor is the owner of the leased
premises, Lessee shall have quiet and peaceful possession thereof as against
any adverse claim of Lessor or any party claiming under Lessor, subject to all
exceptions to the title to the leased premises set forth in the title insurance
policy to be issued to Lessor or any mortgagee (or assignee thereof) of Lessor
in connection with its acquisition of title to the leased premises and the
other exceptions and restrictions listed in Article First hereof. Lessee will
not, and hereby expressly waives its right to, exercise any remedies it may have
by reason of Lessor's failure to grant possession to the leased premises, the
condition of the leased premises, any outstanding notices from governmental
authorities with respect to the leased premises and any and all other defects
in title to the leased premises.
ARTICLE TENTH
LESSEE'S DEFAULT
In case Lessee shall fail to pay any installment of rent or any tax,
assessment, water rent or sewer rent for (10) days after written notice from
Lessor that the same is due and payable, or to pay any other additional rent or
to comply with any of the other terms, covenants, conditions or obligations of
this Lease for thirty (30) days after written notice from Lessor or the agent
or attorney of Lessor, then Lessor, at the option of Lessor, may cancel and
terminate this Lease, as well as all of the right, title and interest of Lessee
hereunder, by giving to Lessee not less than five (5) day's notice of such
cancellation and termination, and upon the expiration of the time fixed in such
notice this Lease and the term hereof, as well as all of the right, title and
interest of Lessee hereunder, shall expire in the same manner and with the same
force and effect, except as to Lessee's liability, as if the expiration of the
time fixed in such notice of cancellation and termination were the end of the
term originally demised; and Lessor may re-enter upon the leased premises
either with or without process of law, and remove all persons therefrom.
Lessee expressly agrees that the exercise by Lessor of the right to terminate
this Lease shall not be a bar to or prejudice in any way any other legal
remedies available to Lessor.
In the event of any such failure by Lessee to pay or to comply as
aforesaid, in which case each such failure shall be a default hereunder by
Lessee and a breach of this Lease, Lessor shall
<PAGE> 9
immediately and ipso facto, notwithstanding any other provisions of this Lease
to the contrary and without any notice or other action by Lessor, become
entitled to recover from Lessee, and Lessee shall pay to Lessor, as liquidated
damages for such breach the sum of (a) 25% of Lessor's Cost (as specified in
Schedule A hereto) discounted at the rate of 5% per annum from April 30, 2003
to the date of such breach and (b) all rent and other sums payable hereunder
due and payable to the date of such breach, together with a sum equal to the
amount by which the rent and additional rent reserved hereunder from the date
of such breach to the date of expiration of the term of this Lease exceeds the
fair and reasonable rental value of the leased premises for the same period,
both discounted to the date of such breach at the rate of five per cent (5%)
per annum. Such accrued rent and damages shall become due and payable to Lessor
immediately upon such breach and without regard to whether this Lease be
terminated or not, and if this Lease be terminated, without regard to the
manner in which it shall be terminated. In determining the fair and reasonable
rental value of the leased premises, the rental realized by any reletting, if
any reletting be accomplished by Lessor before presentation of proof of such
liquidated damages shall be required, shall be deemed prima facie to be the
fair and reasonable rental value of the leased premises or the portion thereof
so relet, as the case may be. If and so long as the term of this Lease shall
continue, the rent reserved herein for the unexpired term of this Lease after
any such breach shall be reduced by the amount of such liquidated damages as
may be paid to Lessor, such reduction being applied proportionately to each
instalment of rent and additional rent thereafter becoming due. During the
continuance of this Lease after such a breach and until such damages shall have
been paid to Lessor, the whole amount of each instalment of rent and additional
rent herein reserved shall be due and payable at the time herein specified, and
if by reason of the subsequent payment of liquidated damages, and the resulting
reduction in rental, Lessor shall have received a sum in excess of all
instalments as so reduced, becoming due after the breach and before the
collection of such damages, such excess shall be refunded to Lessee upon the
receipt of such liquidated damages.
If Lessor shall so re-enter, Lessor may repair and alter the leased
premises in such manner as to Lessor may seem necessary or advisable, and/or let
or relet the leased premises or any parts thereof for the whole or any part of
the remainder of the term herein originally leased or for a longer period, in
Lessee's name, or as the agent of Lessee, and out of any rent so collected or
received Lessor shall: first, pay to itself the cost and expense of retaking,
repossessing, repairing and/or altering the leased premises, and the cost and
expense of removing all persons and property therefrom; second, pay to itself
the cost and expenses sustained in securing any new tenants, and if Lessor shall
maintain and operate the leased premises, the cost and expense of operating and
maintaining the leased premises; and, third, pay to itself any balance remaining
on account of the liability of Lessee to Lessor for the sum equal to all rent
and additional rent reserved herein and unpaid by Lessee for the remainder of
the term herein originally leased. Any entry or re-entry by Lessor, whether had
or taken under summary proceedings or otherwise, shall not absolve or discharge
Lessee from liability hereunder.
Should any rent so collected by Lessor after the aforementioned payments
be insufficient fully to pay to Lessor a sum equal to all such rent and
additional rent reserved herein, the balance or deficiency shall be paid by
Lessee on the rent days herein specified, that is, upon each of such rent days
Lessee shall pay to Lessor the amount of the deficiency then existing; and
Lessee shall be and remain liable for any such deficiency, and the right of
Lessor to recover from Lessee the amount thereof, or a sum equal to all such
rent and additional rent reserved herein, if there shall be no reletting, shall
survive the issuance of any dispossessory warrant or other cancellation or
termination hereof; and Lessee hereby expressly waives any defense that might
be predicated upon the issuance of such dispossessory warrant or other
cancellation or termination hereof.
Suit or suits for the recovery of such deficiency or damages, or for a
sum equal to any instalment or instalments of rent and additional rent
hereunder, may be brought by Lessor, from time to time at Lessor's election, in
each case at Lessee's expense (including reasonable attorneys' fees), and
nothing hereing contained shall be deemed to require Lessor to await the date
whereon this Lease or the term hereof would have expired by limitation had
there been no such default by Lessee or no such cancellation or termination.
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Lessee hereby expressly waives service of any notice of intention to
re-enter. Lessee hereby waives any and all rights to recover or regain
possession of the leased premises or to reinstate or to redeem this Lease or
other right of redemption as permitted or provided by or under any statute, law
or decision now or hereafter in force and effect, in case Lessee shall be
dispossessed by a judgment or by warrant of any court or judge.
In the event of a breach or a threatened breach by Lessee of any of the
agreements, terms, convenants or conditions hereof, Lessor shall have the right
of injunction to restrain the same and the right to invoke any remedy allowed
by law or in equity, as if specific remedies, indemnity or reimbursements were
not herein provided.
Except to the extent otherwise expressly provided in this Lease, this Lease
shall not terminate nor shall Lessee be entitled to any abatement of rent or
reduction thereof, nor shall the respective obligations of Lessor and Lessee be
otherwise affected, by reason of damage to or destruction of all or any part of
the leased premises from whatever cause, the taking of the leased premises or
any portion thereof by condemnation or otherwise, the lawful prohibition of
Lessee's use of the leased premises, the interference with such use by any
private person or corporation, or by reason of any eviction by paramount title,
or for any other cause whether similar or dissimiliar to the foregoing, any
present or future law to the contrary notwithstanding.
In the event of any default hereunder or breach of this Lease by Lessee,
Lessor shall, in addition to the rights set forth above in this Article Tenth,
have the right to require that Lessee purchase the leased premises at a price
determined in accordance with Schedule B hereto on a date specified by Lessor
which is not later than sixty (60) days following written notice of such
requirement from Lessor to Lessee. Lessor shall transfer and convey the leased
premises to Lessee on such date upon the terms and provisions set forth in
Article Fourteenth hereof as if Lessor had accepted an offer by Lessee to
purchase the leased premises; except, however, that (A) the time periods
referred to in Article Fourteenth shall be adjusted to effectuate said
purchase on the date determined pursuant to this Article Tenth and (B) this
Lease shall in no event terminate until the leased premises shall have been
conveyed and the purchase price thereof and all other sums due under this Lease
shall have been paid.
ARTICLE ELEVENTH
Damage By Fire, Etc.
Lessee agrees that it will, during the preliminary and original terms
hereof and during any renewal terms, at its expense, take out and keep in
effect upon the leased premises, fire insurance with extended coverage
endorsement, in an amount sufficient to prevent Lessor and Lessee from becoming
coinsurers under provisions of applicable policies of insurance but in any
event, in an amount equal to not less than eighty per centum (80%) of the
"insurable value" of the building improvements thereon, and boiler and pressure
vessel insurance on all equipment, parts thereof and appurtenances attached or
connected to the leased premises which by reason of their use or existence are
capable of bursting, erupting, collapsing or exploding, in the minimum amount
of $500,000 for damage to property resulting from such perils, in each case
written by a responsible insurance company or insurance companies authorized to
do an insurance business in the state in which the leased premises are located;
said policy or policies of insurance to bear a first mortgagee endorsement in
favor of the Beneficiary, and to provide that payment for any losses covered
under or by said policy or policies of insurance shall be made to Lessor and/or
Lessee and/or Beneficiary, as their respective interests may appear.
In the event of loss of or damage to said building improvements by fire or
other casualty during the preliminary or original terms or any renewal term
which shall not result in the termination of this Lease as hereinafter in this
Article Eleventh provided, Lessee agrees, promptly after any such damage by
fire or other casualty, and at its expense, to rebuild or repair said building
improvements or construct a new building on the leased premises in conformity
with the requirements of Article Sixth hereof, so that, after completion of such
repair, the building
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improvements as reconstructed by Lessee shall be of a value not less than the
value of the building improvements as of the date of the fire or other casualty
and the building improvements as reconstructed shall immediately become part of
the realty and the property of Lessor. Any building permit that may be required
shall be obtained by Lessee.
If Lessee rebuilds or repairs said building improvements as provided in
the preceding paragraph, Lessee shall be entitled to receive or receive credit
for the insurance proceeds payable in connection with such fire or other
casualty on the terms and in the manner hereafter stated. If such proceeds in
respect of any one fire or other casualty are less than $25,000, Lessee shall
immediately be entitled to such proceeds. If such proceeds shall be $25,000 or
more, Lessee shall be entitled to such proceeds only against certificates of
Lessee, signed by a vice president of Lessee, delivered to Lessor from time to
time as such work of rebuilding or repair progresses or is completed, each such
certificate describing such work for which Lessee is requesting payment, the
cost incurred by Lessee in connection therewith and stating that Lessee has
not theretofore received payment for such work. if the proceeds remaining after
the final payment has been made for such work shall be $5,000 or more, such
proceeds shall be paid over and retained by Lessor. Thereafter, (i) Lessor's
Cost (as set forth in Schedule B) shall be reduced by the amount of such
proceeds so retained by Lessor, and (ii) each installment of rent payable
pursuant to Article Second hereof at least three months subsequent to the date
of the last payment to Lessee for such work shall be reduced by the amount of
such installment multiplied by a fraction, the numerator of which shall be the
amount of the remaining proceeds so retained by Lessor and the denominator of
which shall be Lessor's Cost prior to the reduction thereof referred to in
clause (i) above. If the proceeds remaining after the final payment has been
made for such work are less than $5,000, such proceeds shall be paid over to and
retained by Lessee and the rents and purchase prices referred to in Article
Fourteenth and set forth in Schedule B hereto shall continue in effect without
modification.
Notwithstanding any other provision of this Article Eleventh to the
contrary, should such fire or other casualty occur at any time during the
preliminary or the original term and should the leased premises be so damaged
or destroyed in any single casualty that they shall be economically unsuitable
for restoration for Lessee's continued use and occupancy in Lessee's business,
as certified by a vice president of Lessee, then at Lessee's option, in lieu of
rebuilding or repairing the leased premises, Lessee may, within ninety (90)
days after such loss or damage, give written notice to Lessor of Lessee's
intention to terminate this Lease as provided for in Article Fourteenth hereof,
and as a part of said notice shall offer to purchase the leased premises upon
the terms set out in said Article. Said notice shall be accompanied by a
certificate for Lessee, signed by a vice president thereof, stating that the
leased premises are economically unsuitable for Lessee's continued use and
occupancy in Lessee's business by reason of such damage or destruction. In the
event said offer to purchase is accepted by Lessor and said property purchased
by Lessee, all insurance proceeds shall be paid by said insurance company or
companies to and retained by Lessee. However, should said offer to purchase not
be accepted by Lessor and this Lease be terminated as in said Article
Fourteenth provided, Lessee shall be deemed to and does hereby agree to
relinquish all rights to the proceeds of any insurance in effect upon said
building improvements and such proceeds shall be paid directly to Lessor by
said insurance company or companies.
In the event Beneficiary and/or any assignee thereof requires that the
proceeds be made payable to it, then and in such event the proceeds shall be so
paid to Beneficiary and/or any such assignee thereof upon condition that
Beneficiary and/or any assignee thereof shall agree to pay the said proceeds to
Lessee upon the restoration of the leased premises as in this Article provided
or upon the purchase of the leased premises by Lessee as provided for in Article
Fourteenth hereof.
Regardless of the cost of rebuilding or repairing said building
improvements, should the fire or other casualty occur during a renewal option
term, Lessee shall have the right to elect to rebuild or repair said building
improvements, in which event all insurance proceeds shall be paid to Lessee as
hereinabove set forth. Should Lessee elect not to rebuild or repair said
building improvements, Lessee shall, within ninety (90) days after such loss or
damage, give to Lessor
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thirty (30) days' notice in writing, cancelling and terminating the renewal
term then in effect. On expiration of said thirty (30) days' notice, provided
all rent and additional rent are paid and Lessee is not otherwise in default
under this Lease, the renewal term shall cease and terminate and all insurance
proceeds shall be paid directly to Lessor by said insurance company or
companies.
Lessee shall procure policies for such insurance for a period of not
less than one (1) year and shall procure renewals thereof from time to time at
least twenty (20) days before the expiration thereof and shall deliver to
Lessor certificates of such policies and renewals.
Every policy of insurance which Lessee is obligated to carry under
this Lease shall contain an agreement by the insurer that it will not cancel
such policy except after 10 days' prior written notice to Lessor and
Beneficiary and that any loss otherwise payable thereunder shall be payable
notwithstanding any act or negligence of Lessor or Lessee which might, absent
such agreement, result in a forfeiture of all or any part of such insurance
payment and notwithstanding (i) the occupation or use of the leased premises
for purposes more hazardous than permitted by the terms of such policy, (ii)
any foreclosure or other action or proceeding taken by Beneficiary pursuant to
any provision of the Deed of Trust upon the happening of an Event of Default,
as defined therein, or (iii) any change in title or ownership of the leased
premises.
No abatement, diminution or reduction of rent, charges or other
compensation shall be claimed by or allowed to Lessee, or any persons claiming
under it, under any circumstances, whether for inconvenience, discomfort,
interruption of business, or otherwise, arising from the making of alterations,
changes, additions, improvements or repairs to any buildings now on or which
may hereafter be erected on the leased premises, by virtue of or arising from,
and during the restoration of the leased premises after the destruction or
damage thereof by fire or other cause.
ARTICLE TWELFTH
Condemnation
If no default shall have happened and be continuing, Lessor hereby
empowers Lessee, from time to time during the preliminary and the original
terms of this Lease and during any renewal terms: (a) to grant easements,
licenses, rights-of-way and other rights and privileges in the nature of
easements affecting the leased premises or release existing easements or
appurtenances which are for the benefit of the leased premises, with or without
consideration; (b) to dedicate or convey, as required, portions of the leased
premises for road, highway and other public purposes; and (c) to execute
petitions to have the leased premises or a portion or portions thereof annexed
to any municipality or included within any utility, highway or other
improvement or service district, but only upon delivery to Lessor of
(i) a written application of Lessee, signed by an Executive Officer
thereof, requesting such instrument and certifying that no default has
occurred and is continuing;
(ii) a copy of such instrument;
(iii) a certificate of Lessee, signed by an Executive Officer thereof,
stating (a) that such grant, release, dedication, conveyance or petitions
are not detrimental to the proper conduct of the Lessee's business on the
leased premises, (b) the consideration, if any, being paid for such grant,
release, dedication, conveyance or petitions, and that such consideration is
payable entirely to Lessee and (c) that such grant, release, dedication,
conveyance or petitions do not materially impair the effective use of the
leased premises for the purpose for which it is then being used or adversely
affect its value;
(iv) a duly authorized undertaking of Lessee to the effect that Lessee
will remain obligated hereunder to the same extent as if such grant,
release, dedication, conveyance or petitions had not been made; and
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<PAGE> 13
(v) such other instruments, certificates (including evidence of
authority) and opinions as Lessor may reasonably request.
Lessee is hereby irrevocably appointed the agent and attorney-in-fact of Lessor
to execute and deliver such instruments upon compliance with the provisions of
this Article Twelfth. If any monetary consideration is received by Lessee as a
result of the granting or release of any such easement or the dedication or
conveyance of any portion of the leased premises as hereinabove provided and
such consideration is less than $5,000, the same shall be retained by Lessee
and the rents and purchase prices referred to in Article Fourteenth and set
forth in Schedule B hereto shall continue in effect without modification.
However, if such consideration is $5,000, or more, the same shall be paid over
and retained by Lessor and thereafter, (i) Lessor's Cost (as set forth in
Schedule B) shall be reduced by an amount equal to such consideration so
retained by Lessor, and (ii) each instalment of rent payable pursuant to
Article Second hereof on and after the first rental payment date occuring three
months or more after the receipt by Lessor of such consideration shall be
reduced in accordance with the formula set forth in the third paragraph of
Article Eleventh hereof. The powers hereinabove granted to Lessee shall be
exercised by Lessee without the joinder of Lessor, but Lessor agrees to
cooperate fully with Lessee if for any reason it is necessary or desirable
under the laws of the state in which the leased premises are located for Lessor
to join in the execution of any instrument or to cooperate with Lessee in any
other way in order for said powers to be effectively exercised.
In the event that any person or corporation, municipal, public, private or
otherwise, shall at any time during the preliminary or the original term hereof
condemn and acquire title to all or any portion of the leased premises, or to
any easement therein, in or by condemnation proceedings pursuant to any law,
general, special or otherwise, which condemnation shall make the leased premises
unsuitable for use as a milk processing plant, Lessee may elect within thirty
(30) days after such condemnation or acquisition of title by such person or
corporation, to give written notice to Lessor of its intention to terminate this
Lease as provided for in Article Fourteenth hereof, and as a part of said notice
shall furnish a certification, executed by a vice president of Lessee, to the
effect that such condemnation has made the leased premises unsuitable for use as
a milk processing plant, and shall offer to purchase the leased premises from
Lessor upon the terms set out in Article Fourteenth hereof. In the event such
offer to purchase is accepted by Lessor within the time and in the manner in
Article Fourteenth provided, and said leased premises are purchased by Lessee,
Lessee shall be entitled to and shall receive any and all award or payment made
in said condemnation proceedings, and Lessor shall assign, and Lessor does
hereby assign and transfer to Lessee such award or payment as may be made.
