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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
(Amendment No. 1)
UNITED FOODS, INC.
(Name of the Issuer)
UNITED FOODS, INC.
PICTSWEET LLC
UF ACQUISITION CORP.
JAMES I. TANKERSLEY
EDNA W. TANKERSLEY
DARLA T. DARNALL
KELLE T. NORTHERN
JAMES W. TANKERSLEY
(Name of Persons Filing Statement)
CLASS A COMMON STOCK, PAR VALUE $1.00 PER SHARE
CLASS B COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class of Securities)
CLASS A 910365 30 3
CLASS B 910365 10 5
(CUSIP Number of Class of Securities)
B.M. ENNIS
PRESIDENT
UNITED FOODS, INC.
TEN PICTSWEET DRIVE
BELLS, TENNESSEE 39006-0119
(901) 422-7600
JAMES I. TANKERSLEY
TEN PICTSWEET DRIVE
BELLS, TENNESSEE 39006-0119
(901) 422-7600
With copies to:
JAMES H. CHEEK, III SAM D. CHAFETZ
BASS, BERRY & SIMS PLC WARING COX, PLC
2700 FIRST AMERICAN CENTER 50 NORTH FRONT STREET
NASHVILLE, TENNESSEE 37238-2700 SUITE 1300
(615) 742-6200 MEMPHIS, TENNESSEE 38103-1190
(901) 543-8000
----------
(Name, Address and Telephone Number of Person(s) Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
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This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation
14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [[Section]
240.13e(c)] under the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X].
Calculation of Filing Fee
-------------------------
Transaction Valuation (1): $ 14,897,799
Amount of Filing Fee (2): $ 2,980
(1) Estimated solely for purposes of calculating the filing fee and pursuant to
Rule 0-11 under the Securities Exchange Act of 1934, as amended. The transaction
applies to an aggregate of 4,256,514 shares of common stock, of which 2,617,243
shares are Class A common stock, par value $1.00 per share, and 4,192,686 shares
are Class B common stock, par value $1.00 per share (the "Class A Common Stock"
and "Class B Common Stock," respectively, and together, the "Common Stock"), of
United Foods, Inc. calculated as follows: the sum of (i) 2,617,243 shares of
Class A Common Stock issued and outstanding (less 0 shares of Class A Common
Stock then owned by Pictsweet LLC, UF Acquisition Corp. or any of their
affiliates) and (ii) an aggregate of 1,639,271 shares of Class B Common Stock
calculated as follows: 4,192,686 shares of Class B Common Stock issued and
outstanding (less 2,553,415 shares of Class B Common Stock then owned by
Pictsweet LLC, UF Acquisition Corp. or any of their affiliates).
(2) The proposed maximum aggregate value of the transaction is $14,897,799
calculated as follows: the sum of (i) the product of (a) 2,617,243 shares of
Class A Common Stock issued and outstanding (less 0 shares of Class A Common
Stock then owned by Pictsweet LLC, UF Acquisition Corp. or any of their
affiliates) and (b) $3.50, and (ii) the product of (a) 4,192,686 shares of Class
B Common Stock issued and outstanding (less 2,553,415 shares of Class B Common
Stock then owned by Pictsweet LLC, UF Acquisition Corp. or any of their
affiliates) and (b) $3.50.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: $2,980
Filing Party: United Foods, Inc., Pictsweet LLC, UF Acquisition Corp., James I.
Tankersley, Edna W. Tankersley, Darla T. Darnall, Kelle T.
Northern and James W. Tankersley
Form or Registration No.: Rule 13E-3 Transaction Statement
Proxy Statement File No.: _______
Date Filed: June 8, 1999.