Should said offer to purchase not be accepted by Lessor and this Lease be
terminated as provided for in said Article, any and all award or payment made in
such condemnation proceedings in respect only of the leased premises shall be
paid to Lessor; provided, however, that Lessee shall be entitled to receive and
retain any award or payment made in respect of the loss of, or damage to,
Lessee's leasehold interest. Should Lessee, however, remain in possession and
not elect to give such notice of termination of this Lease (unless such
termination occurs by operation of law), this Lease shall be deemed to continue
as to the remaining portion of the leased premises. In such event, or in the
event of any taking or condemnation of any portion of the leased premises, or
any easement therein, which shall not entitle Lessee to give notice of its
intention to terminate this Lease as hereinabove provided. Lessee, promptly
after such taking or condemnation, shall repair any damage caused by any such
taking or condemnation in conformity with the requirements of Article Sixth
hereof, so that, after the completion of such repair, the leased premises shall
be, as nearly as possible, in a condition as good as the condition thereof
immediately prior to such taking or condemnation, except for ordinary wear and
tear. Lessee shall be entitled to receive or receive credit for the award
payable in connection with such taking or condemnation on the terms and in the
manner hereafter stated. If such award in connection with any one taking or
condemnation is less than $25,000, Lessee shall immediately be entitled to such
award. If such award shall be $25,000 or more, Lessee shall be entitled to such
award only against certificates of Lessee, signed by a vice president of Lessee,
delivered to Lessor from time to time as such work of repair (including
appraisal fees, attorneys' fees and other expense connected with such
condemnation proceedings) progresses or is completed, each such certificate
describing such work
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for which Lessee is requesting payment, the cost incurred by Lessee in
connection therewith and stating that Lessee has not theretofore received
payment for such work. If the award remaining after the final payment has been
made for such work shall be $5,000 or more, such remaining award shall be paid
over and retained by Lessor. Thereafter, (i) Lessor's Cost (as set forth in
Schedule B) shall be reduced by the amount of such remaining award so retained
by Lessor and (ii) each installment of rent payable pursuant to Article Second
hereof at least three months subsequent to the date of the last payment to
Lessee for such work shall be reduced in accordance with the formula set forth
in the third paragraph of Article Eleventh hereof. If the remaining award after
the final payment has been made for such work is less than $5,000, such
remaining award shall be paid over to and retained by Lessee, and the rents and
purchase prices referred to in Article Fourteenth and set forth in Schedule B
hereto shall continue in effect without modification.
In the event beneficiary and/or any assignee thereof requires that an
award be made payable to it, then and in such event the award shall be so paid
to Beneficiary and/or any such assignee thereof upon condition that Beneficiary
and/or any assignee thereof shall agree to pay the said award to Lessee and/or
Lessor upon the repair of the leased premises as in this Article provided or
upon the purchase of the leased premises by Lessee as provided for in Article
Fourteenth hereof.
Should the condemnation occur during a optional renewal term, Lessee
shall, within thirty (30) days after such condemnation, either (a) terminate
the renewal term then in effect, or (b) remain in possession and repair and
alter the leased premises to the extent made necessary by such condemnation. If
Lessee elects to terminate the renewal term, Lessee shall give to Lessor thirty
(30) days' notice, in writing, cancelling and terminating such renewal term. On
expiration of said thirty (30) days' notice, the renewal term shall cease and
terminate provided all rent and additional rent are paid and Lessee is not
otherwise in default under this Lease. In such event, Lessee shall not be
entitled to receive and retain any of the award and Lessor shall be entitled to
receive and retain the entire award or payment made in respect of the leased
premises. Should Lessee, however, elect to remain in possession, the renewal
term shall continue as to the remaining portion of the leased premises. In such
event, Lessee shall be entitled to and shall receive any and all award or
payment made in said condemnation proceedings, in respect to the damage to
Lessee's leasehold interest and also in respect to the damage to the leased
premises and Lessor shall assign, and Lessor does hereby assign and transfer to
Lessee such award or payment made in respect of damage to the leased premises.
With the proceeds of the award or payment so assigned to Lessee, Lessee shall
pay all appraisal fees, attorneys' fees and other expenses connected with said
condemnation proceedings and shall make all repairs or alterations (if any) to
the leased premises made necessary by such condemnation; should such expense
and the cost of such repairs or alterations be less than the award or payment
so assigned to Lessee, Lessee shall pay to Lessor the remaining balance of such
award or payment.
ARTICLE THIRTEENTH
Notices
Any notice provided for herein shall be given by registered or certified
United States mail, postage prepaid, addressed, if to Lessor, to the person to
whom the rent is then payable at the address to which the rent is then mailed,
and, if to Lessee, to it at Oakland, California 94660. The person and the place
to which notices are to be mailed may be changed from time to time by either
party by written notice given to the other party.
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<PAGE> 15
ARTICLE FOURTEENTH
Lessee's Right of Termination
Lessor agrees that if Lessee has discontinued or determines to discontinue
its use of the leased premises as a milk processing plant, Lessee shall have
the right, subject to the following conditions, at its option, to terminate
this Lease. Except where the right accrued pursuant to the provisions of
Article Eleventh or Article Twelfth, such option to terminate shall not be
exercised prior to the expiration of the tenth year of the original term. In
the event Lessee desires to exercise this option and to terminate this Lease,
it shall give written notice to Lessor of its intention to terminate this
Lease, it shall offer to purchase the leased premises at the Purchase Price
hereinafter set forth, and, as a part of such notice, Lessee shall furnish
Lessor a certification executed by a vice president of Lessee, stating that (i)
the leased premises have become uneconomic or unsuitable for the continued use
in Lessee's business and (ii) Lessee will discontinue its use of the leased
premises as a milk processing plant within ninety (90) days after purchase of
the leased premises from Lessor for the applicable price computed in accordance
with the Schedule B attached hereto (herein referred to as the "Purchase
Price").
Unless Lessor shall reject such offer to purchase not later than the 150th
day after the date of Lessee's notice to Lessor (provided that the rejection of
such offer shall be of no effect unless accompanied by the written consent
thereto of the Beneficiary), then Lessor shall be conclusively presumed to have
accepted such offer and Lessor shall open or cause an escrow to be opened with
a title insurance company and doing business in the area in which the leased
premises are located and shall deposit in said escrow a properly executed grant
or warranty deed, and such other instruments and authorizations as may be
necessary to convey to, and vest in, Lessee fee title to the leased premises,
free and clear of any mortgage or deed of trust (which shall be released or
reconveyed of record to Lessor in the escrow settlement) and free and clear of
any other liens, charges, encumbrances or exceptions, except such as may have
been in existence at the time of Lessor's acquisition of title to the leased
premises, provided, however, and Lessee agrees, that Lessee will take title to
the leased premises subject also to any other liens, encumbrances and exceptions
not caused or created by any lessor (other than actions taken by any lessor on
behalf of Lessee), and to all zoning rules and restrictions, regulations and
ordinances that are applicable to the leased premises on the date of conveyance
thereof to Lessee and subject to any violations of building codes, fire laws and
other laws and regulations that are in existence as of said date. Lessor shall
notify Lessee of the opening of the escrow and of its deposit therein of the
deed and other instruments and authorizations, if any, necessary to convey to
Lessee title to the leased premises as hereinabove provided, and Lessee shall,
at or prior to the expiration of one hundred eighty (180) days from the date of
Lessee's notice to Lessor, deliver to the escrow holder the Purchase Price, with
its instructions for the completion of the escrow in accordance with the terms
hereof. If Lessee purchases the leased premises as herein provided, Lessee shall
pay rent and additional rent to the date of its purchase of the leased premises
and the charges covering the escrow fee, recording fee, premium for an owner's
policy of title insurance, Lessor's reasonable attorneys' fees and the cost of
any applicable documentary stamps and any applicable state and local stamp taxes
and other like costs and charges.
Should Lessor have rejected the offer of Lessee to purchase the leased
premises (provided that such rejection shall have been accompanied by the
written consent thereto of the Beneficiary), then this Lease shall terminate at
the expiration of one hundred eighty (180) days after said date of Lessee's
notice to Lessor. In the event of such termination, all parties hereto shall be
discharged from their liability by reason of this Lease and the provisions with
respect to the purchase of the premises herein contained, and this Lease shall
be of no further force or effect, except that any obligations and liabilities
of Lessee, actual or contingent, under this Lease, which arose on or prior to
such termination, shall survive. Lessee shall pay rent and additional rent to
the date of termination and shall vacate and remove its property from the
leased premises by such date of termination, and as of such date proper
adjustment shall be made in respect of taxes and unexpired insurance premiums.
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Should Lessor have accepted the offer of Lessee to purchase the leased
premises, and after such acceptance, and within one hundred fifty (150) days
after said date of Lessee's notice to Lessor, deposits with said escrow holder
such deed, instruments and authorizations as may be necessary to vest such
title in the leased premises in Lessee as hereinabove provided for, then this
Lease shall terminate at the expiration of such one hundred eighty (180) day
period. In the event of such termination, all parties hereto shall be
discharged from their liability by reason of this Lease and the provisions with
respect to the purchase of the premises herein contained, and this Lease shall
be of no further force and effect, except that any obligations and liabilities
of Lessee, actual or contingent, under this Lease, which arose on or prior to
such termination, shall survive. Lessee shall pay rent and additional rent to
the date of termination and shall vacate and remove its property from the
leased premises by such date of termination, and as of such date proper
adjustment shall be made in respect of taxes and unexpired insurance premiums.
Should Lessor have accepted the offer of Lessee to purchase the leased
premises, and after such acceptance, fail, or be unable, within one hundred
fifty (150) days after said date of Lessee's notice to Lessor, to deposit with
said escrow holder such deed, instruments and authorizations as may be
necessary to vest such title to the leased premises in Lessee as is hereinabove
provided for, then this Lease shall terminate at the expiration of one hundred
eighty (180) days after said date of Lessee's notice to Lessor. In the event of
such termination, all parties hereto shall be discharged from their liability
by reason of this Lease and the provisions with respect to the purchase of the
premises herein contained and this Lease shall be of no further force and
effect, except that any obligations and liabilities of Lessee, actual or
contingent, under this Lease, which arose on or prior to such termination,
shall survive. Lessee shall vacate and remove its property from the leased
premises by the date of such termination and as of such date, proper adjustment
shall be made in respect of taxes and expired insurance premiums. In the event
of such termination, Lessee shall (i) pay the rent as determined pursuant to
Article Second hereof and additional rent to the end of such one hundred eighty
(180) day period, and (ii) thereafter to the date of such termination, shall
pay rent at the rate of 8.50% per annum multiplied by Lessor's Cost computed on
the basis of a 360-day year of twelve (12) 30-day months.
In the event this Lease shall terminate pursuant to Articles Eleventh or
Twelfth hereof or this Article Fourteenth, neither Lessee nor any subsidiary or
affiliate of Lessee shall have the right thereafter to use the leased premises,
directly or indirectly, in its business operations.
ARTICLE FIFTEENTH
Bankruptcy
If (i) Lessee should make an assignment for the benefit of creditors or
file any petition or institute any proceedings under the Bankruptcy Act, either
as such Act now exists or under any amendment thereof which may hereafter be
enacted, or under any other act or acts, either as a bankrupt or as an
insolvent, wherein or whereby Lessee seeks to be adjudicated a bankrupt or to
be discharged from any or all of its debts, or to effect a plan of
reorganization, or for any other similar relief, or if a receiver, trustee or
liquidator for all or a substantial part of the business of Lessee should be
appointed by any court upon the petition of Lessee, or (ii) any such petition
or proceedings of the same of similar kind of character be filed or taken
against Lessee and such petition or proceeding should not be set aside or
dismissed within ninety (90) days, or (iii) any receiver, trustee or liquidator
for all or a substantial part of the business of Lessee should be appointed by
any court in any proceeding brought against Lessee and such petition or
proceedings should not be set aside or dismissed or the appointment of said
receiver, trustee or liquidator revoked within ninety (90) days, then, in any
of such events, Lessor may, at Lessor's option, cancel and terminate this Lease
on the giving to Lessee of thirty (30) days' notice in writing and upon the
expiration of the time fixed in such notice this Lease and the term hereof, as
well as all of the right, title and interest of Lessee hereunder, shall expire
in the same manner and with the same force and effect, except as to Lessee's
liability, as if the expiration of the time fixed in such notice of cancellation
and termination were the end of the term herein originally leased.
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<PAGE> 17
In any such event, each of which shall be a default hereunder by Lessee
and a breach of this Lease, Lessor shall immediately and ipso facto,
notwithstanding any other provisions of this Lease to the contrary and without
any notice or other action by Lessor, become entitled to recover from Lessee,
and Lessee shall pay to Lessor, as liquidated damages for such breach, all rent
and other sums payable hereunder due and payable to the date of payment,
together with the damages and in accordance with the provisions set forth in
the second paragraph of Article Tenth of this Lease, all of which are
incorporated herein by reference thereto.
Nothing in this Article Fifteenth contained shall limit or prejudice the
right of Lessor to prove and obtain as liquidated damages in any bankruptcy,
insolvency, receivership, reorganization or dissolution proceeding an amount
equal to the maximum allowed by any statute or rule of law governing such
proceeding and in effect at the time when such damages are to be proved,
whether or not such amount be greater, equal to or less than the amount of the
damages referred to in the preceding paragraph. The termination of this Lease
pursuant to this Article Fifteenth shall not be construed as a waiver by Lessor
of any right to any such damages that may be proved on the rejection or
termination of this Lease through such bankruptcy, insolvency, receivership or
dissolution proceedings on the part of Lessee or its representatives in
interest, the receiver, custodian, trustee or other parties in interest,
through the court having jurisdiction in the proceeding.
ARTICLE SIXTEENTH
Lessee's Option Privileges
Lessor hereby grants to Lessee, the right, at Lessee's option, to extend
the term of this Lease for six (6) separate and additional periods of five (5)
years each after the expiration of the term hereof at an annual rental which
shall be payable in equal monthly instalments, in arrears, and which shall be
equivalent to three per centum (3%) of the aggregate of (a) Lessor's Cost (as
specified in Schedule A hereto) and (b) any payment made by Lessor to Lessee
under Article Sixth hereof, and upon the terms (other than length of term and
monthly rental) herein specified. These options shall be exercised by written
notice given to Lessor or delivered or mailed to Lessor, at the address at
which the rent is then payable, at least eighty (80) days before the expiration
of the original term hereof, or, in the event Lessee has previously exercised
one or more options herein given, such notice shall be given at least eighty
(80) days before the expiration of the option term then in effect. The parties
hereto agree that a new lease need not be executed upon the exercise of any of
these options, but that this Lease will remain in full force and effect,
changed only as to the matters specified in this Article, except that there
shall be no option of further renewal following the expiration of the sixth
renewal term.
ARTICLE SEVENTEENTH
Compliance With Laws
Lessee agrees throughout the preliminary and the original term of this
Lease and any renewal thereof to comply with all laws, ordinances, orders,
rules, regulations and requirements of all governmental authorities having
jurisdiction of the leased premises, including, without limitation, those
requiring structural changes. Lessee may contest the validity of any such laws,
ordinances, orders, rules, regulations and requirements but shall indemnify and
hold Lessor harmless against the consequences of any violation thereof by
Lessee. Upon the written request of Lessor at any time or from time to time,
Lessee will furnish to Lessor copies of all certificates of occupancy and
building permits which it shall have obtained with respect to the leased
premises, and an opinion of its counsel to the effect that all applicable zoning
ordinances and regulations and requirements applicable to the leased premises
have been complied with.
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ARTICLE EIGHTEENTH
Remedies Cumulative
No remedy herein conferred upon or reserved to Lessor or Lessee is
intended to be exclusive of any other remedy herein or by law provided, but each
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute.
ARTICLE NINETEENTH
Additional Rent
This is a net lease, it being the intention of the parties hereto that
Lessee shall pay as additional rent, without offset, all costs of maintenance,
taxes and other charges that are assessed or levied against the leased
premises, including without limitation the costs, taxes and charges set forth
in this Lease. All taxes, charges, costs and expenses which Lessee assumes or
agrees to pay hereunder, together with all interest and penalties that may
accrue thereon in the event of Lessee's failure to pay the same as herein
provided, all other damages, costs and expenses which Lessor may suffer or
incur, and any and all other sums which may become due, by reason of any
default of Lessee to comply with the covenants, agreements, terms and
conditions of this Lease on Lessee's part to be performed, and each or any of
them, shall be deemed to be additional rent and in the event of non-payment
Lessor shall have all the rights and remedies herein provided in the case of
non-payment of rent.
ARTICLE TWENTIETH
No Waiver
The failure of Lessor or Lessee to insist upon a strict performance of any
of the agreements, terms, covenants and conditions hereof shall not be deemed
a waiver of any rights or remedies that Lessor or Lessee may have and shall
not be deemed a waiver of any subsequent breach or default in any of such
agreements, terms, covenants and conditions.
ARTICLE TWENTY-FIRST
Definitions
The term "Lessor" as used herein shall mean only the owner or the
mortgagee in possession for the time being of the leased premises so that in the
event of any sale or sales of the leased premises the preceding Lessor shall be
and hereby is entirely freed and relieved of all agreements, covenants and
obligations of Lessor hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest or
between the parties and the purchaser at any such sale that such purchaser has
assumed and agreed to carry out any and all agreements, covenants and
obligations of lessor hereunder.
The term "insurable value" shall mean, with respect to the building
improvements located on the leased premises, the replacement value less
depreciation of such building improvements at the time of loss thereof or
damage thereto by fire or other casualty.
ARTICLE TWENTY-SECOND
Article Headings
The article headings herein contained are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
or intent of this Lease nor in any way affect the terms and provisions hereof.
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ARTICLE TWENTY-THIRD
SEPARABILITY
If any term or provision of this Lease or any application thereof shall be
invalid or unenforceable, the remainder of this Lease and any other application
of such term or provision shall not be affected thereby.
ARTICLE TWENTY-FOURTH
SUCCESSORS AND ASSIGNS
Each and all of the covenants, terms, agreements and obligations of this
Lease shall extend to and bind and inure to the benefit of the successors
and/or assigns of said parties hereto; herein the singular number includes the
plural and the masculine gender includes the feminine and the neuter.
ARTICLE TWENTY-FIFTH
LESSOR'S INSPECTIONS
Lessor reserves the right to enter upon the leased premises during
business hours at any time to inspect the same or to make such repairs as
Lessor may deem advisable (even though the same may not be required by this
Lease), or for the purpose of exhibiting the same to persons wishing to
purchase the same. Lessor shall not have any duty to make any such inspection
nor shall it incur any liability or obligations for not making any such
inspection. Lessor also reserves the right, at any time within 90 days next
preceding the expiration of the term hereby granted or any renewal thereof,
provided said term has not been extended by Lessee's exercise of the option
privileges contained in Article Seventeenth hereof, to place notices on the
leased premises offering the leased premises "to let" or "for sale," and such
notice or notices shall not be removed by Lessee, or Lessee's agent or
employees.
ARTICLE TWENTY-SIXTH
RELEASE OF LESSOR
Lessor shall not be liable for any failure of water supply or electric
current, gas or heat, or for the injury or damage to person or property, caused
by or resulting from steam, gas, electricity, water, rain or snow, which may
leak or flow from any part of the leased premises, or from the pipes,
appliances or plumbing works of the same, or from the street or subsurface, or
from any other place, or for interference with light or other incorporeal
hereditaments, either by Lessor or otherwise, or caused by operations in
construction of any public or quasi-public work; nor shall Lessor be liable for
any defect in the leased premises or any improvements thereon, or for the act
or acts of Lessor, its agents, servants or employees, or of anyone else, or for
any damage to person or property caused by any other or different reason or
source, unless due to negligence of Lessor, its agents, servants or employees.
ARTICLE TWENTY-SEVENTH
USE OF LEASED PREMISES
The leased premises are leased exclusively for business, commercial,
manufacturing, mercantile or industrial purposes, as distinguished from
residence purposes.
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IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Agreement to
be duly executed as of the day and year first above set forth.
LPD SALT LAKE ASSOCIATES,
a Maryland Limited Partnership
as Lessor
By /s/
---------------------------------------
General Partner
SAFEWAY STORES, INCORPORATED
as Lessee
[Seal] By /s/
---------------------------------------
Senior Vice President
Attest:
By /s/
---------------------------------------
Assistant Secretary
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease Agreement to
be duly executed as of the day and year first above set forth.
LPD SALT LAKE ASSOCIATES,
a Maryland Limited Partnership
as Lessor
By /s/
---------------------------------------
General Partner
SAFEWAY STORES, INCORPORATED
A Maryland Corporation as Lessee
[Seal] By /s/ HARRY SUNDERLAND
---------------------------------------
Vice President
Attest:
By /s/
- ---------------------------------------
Assistant Secretary
18
<PAGE> 21
SCHEDULE A
A Parcel of land being a portion of Lot 11, CENTENNIAL INDUSTRIAL PARK,
PHASE I, in Section 17, Township 1 South, Range 1 West, Salt Lake City, Salt
Lake County, Utah, as recorded November 20, 1974 as Entry no. 2666380 in the
office of the County Recorder of said County, bounded and described as follows:
Beginning at the Southeast corner of said Lot 11; thence North 89
degrees 50'04" West along the South line of said Lot 11, a distance of
489.0 feet; thence North 0 degrees 09'56" East, a distance of 749.97 feet
to the beginning of a nontangent curve concave Southwesterly, the center of
which bears South 22 degrees 26'14" West, a distance of 449.28 feet; thence
Northwesterly along said curve, through an angle of 8 degrees 22'22", an
arc distance of 65.65 feet, more or less, to a point that is 23.5 feet
perpendicularly distant Southerly from the North line of said Lot 11;
thence South 89 degrees 59' West along a line parallel with said North line
a distance of 109.31 feet; thence North 00 degrees 01' West, a distance of
23.5 feet to the North line of said Lot 11; thence North 89 degrees 59'
East along said North line, a distance of 200 feet to the beginning of a
tangent curve concave Southwesterly having a radius of 459.28 feet; thence
along said curve, being a boundary of said Lot 11, Easterly, Southeasterly
and Southerly, through an angle of 90 degrees 10'56", an arc distance of
722.89 feet; thence South 00 degrees 09'56" West along the East boundary of
said Lot 11, a distance of 334.85 feet, more or less, to the point of
beginning.
<PAGE> 22
SCHEDULE B
Upon the purchase of the leased premises pursuant to Articles Tenth,
Eleventh, Twelfth or Fourteenth of this Lease, the purchase price payable shall
be an amount equal to the sum of (i) the applicable amount set forth in Column
2 below opposite the period in which the date of purchase occurs (the Initial
Period being the period commencing with and including the first day of the
preliminary term of this Lease and ending on and including May 31, 1978, period
1 being the period commencing with June 1, 1978, and ending on and including
June 30, 1978, and each succeeding period being each following one-month period
of the original term of this Lease), (ii) if such date of purchase is not a date
upon which a payment of rent is due, interest at the rate of 8.50% per annum on
the amount determined as provided in clause (i) above for the period beginning
on the date upon which a payment of rent was due immediately preceding such
date of purchase (or beginning on and including the first day of the preliminary
term of this Lease, if such date of purchase occurs during the preliminary
term) and ending on and including such date of purchase, and (iii) if such
purchase shall occur pursuant to the provisions of Article Fourteenth of this
Lease, the amount, if any, set forth in Column 3 below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Column 1 Column 2 Column 3 Column 1 Column 2 Column 3
- -------- -------- -------- -------- -------- --------
Initial
Period $3,726,000.00 38 $3,569,204.93
1 3,722,389.74 39 3,564,484.04
2 3,718,753.91 40 3,559,729.71
3 3,715,092.32 41 3,554,941.70
4 3,711,404.80 42 3,550,119.78
5 3,707,691.16 43 3,545,263.70
6 3,703,951.21 44 3,540,373.22
7 3,700,184.77 45 3,535,448.10
8 3,696,391.65 46 3,530,488.10
9 3,692,571.66 47 3,525,492.96
10 3,688,724.62 48 3,520,462.44
11 3,684,850.33 49 3,515,396.29
12 3,680,948.59 50 3,510,294.25
13 3,677,019.22 51 3,505,156.07
14 3,673,062.01 52 3,499,981.50
15 3,669,076.77 53 3,494,770.28
16 3,665,063.30 54 3,489,522.14
17 3,661,021.41 55 3,484,236.83
18 3,656,950.88 56 3,478,914.08
19 3,652,851.52 57 3,473,553.63
20 3,648,723.12 58 3,468,155.21
21 3,644,565.48 59 3,462,718.55
22 3,640,378.39 60 3,457,243.38
23 3,636,161.64 61 3,451,729.43
24 3,631,915.02 62 3,446,176.42
25 3,627,638.32 63 3,440,584.08
26 3,623,331.33 64 3,434,952.12
27 3,618,993.83 65 3,429,280.27
28 3,614,625.61 66 3,423,568.25
29 3,610,226.45 67 3,417,815.77
30 3,605,796.13 68 3,412,022.54
31 3,601,334.43 69 3,406,188.27
32 3,596,841.12 70 3,400,312.68
33 3,592,315.98 71 3,394,395.47
34 3,587,758.79 72 3,388,436.34
35 3,583,169.32 73 3,382,435.00
36 3,578,547.34 74 3,376,391.15
37 3,573,892.62 75 3,370,364.49
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
Column 1 Column 2 Column 3 Column 1 Column 2 Column 3
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
76 $3,364,174.72 132 $2,941,682.23 $172,992.44
77 3,358,001.53 133 2,932,516.39 "
78 3,351,784.61 134 2,923,285.62 "
79 3,345,523.66 135 2,913,989.47 "
80 3,339,218.36 136 2,904,627.47 "
81 3,332,868.40 137 2,895,199.15 "
82 3,326,473.46 138 2,885,704.05 "
83 3,320,033.22 139 2,876,141.69 "
84 3,313,547.36 140 2,866,511.60 "
85 3,307,015.56 141 2,856,813.30 "
86 3,300,437.49 142 2,847,046.30 "
87 3,293,812.83 143 2,837,210.12 "
88 3,287,141.24 144 2,827,304.27 159,685.33
89 3,280,422.40 145 2,817,328.25 "
90 3,273,655.97 146 2,807,281.57 "
91 3,266,841.61 147 2,797,163.72 "
92 3,259,978.98 148 2,786,974.20 "
93 3,253,067.74 149 2,776,712.51 "
94 3,246,107.54 150 2,766,378.13 "
95 3,239,093.04 151 2,755,970.55 "
96 3,232,038.89 152 2,745,489.25 "
97 3,224,929.74 153 2,734,933.71 "
98 3,217,770.23 154 2,724,303.40 "
99 3,210,560.01 155 2,713,597.79 "
100 3,203,298.72 156 2,702,816.35 146,378.22
101 3,195,985.99 157 2,691,958.54 "
102 3,188,621.46 158 2,681,023.82 "
103 3,181,204.77 159 2,670,011.65 "
104 3,173,735.54 160 2,658,921.47 "
105 3,166,213.41 161 2,647,752.74 "
106 3,158,637.99 162 2,636,504.90 "
107 3,151,008.92 163 2,625,177.38 "
108 3,143,325.81 164 2,613,769.63 "
109 3,135,588.27 165 2,602,281.07 "
110 3,127,795.93 166 2,590,711.13 "
111 3,119,948.39 167 2,579,059.24 "
112 3,112,045.26 168 2,567,324.82 133,071.11
113 3,104,086.15 169 2,555,507.28 "
114 3,096,070.67 170 2,543,606.03 "
115 3,087,998.41 171 2,531,620.48 "
116 3,079,868.97 172 2,519,550.03 "
117 3,071,681.95 173 2,507,394.08 "
118 3,063,436.94 174 2,495,152.03 "
119 3,055,133.52 175 2,482,823.26 "
120 3,046,771.29 $186,300.00 176 2,470,407.16 "
121 3,038,349.83 " 177 2,457,903.12 "
122 3,029,868.71 " 178 2,445,310.51 "
123 3,021,327.52 " 179 2,432,628.70 "
124 3,012,725.83 " 180 2,419,857.06 119,764.00
125 3,004,063.21 " 181 2,406,994.95 "
126 2,995,339.23 " 182 2,394,041.74 "
127 2,986,553.46 " 183 2,380,996.78 "
128 2,977,705.45 " 184 2,367,859.41 "
129 2,968,794.77 " 185 2,354,628.99 "
130 2,959,820.97 " 186 2,341,304.85 "
131 2,950,783.61 " 187 2,327,886.33 "
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
Column 1 Column 2 Column 3 Column 1 Column 2 Column 3
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
188 $2,314,372.76 $119,764.00 245 $1,362,747.66 $ 53,228.44
189 2,300,763.47 " 246 1,342,397.70 "
190 2,287,057.78 " 247 1,321,903.59 "
191 2,273,255.01 " 248 1,301,264.31 "
192 2,259,354.47 106,456.89 249 1,280,478.84 "
193 2,245,355.47 " 250 1,259,546.14 "
194 2,231,257.31 " 251 1,238,465.17 "
195 2,217,059.29 " 252 1,217,234.87 39,921.33
196 2,202,760.70 " 253 1,195,854.19 "
197 2,188,360.83 " 254 1,174,322.06 "
198 2,173,858.96 " 255 1,152,637.41 "
199 2,159,254.37 " 256 1,130,799.16 "
200 2,144,546.33 " 257 1,108,806.23 "
201 2,129,734.11 " 258 1,086,657.51 "
202 2,114,816.97 " 259 1,064,351.91 "
203 2,099,794.16 " 260 1,041,888.31 "
204 2,084,664.94 93,149.78 261 1,019,265.59 "
205 2,069,428.56 " 262 996,482.63 "
206 2,054,084.25 " 263 973,538.29 "
207 2,038,631.25 " 264 950,431.43 26,614.22
208 2,023,068.79 " 265 927,160.89 "
209 2,007,396.10 " 266 903,725.52 "
210 1,991,612.40 " 267 880,124.15 "
211 1,975,716.89 " 268 856,355.60 "
212 1,959,708.79 " 269 832,418.69 "
213 1,943,587.30 " 270 808,312.23 "
214 1,927,351.62 " 271 784,035.01 "
215 1,911,000.93 " 272 759,585.83 "
216 1,894,534.43 79,842.67 273 734,963.47 "
217 1,877,951.29 " 274 710,166.70 "
218 1,861,250.68 " 275 685,194.29 "
219 1,844,431.78 " 276 660,044.99 13,307.11
220 1,827,493.75 " 277 634,717.55 "
221 1,810,435.74 " 278 609,210.71 "
222 1,793,256.90 " 279 583,523.19 "
223 1,775,956.38 " 280 557,653.72 "
224 1,758,533.31 " 281 531,601.01 "
225 1,740,986.83 " 282 505,363.76 "
226 1,723,316.06 " 283 478,940.66 "
227 1,705,520.12 " 284 452,330.40 "
228 1,687,598.13 66,535.55 285 425,531.65 "
229 1,669,549.19 " 286 398,543.07 "
230 1,651,372.40 " 287 371,363,32 "
231 1,633,066.86 " 288 343,991.05 000.00
232 1,614,631.66 " 289 316,424.90 "
233 1,596,065.87 " 290 288,663.47 "
234 1,577,368.58 " 291 260,705.41 "
235 1,558,538.85 " 292 232,549.31 "
236 1,539,575.74 " 293 204,193.77 "
237 1,520,478.31 " 294 175,637.38 "
238 1,501,245.60 " 295 146,878.72 "
239 1,481,876.66 " 296 117,916.35 "
240 1,462,370.53 53,228.44 297 88,748.83 "
241 1,442,726.23 " 298 59,374.71 "
242 1,422,942.78 " 299 29,792.52 "
243 1,403,019.20 " 300 0.00 "
244 1,382,954.49 "
</TABLE>
22
<PAGE> 1
EXHIBIT 10.38
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made and entered into this
28th day of February, 1995, by and between FLAV-O-RICH, INC., a Kentucky
cooperative association ("Landlord"), and SOUTHERN FOODS GROUP, L.P., a
Delaware limited partnership ("Tenant").
W I T N E S S E T H :
Landlord and Tenant, in consideration of the payment by Tenant of
the amounts required to be paid and the mutual promises and agreements
contained in this Lease, agree as follows:
SECTION 1: LEASE OF PREMISES; TERM.
Subject to the terms and conditions hereinafter set forth,
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, the
land described in metes and bounds on Exhibit A annexed hereto and made a part
hereof (the land described on such Exhibit A, the ("Land");
TOGETHER WITH:
(a) all right, title and interest of Landlord in and to all
buildings, structures, fixtures, equipment, machinery, vehicles, signage, and
other improvements now standing, or at any time hereafter constructed or
placed, upon the Land (the "Improvements");
(b) all right, title and interest, if any, of Landlord in and to
any land lying in the bed of any street, road or avenue, open or proposed, in
front of or adjoining the Land, to the center line;
(c) all right, title and interest, if any, of Landlord in and to
any strips and gores of land adjacent to, abutting or used in connection with
the Land, and in and to servitudes and easements, if any, inuring to the benefit
of the Land or the fee owner of the Land;
(d) all right, title and interest, if any, of Landlord in any
servitudes, easements, privileges or rights-of-way over adjoining premises; and
(e) all right, title and interest, if any, of Landlord in any
appurtenances, benefits, advantages and hereditaments
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<PAGE> 2
belonging or in any way appertaining to the Land; (the Land and all of the
foregoing, collectively the "Premises").
The Premises are demised and let subject to (i) the rights of any
parties in possession thereof and the existing state of the title thereof as of
the Commencement Date (hereinafter defined), including, without limitation, all
liens, security interests, encroachments, servitudes, easements, rights of way,
reservations, restrictions, and other conditions in existence at the date
hereof, (ii) any state of facts which an accurate survey or physical inspection
thereof might show, (iii) all Legal Requirements (hereinafter defined) now in
effect or hereafter adopted by any governmental authority having jurisdiction,
and (iv) with respect to the Improvements, their condition as of the
Commencement Date, without representation or warranty by Landlord.
Subject to earlier termination pursuant to the terms hereof, the initial
term of this Lease (the "Initial Term") shall be for a period of one (1) year
commencing on March 1, 1995 (the "Commencement Date"), and ending on February
28, 1996; provided, however, that unless either party gives notice to the other
party at least ninety (90) days prior to the end of the Initial Term or any
additional term of its intention to terminate the Lease at the end of such
term, this Lease shall be automatically extended for an additional one (1) year
term (the "Additional Terms"; together with the Initial Term, the "Term").
SECTION 2: RENTAL.
(a) For the period beginning on the Commencement Date through and
including the date of termination of this Lease, Lessee shall pay each calendar
month as rent for the Premises Fifteen Thousand and No/100 Dollars ($15,000.00)
(the "Basic Rent"). Each such payment shall be made in advance on the first
day of each month.
(b) This Lease shall be deemed and construed to be a "net lease",
and throughout the Term Tenant shall pay the Basic Rent, the additional rent
and all other amounts payable by Tenant hereunder (collectively, the "Rent")
absolute net, free of any charges, assessments, impositions, expenses or
deductions of any kind and without abatement, deduction or setoff.
(c) Tenant shall pay all charges for public utility services,
including without limitation all charges for electricity, water, fuel oil, gas
and telephone, incurred during the Term in connection with the Premises.
(d) Any sums coming due to Landlord under the provisions of this
Lease which are not paid within ten (10) days after the due date thereof shall
bear interest at the Default Rate from the date such amounts become payable
hereunder until such amounts shall have been paid by Tenant. As used herein,
"Default Rate" means the
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<PAGE> 3
lesser of (i) the prime rate on the due date thereof as such rate is published
in the Southwest Edition of the Wall Street Journal plus two percent (2%) per
annum or (ii) the highest lawful rate allowed by applicable law.
SECTION 3: PURCHASE OF INVENTORY AND CERTAIN PERSONAL PROPERTY.
In addition to the lease of the Premises, and for the separate
consideration set forth below, Landlord hereby agrees to sell to Tenant, and
Tenant hereby agrees to purchase from Landlord, the following assets:
(a) Inventory. All finished product inventory of milk and other
dairy products located at the dairy processing plant located on the Premises
(the "Dairy Plant") on the Commencement Date (collectively, the "Inventory");
provided, however, that the term "Inventory" as used herein shall not include,
and, Tenant shall not be obligated to purchase hereunder, any outdated,
spoiled, damaged or unmarketable inventory of Landlord.
(b) Certain Personal Property. All ingredients, cartons, raw
materials, finished goods, packing materials, labels, and chemicals of Landlord
at the Dairy Plant on the Commencement Date (collectively, the "Other
Property"); provided, however, that the term "Other Property" as used herein
shall not include and Tenant shall not be obligated to purchase hereunder any
outdated, spoiled, damaged or unusable ingredients, cartons, raw materials,
finished goods, packaging materials, labels or chemicals of landlord.
(c) Prepaid Expenses and Deposits. All prepaid expenses and any
outstanding service, utility or other deposits required by third parties
(collectively, the "Deposits").