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INTRODUCTION
This Amendment No. 1 amends and supplements the Rule 13e-3 Transaction Statement
(as amended, the "Statement") filed by United Foods, Inc., a Delaware
corporation (the "Company"), Pictsweet LLC, a Delaware limited liability
company, UF Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Pictsweet LLC and James I. Tankersley, Edna W. Tankersley, James
W. Tankersley, Darla T. Darnall and Kelle T. Northern (the "Jim Tankersley
Family"), on June 8, 1999 pursuant to Section 13(e) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Rule 13e-3 thereunder, in
connection with the proposed merger (the "Merger") of UF Acquisition Corp. with
and into the Company, pursuant to the Agreement and Plan of Merger dated as of
May 14, 1999 (the "Merger Agreement"), among the Company, Pictsweet LLC and UF
Acquisition Corp.
The cross reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Company's
preliminary proxy statement (as amended and supplemented as of the date hereof,
the "Proxy Statement") simultaneously being filed with the Securities and
Exchange Commission (the "Commission") in connection with the proposed Merger,
which contains information required to be included in response to items of this
Statement. A copy of the Proxy Statement is attached hereto as Exhibit 17(d).
The information in the Proxy Statement, including all exhibits thereto, is
hereby expressly incorporated herein by reference and the responses to each item
are qualified in their entirety by the provisions of the Proxy Statement. All
information in, or incorporated by reference in, the Proxy Statement or this
Statement concerning the Company or its advisors, or actions or events with
respect to any of them, was provided by the Company, and all information in, or
incorporated by reference in, the Proxy Statement or this Statement concerning
the Jim Tankersley Family, Pictsweet LLC, UF Acquisition Corp. or their
affiliates, or actions or events with respect to them, was provided by the Jim
Tankersley Family. The Proxy Statement incorporated by reference in this filing
is in preliminary form and is subject to completion or amendment. In addition,
the information in the preliminary Proxy Statement is intended to be solely for
the information and use of the Commission, and should not be relied upon by any
other person for any purpose. Capitalized terms used but not defined in this
statement shall have the respective meanings given them in the Proxy Statement.
CROSS REFERENCE SHEET
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Item in Schedule 13E-3 Caption in Proxy Statement
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Item 1(a) Cover Page; Summary - The Parties.
Item 1(b) Cover Page; Summary - The Special Meeting; The Special Meeting - Record
Date and Voting; Market Price and Dividend Information.
Item 1(c)-(d) Market Price and Dividend Information.
Item 1(e) Not Applicable.
Item 1(f) Certain Transactions in the Common Stock.
Item 2(a)-(d), (g) Summary - The Parties; Directors and Executive Officers of the Company, Pictsweet
LLC and UF Acquisition Corp. - Information Concerning Directors and Executive
Officers of the Company; Directors and Executive Officers of the Company,
Pictsweet LLC and UF Acquisition Corp. - Information Concerning Directors and
Executive Officers of Pictsweet LLC and UF Acquisition Corp; Directors and
Executive Officers of the Company, Pictsweet LLC and UF Acquisition Corp. -
Information Concerning Directors and Executive Officers of the Surviving
Corporation.
Item 2(e)-(f) Not Applicable.
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Item 3(a)(1) Not applicable.
Item 3(a)(2) - (b) Special Factors - Background of the Merger; Special Factors - Recommendation of
the Special Committee; Special Factors - Recommendation of the Board of Directors;
The Merger Agreement; Certain Transactions in the Common Stock; Appendix A - The Merger Agreement.
Item 4(a)-(b) Questions and Answers About the Merger; Summary; Special Factors - Purpose and Structure of the
Merger; Special Factors - Interests of Certain Persons in the Merger; Special Factors - Certain
Effects of the Merger; Special Factors - Federal Income Tax Consequences; The Merger Agreement;
Appraisal Rights; Appendix A - The Merger Agreement.
Item 5(a), (b), (d) and (e) Special Factors - Plans for the Company After the Merger; Special Factors - Certain
Effects of the Merger.
Item 5(c), (f) and (g) Summary - Special Factors - Certain Effects of the Merger; Special Factors - Interests
of Certain Persons in the Merger - Directors and Officers; Special Factors - Certain
Effects of the Merger.
Item 6(a) - (b) Special Factors - Sources of Funds; Fees and Expenses; The Merger Agreement -
Fees and Expenses.
Item 6(c) Special Factors - Sources of Funds; Fees and Expenses; Appendix A - The Merger
Agreement.
Item 6(d) Not Applicable.
Item 7(a) Summary - Special Factors - Purpose and Structure of the Merger; Special Factors -
Background of the Merger; Special Factors - Purpose and Structure of the Merger;
Special Factors - Plans for the Company After the Merger; Special Factors -
Perspective of the Jim Tankersley Family, Pictsweet LLC and UF Acquisition Corp.
on the Merger.
Item 7(b) Special Factors - Background of the Merger; Special Factors - Purpose and Structure
of the Merger; Special Factors - Plans for the Company After the Merger; Special Factors -
Perspective of the Jim Tankersley Family, Pictsweet LLC and UF Acquisition Corp. on the
Merger.
Item 7(c) Summary - Special Factors - Purpose and Structure of the Merger; Special Factors -
Background of the Merger; Special Factors - Purpose and Structure of the Merger; Special
Factors - Recommendation of the Special Committee; Special Factors - Recommendation of
the Board of Directors; Special Factors - Plans for the Company After the Merger; Special
Factors - Perspective of the Jim Tankersley Family, Pictsweet LLC and UF Acquisition Corp.
on the Merger; The Special Meeting - Vote Required; Revocability of Proxies.
Item 7(d) Summary - Special Factors - Purpose and Structure of the Merger; Summary - Special
Factors - Certain Effects of the Merger; Summary - Special Factors - Federal Income
Tax Consequences; Summary - The Merger; Special Factors - Purpose and Structure
of the Merger; Special Factors - Plans for the Company After
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the Merger; Special Factors - Certain Effects of the Merger; Special Factors -
Federal Income Tax Consequences; The Merger Agreement.
Item 8(a) - (b) Summary - Special Factors - Recommendation of the Special Committee; Summary -
Special Factors - Recommendation of the Board of Directors; Summary - Special Factors -
Perspective of the Jim Tankersley Family, Pictsweet LLC and UF Acquisition Corp. on the Merger;
Special Factors - Background of the Merger; Special Factors - Purpose and Structure of Merger;
Special Factors - Recommendation of the Special Committee; Special Factors -
Recommendation of the Board of Directors; Special Factors - Opinion of the Special
Committee's Financial Advisor; Special Factors - Perspective of the Jim Tankersley Family,
Pictsweet LLC and UF Acquisition Corp. on the Merger; Appendix B - Fairness Opinion of J.C.
Bradford & Co., L.L.C.
Item 8(c) The Special Meeting - Vote Required; Revocability of Proxies.
Item 8(d) Summary - Special Factors - Recommendation of the Special Committee; Summary -
Special Factors - Recommendation of the Board of Directors; Summary - Special
Factors - Opinion of the Financial Advisor to the Special Committee; Special Factors -
Background of the Merger; Special Factors - Recommendation of the Special
Committee; Special Factors - Recommendation of the Board of Directors; Special
Factors - Opinion of the Special Committee's Financial Advisor; Appendix B -
Fairness Opinion of J.C. Bradford & Co., L.L.C.
Item 8(e) Summary - Special Factors - Recommendation of the Special Committee; Summary - Special
Factors - Recommendation of the Board of Directors; Special Factors - Recommendation of the
Special Committee; Special Factors - Recommendation of the Board of Directors.
Item 8(f) Not Applicable.