(d) Accounts Receivable. All amounts owed to Landlord as of
February 28, 1995 relating to sales from the Dairy Plant, whether evidenced by
account entries, notes, bonds or other evidences of indebtedness or rights to
receive payment (the "Accounts Receivable"). Tenant shall pay Landlord the face
amount of such Accounts Receivable as reflected on the financial statements of
the Dairy Plant as of February 28, 1995. Tenant shall use reasonable commercial
efforts (but without resorting to litigation), at its expense, to collect the
Accounts Receivable. All Accounts Receivable which shall not have been
collected by June 1, 1995, shall be transferred back to Landlord and Landlord
shall reimburse Tenant dollar for dollar for the amount of all such uncollected
Accounts Receivable. In the event that after the date of this Lease Landlord
shall receive any remittance from or on behalf of any account debtor with
respect to the Accounts Receivable (excluding any Accounts Receivable
reassigned to Landlord), Landlord shall endorse without recourse (except as set
forth in the preceding provisions of this subsection (d)) such remittance to
the order of Tenant and forward same to Tenant
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<PAGE> 4
promptly upon receipt thereof. If after Tenant shall have reassigned to
Landlord any Accounts Receivable Tenant shall receive any remittance from or on
behalf of any account debtor with respect to such Accounts Receivable, Tenant
shall endorse without recourse such remittance to the order of Landlord and
forward same to Landlord promptly upon receipt thereof.
Immediately preceding the Commencement Date, Landlord shall have
conducted a physical count of the Inventory and Other Property on hand at such
time for the purpose of preparing a closing statement (the "Closing
Statement"). Tenant and Tenant's representative shall have the right to
participate in such count and shall be given all necessary access to
participate in such count. The Closing Statement shall reflect (a) a complete
list of the Inventory and Other Property, together with Landlord's costs for
such Inventory and other Property, (b) the amount of the Deposits, (c) the
amounts of the respective prorations owed by Landlord to Tenant or by Tenant to
Landlord, pursuant to Section 7 hereof (to the extent determinable at the
Commencement Date), and (d) the amount of accrued vacation benefit obligations
assumed by Tenant under Section 8 hereof. The purchase price for the Inventory,
Other Property and Deposits shall be equal to Landlord's actual cost for the
Inventory and Other Property, and the refundable amount of the Deposits, and
such purchase price, as determined on the Closing Statement, shall be paid by
Tenant to Landlord in cash when the first month's Basic Rent is payable under
this Lease.
On the Commencement Date, Landlord shall deliver to Tenant a
complete listing of the name, address, average monthly billing, types of
products purchased, and contact person for each of Landlord's customers
immediately prior to such date. In addition, Landlord shall execute and deliver
such documents and do and perform all such other acts as may be reasonably
required by Tenant in order to fully convey and transfer to and vest in Tenant
all of the assets, properties, business, and rights of Landlord intended to be
assigned, transferred and conveyed pursuant hereto.
SECTION 4: ADDITIONAL AGREEMENTS.
(a) Trademark License Agreement. Landlord hereby agrees to
execute and deliver to Tenant on the Commencement Date that certain Trademark
License Agreement in the form attached as Exhibit B to this Lease.
(b) Subleases and Consents to Assignments. Landlord is a party to
those certain lease agreements listed on Exhibit C attached to this Lease (the
"Lease Agreements"). Landlord hereby agrees to obtain and deliver to Tenant,
prior to or on the Commencement Date, a written consent from each respective
landlord under the Lease Agreements consenting to: (i) Landlord's sublease to
Tenant of the premises leased under such Lease Agreements for so long as this
Lease is in effect (and to the extent that the Lease
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<PAGE> 5
Agreements expire prior to the termination or expiration of this Lease,
Landlord shall use its best efforts to renew and extend such expiring Lease
Agreements), and (ii) the assignment of such Lease Agreements from Landlord to
Tenant in the event that Tenant exercises its Right of First Refusal or Option
(as such terms are hereinafter defined), and agreeing that such Lease
Agreements, upon such assignment, would continue to be binding and enforceable
in accordance with their respective terms.
(c) Licenses and Permits - Landlord hereby agrees to assign to
Tenant or allow Tenant full use of, to the extent permitted by law, all
requisite operating and environmental licenses or permits for the Premises to
operate as a dairy processing plant during the Term.
(d) Miscellaneous Agreements. Landlord hereby agrees to assign to
Tenant or allow Tenant full use of, to the extent permitted by law, all supply
agreements, customer purchase agreements, or maintenance agreements currently
being used at the Dairy Plant.
SECTION 5: USE OF PREMISES; INSPECTION.
(a) Tenant covenants and agrees that it shall use the Premises
only as a dairy processing plant and for such other lawful purposes as may be
reasonably incidental thereto; provided, however, that Tenant shall not use or
permit the use of the Premises or any part thereof for any unlawful or illegal
purposes or in violation of any certificate of occupancy, or for any
extrahazardous purpose or in such manner as to create or constitute a nuisance
of any kind.
(b) Tenant shall permit Landlord and its authorized
representatives to enter the Premises at all reasonable times during usual
business hours upon reasonable notice for the purpose of inspecting or
repairing the same or exhibiting the same to prospective purchasers or
mortgagees thereof.
SECTION 6: PAYMENT OF TAXES.
(a) As additional rent, Tenant shall pay as the same shall become
due and payable all taxes, assessments, water charges and sewer rents, rates and
charges, transit taxes, charges for public utilities, excises, levies, license
and permit fees and other governmental charges, general and special, ordinary
and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever
which at any time during the Term of this Lease may be assessed, levied,
confirmed, imposed upon or become a lien on the Premises or the Land, or any
part thereof, or for any use or occupation of the Premises (collectively,
"Taxes"). Tenant may pay any Taxes in installments, if payment may be so made
without fine or penalty. Notwithstanding the foregoing, upon the occurrence and
during the continuation of an Event of Default (hereinafter
-5-
<PAGE> 6
defined) hereunder, Landlord may require that Tenant pay Taxes either in
advance of their due date or in installments in advance of the due date to be
held in escrow by Landlord.
(b) Tenant hereby assumes liability for and shall indemnify
Landlord from and against all liabilities, losses, damages, claims, expenses
and costs of every nature by reason of any notices, orders, violations or
penalties filed against or imposed upon the Premises or against Landlord
because of Tenant's failure to comply with this Section 6.
(c) Notwithstanding anything to the contrary contained herein,
Tenant may contest the existence, amount or validity of any Taxes by
appropriate proceedings (the "Disputed Taxes"), and may defer payment of such
Disputed Taxes during the pendency of such proceedings, provided that Tenant
shall first provide Landlord with security acceptable to Landlord, and maintain
such security during the pendency of such dispute in the full amount of the
Disputed Taxes and any costs, fees, interest, penalties or other liabilities in
connection therewith (the "Reserve Amount"). Notwithstanding the foregoing, in
no event shall Tenant be permitted to defer any such payment if the Premises or
any part thereof would by reason of such postponement or deferment be in
imminent danger of being forfeited or lost. Any sums deposited with Landlord
shall be maintained in an interest-bearing account, and any interest earned
thereon shall be added to the sums so deposited and thereafter disbursed as
provided in this subparagraph (c). Upon the termination of such proceedings,
Tenant shall pay the Disputed Taxes or, in the event Landlord is holding the
Reserve Amount and only to the extent the Reserve Amount is sufficient
therefor, instruct Landlord to pay the amount of such Disputed Taxes or portion
thereof, as finally determined in such proceedings, together with any costs,
fees, interest, penalties or other liabilities in connection therewith, and
Landlord, if instructed, shall pay such amounts from the Reserve Amount and
shall return any remaining portion of the Reserve Amount to Tenant together
with interest, if any, earned thereon. Landlord shall not be subjected to any
liability for the payment of any costs or expenses in connection with any such
proceedings and Tenant shall indemnify and save harmless Landlord from any such
costs or expenses. Tenant shall be entitled to receive any refund paid by any
taxing authority of any Taxes and penalties or interest thereon which have been
paid by Tenant, or which have been paid by Landlord and for which Landlord has
been fully reimbursed by Tenant.
(d) Upon request by Landlord, the original or duplicate receipts
showing the payment of Taxes shall be delivered to Landlord as promptly as is
practicable after the date of payment.
-6-
<PAGE> 7
SECTION 7: PRORATION.
All utility costs, insurance premiums on any insurance policies of
Landlord or Tenant transferred to and accepted by the other party upon the
commencement or expiration of the Term of this Lease, and similar items of
expense pertaining to the Premises for the years of commencement and expiration
or termination of this Lease shall be prorated between Landlord and Tenant. All
Taxes for the tax year in which this Lease shall commence or terminate
(including any installment or installments of such Taxes which Landlord or
Tenant has elected to pay in installments) shall be prorated between Landlord
and Tenant. The prorations provided herein shall be on the basis of the number
of days elapsed and remaining during the month or year with respect to which
the payments in question are being paid. If this Lease shall have terminated by
reason of Tenant's default, all Taxes outstanding to the date of such
termination shall be paid in full by Tenant. Any amounts owing under this
Section 7, to the extent not reflected in the Closing Statement, shall be paid
as soon as practicable after such amounts can be reasonably determined.
SECTION 8: HIRING OF LANDLORD'S EMPLOYEES.
Set forth on Schedule 8 hereto are the numbers and job categories of all
employees of Landlord employed at the Dairy Plant, including their names, dates
of employment, current compensation, status (i.e., active or on leave or
lay-off) and date and amount of last increase in compensation. Tenant agrees to
hire all employees of Landlord employed at the Dairy Plant on the Commencement
Date and identified on Schedule 8 as transferred employees (the "Transferred
Employees"). To the knowledge of Landlord, no key employee or group of
employees employed by Landlord has any plans to terminate employment. Nothing
herein shall be construed to limit or modify Tenant's right to terminate the
employment of Transferred Employees or to restrict Tenant's right to employ its
own employment practices and policies (including, but not limited to,
modification of wage rates with respect to Transferred Employees). Those
individuals who accept Tenant's offer of employment shall become employees of
Tenant and shall be considered "new hires"; provided, however, that Landlord
acknowledges and agrees that Tenant shall not assume and shall be indemnified
and held harmless by Landlord against, any liability or obligation arising out
of with respect to (i) employment by Landlord of any such employees prior to
the Commencement Date, or the termination of such employment at or prior to the
Commencement Date, including, without limitation, any obligation or liability
under Section 4980B of the Internal Revenue Code of 1986, as amended, (the
"Code"), or Sections 601 through 608 of the Employee Retirement Income Act of
1974, as amended, ("ERISA"), or (ii) any employee welfare benefit plan (within
the meaning of Section 3(l) of ERISA), any employee pension benefit plan
(within the meaning of Section 3(2) of ERISA), or any other type of pension,
profit sharing, deferred compensation, retirement, stock option, bonus,
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severance, medical, dental, life insurance, death benefit, accident, disability
or other employee benefit or compensation plan, agreement, arrangement,
practice or policy with respect to employees of Landlord. Landlord shall assume
all responsibility and liability with respect to continued health coverage to
the extent required by law and as described in Section 601 through 608 of ERISA
and Sections 4980B of the Code for employees whose employment with Landlord is
or was terminated at or prior to the Commencement Date, including, without
limitation, employees of Landlord who accept employment with Tenant as
contemplated in this Section 8. Furthermore, Landlord shall be responsible for
paying or causing to be paid (A) the amount of all wages payable or accrued to
employees of Landlord employed at the Dairy Plant as of the Commencement Date,
and (B) all amounts, if any, necessary to discharge any and all carryover
vacation pay (as defined in the current employee handbook of Landlord). Other
than carryover vacation pay which is to be paid by Landlord as provided in the
immediately preceding sentence, Tenant shall assume as of the Commencement Date
all of Landlord's liabilities for vacation benefit obligations accrued as of
the Commencement Date and owed by Landlord in respect of Landlord's employment
of the Transferred Employees as of the Commencement Date. All such amounts
assumed by Tenant shall be reimbursed to Tenant by Landlord on the Commencement
Date, and shall be reflected on the Closing Statement. Except as provided in
the two immediately preceding sentences, Landlord shall be responsible for all
other amounts, if any, owed to employees of Landlord employed at the Dairy
Plant for all periods prior to the Commencement Date.
SECTION 9: COMPLIANCE WITH LEGAL REQUIREMENTS; HAZARDOUS SUBSTANCES.
(a) Tenant, at its sole cost and expense, during the Term of this
Lease shall promptly comply with all laws, statutes, orders, regulations, rules
and requirements of every kind and nature relating to the Premises or to this
Lease or relating to Tenant's occupancy or use of the Premises, now or
hereafter in effect ("Legal Requirements"), including, without limitation, (i)
all federal, state, and municipal governments and appropriate departments,
commissions, boards and officers thereof, (ii) the Board of Fire Underwriters
or other applicable authority which has jurisdiction over the Premises, (iii)
Environmental Laws (hereinafter defined), or (iv) of any other body hereafter
constituted.
(b) Except as permitted in accordance with Applicable
Environmental Laws, Tenant shall not, and shall not allow any third party to,
use, generate, manufacture, produce, store, or Release (hereinafter defined),
on, under or about the Premises, or transport to or from the Premises, any
Hazardous Substance (hereinafter defined).
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(c) As used herein, "Environmental Laws" means any federal, state
or local statute, ordinance, or regulation pertaining to health, industrial
hygiene, or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq. ("CERCLA"); the Resource Conversation Recovery Act
of 1976, as amended, 42 U.S.C. Section 6901 et seq. ("RCRA"); the Clean Water
Act, as amended 33 U.S.C. Section 7401 et seq., and any applicable state law,
and all rules adopted and guidelines promulgated pursuant to the foregoing.
(d) As used herein, "Hazardous Substance" shall include:
(i) Those substances included within the definitions of
hazardous substance, hazardous material, toxic substance, regulated substance,
or solid waste in CERCLA; RCRA; and the Hazardous Materials Transportation Act,
42 U.S.C. Section 1801 et seq. and in the regulations promulgated pursuant
thereto;
(ii) Those substances listed in the United States
Department of Transportation Table (49 C.F.R. Section 172.101 and amendments
thereto) or by the Environmental Protection Agency as hazardous substances (40
C.F.R. Part 302 and amendments thereto); and
(iii) All substances, materials and wastes that are, or
that become, regulated under, or that are classified as hazardous or toxic
under any Environmental Law.
(e) As used herein, "Release", in the context of environmental
matters, means any releasing, spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, disposing, or dumping.
SECTION 10: INDEMNIFICATION.
(a) From and after the Commencement Date, Tenant shall indemnify
and save harmless Landlord, its employees, officers, directors, agents,
affiliates, personal representatives, and successors and assigns of each of the
foregoing from any and all liabilities, obligations, losses, damages,
penalties, claims (including, without limitation, claims involving strict or
absolute liability), actions, suits, costs, expenses and disbursements of any
kind and nature whatsoever ("Claims") which may be imposed on or asserted
against any such indemnified party by or on behalf of any person or entity
arising, in whole or in part, out of or by reason of (i) the conduct or
management of, or any work or thing whatsoever done in, on or about, the
Premises during the Term and during Tenant's ownership of the Premises in the
event Tenant exercises the Option provided for in Section 24, (ii) any breach
or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed pursuant to this Lease, (iii)
the use, generation, manufacture, production, storage,
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Release, or threatened Release, of a Hazardous Substance on, under or about the
Premises during the Term in violation of any Environmental Law and during
Tenant's ownership of the Premises in the event Tenant exercises the Option
provided for in Section 24, (iv) any violation or claim of violation of any
Environmental Law with respect to the Premises which occurred or will occur at
any time during the Term and during Tenant's ownership of the Premises in the
event Tenant exercises the Option provided for in section 14, (v) any act or
omission of Tenant or any of its agents, contractors, servants, employees,
invitees licensees or trespassers in, on or about the Premises during the Term
and during Tenant's ownership of the Premises in the event Tenant exercises the
Option provided for in Section 24, or (vi) any damage to or loss of property at
the Premises during the Term or any injury to or death of any person occurring
in or as a result of any act or omission at the Premises during the Term and
during Tenant's ownership of the Premises in the event Tenant exercises the
Option provided for in Section 24; provided, however, that Tenant shall not be
required to indemnify any indemnified party for any Claim resulting from any
act which would constitute the negligence or willful misconduct of such
indemnified party.
(b) From and after the Commencement Date, Landlord shall
indemnify and save harmless Tenant, its employees, officers, directors, agents,
affiliates, personal representatives, and successors and assigns of each of the
foregoing from any and all Claims which may be imposed on or asserted against
any such indemnified party by or on behalf of any person or entity arising,
in whole or in part, out of or by reason of (i) the conduct or management of,
or any work or thing whatsoever done in, on or about, the Premises prior to or
after the Term in the event Tenant fails to exercise the Option provided for in
Section 24, (ii) any breach or default on the part of Landlord in the
performance of any covenant or agreement on the part of Landlord to be
performed pursuant to this Lease, (iii) the use, generation, manufacture,
production, storage, Release, or threatened Release, of a Hazardous Substance
on, under or about the Premises prior to or after the Term in the event Tenant
fails to exercise the Option provided for in Section 24 in violation of any
Environmental Law, (iv) any violation or claim of violation of any
Environmental Law with respect to the Premises which occurred or will occur
at any time prior to or after the Term in the event Tenant fails to exercise
the Option provided for in Section 24; provided, however, that Landlord shall
not be required to indemnify any indemnified party for any Claim resulting from
any act which would constitute the negligence or willful misconduct of such
indemnified party.
(c) In case any action or proceeding be brought against any party
entitled to indemnity under Section 10(a) or 10(b) above by reason of any
Claim, the indemnifying party upon notice from such indemnified party shall
defend such action or proceeding by counsel reasonably satisfactory to such
indemnified party and shall pay all expenses in respect of such action or
proceeding. The
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obligations of the indemnifying party under this Section 10 shall survive any
expiration or termination of this Lease. Payments due from Tenant or Landlord
to each indemnified party pursuant to this Section 10 shall be made directly to
such indemnified party. This Section 10 constitutes a separate agreement with
respect to each indemnified party.
(d) If the compromise or settlement of any such Claim shall not
result in the complete release of an indemnified party from the Claim so
compromised or settled without any payment by such indemnified party, the
compromise or settlement shall require the prior written approval of such
indemnified party. Such indemnified party agrees to (i) cooperate with the
indemnifying party and its counsel and (ii) execute any and all releases and
other documents determined by indemnifying party and its counsel as necessary
to compromise or settle any Claim that the indemnifying party is permitted
hereunder to compromise or settle.
(e) Each party's reimbursement and indemnity obligations set out
herein shall include, but not be limited to, any and all penalties,
assessments, fines, damages (including, without limitation, punitive damages),
interest, settlement amounts, judgments, losses, costs of investigation and
defense, attorney's fees, and other expenses.
SECTION 11: NO WASTE; MAINTENANCE AND REPAIR.
Tenant shall not cause or permit any material waste to the Premises or
use the Premises for purposes other than as a Dairy Plant. Tenant shall keep
the Premises and the adjoining sidewalks, curbs and any vaults clean and in
good condition free of accumulations of dirt, rubbish, snow and ice, and shall
make all repairs (including structural repairs) and replacements necessary to
maintain the Improvements in the same condition as the Improvements are in at
the Commencement Date (normal wear and tear with respect to the vehicles,
equipment and machinery excepted) and in accordance with all applicable Legal
Requirements; and in any event Tenant shall make all repairs necessary to avoid
any structural damage or injury to the Improvements. Notwithstanding the
foregoing, Tenant shall not be required to make any repairs arising out of
any casualty or event insured against in accordance with Section 13 hereof if
Landlord receives the insurance proceeds paid in respect thereof.