Item 9(a)-(c) Summary - Special Factors - Opinion of the Financial Advisor to the Special Committee;
Summary - Special Factors - Perspective of the Jim Tankersley Family, Pictsweet LLC and UF
Acquisition Corp. on the Merger; Special Factors - Background of the Merger; Special Factors -
Recommendation of the Special Committee; Special Factors - Recommendation of the Board of Directors;
Special Factors - Opinion of the Special Committee's Financial Advisor; Special Factors -
Perspective of the Jim Tankersley Family, Pictsweet LLC and UF Acquisition Corp. on the Merger;
Appendix B - Fairness Opinion of J.C. Bradford & Co., L.L.C.
Item 10(a) Special Factors - Interests of Certain Persons in the Merger; Security Ownership of
Management and Certain Beneficial Owners.
Item 10(b) Certain Transactions in the Common Stock.
Item 11 Summary - The Special Meeting - Record Date and Voting; Summary - The Special
Meeting - Vote Required; Revocability of Proxies; Special Factors - Background of
the Merger; Special Factors - Sources of Funds; Fees and Expenses; Special Factors -
Interests of Certain Persons in the Merger; The Special Meeting - Record Date and
Voting; The Special Meeting - Vote Required; Revocability of Proxies; The Merger
Agreement; Certain Transactions in the Common Stock; Appendix A - The Merger
Agreement.
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Item 12(a) - (b) Summary - The Special Meeting - Vote Required; Revocability of Proxies; Summary - Special
Factors; Summary - Appraisal Rights; Summary - The Special Meeting - Interests of Certain Persons
in the Merger; The Special Meeting - Appraisal Rights; The Special Meeting - Vote Required;
Revocability of Proxies; Special Factors - Background of the Merger; Special Factors -
Recommendation of the Special Committee; Special Factors - Recommendation of the Board of
Directors; Special Factors - Interests of Certain Persons in the Merger; Special Factors-
Perspective of the Jim Tankersley Family, Pictsweet LLC and UF Acquisition Corp. on the Merger;
The Special Meeting - Vote Required; Revocability of Proxies.
Item 13(a) Summary - Appraisal Rights; Appraisal Rights; Statement of Appraisal Rights
(incorporated by reference to Appendix C to the Proxy Statement attached hereto as
Exhibit 17(d)).
Item 13(b) - (c) Not Applicable.
Item 14(a) Summary - Summary Historical and Unaudited Pro Forma Financial Information - Summary
Historical Financial Information; Selected Historical Financial Data; Financial
Statements and Supplementary Data.
Item 14(b) Summary - Summary Historical and Unaudited Pro Forma Financial Information - Pro
Forma Effect of Proposed Merger.
Item 15(a) - (b) Special Factors - Sources of Funds; Fees and Expenses; The Special Meeting -
Solicitation of Proxies; The Merger Agreement - Fees and Expenses.
Item 16 The information set forth in the Proxy Statement is incorporated herein by reference.
Item 17(a) First American National Bank Commitment Letter dated May 21, 1999 (attached hereto as Exhibit
17(a)); Amended and Restated Loan Agreement and the Amended and Restated Security Agreement by and
among United Foods, Inc., National Bank of Canada and First American National Bank dated June 30,
1999.
Item 17(b) Opinion of J.C. Bradford & Co., L.L.C., dated May 14, 1999 (attached hereto as Exhibit 17(b)(1));
Report of the Special Transaction Committee of the Board of Directors of United
Foods, Inc., dated May 10, 1999 (attached hereto as Exhibit 17(b)(2)); Information for
the Special Committee of the Board of Directors prepared by J.C. Bradford & Co.,
L.L.C., dated May 10, 1999 (attached hereto as Exhibit 17(b)(3)); Fairness Opinion of
J.C. Bradford & Co., L.L.C., dated January 20, 1999 (attached hereto as
Exhibit 17(b)(4)); Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated January 20, 1999 (attached hereto as
Exhibit 17(b)(5)); Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated December 21, 1998 (attached hereto
as Exhibit 17(b)(6)); Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated December 8, 1998 (attached hereto as
Exhibit 17(b)(7)); Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated November 18, 1998 (attached hereto
as Exhibit 17(b)(8)); Information for the Special Committee of the Board of Directors
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prepared by J.C. Bradford & Co., L.L.C., dated October 14, 1998 (attached hereto as
Exhibit 17(b)(9)); Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated October 5, 1998 (attached hereto as
Exhibit 17(b)(10)).