SECTION 12: ALTERATIONS; CAPITAL IMPROVEMENTS.
(a) Tenant shall not make any material alterations, additions, or
improvements to the Premises without the written consent of Landlord.
Notwithstanding the foregoing, but subject to Section 30 hereof, Tenant may,
without the consent of Landlord, but at its own cost and expense and in a good
workmanlike manner, make such minor alterations, additions, or improvements or
erect, remove, or alter such partitions, or erect such shelves, bins,
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machinery, and trade fixtures as it may deem advisable, without altering the
basic character of the Improvements, and without overloading or damaging such
Improvements or building systems, and in each case complying with all
applicable Legal Requirements.
(b) Upon Tenant's written notification to Landlord that capital
additions or improvements to the Premises or additional equipment or machinery
are reasonably necessary for the continued operation of the Dairy Plant,
Landlord and Tenant shall discuss such proposed capital additions or
improvements or such additional equipment or machinery and agree upon the
capital additions or improvements to be made or the additional equipment or
machinery to be purchased. Upon reaching such agreement, Landlord shall be
responsible for such capital improvements or equipment purchases and Landlord
and Tenant shall use their best efforts to negotiate either a modification of
the amount of Rent payable under this Lease to accommodate Landlord's capital
expenditures or a separate lease agreement with respect to additional purchased
equipment, as applicable. In either case, the parties shall also
correspondingly adjust the Option Price (hereinafter defined) on Exhibit D
hereto.
(c) Upon consultation with, and the agreement of, Landlord,
Tenant shall be free to sell any items of equipment or machinery which may be
covered by the terms of this Lease and use the proceeds therefrom to purchase
new items of equipment or machinery in replacement thereof. In such case, the
parties shall also use the best efforts to negotiate a modification of the
amount of Rent payable under this Lease and an adjustment to the Option Price.
SECTION 13: INSURANCE.
Tenant, at its sole cost and expense, will, at all times until
termination of this Lease, maintain the following insurance for the benefit of
Landlord and Tenant:
(a) Insurance against loss of or damage to the Premises by fire
ire, hurricane and by such other risks now embraced by the standard "extended
coverage" with "all risk" endorsements and, in any event, in an amount equal to
100% of the full insurable value of the Premises. "Full insurable value" means
the actual replacement cost of the Premises (excluding foundation, footings and
excavation costs) without physical depreciation. Notwithstanding the foregoing,
the policies referred to in this clause (a) may contain a deductible amount per
occurrence for the Premises taken as a whole consistent with the deductible
amounts currently carried by Tenant with respect to other dairy plants which it
owns which are similar in size and quality to the Dairy Plant, which deductible
shall be payable by Tenant.
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(b) General liability insurance written on a so-called
"comprehensive general liability insurance form", with a commercially
reasonable deductible for the mutual benefit of Landlord and Tenant, covering
the Premises against claims on account of bodily injury and property damage
incurred upon or about all or any portion of the Premises, such insurance to be
written with limits and excess (umbrella) coverage consistent with such types
and amounts of insurance coverage currently carried by Tenant with respect to
other dairy plants which it owns which are similar in size and quality to the
Dairy Plant.
(c) Hazard insurance covering flood (only if the Premises is
located in whole or in part within a designated flood plain area) and such
other hazards and in such amounts as may be customary for comparable properties
in the area.
(d) Tenant shall obtain such other insurance in such amounts as
may from time to time be reasonably required by Landlord against other
insurable hazards which at the time are commonly insured against in the case of
premises of similar type and locale where the Premises is located.
(e) All insurance provided for herein shall be effected under
valid and enforceable policies, in such form and (as to insurance not provided
for specifically herein) in such amounts as may from time to time be reasonably
satisfactory to Landlord, issued by insurers of recognized responsibility and
authorized to do business in the state where the Premises is located. Prior to
the date hereof and thereafter not less than fifteen (15) days prior to the
expiration dates of the policies theretofore furnished pursuant to this
Section, originals of the policies, certificates thereof or insurance binders
thereof reasonably satisfactory to Landlord bearing notations evidencing the
full and final payment of premiums for at least three (3) months in advance or
accompanied by other evidence satisfactory to Landlord of such payment, and
requiring that thirty (30) days' notice be given to Landlord before the policy
is cancelled or changed, or the coverage reduced, shall be delivered by Tenant
to Landlord. Tenant shall in writing authorize and direct its insurance agents
to mail to Landlord copies of all notices sent to Tenant. At least ten (10)
days prior to the due date of any subsequent premium under any such policy or
replacement or renewal thereof, Tenant shall deliver evidence of such payment
to Landlord.
(f) All policies of insurance provided for herein shall name
Landlord and any mortgagee of the Premises, as their respective interests may
appear. The loss, if any, under the policies referred to in Section 13(a) shall
be adjusted with the insurance companies by Landlord. Insurance proceeds
payable under all policies referred to in Section 13(a) shall be payable to
Landlord. All applicable policies shall expressly provide that loss thereunder
shall be adjusted and paid as provided in this Lease.
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SECTION 14: LOSS BY CASUALTY.
If the Premises or any portion thereof are damaged or destroyed by
reason of fire, hurricane or any other cause, Tenant shall immediately notify
Landlord. If the buildings on the Premises are totally destroyed by fire,
hurricane or by other cause, Landlord and Tenant shall mutually agree upon
whether this Lease should be terminated or the damage to the Premises repaired
at the expense of Landlord and this Lease continued. Tenant shall not be
entitled to any insurance proceeds attributable to such damage to the Premises,
and all such insurance proceeds shall be payable to Landlord.
SECTION 15: CONDEMNATION.
If all or any part of the Premises are taken as a result of the exercise
of the power of eminent domain, this Lease will terminate as to the part so
taken as of the date of taking, and, in the case of a partial taking, either
Landlord or Tenant will have the right to terminate this Lease as to the
balance of the Premises by notice to the other within thirty (30) days after
such date. In the event of any taking, Landlord will be entitled to any and all
compensation, damages, income, rent, awards, or any interest paid or made in
connection with the taking whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Tenant shall be entitled to any
award for loss of or damage to Tenant's trade fixtures and removable personal
property. Tenant will have no claim against Landlord including without
limitation a claim for the value of any unexpired Term of this Lease or
otherwise.
SECTION 16: LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS.
If Tenant shall at any time fail to make any payment or perform any act
on its part to be made or performed hereunder, then Landlord, without waiving
or releasing Tenant from any obligation of Tenant contained in this Lease, may
at its option pay any sum or perform any act on Tenant's part to be paid or
performed as provided herein, and may enter upon all or any portion of the
Premises for any purpose and take any action thereon as may be necessary. The
amount of any payment made or expense incurred by Landlord shall constitute
additional rent and shall be payable by Tenant to Landlord on demand, together
with interest at the Default Rate, from the date of such payment by Landlord
until the date Tenant reimburses such sums to Landlord.
SECTION 17: DISCHARGE OF LIENS.
Tenant shall have no authority, express or implied, to create or place
any lien or encumbrance of any kind or nature whatsoever upon, or in any manner
to bind, the interest of Landlord in the Premises or to charge the rentals
payable hereunder for any claim
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in favor of any person dealing with Tenant, including those who may furnish
materials or perform labor for any construction or repairs, and each such claim
shall affect only, and each lien shall attach, if at all, only to, the
leasehold interest granted to Tenant by this instrument. Tenant covenants and
agrees that it will pay or cause to be paid all sums legally due and payable by
it on account of any labor performed or materials furnished in connection with
any work performed on the Premises on which any lien is or can be validly and
legally asserted against its leasehold interest in the Premises or the
improvements thereon and that it will save and hold Landlord harmless from any
and all loss, cost, or expense based on or arising out of asserted claims or
liens against the leasehold estate or against the rights, titles, and interest
of the Landlord in the Premises or under the terms of this Lease. Further,
Tenant agrees that it will immediately remove and have released any mechanics,
materialmen's or similar lien which may become attached to the Premises or any
interest therein during the term hereof.
SECTION 18: DEFAULT; TERMINATION.
(a) "Event of Default" wherever used herein means any of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) Failure by Tenant to pay any item of Rent or other
sums due hereunder within ten (10) days after written demand therefor by
Landlord to Tenant;
(ii) Failure by Tenant to maintain insurance as required
by Section 13 hereof for ten (10) days after written demand therefor by
Landlord;
(iii) Any representation or warranty made by Tenant
contained in this Lease shall be false or misleading in any material respect as
of the date hereof;
(iv) Tenant fails to perform or observe any material
covenant, term or condition contained in this Lease which is required to be
performed, observed or kept by Tenant within the time period required or, if
no time period is provided, then within thirty (30) days after Tenant's receipt
of notice thereof; provided, however, that (A) there shall be no grace or
notice period applicable to any such default which in the reasonable judgment
of Landlord is willfully and knowingly committed, and (B) in the case of any
such default which is susceptible of cure but not within the applicable time
period, provided any delay in exercising Landlord's remedies hereunder beyond
such thirty (30) day period could not have a material adverse effect on
Landlord's rights under the Lease or the value of the Premises, no Event of
Default shall be deemed to occur so long as Tenant promptly
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commences to cure such default within the applicable time period and thereafter
diligently and continuously pursues such cure to completion within ninety (90)
days after such notice to Tenant or one hundred twenty (120) days after such
notice to Tenant if the performance of such covenant, term or condition
requires obtaining various regulatory or other governmental approvals or
certifications;
(v) The entry by a court having jurisdiction of a decree or order
for relief in respect to Tenant in an involuntary case or proceeding under any
applicable Federal or state bankruptcy, insolvency, reorganization (relating to
an insolvency) or other similar law or the appointment (in connection with such
a proceeding) of a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of Tenant, or of any substantial part of
its property, or in connection with such a proceeding ordering the winding up
or liquidation of its affairs, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a
period of sixty (60) consecutive days;
(vi) The commencement by Tenant of a voluntary case or proceeding
under any applicable Federal or state bankruptcy, insolvency, reorganization
(in connection with an insolvency) or other similar law or the commencement of
any other case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by Tenant to the entry of a decree or order for relief in an
involuntary case or proceeding under any applicable Federal or state
bankruptcy, insolvency, reorganization (in connection with the insolvency) or
other similar law or to the commencement of any bankruptcy or insolvency case
or proceeding, or the filing by Tenant of a petition or answer or consent
seeking reorganization or relief under any applicable Federal or state
bankruptcy, insolvency or similar law, or the consent by Tenant to the filing
of such petition or to the appointment of or taking possession by (in
connection with such a proceeding) a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of any substantial part of the
property of Tenant, or the making by Tenant of an assignment for the benefit
of creditors, or the admission by Tenant in writing of its inability to pay its
debts generally as they become due;
(vii) Tenant shall abandon or vacate any material portion of the
Premises;
(viii) Tenant shall do or permit to be done anything which
creates a material lien or encumbrance upon the Premises, except as expressly
permitted by the terms hereof or by Landlord in writing;
then and in any such event, Landlord at any time thereafter may give written
notice to Tenant specifying such Event of Default or Events of Default and
stating that this Lease and the Term shall
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expire and terminate on the date specified in such notice, and upon said date
this Lease and the Term and all rights of Tenant under this Lease shall expire
and terminate, and Tenant shall remain liable as hereinafter provided.
(b) Upon any such expiration or termination of this Lease, Tenant
shall quit and peacefully surrender the Premises to Landlord in accordance with
Section 30 hereof, and Landlord, upon or at any time after any such expiration
or termination, may without further notice, enter upon and re-enter the Premises
and possess and repossess itself thereof, by force, summary proceedings,
ejectment or otherwise, and may dispossess Tenant and remove Tenant and all
other persons and property from the Premises and may have, hold and enjoy the
Premises and the right to receive all rental income of and from the Premises. No
reentry or taking possession of the Premises by Landlord shall be construed as
an election to terminate this Lease by Landlord unless Landlord shall give
Tenant a written notice of such intention or unless a termination thereof shall
be decreed by a court of competent jurisdiction.
(c) No failure by Landlord to insist upon the strict performance
of any covenant, agreement, term or condition of this Lease or to exercise any
right or remedy consequent upon a breach thereof, and no acceptance of full or
partial rent during the continuance of any such breach, shall constitute a
waiver of any such breach or of such covenant, agreement, term or condition. No
covenant, agreement, term or condition of this Lease to be performed or
complied with by either party and no breach thereof, shall be waived, altered
or modified except by a written instrument executed by the other party. No
waiver of any breach shall affect or alter this Lease but each and every
covenant, agreement, term and condition of this Lease shall continue in full
force and effect with respect to any other then existing or subsequent breach
thereof.
(d) In the event of any breach or threatened breach by Tenant of
any of the covenants, agreements, terms or conditions contained in this Lease,
Landlord shall be entitled to enjoin such breach or threatened breach and shall
have the right to invoke any right and remedy allowed at law or in equity or by
statute or otherwise as though re-entry, summary proceedings, and other
remedies were not provided for in this Lease.
(e) Each right and remedy of Landlord provided for in this Lease
shall be cumulative and shall be in addition to every other right or remedy
provided for in this Lease or now or hereafter existing at law or in equity or
by statute or otherwise. The exercise or beginning of the exercise by Landlord
of any one or more of the rights or remedies provided for in this Lease or now
or hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by Landlord of any or all other
rights or remedies provided for in this Lease
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or now or hereafter existing at law or in equity or by statute or otherwise.
SECTION 19: QUIET ENJOYMENT.
Landlord represents and covenants that Landlord has full right, power
and authority to enter into this Lease for the term herein granted and Landlord
covenants and agrees with Tenant that upon Tenant paying the Basic Rent,
additional rent and other charges due hereunder, and observing and performing
all the terms, covenants and conditions on Tenant's part to be observed and
performed, Tenant may peaceably and quietly enjoy the Premises, free from any
interference, molestation or acts of Landlord or of anyone claiming by, through
or under Landlord, subject, nevertheless, to the terms and conditions of this
Lease and to any mortgage that appears of record with respect to the Premises,
and all modifications thereof.
SECTION 20: SUBORDINATION.
Landlord and Tenant agree that this Lease shall be and hereby is made
subject and subordinate at all times to any and all mortgages or deeds of
trust, and all advances thereunder, which may now or hereafter affect the
Premises and to all renewals, modifications, consolidations, participation,
replacements and extensions thereof (collectively, the "Instruments"). The
aforesaid provisions shall be self-operative and no further instrument of
subordination shall be required. In the event Landlord or the holder or any
Instrument desire confirmation of such subordination, Tenant shall execute
promptly and without charge therefor any reasonable certificate that Landlord
or the holder of any Instrument may request. In each instance where a right is
granted to holders of Instruments hereunder, such right shall extend to each
such holder only to the extent such holder's interest is in the Premises
affected by the exercise of such holder's right.
SECTION 21: HOLDOVER.
After the expiration of the Term of this Lease, if Tenant shall continue
in possession thereafter, such possession shall be on a month-to-month basis,
upon the same terms of this Lease until terminated at the end of a month by
either party upon thirty (30) days' advance written notice to the other party.
SECTION 22: TENANT'S LICENSES, PERMITS AND AUTHORIZATIONS.
Tenant shall, at Tenant's sole cost and expense and throughout the Term
of this Lease, procure and maintain or shall cause to be procured and
maintained all necessary licenses, permits and authorizations for conducting in
a lawful manner in and on the Premises the business described in Section 5 of
this Lease. Tenant agrees that such licenses, permits and authorizations will
at all
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<PAGE> 19
times be available for inspection by Landlord and any holders of any
Instruments. Tenant shall, at Tenant's cost and expense, at all times comply in
all material respects with the terms and conditions of such licenses, permits
and authorizations.
SECTION 23: RIGHT OF FIRST REFUSAL.
In the event Landlord receives a bona fide offer for and desires to
convey or sell the Premises, it shall tender to Tenant a written notice
specifying all the terms and conditions of any such offer to purchase t he
Premises and specifying the identity of such proposed purchaser (the "Notice"),
and said Notice shall constitute an offer to sell the Premises to Tenant on the
same terms and conditions contained in the Notice. Within ten (10) days of
receipt of the Notice, Tenant shall have the right to request such information
from Landlord as will enable Tenant to conduct an economic analysis of the offer
contained in the Notice ("Tenant's Request"). Within fifteen (15) days of the
receipt by Tenant of the later of (i) the Notice and (ii) the information
responsive to Tenant's Request, Tenant may elect to exercise either the Option
provided for in Section 24 hereof or its Right of First Refusal hereunder and,
if it exercises the Right of First Refusal, shall enter into an agreement with
Landlord electing to purchase the Premises on the terms and conditions contained
in the Notice. If Tenant does not elect to exercise the rights granted hereunder
within the period described, then Landlord shall have the right to sell the
Premises to the person making said offer upon the terms and conditions set forth
in the Notice. If Landlord does not sell the Premises to the person making the
offer on the terms and conditions set forth in the Notice within sixty (60) days
after the time for Tenant to exercise its rights has expired, then Landlord
shall not have the right to sell the Premises unless it first shall have
reoffered the Premises to Tenant and Tenant again shall have fifteen (15) days
from the receipt of any requested information to advise Landlord of its
intention to purchase. Any offer to purchase the Premises must be for the entire
Premises and not just a portion of the Premises. Should Tenant decline to
exercise its Right of First Refusal with respect to the Premises, Tenant shall
execute such instruments as Landlord may reasonably request to release its
rights hereunder with respect to the Premises.
SECTION 24: OPTION TO PURCHASE.
(a) Subject to the conditions set forth herein, Landlord hereby grants
Tenant the option (the "Option") to purchase the Premises as defined in this
Lease as long as all of the following conditions are complied with on or before
Closing: (i) Tenant is not in material default under any material provision of
this Lease; (ii) this Lease is in full force and effect; and (iii) such sale
would be permitted under applicable law. Tenant must exercise the Option by
delivering written notice to Landlord of such exercise (the "Exercise Notice")
at any time during the Term of this Lease. The date upon which Landlord
receives Tenant's written notice of
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<PAGE> 20
its election to exercise the Option shall be referred to herein as the
"Exercise Date." Upon exercise of the Option, this Lease shall constitute a
Contract of Sale pursuant to which Landlord will sell and Tenant will purchase
the Premises upon the following terms and conditions:
(i) Purchase Price. The purchase price to be paid Landlord
by Tenant for the Premises shall be the applicable amount set forth on Exhibit
D attached hereto for the month in which the Exercise Date occurs (the "Option
Price"). The total amount of the Option Price is to be paid in cash at closing.