Item 17(c) Agreement and Plan of Merger, dated as of May 14, 1999, among the Company,
Pictsweet LLC and UF Acquisition Corp. (incorporated by reference to Appendix A
to the Proxy Statement attached hereto as Exhibit 17(d)).
Item 17(d) Preliminary copy of Notice of Special Meeting of Stockholders, Proxy Statement and
form of Proxy for the Special Meeting of Stockholders of the Company (attached hereto
as Exhibit 17(d)).
Item 17(e) Statement of appraisal rights (Section 262 of the Delaware General Corporation Law)
(incorporated by reference to Appendix C to the Proxy Statement attached hereto as
Exhibit 17(d)).
Item 17(f) Not Applicable.
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ITEM 1. Issuer and Class of Security Subject to the Transaction.
(a) The information set forth in "Cover Page" and "Summary - The Parties"
in the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "Cover Page," "Summary - The Special
Meeting," "The Special Meeting - Record Date and Voting," and "Market
Price and Dividend Information" in the Proxy Statement is incorporated
herein by reference.
(c) - (d) The information set forth in "Market Price and Dividend
Information" in the Proxy Statement is incorporated herein by
reference.
(e) Not applicable.
(f) The information set forth in "Certain Transactions in the Common
Stock" in the Proxy Statement is incorporated herein by reference.
ITEM 2. Identity and Background.
This Statement is being jointly filed by the Company (the issuer of
the classes of equity securities which are the subject of the
transaction), Pictsweet LLC, UF Acquisition Corp. (a wholly-owned
subsidiary of Pictsweet LLC) and the members of the Jim Tankersley
Family.
(a) - (d) The information set forth in "Summary - The Parties," "Directors and
and (g) Executive Officers of the Company, Pictsweet LLC and UF Acquisition
Corp. - Information Concerning Directors and Executive Officers of the
Company," "Directors and Executive Officers of the Company, Pictsweet
LLC and UF Acquisition Corp. - Information Concerning Directors and
Executive Officers of Pictsweet LLC and UF Acquisition Corp,"
"Directors and Executive Officers of the Company, Pictsweet LLC and UF
Acquisition Corp. - Information Concerning Directors and Executive
Officers of the Surviving Corporation" in the Proxy Statement is
incorporated herein by reference.
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(e) and None of Company, Pictsweet LLC, UF Acquisition Corp., the members of
(f) the Jim Tankersley Family or, to the best of their knowledge, any
executive officer, director or controlling person of the Company,
Pictsweet LLC or UF Acquisition Corp. (i) has been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) has been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a
result of such proceeding was or is subject to a judgment, decree or
final order enjoining further violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation
with respect to such laws.
ITEM 3. Past Contacts, Transactions or Negotiations.
(a)(1) Not applicable.
(a)(2) - The information set forth in "Special Factors - Background of the
(b) Merger," "Special Factors - Recommendation of the Special Committee"
"Special Factors - Recommendation of the Board of Directors," "The
Merger Agreement," "Certain Transactions in the Common Stock" and
"Appendix A - The Merger Agreement" in the Proxy Statement is
incorporated herein by reference.
ITEM 4. Terms of the Transaction.
(a) - (b) The information set forth in "Questions and Answers About the Merger,"
"Summary," "Special Factors - Purpose and Structure of the Merger,"
"Special Factors - Interests of Certain Persons in the Merger,"
"Special Factors - Certain Effects of the Merger," "Special Factors -
Federal Income Tax Consequences," "The Merger Agreement," "Appraisal
Rights" and "Appendix A - The Merger Agreement" in the Proxy Statement
is incorporated herein by reference.
ITEM 5. Plans or Proposals of the Issuer or Affiliate.
(a), (b), The information set forth in "Special Factors - Plans for the Company
(d) and After the Merger" and "Special Factors - Certain Effects of the
(e) Merger" in the Proxy Statement is incorporated herein by reference.
(c), (f) The information set forth in "Summary - Special Factors - Certain
and (g) Effects of the Merger," "Special Factors - Interests of Certain
Persons in the Merger - Directors and Officers," and "Special Factors
- Certain Effects of the Merger" in the Proxy Statement is
incorporated herein by reference.
ITEM 6. Source and Amounts of Funds or Other Consideration.
(a) - (b) The information set forth in "Special Factors - Sources of Funds; Fees
and Expenses" and "The Merger Agreement - Fees and Expenses" in the
Proxy Statement is incorporated herein by reference.
(c) The information set forth in "Special Factors - Sources of Funds; Fees
and Expenses" and "Appendix A - The Merger Agreement" in the Proxy
Statement is incorporated herein by reference.
(d) Not applicable.
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ITEM 7. Purpose(s), Alternatives, Reasons and Effects.
(a) The information set forth in "Summary - Special Factors - Purpose and
Structure of the Merger," "Special Factors - Background of the Merger,"
"Special Factors - Purpose and Structure of the Merger," "Special
Factors - Plans For the Company After the Merger," and "Special Factors
- Perspective of the Jim Tankersley Family, Pictsweet LLC and UF
Acquisition Corp. on the Merger" in the Proxy Statement is incorporated
herein by reference.
(b) The information set forth in "Special Factors - Background of the
Merger," "Special Factors - Purpose and Structure of the Merger,"
"Special Factors - Plans For the Company after the Merger" and "Special
Factors Perspective of the Jim Tankersley Family, Pictsweet LLC and UF
Acquisition Corp. on the Merger" in the Proxy Statement is incorporated
herein by reference.
(c) The information set forth in "Summary - Special Factors - Purpose and
Structure of the Merger," "Special Factors - Background of the Merger,"
"Special Factors - Purpose and Structure of the Merger," "Special
Factors - Recommendation of the Special Committee," "Special Factors -
Recommendation of the Board of Directors," "Special Factors - Plans For
the Company after the Merger," "Special Factors - Perspective of the
Jim Tankersley Family, Pictsweet LLC and UF Acquisition Corp. on the
Merger" and "The Special Meeting - Vote Required; Revocability of
Proxies" in the Proxy Statement is incorporated herein by reference.
(d) The information set forth in "Summary - Special Factors - Purpose and
Structure of the Merger," "Summary - Special Factors - Certain Effects
of the Merger," "Summary - Special Factors - U.S. Federal Income Tax
Consequences," "Summary - The Merger," "Special Factors - Purpose and
Structure of the Merger," "Special Factors - Plans for the Company
After the Merger," "Special Factors - Certain Effects of the Merger,"
"Special Factors - Federal Income Tax Consequences" and "The Merger
Agreement" in the Proxy Statement is incorporated herein by reference.
ITEM 8. Fairness of the Transaction.
(a) - (b) The information set forth in "Summary - Special Factors -
Recommendation of the Special Committee," "Summary - Special Factors -
Recommendation of the Board of Directors," "Summary - Special Factors
- Perspective of the Jim Tankersley Family, Pictsweet LLC and UF
Acquisition Corp. on the Merger," "Special Factors - Background of the
Merger," "Special Factors - Purpose and Structure of Merger," "Special
Factors - Recommendation of the Special Committee," "Special Factors -
Recommendation of the Board of Directors," "Special Factors - Opinion
UF the Special Committee's Financial Advisor," "Special Factors -
Perspective of the Jim Tankersley Family, Pictsweet LLC and UF
Acquisition Corp. on the Merger," and "Appendix B - Fairness Opinion
of J.C. Bradford & Co., L.L.C." in the Proxy Statement is incorporated
herein by reference.