(ii) Closing. Closing of the sale and purchase of the
Premises described herein shall be held no later than ninety (90) days
following the Exercise Date, or on such other date as the parties may mutually
agree upon in writing (the "Closing Date"
At the closing, Landlord shall deliver to Tenant the
following:
(1) A Special Warranty Deed conveying good and
indefeasible fee simple title to the Premises unto Tenant subject to taxes not
yet due and payable and any easements, restrictions, rights, conditions and
non-monetary encumbrances of record or known to Tenant. The Premises is to be
conveyed "AS IS" and "WITH ALL FAULTS" and, except as set forth in the
indemnification agreement described below, there shall be no warranty, or
indemnity, expressed or implied as to the condition of the Premises and by
accepting the Special Warranty Deed and possession of the Premises, Tenant
shall release Landlord from any and all claims regarding the condition of the
Premises (except claims covered by such indemnification agreement).
(2) An indemnification agreement in form reasonably
acceptable to Tenant pursuant to which Landlord agrees to indemnify Tenant for
the same type of Claims as described in Section 10(b)(iii) and (iv) of this
Lease.
(3) An assignment and assumption agreement
transferring all of Landlord's right, title and interest in and to the Lease
Agreements to Tenant.
(4) Any and all other conveyance documents
reasonably appropriate for this type of conveyance transaction, including a
bill of sale with respect to any personal property which is the subject of this
Lease, including without limitation, the three vehicles leased hereunder.
At the closing, Tenant shall deliver to Landlord the full amount
of the Purchase Price in cash subject to the adjustment only as provided
herein.
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<PAGE> 21
(iii) Closing Costs. Rents for the current month and year
of Closing shall be prorated at the Closing effective as of the Closing Date.
The cost of recording the Deed, the cost of Owner's Policy or Title Insurance,
escrow fees and any other fees charged by the Title Company shall be borne by
Tenant. All other expenses incurred by the parties with respect to the
closing, including, but not limited to, attorneys' fees, shall be borne and
paid exclusively by the party incurring same or shall be allocated as is
customary for similar transactions in the State of Texas.
SECTION 25: NOTICES.
All notices, demands and requests under this Lease shall be in writing
and shall be sent either personally, by courier, telecopy or by United States
certified or registered mail, postage prepaid, return receipt requested, and
addressed as follows:
To Landlord: FLAV-0-RICH, INC.
Northeast Tennessee Business park
10368 Wallace Alley Drive, Suite 4
Kingsport, Tennessee 37663
Attention: Steve Conerly
Facsimile No.: (615) 279-3388
To Tenant: SOUTHERN FOODS GROUP, L.P.
3114 South Haskell
Dallas, Texas 75223
Attention: Pete Schenkel
Facsimile No.: (214) 821-1686
Any party may, by notice given to any other party, designate a new
address or telecopy number to which notices, demands and requests shall be sent
and, thereafter, any of the foregoing shall be sent to the address or telecopy
number most recently designated by such party. Notices, demands and requests
which shall be served in the manner aforesaid shall be deemed to have been
served or given for all purposes under this Lease at the time such notice,
demand or request shall be (a) mailed by United States certified or registered
mail as aforesaid, in any post office or branch post office regularly
maintained by the United States Government, (b) hand-delivered by courier, or
(c) transmitted by telecopy to the respective telecopy number set forth above
with confirmation of completion of such telecopy transmission.
SECTION 26: ENTIRE AGREEMENT, ETC..
This Lease and the Exhibits attached hereto set forth the entire
agreement between the parties with respect to the lease of the Premises. Any
prior conversations or writings are merged herein and extinguished. No
subsequent amendment to this Lease shall be binding upon Landlord or Tenant
unless reduced to writing and signed by Landlord and Tenant.
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<PAGE> 22
SECTION 27: ASSIGNMENT AND SUBLETTING.
Tenant shall not have the right to assign this Lease or any portion
thereof or to sublet the whole or any part of the Premises without the prior
written consent of Landlord. Landlord shall not have the right to assign any of
its rights under this Lease without the prior written consent of Tenant. Subject
to the terms and conditions of this Lease, the covenants, conditions and
agreements contained in this Lease shall bind and inure to the benefit of
Landlord and Tenant and their respective successors and legal representatives.
SECTION 28: INVALIDITY OF PARTICULAR PROVISIONS.
If any term or provision of this Lease or the application thereof to any
persons or circumstances shall, to any extent, be invalid or unenforceable in
any jurisdiction, the remainder of this Lease or the application of such term
or provision to other persons or circumstances or in other jurisdictions shall
not be affected thereby, and each term and provision of this Lease shall be
valid and be enforced to the fullest extent permitted by law.
SECTION 29: CAPTIONS.
Captions or titles of the Sections and subsections of this Lease are
inserted solely for convenience of reference and shall not constitute a part of
this Lease, nor shall they affect its meaning, construction or effect.
SECTION 30: SURRENDER OF THE PROMISES.
Except as otherwise herein provided, at the expiration of the Term or
termination of this Lease, Tenant will peaceably yield up to Landlord the
Premises in as good order and repair as when delivered to Tenant (normal wear
and tear with respect to the vehicles, equipment and machinery excepted), and
subject to no subtenancies. Tenant shall repair any damage to the Premises
occasioned by the removal of Tenant's trade fixtures, furnishings and equipment
on such expiration, which repair shall include, without limitation, the
patching and filling of holes and repair of structural damage.
SECTION 31: NON-MERGER.
The leasehold estate shall not merge with the fee estate in the event
that the same person or entity acquires, owns or holds, directly or indirectly,
the fee estate and the leasehold estate in the Premises.
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<PAGE> 23
SECTION 32: SIGNS.
Tenant shall have the right to install signs upon the exterior of the
Improvements only when first approved by Landlord and subject to any applicable
governmental laws, ordinances, regulations, and other requirements and subject
to applicable restrictive covenants, if any. Tenant shall remove all such signs
at the termination of this Lease. Such installations and removals shall be made
in such manner as to avoid injury or defacement of the Improvements situated on
the Premises.
SECTION 33: GOVERNING LAW.
THE TERMS AND PROVISIONS OF THIS LEASE SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF TEXAS EXCEPT FOR THOSE MATTERS WHICH RELATE TO ENFORCEMENT AGAINST
THE PREMISES WHICH SHALL BE GOVERNED BY THE APPLICABLE LAWS OF THE STATE IN
WHICH THE PREMISES IS LOCATED.
SECTION 34: RELATION BETWEEN PARTIES.
Nothing herein contained shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent, lender and borrower, or of partnership or of joint venture between the
parties hereto, it being understood and agreed that neither the method of
computation of rent, nor any other provision contained herein, nor any acts of
the parties hereto, shall be deemed to create any relationship between the
parties hereto other than the relationship of Landlord and Tenant and optionor
and optionee.
SECTION 35: TIME PERIODS.
For purposes of this Lease, the determination of any time period shall
be made by excluding the day of the act (the first day) and including the last
day. Saturdays, Sundays and legal holidays (sometimes referred to as
"non-business days") shall be counted; however, where the last day falls on a
non-business day, the last day shall be considered to be the immediately
following Monday, or in the case of a legal holiday, the immediately following
business day.
SECTION 36: NOTICE OF LANDLORD'S DEFAULT.
At any time when there is outstanding a mortgage, deed of trust or
similar security instrument covering Landlord's interest in the Premises,
Tenant may not exercise any remedies for default by Landlord hereunder unless
and until the holder of the indebtedness secured by such mortgage, deed of
trust or similar security instrument shall have received written notice of such
default and a reasonable time for curing such default shall thereafter have
elapsed.
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<PAGE> 24
SECTION 37: NO BROKERS.
Landlord and Tenant warrant to each other that each has had no dealings
with any broker or agent in connection with the negotiation or execution of
this Lease.
SECTION 38: ATTORNEYS FEES.
If, on account of any breach or default by either party in the
performance of such party's obligations hereunder, it shall become necessary
for the other party to employ an attorney to enforce or defend any of such
other party's rights or remedies hereunder, the party against which such rights
or remedies are enforced agrees to pay any reasonable attorney's fees and costs
incurred by the prevailing party in such connection.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above written.
LANDLORD:
FLAV-O-RICH INC.
By: /s/ GERALD L. BOS
--------------------------
Name: Gerald L. Bos
--------------------------
Title: Vice President
--------------------------
TENANT:
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, its General Partner
By: /s/ PETE SCHENKEL
--------------------------
Name: Pete Schenkel
--------------------------
Title: President & CEO
--------------------------
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<PAGE> 25
STATE OF MISSOURI )
)
COUNTY OF GREENE )
This instrument was acknowledged before me on the 6th day of April 1995,
by GERALD L. BOS, the Vice-President of FLAV-O-RICH INC., a Kentucky cooperative
association, on behalf of said cooperative association.
[SEAL]
/s/ DAVID A. GEISLER
-------------------------------
Notary Public in and for the
My Commission Expires: STATE OF MISSOURI
DAVID A. GEISLER NOTARY PUBLIC DAVID A. GEISLER
Greene County State of Missouri -------------------------------
My Commission Expires June 25, 1996 Notary's Printed Name
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on the day of
February, 1995, by _________________, the _______________of SFG Management
Limited Liability Company, a Delaware limited liability company and the general
partner of SOUTHERN FOODS GROUP, L.P., on behalf of said limited liability
company and limited partnership.
[SEAL] /s/
-----------------------------
Notary Public in and for the
STATE OF TEXAS
My commission Expires:
-----------------------------
- ---------------------- Notary's Printed Name
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<PAGE> 26
SECTION 37: NO BROKERS.
Landlord and Tenant warrant to each other that each has had no dealings
with any broker or agent in connection with the negotiation or execution of
this Lease.
SECTION 38: ATTORNEY'S FEES.
If, on account of any breach or default by either party in the
performance of such party's obligations hereunder, it shall become necessary
for the other party to employ an attorney to enforce or defend any of such
other party's rights or remedies hereunder, the party against which such rights
or remedies are enforced agrees to pay any reasonable attorney's fees and costs
incurred by the prevailing party in such connection.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above written.
LANDLORD:
FLAV-O-RICH, INC.
By: /s/
---------------------------
Name:
-------------------------
Title:
------------------------
TENANT:
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, its General Partner
By: /s/ JERRY W. FRIE
----------------------------------
Name: Jerry W. Frie
---------------------------------
Title: Asst. Secretary/Asst. Treasurer
--------------------------------
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<PAGE> 27
STATE OF )
-------------
)
COUNTY OF )
------------
This instrument was acknowledged before me on the____day of
February, 1995, by _______________, the ______________ of FLAV-O-RICH, INC., a
Kentucky cooperative association, on behalf of said cooperative association.
[SEAL]
/s/
---------------------------------
Notary Public in and for the
STATE OF
-------------------
My Commission Expires:
- --------------------------- ----------------------------------
Notary's Printed Name
STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on the 28th day of February,
1995, by Jerry W. Frie, the Asst Sec/Asst Treas of SFG Management Limited
Liability Company, a Delaware limited liability company and the general partner
of SOUTHERN FOODS GROUP, L.P., on behalf of said limited liability company and
limited partnership.
[SEAL] DONNA JENSCHKE
/s/ DONNA JENSCHKE
NOTARY PUBLIC STATE OF TEXAS -----------------------------
Notary Public in and for the
MY COMMISSION EXPIRES 02-10-96 STATE OF TEXAS
My Commission Expires:
2/10/96 Donna Jenschke
- ------------------------ ------------------------------
Notary's Printed Name
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<PAGE> 28
SCHEDULE 8
TRANSFERRED EMPLOYEES
<PAGE> 29
EXHIBIT A
THE LAND
The following described property, together with all buildings and
improvements thereon, lying and being situated in the City of Canton, Madison
County, Mississippi, to-wit:
A lot of land situated partly in NW1/4 SW1/4, Section 30, Township 9
North, Range 2 East, and partly in NE1/4 SE1/4 of Section 25, Township 9
North, Range 2 East, all in the County of Madison, State of Mississippi,
and particularly described as:
Beginning at a point on the west right of way line of U.S. Highway No.
51, which point is 80 feet at right angles from the center line of the
concrete slab on said highway, said point is where the line dividing the
north one-half from the south one-half of said Section 30, intersects
the said west right of way line, and run thence south 30 degrees 55
minutes west along said west right of way line, 65 feet to an iron stake
which is the point of beginning of this lot, and run thence North 59
degrees 5 minutes west 200 feet to a stake, thence South 30 degrees 55
minutes West, 150 feet to a stake, thence South 59 degrees 5 minutes
East, 200 feet to an iron stake on the west right of way of said U.S.
Highway No. 51, thence North 30 degrees 55 minutes East, along said west
right of way line, 150 feet to the point of beginning.
EXHIBIT A TO LEASE; PAGE 1 OF 1
<PAGE> 30
EXHIBIT B
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT (this "Agreement") is made and entered
into as of this day of February, 1995, by and between FLAV-O-RICH, INC., a
Kentucky cooperative association ("Licensor"), and SOUTHERN FOODS GROUP, L.P.,
a Delaware limited partnership ("Licensee").
WHEREAS, pursuant to that certain Lease Agreement of even date herewith,
between Licensor and Licensee (the "Lease Agreement"), Licensor agreed to grant
certain licenses to the Trademarks (as hereinafter defined) to Licensee; and
WHEREAS, Licensee desires to acquire from Licensor, and Licensor desires
to grant to Licensee, certain licenses to the Trademarks for use in connection
with certain specified products in a specified territory, all pursuant to the
terms and conditions provided herein.
NOW, THEREFORE, for and in consideration of the sum of One Dollar
($1.00), receipt of which is hereby acknowledged, and for other good and
valuable consideration, and the mutual performance of the undertakings herein,
the parties hereto hereby agree as follows:
1. DEFINED TERMS. The following terms shall have the meanings set
forth below when used in this Agreement:
(a) "SPECIFIED PRODUCTS" means processed fluid milk, liquid
milk, chocolate milk, butter milk, half and half, cream
and low and reduced fat versions of any of the foregoing,
e.g. "low-fat chocolate milk."
(b) "TERM" has the meaning set forth in Section 14 hereof.
(c) "TERRITORY" means the States of Louisiana, Mississippi and
Arkansas and Shelby County, Tennessee and the contiguous
counties in Tennessee.
(d) "TRADEMARKS" means the trademarks listed in Attachment A
attached hereto and incorporated herein by reference.
2. LICENSE. On the terms and subject to the conditions stated in this
Agreement, Licensor hereby grants to Licensee an exclusive (including as to
Licensor), royalty-free license to use the Trademarks in connection with the
promotion, advertising, offer
EXHIBIT B TO LEASE
<PAGE> 31
for sale, sale and distribution of the Specified Products in the Territory
during the Term.
3. LIMITATIONS ON LICENSE. The license herein granted does not include
or give to Licensee the right to use any trademark of Licensor other than the
Trademarks and does not license the use of any trade dress for the Specified
Products currently used by Licensor. Licensee agrees to use the Trademarks only
as and in the manner specified in this Agreement. Without limiting the
generality of the foregoing, (a) the use of the Trademarks by Licensee shall
not be extended outside the Territory, or to any products other than the
Specified Products sold or advertised for sale by Licensee in the Territory
during the Term, (b) Licensee shall not use the Trademarks or any derivative
thereof as a trade name and (c) Licensee shall not use or advertise the
Trademarks in a manner which is likely to cause any third party to believe that
Licensee is related to Licensor in any other way than as a licensee or lessor.
4. LICENSOR'S RIGHTS. Licensee recognizes and agrees that Licensor is
the owner of the Trademarks and subject to the rights granted Licensee
hereunder is entitled to the exclusive right to employ, use, control and derive
the benefit and goodwill from the use of the Trademarks. Without limiting the
generality of the foregoing, Licensee further agrees that nothing herein shall
prevent or restrict Licensor from using, or granting to others (by sale,
license, or otherwise) the right to use, the Trademarks (a) on or in connection
with the sale, advertising or marketing of any products (including, without
limitation, Specified Products) outside the Territory or (b) in the Territory
on or in connection with the sale, advertising or marketing of products therein
other than the Specified Products.
5. VALIDITY OF TRADEMARKS. Licensee acknowledges the validity of the
Trademarks and the rights and registrations which Licensor owns regarding the
same, and will not at any time, directly or indirectly, do or cause to be done
any act or thing contesting or in any way impairing or intending to impair any
part of Licensor's right, title and interest in and to the Trademarks. Licensee
shall not in any manner represent that it has any ownership in the Trademarks
or registrations thereof, and Licensee acknowledges that its use of the
Trademarks shall not create in favor of Licensee any right, title or interest
in or to the Trademarks or registrations thereof except those rights and
interests granted hereunder. All use of the Trademarks by Licensee shall enure
to the sole benefit of Licensor. For so long as Licensor has not abandoned the
Trademarks, Licensee covenants and agrees that it will not adopt or use, in the
U.S.A., for any dairy product, a trade name or trademark that is confusingly
similar to the Trademarks.
EXHIBIT B TO LEASE
<PAGE> 32
6. QUALITY CONTROL. Licensee agrees that Licensor has the right to
control the nature and quality of the Specified Products sold by Licensee under
the Trademarks.
7. AGREEMENTS REGARDING SPECIFIED PRODUCTS. Licensee agrees that (a) the
Specified Products produced or marketed by Licensee under the Trademarks shall
comply with all applicable statutes, laws, rules, regulations and other
similar, legal requirements, and shall conform to the standards and
specifications previously used by Licensor immediately prior to the execution
and delivery of this Agreement in the making, marketing and advertising of
Specified Products, such written statements and specifications having been
provided to Licensee prior to execution of this Agreement and (b) the nature
and quality of Licensee's Specified Products bearing the Trademarks will be the
same as the nature and quality of the Specified Products sold under such
Trademarks in the past by Licensor.
8. INSPECTION BY LICENSOR. Licensee agrees to permit Licensor at
reasonable times during business hours on prior written notice to inspect the
production facilities, and the production and the quality control production
records of Licensee in connection with the Specified Products. In the event
that any specified Products do not meet the quality standards maintained in the
past by Licensor immediately prior to execution and delivery of this Agreement,
Licensor shall identify the alleged non-conformity and work with Licensee to
rectify any concerns of Licensor. In the event the parties cannot resolve their
differences, Licensee will refrain from selling the affected products under the
Trademarks until the parties resolve the dispute.
9. PRODUCT DEFICIENCIES. The license herein granted shall be subject to
termination by Licensor in the event that any substantial deficiency in the
nature or quality of any Specified Products or a substantial deviation from the
standards and specifications for the Specified Products is not corrected by
Licensee within thirty (30) days after receipt of written notice from Licensor
specifying in reasonable detail the deficiency or deviation. If such deficiency
or deviation results in a product potentially hazardous to health or safety,
Licensee shall take immediate steps after discovery of the hazardous product to
recall such hazardous product from distribution channels and destroy it.
10. PACKAGING AND ADVERTISING. Licensee agrees to mark all labels,
wrappings, packages and containers for the Specified Products sold or
distributed under the Trademarks in accordance with all applicable laws and
regulations. No packaging, labeling or advertising of Specified Products sold
by Licensee under the Trademarks, as provided herein, may be used without the
prior written approval of Licensor. Samples of all advertising, packaging and
labeling for Specified Products shall be submitted sufficiently far in advance
to permit Licensee to make such changes as Licensor reasonably requests. If
Licensor has not disapproved
EXHIBIT B TO LEASE
<PAGE> 33
in writing an item of packaging, labeling and advertising within five calendar
(5) days after its receipt, such item shall be deemed to have Licensor's
approval. once approval has been obtained, further approval need not be
obtained for additional or repeated use of the same or substantially similar
packaging, labeling and advertising.
11. CLAIMS OF INFRINGEMENT. If, during the Term of this Agreement, any
third party uses in the Territory a trademark that is confusingly similar to
the Trademarks, then Licensee shall notify Licensor in writing thereof,
specifying the details of the third party use, including copies of the third
party's labels, advertising or packaging complained of. If Licensee so requests
in the notification, Licensor shall promptly undertake preventive measures in
order to stop the infringement and/or the unfair method of competition,
including litigation if necessary, and where appropriate to recover damages,
costs and fees. Licensee shall, at Licensor's written request, but at
Licensor's cost as to out-of-pocket expenses only, cooperate with Licensor in
its preventive measures, including litigation. Licensee shall with respect to
litigation commenced at its request pay one-half of substantiated court costs
and expenses, including reasonable attorneys' fees and share one-half of any
monetary recovery. If Licensee does not request litigation, but Licensor
notifies Licensee that it intends to litigate, Licensee may within fifteen (15)
days notify Licensor whether or not it wishes to participate in the litigation.
If Licensee declines to participate, then Licensee shall forfeit its share of
any monetary recovery. If Licensee agrees, on the other hand, to participate,
then Licensee shall pay one-half of the costs and expenses as described above
and share one-half of any monetary recovery; provided, however, that Licensee
may at any time during such non-requested litigation notify Licensor that it no
longer desires to participate, in which case Licensee will not thereafter be
obligated to pay any portion of such costs and expenses including fees. In such
event, Licensee shall forfeit its share of any monetary recovery.
12. INDEMNIFICATION. Licensee hereby agrees to indemnify, defend and
hold harmless Licensor, its shareholders, directors, officers, employees and
agents, from, against and in respect of, any all claims, demands, liabilities,
losses, costs, damages, penalties, fines and expenses (including, without
limitation, reasonable attorneys' fees and expenses) arising out of any of the
following:
(a) any and all product liability claims or actions, and any and
all other claims or actions, involving or relating to Licensee's
manufacture, processing, use, advertising, marketing, sale or
distribution of the Specified Product (unless such claims are based on
Licensee's use of the Trademarks).
EXHIBIT B TO LEASE
<PAGE> 34
(b) any and all civil or administrative proceedings brought by
any federal, state or local agency in connection with the Specified
Products processed, sold or distributed by Licensee under the Trademarks
(unless such proceedings are based on Licensee's use of the Trademarks);
(c) any claim or action by any consumer or other third party
relating to any advertising, marketing or promotional material
published, used or distributed by Licensee (unless such claim is based
on Licensee's use of the Trademarks); and
(d) any and all actions, suits, proceedings, demands,
assessments, judgments, costs, and legal and other expenses incident to
any of the foregoing (unless such claim is based on Licensee's use of
the Trademarks).
The provisions of this Section 12 shall survive the expiration or termination
of this Agreement.
13. INSURANCE. Licensee shall maintain in force during the Term of
this Agreement an insurance policy covering claims arising out of the
distribution and sale by Licensee of the Specified Products (the "Policy"). The
Policy shall name Licensor as an additional insured and shall have coverage
amounts reasonably acceptable to Licensor. Licensee shall provide Licensor with
a copy of the Policy and any endorsement thereof prior to the first use by
Licensee of the Trademarks and shall, no less than ten (10) days before the
renewal date of the Policy, provide Licensor with a copy of the renewal
certificate. Licensee shall not sell any Specified Products under the Trademark
that are not covered under the Policy.
14. TERM AND SELL-OFF RIGHTS.
(a) The term of this Agreement shall commence on the date hereof
and shall continue (i) so long as the Lease Agreement remains in full
force and effect, and (ii) in the event that the Licensee exercises its
option to purchase under the Lease Agreement, for Three (3) years
immediately following the date such purchase is closed, unless
terminated as herein provided (the "Term").
(b) Subject to the provisions of this Section 14(b), upon the
termination of this Agreement for any reason, all rights of Licensee to
use the Trademarks shall cease. Upon such termination Licensee shall
discontinue advertisement, sale, distribution and promotion of the
Specified Products under the Trademarks, except that for thirty (30)
days following such termination, unless termination has occurred under
any of the provisions of section 15 hereof, Licensee shall be permitted
to sell or otherwise distribute (in a manner consistent with the
reputation of the Trademarks) (i) its inventory of all Specified
Products (whether or not
EXHIBIT B TO LEASE
<PAGE> 35
finished, and shall have the right to finish any work-in-process and use
supplies of raw materials on hand or ordered), (ii) all items previously
ordered under purchase orders that cannot be cancelled without penalty
to, or a claim against, Licensee and (iii) all Specified Products
required to fill binding orders outstanding at the time of such
termination under sales orders that cannot be cancelled without penalty
to, or a claim against, Licensee. Notwithstanding anything herein to the
contrary, for so long as Licensee shall have any rights under this
Section 14(b), it shall continue to perform all of its obligations under
this Agreement.
15. EARLY TERMINATION. This Agreement and the license granted hereby
shall terminate at the option of Licensor, without prior notice to Licensee, in
the event that: (a) Licensee is adjudicated a bankrupt; (b) a receiver for the
business of Licensee is appointed; (c) Licensee makes an assignment for the
benefit of its creditors; (d) any attempt is made by Licensee to assign or
transfer this Agreement or the license herein granted; (e) the Lease Agreement
is terminated for any reason other than the exercise of the option to purchase;
or (f) Licensee fails to comply with any other provision of this Agreement and
such failure is not corrected by Licensee within thirty (30) days after receipt
of written notice from Licensor specifying in reasonable detail such failure.
16. EFFECT OF EXPIRATION OR TERMINATION. Licensee agrees that upon the
expiration or termination of the license herein granted, Licensee (a)
releases and forever quitclaims unto Licensor any and all right, title and
interest in and to the Trademarks, (b) shall not use any of the Trademarks
except as provided in Section 14(b), and (c) shall promptly return to Licensor
all unused labels bearing the Trademarks then in the possession or under the
control of Licensee.
17. GO GOVERNING LAW. This Agreement shall be deemed to be made in and
pursuant to the laws of the State of Texas and all questions of the validity
and the construction thereof shall be determined in accordance with the laws of
Texas, except that trademark questions shall be determined under federal
trademark law.
18. NO JOINT VENTURE. Licensee agrees that it is an independent entity
and not a partner, joint venturer, or agent of Licensor. Neither party is
authorized to or has the power to obligate or bind the other party in any
manner whatsoever, except as may be expressly provided herein.
19. FURTHER INSTRUMENTS. The parties hereto agree to execute and deliver
such instruments and take such other action as shall be reasonably necessary,
or as shall be reasonably requested by the other party hereto, in order to
carry out the transactions, agreements and covenants contemplated in this
Agreement.
EXHIBIT B TO LEASE
<PAGE> 36
20. NOTICES. Any notices, claims or demands which any party is required
or may desire to give to another under or in conjunction with this Agreement
shall be in writing, and shall be given by addressing the same to such other
party at the address set forth below, and by (a) depositing the same so
addressed, postage prepaid, first class, certified or registered, in the United
States mail (herein referred to as "Mailing"), (b) overnight delivery by a
nationally recognized overnight courier service (e.g. UPS, Federal Express),
(c) delivery of the same personally to such other party, or (d) transmitting
the same by facsimile and Mailing the original. Any notice shall be deemed to
have been delivered on the date of Mailing; one day after timely delivery to an
overnight courier; if by personal delivery, upon such delivery; or if by
facsimile, the day of transmission if made within customary business hours, or
if not transmitted within customary business hours, the following business day.
(i) If to Licensor:
Flav-O-Rich, Inc.
Northeast Tennessee Business Park
10368 Wallace Alley Drive, Suite 4
Kingsport, Tennessee 37663
Attention: Steve Conerly
Facsimile: (615) 279-3388
(ii) If to Licensee:
SFG Management Limited Liability Company
3114 South Haskell
Dallas, Texas 75223
Attention: Pete Schenkel
Facsimile: (214) 821-1686
Any party may change the address or facsimile telephone number for notices to
be sent to it by written notice delivered pursuant to the terms of this Section
20.
21. ENTIRE AGREEMENT: AMENDMENTS. This Agreement sets forth the entire
agreement and understanding, and supersedes all prior agreements and
understandings, whether written or oral, between the parties with respect to
the subject matter hereof. Neither party shall be bound by any definition,
condition, warranty or representation other than as expressly stated in this
Agreement or as subsequently set forth in writing and executed by a duly
authorized representative of the party to be bound thereby. This Agreement may
be amended, modified or supplemented only by a writing signed by Licensee and
Licensor.
22. BINDING EFFECT/ASSIGNABILITY. This Agreement shall extend to and be
binding upon and inure to the benefit of the parties hereto, their respective
successors and permitted assigns.
EXHIBIT B TO LEASE
<PAGE> 37
Without the prior written consent of Licensor, Licensee shall not, directly or
indirectly, by operation of law or otherwise, sell, assign, convey, transfer or
encumber this Agreement or any of its rights hereunder, or sublicense,
franchise or otherwise authorize any person, firm, corporation or other
organization or entity to use any of the Trademarks.
23. ATTACHMENTS. All Attachments referenced in this Agreement are
incorporated herein by reference and shall constitute a part of this Agreement.
24. INVALID PROVISIONS. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provisions shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof with the remaining provisions
remaining in full force and effect and not affected by the illegal, invalid or
unenforceable provision or by severance herefrom. Furthermore, in lieu of such
illegal, invalid or unenforceable provision there shall be added automatically
as part of this Agreement a provision similar in terms to such illegal,
invalid, or unenforceable provision as may be possible and still be legal,
valid and enforceable.
25. HEADINGS/CAPTIONS. The captions to sections and subsections of this
Agreement have been inserted solely for convenience and reference, and shall
not control or affect the meaning or construction of any of the provisions of
this Agreement.
26. WAIVER; REMEDIES. Waiver by any party hereto of any breach of or
exercise of any rights under this Agreement shall not be deemed to be a waiver
of similar or other breaches or rights or a future breach of the same duty. The
failure of a party to take any action by reason of any such breach or to
exercise any such right shall not deprive any party of the right to take any
action at any time while such breach or condition giving rise to such right
continues. No course of dealing between or among persons having any interest in
this Agreement will be deemed effective to modify, amend or discharge any part
of this Agreement or any rights or obligations of any person under or by reason
of this Agreement. Except as expressly limited by this Agreement, the parties
shall have all remedies permitted to them by this Agreement or law, and all
such remedies shall be cumulative.
27. CONSENT TO JURISDICTION. Each party hereto hereby irrevocably
consents to the jurisdiction of a state or federal court sitting in Dallas
County, Texas in any action or proceeding arising out of or relating to this
Agreement, and agrees that all claims in respect of such action or proceeding
may be heard and determined in such state or federal courts.
EXHIBIT B TO LEASE
<PAGE> 38
28. ATTORNEY'S FEES AND COSTS. In the event of a breach by any party to
this Agreement and commencement of a subsequent legal action in a court of law
or forum of arbitration, or in the event legal counsel is consulted in the
event of any such breach or in anticipation of any such prospective legal
action, the prevailing party in any such dispute shall be entitled to
reimbursement of reasonable attorney's fees and court costs, including, but not
limited to, the costs of expert witnesses, transportation, lodging and meal
costs of the parties and witnesses, costs of transcript preparation and other
reasonable and necessary direct and incidental costs of such dispute.
"Prevailing party" is the party in whose favor final judgment is rendered.
29. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
FLAV-O-RICH, INC. SOUTHERN FOODS GROUP, L.P.
BY: SFG MANAGEMENT LIMITED
By:/s/ LIABILITY COMPANY
-------------------- Its General Partner
Its:
-------------------
By:/s/
--------------------------
Its:
-------------------
EXHIBIT B TO LEASE
<PAGE> 39
ATTACHMENT A
TRADEMARKS COVERED BY TRADEMARK LICENSE AGREEMENT
FLAV-O-RICH (word)
FLAV-O-RICH with Barn and Silo logo, as exemplified below:
[FLAV-O-RICH LOGO]
<PAGE> 40
EXHIBIT C
LEASE AGREEMENTS
1. Lease Agreement dated October 5, 1994, by and between W. E. Harreld,
Jr., Bank of Mississippi, as Successor Trustee, Trustmark National Bank,
as Successor Trustee, William Edmiston Harreld III, Wilson Arrington
Harreld, Lee Ann Harreld Duncan, James Eastland Harreld and John Cowan
Harreld, as Lessor, and Flav-O-Rich, Inc., as Tenant.
2. Lease Agreement dated August 18, 1993 between W. E. Harreld, Jr. and Paul
E. Case, as Lessor, and Flav-O-Rich, Inc., as Tenant.
3. Lease Agreement dated August 18, 1993 between W. E. Harreld, Jr. and
Charles Riddell, as Lessor, and Flav-O-Rich, Inc., as Tenant (Lease #4).
4. Lease Agreement dated August 18, 1993 between W. E. Harreld, Jr. and
Charles Riddell, as Lessor, and Flav-O-Rich, Inc., as Tenant (Lease #5).
EXHIBIT C TO LEASE - PAGE 1 OF 1
<PAGE> 41
EXHIBIT D
OPTION PRICE
<TABLE>
<CAPTION>
OPTION OPTION
MONTH OF EXERCISE PRICE MONTH OF EXERCISE PRICE
<S> <C> <C> <C>
March 1995......... $1,489,583 September 1997....... 1,158,333
April 1995......... 1,479,167 October 1997......... 1,146,667
May 1995........... 1,468,750 November 1997........ 1,135,000
June 1995.......... 1,458,333 December 1997 ....... 1,123,333
July 1995.......... 1,447,917 January 1998......... 1,111,667
August 1995........ 1,437,500 February 1998........ 1,100,000
September 1995..... 1,427,083 March 1998........... 1,088,750
October 1995....... 1,416,667 April 1998........... 1,077,500
November 1995...... 1,406,250 May 1998............. 1,066,250
December 1995...... 1,395,833 June 1998............ 1,055,000
January 1996....... 1,385,417 July 1998............ 1,043,750
February 1996...... 1,375,000 August 1998.......... 1,032,500
March 1996......... 1,363,750 September 1998....... 1,021,250
April 1996......... 1,352,500 October 1998......... 1,010,000
May 1996........... 1,341,250 November 1998 ....... 998,750
June 1996.......... 1,330,000 December 1998 ....... 987,500
July 1996.......... 1,318,750 January 1999......... 976,250
August 1996........ 1,307,500 February 1999........ 965,000
September 1996..... 1,296,250 March 1999........... 952,917
October 1996....... 1,285,000 April 1999........... 940,833
November 1996...... 1,273,750 May 1999............. 928,750
December 1996...... 1,262,500 June 1999............ 916,667
January 1997....... 1,251,250 July 1999............ 904,583
February 1997...... 1,240,000 August 1999.......... 892,500
March 1997......... 1,228,333 September 1999....... 880,416
April 1997......... 1,216,667 October 1999......... 868,333
May 1997........... 1,205,000 November 1999 ....... 856,250
June 1997.......... 1,193,333 December 1999 ....... 844,166
July 1997.......... 1,181,667 January 2000......... 832,083
August 1997........ 1,170,000 February 2000 ....... 820,000
============================================================================
</TABLE>
EXHIBIT D TO LEASE - PAGE 1 OF 1
<PAGE> 1
EXHIBIT 12.1
SOUTHERN FOODS GROUP, L.P.
COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(in millions, except for ratios)
<TABLE>
<CAPTION>
SFG
----------------------------------------------
Predecessor 1/1/94 2/17/94
Historical 1993 to 2/16/94 to 12/31/94 1995 1996 1997
- ---------- ----------- ---------- ----------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges
Interest expense (includes amortization
of debt issuance costs) $ 4.1 $ 0.6 $ 8.3 $ 9.1 $ 7.6 $ 16.5
One third of rent expense 1.6 0.2 1.4 1.7 1.8 3.1
----- ------- ----- ----- ----- ------
Total fixed charges 5.7 0.8 9.7 10.8 9.4 19.6
Pre tax income (loss) 10.0 (3.9) 4.3 10.1 11.5 26.1
----- ------- ----- ----- ----- ------
Earnings (loss) before tax and fixed
charges 15.7 (3.1) 14.0 20.9 21.0 45.7
Divided by fixed charges 5.7 0.8 9.7 10.8 9.4 19.6
----- ------- ----- ----- ----- ------
2.8 x (a) 1.4 x 1.9 x 2.2 x 2.3 x
===== ======= ===== ===== ===== ======
</TABLE>
(a) Earnings were inadequate to cover fixed charges during the period from
January 1, 1994 to February 16, 1994. The deficiency was $3.9 million.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Southern Foods Group, L.P. and SFG Capital
Corporation of our report dated March 31, 1998 relating to the consolidated
financial statements of Southern Foods Group, L.P., and of our report dated
December 17, 1997 relating to the statements of revenues and expenses and of
cash flows of Meadow Gold Dairy Operations, which appear in such Prospectus. We
also consent to the application of our report dated March 31, 1998 to the
Financial Statement Schedule for the three years ended December 31, 1997 listed
under Item 21(ii) of this Registration Statement when such schedule is read in
conjunction with the financial statements of Southern Foods Group L.P. referred
to in our report. The audits referred to in such report also included this
schedule. We also consent to the reference to us under "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
Dallas, Texas
April 2, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Southern Foods Group,
L.P. and SFG Capital Corporation on Form S-4 of our report on Meadow Gold Dairy
Operations dated June 27, 1997, appearing in the Prospectus, which is part of
this Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
Deloitte & Touche LLP
Kansas City, Missouri
April 1, 1998
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
F O R M T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT
OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT
TO SECTION 305(b)(2)____.
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
(FORMERLY KNOWN AS TEXAS COMMERCE BANK NATIONAL ASSOCIATION)
(Exact name of trustee as specified in its charter)
ORGANIZED UNDER THE LAWS OF 75-1992896
THE UNITED STATES OF AMERICA (I.R.S. employer
(State of incorporation identification no.)
if not a National Bank)
P.O. BOX 2320 75221-2320
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
LEE BOOCKER
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
600 TRAVIS
HOUSTON, TEXAS 77002
(713) 216-2448
(Name, address and telephone
number of agent for service)
------------------------------------------
SOUTHERN FOODS GROUP, L. P.
SFG CAPITAL CORPORATION
(Exact name of obligor as specified in its charter)
DELAWARE (LIMITED PARTNERSHIP) 75-2571364
DELAWARE APPLIED FOR
(State or other jurisdictions of (I.R.S. employer
incorporation or organization) identification nos.)
3114 SOUTH HASKELL
DALLAS, TEXAS 75223
(Address of obligor's principal executive offices) (Zip Code)
9 7/8% SENIOR SUBORDINATED SERIES A NOTES DUE 2007
(Title of the indenture securities)
1
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
<TABLE>
<CAPTION>
NAME ADDRESS
------------------------------------------------------------------------------
<S> <C>
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank Dallas, Texas
Federal Deposit Insurance Corporation Washington, D.C.
National Bank Examiners Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
</TABLE>
Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the Trustee, describe each
such affiliation.
None.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of
eligibility:
<TABLE>
<S> <C>
Exhibit 1. A copy of the Articles of Association of the Trustee as now in effect.
Exhibit 2. A copy of the certificate of authority of the Trustee to commence
business.
Exhibit 3. A copy of the authorization of the Trustee to exercise corporate trust
powers.
Exhibit 4. A copy of the existing bylaws of the Trustee.
Exhibit 5. Not Applicable.
Exhibit 6. The consents of the United States institutional trustees required by
Section 321(b) of the Trust Indenture Act of 1939.
Exhibit 7. A copy of the latest report of condition of the Trustee published pursuant
to law or the requirements of its supervising or examining authority.
Exhibit 8. Not Applicable.
Exhibit 9. Not Applicable.
</TABLE>
2
<PAGE> 3
NOTE REGARDING INCORPORATED EXHIBIT
Effective January 20, 1998, the name of the Trustee was changed from Texas
Commerce Bank National Association to Chase Bank of Texas, National
Association. Exhibit 7 incorporated herein by reference, the Trustee's
Consolidated Reports of Condition and Income for the fourth quarter of 1997,
was filed under the former name of the Trustee.
<TABLE>
<S> <C>
Exhibit 1. Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibit
to the Form S-4 File No. 333-47745.
Exhibit 2 Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibit
to the Form S-4 File No. 333-47745.
Exhibit 3. Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibit
to the Form S-4 File No. 333-47745.
Exhibit 4. Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibit
to the Form S-4 File No.333-47745.
Exhibit 6. Incorporated herewith.
Exhibit 7. Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibit
to the Form S-4 File No.333-47745.
</TABLE>
The answer to Item 2 is based in part on information provided or
confirmed by the obligor. The accuracy and completeness of such
information is hereby disclaimed by the Trustee.
3
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chase Bank of Texas, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Dallas, and State of Texas, on the 1st day of April, 1998.
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ JOHN G. JONES
---------------------------------------
Name: John G. Jones
Title: Vice President
4
<PAGE> 5
EXHIBIT 6
Chase Bank of Texas, National Association, as a condition to
qualification under the Trust Indenture Act of 1939, consents that reports of
examinations by federal, state, territorial, or district authorities may be
furnished by such authorities to the Securities and Exchange Commission of the
United States upon request of said Commission for said reports, as provided in
Section 321 of said Trust Indenture Act of 1939.
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ JOHN G. JONES
--------------------------------------
Name: John G. Jones
Title: Vice President
Date: , 1997
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE YEAR
ENDED DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN IT ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997.
</LEGEND>
<CIK> 0001057231
<NAME> SFG CAPITAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,747
<SECURITIES> 0
<RECEIVABLES> 82,158
<ALLOWANCES> 4,171
<INVENTORY> 30,548
<CURRENT-ASSETS> 116,229
<PP&E> 194,384
<DEPRECIATION> 20,321
<TOTAL-ASSETS> 646,313
<CURRENT-LIABILITIES> 99,352
<BONDS> 346,691
0
176,199
<COMMON> 14,180
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 646,313
<SALES> 740,983
<TOTAL-REVENUES> 740,983
<CGS> 547,182
<TOTAL-COSTS> 547,182
<OTHER-EXPENSES> 140,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,500
<INCOME-PRETAX> 26,096
<INCOME-TAX> 0
<INCOME-CONTINUING> 26,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,096
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER
OUTSTANDING 9 7/8% SENIOR SUBORDINATED NOTES DUE 2007
OF
SOUTHERN FOODS GROUP, L.P.
SFG CAPITAL CORPORATION
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED __________, 1998
================================================================================
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON ____________, 1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE
OFFER IS EXTENDED BY THE ISSUERS.
================================================================================
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By Registered or Certified Mail,
Overnight Courier or by Hand:
Chase Bank of Texas, National Association
c/o Texas Commerce Trust Company of New York
Attn: Steve Horowitz, Corporate Trust Securities Window
North Building, Room 234, Window 20
55 Water Street
New York, New York 10041
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
IF YOU WISH TO EXCHANGE OUTSTANDING 9 7/8% SENIOR SUBORDINATED NOTES
DUE 2007 FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF 9 7/8% SENIOR SUBORDINATED
SERIES A NOTES DUE 2007 PURSUANT TO THE EXCHANGE OFFER, YOU MUST VALIDLY TENDER
(AND NOT WITHDRAW) OUTSTANDING NOTES TO THE EXCHANGE AGENT PRIOR TO THE
EXPIRATION DATE.
DESCRIPTION OF TENDERED OUTSTANDING NOTES
<TABLE>
<CAPTION>
==============================================================================================
Aggregate
Name(s) and Address(es) of Registered Owner(s) Certificate Principal Amount
(Please fill in, if blank) Number(s) Tendered
<S> <C> <C>
--------------------------------------
--------------------------------------
--------------------------------------
Total Principal
Amount of Notes
Tendered
==============================================================================================
</TABLE>
SIGNATURES MUST BE PROVIDED.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
1
<PAGE> 2
LADIES AND GENTLEMEN:
1. The undersigned hereby tenders to Southern Foods Group, L.P.
and SFG Capital Corporation (collectively, the "Issuers"), the 9 7/8% Senior
Subordinated Notes due 2007 (the "Outstanding Notes") described above pursuant
to the Issuers' offer of $1,000 principal amount of 9 7/8% Senior Subordinated
Series A Notes due 2007 (the "Exchange Notes") in exchange for each $1,000
principal amount of the Outstanding Notes, upon the terms and conditions
contained in the Prospectus dated ____________, 1998 (the "Prospectus"),
receipt of which is hereby acknowledged, and in this Letter of Transmittal
(which together constitute the "Exchange Offer").
2. The undersigned hereby represents and warrants that it has
full authority to tender the Outstanding Notes described above. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Issuers to be necessary or desirable to complete the tender of
Outstanding Notes.
3. The undersigned understands that the tender of the Outstanding
Notes pursuant to all of the procedures set forth in the Prospectus will
constitute an agreement between the undersigned and the Issuers as to the terms
and conditions set forth in the Prospectus.
4. By tendering in the Exchange Offer, the undersigned hereby
represents and warrants that:
(i) the Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of
business of the undersigned, whether or not the
undersigned is the holder;
(ii) neither the undersigned nor any such other person is
engaging in or intends to engage in a distribution of
such Exchange Notes;
(iii) neither the undersigned nor any such other person has
an arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes; and
(iv) neither the holder nor any such other person is an
"affiliate," as such term is defined under Rule 405
promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), of the Issuers.
5. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If the undersigned is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Outstanding
Notes that were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a prospectus in
connection with any resale of such Exchange Notes; however, by so acknowledging
and delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. If the
undersigned may be deemed to be an "affiliate," as such term is defined under
Rule 405 of the Securities Act, of the Issuers, the undersigned understands and
acknowledges that the Exchange Notes may not be offered
2
<PAGE> 3
for resale, resold or otherwise transferred by the undersigned without
registration under the Securities Act or an exemption therefrom.
6. Any obligation of the undersigned hereunder shall be binding
upon the successors, assigns, executors, administrators, trustees in bankruptcy
and legal and personal representatives of the undersigned.
7. Unless otherwise indicated herein under "Special Delivery
Instructions," please issue the certificates for the Exchange Notes in the name
of the undersigned.
================================================================================
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 3 below)
To be completed ONLY IF the Exchange Notes are to be issued or sent to
someone other than the undersigned or to the undersigned at an address other
than that provided above.
Mail [ ] Issue [ ] (check appropriate boxes) certificates to:
Name:
---------------------------------------------------------------------------
(PLEASE PRINT)
Address:
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
(INCLUDING ZIP CODE)
================================================================================
================================================================================
SPECIAL BROKER-DEALER INSTRUCTIONS
(See Item 5 above)
[ ] Check here if you are a broker-dealer and wish to receive 10
additional copies of the Prospectus and 10 copies of any amendments or
supplements thereto.
Name:
---------------------------------------------------------------------------
(PLEASE PRINT)
Address:
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
(INCLUDING ZIP CODE)
================================================================================
3
<PAGE> 4
================================================================================
SIGNATURE
TO BE COMPLETED BY EXCHANGING HOLDERS. MUST BE SIGNED BY REGISTERED HOLDER
EXACTLY AS NAME APPEARS ON OUTSTANDING NOTES. IF SIGNATURE IS BY TRUSTEE,
EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OF A CORPORATION OR
OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH
FULL TITLE. SEE INSTRUCTION 4 BELOW.
X
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X
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SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATURE
Dated:
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Name(s):
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(PLEASE TYPE OR PRINT)
Capacity:
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Address:
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(INCLUDING ZIP CODE)
Area Code and Telephone No.:
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SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3 BELOW)
Certain Signatures Must be Guaranteed by an Eligible Institution
- --------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
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(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER
(INCLUDING AREA CODE) OF FIRM)
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(AUTHORIZED SIGNATURE)
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(PRINTED NAME)
- --------------------------------------------------------------------------------
(TITLE)
Dated:
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PLEASE READ THE INSTRUCTIONS ON THE FOLLOWING PAGE,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL.
4
<PAGE> 5
INSTRUCTIONS
1. BOOK-ENTRY TRANSFER. Any beneficial owner whose Outstanding
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender should contact the registered
holder promptly and instruct such registered holder to tender on such
beneficial owner's behalf.
The Issuers understand that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish an account with respect
to the Outstanding Notes at The Depositary Trust Company ("DTC") for purposes
of the Exchange Offer, and any financial institution that is a participant in
DTC's system may make book-entry delivery of the Outstanding Notes by causing
DTC to transfer such Outstanding Notes into the Exchange Agent's account at DTC
in accordance with DTC's procedures for such transfer. Although delivery of
the Outstanding Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, this Letter of Transmittal properly completed
and duly executed with any required signature guarantees and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth above on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures; provided, however,
that a participant in DTC's book-entry system may, in accordance with DTC's
Automated Tender Offer Program ("ATOP") procedures and in lieu of physical
delivery to the Exchange Agent of a Letter of Transmittal, electronically
acknowledge its receipt of, and agreement to be bound by, the terms of this
Letter of Transmittal. Delivery of documents to DTC does not constitute
delivery to the Exchange Agent.
2. PHYSICAL DELIVERY OF LETTER OF TRANSMITTAL AND OUTSTANDING
NOTES. The Outstanding Notes, together with a properly completed and duly
executed Letter of Transmittal (or copy thereof), should be mailed or delivered
to the Exchange Agent at the address set forth above.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THIS LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. IF THE HOLDER IS NOT USING DTC'S ATOP, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE INSTEAD OF
DELIVERY BY MAIL. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE ISSUERS. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES,
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
3. GUARANTEE OF SIGNATURES. Unless the box titled "Special
Delivery Instructions" above has not been completed or the Outstanding Notes
described above are tendered for the account of an Eligible Institution,
signatures on this Letter of Transmittal must be guaranteed by an eligible
guarantor institution that is a member of or participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program, the Stock Exchange Medallion Program, or by an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 promulgated under the
Securities Exchange Act of 1934, as amended (an "Eligible Institution").
5
<PAGE> 6
4. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND
ENDORSEMENTS. If this Letter of Transmittal is signed by a person other than a
registered holder of any Outstanding Notes, such Outstanding Notes must be
endorsed or accompanied by appropriate bond powers, signed by such registered
holder exactly as such registered holder's name appears on such Outstanding
Notes.
If this Letter of Transmittal or any Outstanding Notes or bond powers
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations, or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing and,
unless waived by the Issuers, evidence satisfactory to the Issuers of their
authority to so act must be submitted with this Letter of Transmittal.
5. TRANSFER TAXES. The Issuers will pay all transfer taxes, if
any, applicable to the exchange of the Outstanding Notes pursuant to the
Exchange Offer. If, however, certificates representing the Exchange Notes or
the Outstanding Notes for the principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the person signing this Letter of Transmittal, or if a transfer tax
is imposed for any reason other than the exchange of the Outstanding Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other person) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering holder.
6. WITHDRAWAL. Except as otherwise provided herein, tenders of
Outstanding Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date by following the procedures set forth in
section of the Prospectus titled "The Exchange Offer -- Withdrawal of Tenders."
Any Outstanding Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be
issued with respect thereto unless the Outstanding Notes so withdrawn are
validly retendered. Properly withdrawn Outstanding Notes may be retendered by
following one of the procedures described above for tendering Outstanding Notes
under this Letter of Transmittal at any time prior to the Expiration Date.
7. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender
their Outstanding Notes and (i) whose Outstanding Notes are not immediately
available, (ii) who cannot deliver their Outstanding Notes, this Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book- entry transfer, prior to the
Expiration Date, may effect a tender if they follow the guaranteed delivery
procedures set forth in the section of the Prospectus titled "The Exchange
Offer -- Guaranteed Delivery Procedures." Upon request to the Exchange Agent,
a Notice of Guaranteed Delivery will be sent to holders who wish to tender
their Outstanding Notes according to such guaranteed delivery procedures.
8. MISCELLANEOUS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance, and withdrawal of tendered
Outstanding Notes will be resolved by the Issuers in their sole discretion,
which determination will be final and binding. The Issuers reserve the
absolute right to reject any or all Outstanding Notes not properly tendered or
any Outstanding Notes the Issuers' acceptance of which would, in the opinion of
counsel for the Issuers, be unlawful. The Issuers also reserve the right to
waive any defects, irregularities, or conditions of tender as to
6
<PAGE> 7
particular Outstanding Notes. The Issuers' interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Outstanding Notes must
be cured within such time as the Issuers shall determine. Although the Issuers
intend to notify holders of defects or irregularities with respect to tenders
of Outstanding Notes, neither the Issuers, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification.
Tenders of Outstanding Notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any Outstanding Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the Exchange Agent to the tendering holder thereof, unless otherwise provided
in this Letter of Transmittal, as soon as practicable following the Expiration
Date.
7
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
To Tender
Outstanding 9 7/8% Senior Subordinated Notes due 2007
of
SOUTHERN FOODS GROUP, L.P.
SFG CAPITAL CORPORATION
Pursuant to the Exchange Offer and Prospectus dated ____________, 1998
As set forth in the Exchange Offer (as defined in the Prospectus dated
_________, 1998 (the "Prospectus")), holders of unregistered 9 7/8% Senior
Subordinated Notes due 2007 (the "Outstanding Notes") of Southern Foods Group,
L.P., a Delaware limited partnership, and SFG Capital Corporation, a Delaware
corporation (collectively, the "Issuers"), (i) whose Outstanding Notes are not
immediately available, (ii) who cannot deliver their Outstanding Notes, the
Letter of Transmittal or any other required documents to the Exchange Agent, or
(iii) who cannot complete the procedures for book-entry transfer, prior to the
Expiration Date (as defined), must use this form or one substantially
equivalent hereto if they to wish to tender their Outstanding Notes to accept
the Exchange Offer. This form may be delivered by facsimile transmission, by
registered or certified mail, by hand, or by overnight delivery service to the
Exchange Agent. See "The Exchange Offer -- Procedures for Tendering" and "--
Guaranteed Delivery Procedures" in the Prospectus.
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THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON ____________, 1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE
OFFER IS EXTENDED BY THE ISSUERS.
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THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By Facsimile:
(214) 672-5932
Attention: Mr. Frank Ivins
Confirm by Telephone: (214) 672-5678
(Originals of all documents sent by facsimile
should be sent promptly by registered or
certified mail, by hand, or by overnight delivery service.)
By Registered or Certified Mail,
Overnight Courier or by Hand:
Chase Bank of Texas, National Association
c/o Texas Commerce Trust Company of New York
Attn: Steve Horowitz, Corporate Trust Securities Window
North Building, Room 234, Window 20
55 Water Street
New York, New York 10041
DELIVERY OF THIS NOTICE TO AN ADDRESS OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and subject to the conditions set forth in the
Prospectus and in the accompanying Letter of Transmittal, receipt of which are
hereby acknowledged, the undersigned hereby tenders to the Issuers the
aggregate principal amount of Outstanding Notes set forth below pursuant to the
guaranteed delivery procedures described in the section of the Prospectus
titled "The Exchange Offer - Guaranteed Delivery Procedures."
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Name of Registered Holder(s):
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(Please Type or Print)
Address:
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Area Code & Telephone No.:
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Certificate Number(s) for
Outstanding Notes (if available):
---------------------------------------------
Total Principal Amount
Tendered and Represented
by Certificate(s): $
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(Must be in denominations of principal amount of $1,000 or
any integral multiple thereof)
Signature of Registered Holder(s):
--------------------------------------------
(Must be signed by Holder(s) as their name(s) appear on certificates
for Outstanding Notes. If signature is by a trustee, administrator,
guardian, attorney-in-fact, officer or the person acting in a
fiduciary capacity, such person must set forth his or her full title)
Dated:
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[ ] The Depository Trust Company
(Check if Outstanding Notes will be tendered by
book-entry transfer, and provide account number below)
Account Number:
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THE GUARANTEE OF DELIVERY ON THE FOLLOWING PAGE MUST BE COMPLETED
<PAGE> 3
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, being an eligible guarantor institution that is a
member of or participant in the Securities Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Program, the Stock Exchange
Medallion Program, or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), hereby guarantees (a) that the above named person(s)
"own(s)" the Outstanding Notes tendered hereby within the meaning of Rule 14e-4
("Rule 14e-4") under the Exchange Act, (b) that such tender of such Outstanding
Notes complies with Rule 14e-4, and (c) to deliver to the Exchange Agent the
certificates representing the Outstanding Notes tendered hereby or confirmation
of book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at The Depository Trust Company, in proper form for transfer, together
with the Letter of Transmittal (or facsimile thereof), properly completed and
duly executed, with any required signature guarantees and any other required
documents, within three (3) Nasdaq Stock Market trading days after the
Expiration Date, all in accordance with the procedures set forth in the section
of the Prospectus titled "The Exchange Offer - Guaranteed Delivery Procedures."
================================================================================
Name of Firm:
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Address:
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Area Code and Telephone No.:
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Authorized Signature:
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Name and Title:
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Time:
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Dated:
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NOTE: DO NOT SEND CERTIFICATES OF OUTSTANDING NOTES WITH THIS FORM.
CERTIFICATES OF OUTSTANDING NOTES SHOULD BE SENT ONLY WITH A LETTER OF
TRANSMITTAL.