(c) The information set forth in "The Special Meeting - Vote Required;
Revocability of Proxies" in the Proxy Statement is incorporated herein
by reference.
(d) The information set forth in "Summary - Special Factors -
Recommendation of the Special Committee," "Summary - Special Factors -
Recommendation of the Board of Directors," "Summary - Special Factors
Opinion of the Financial Advisor to the Special Committee," "Special
Factors - Background of the Merger," "Special Factors - Recommendation
of the Special Committee," "Special Factors - Recommendation of the
Board of Directors," "Special Factors - Opinion of the Special
Committee's Financial Advisor" and "Appendix B - Fairness Opinion of
J.C. Bradford & Co., L.L.C." in the Proxy Statement is incorporated
herein by reference.
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(e) The information set forth in "Summary - Special Factors -
Recommendation of the Special Committee," "Summary - Special Factors -
Recommendation of the Board of Directors," "Special Factors -
Recommendation of the Special Committee," "Special Factors -
Recommendation of the Board of Directors" in the Proxy Statement is
incorporated herein by reference.
(f) Not Applicable.
ITEM 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) - (c) The information set forth in "Summary - Special Factors - Opinion of
the Financial Advisor to the Special Committee," "Summary - Special
Factors - Perspective of the Jim Tankersley Family, Pictsweet LLC and
UF Acquisition Corp. on the Merger," "Special Factors - Background of
the Merger," "Special Factors - Recommendation of the Special
Committee," "Special Factors - Recommendation of the Board of
Directors," "Special Factors - Opinion of the Special Committee's
Financial Advisor" "Special Factors - Perspective of the Jim
Tankersley Family, Pictsweet LLC and UF Acquisition Corp. on the
Merger" and "Appendix B - Fairness Opinion of J.C. Bradford & Co.,
L.L.C." in the Proxy Statement is incorporated herein by reference.
ITEM 10. Interest in Securities of the Issuer.
(a) The information set forth in "Special Factors -Interests of Certain
Persons in the Merger" and "Security Ownership of Management and
Certain Beneficial Owners" in the Proxy Statement is incorporated
herein by reference.
(b) The information set forth in "Certain Transactions in the Common
Stock" in the Proxy Statement is incorporated herein by reference.
ITEM 11. Contracts, Arrangements or Understandings with Respect to
the Issuer's Securities.
The information set forth in "Summary - The Special Meeting - Record
Date and Voting," "Summary - The Special Meeting - Vote Required;
Revocability of Proxies," "Special Factors - Background of the
Merger," "Special Factors - Sources of Funds; Fees and Expenses,"
"Special Factors - Interests of Certain Persons in the Merger," "The
Special Meeting - Record Date and Voting," "The Special Meeting - Vote
Required; Revocability of Proxies," "The Merger Agreement," "Certain
Transactions in the Common Stock" and "Appendix A - The Merger
Agreement" in the Proxy Statement is incorporated herein by reference.
ITEM 12. Present Intention and Recommendation of Certain Persons
with Regard to the Transaction.
(a) - (b) The information set forth in "Summary - The Special Meeting - Vote
Required; Revocability of Proxies," "Summary - Special Factors,"
"Summary - Appraisal Rights," "Summary - The Special Meeting -
Interests of Certain Persons in the Merger," "Special Meeting - Vote
Required; Revocability of Proxies," "Special Factors - Background of
the Merger," "Special Factors - Recommendation of the Special
Committee," "Special Factors - Recommendation of the Board of
Directors," "Special Factors - Interests of Certain Persons in the
Merger," "Special Factors - Perspective of the Jim Tankersley Family,
Pictsweet LLC and UF Acquisition Corp. on the Merger," and "The
Special Meeting - Vote Required; Revocability of Proxies," in the
Proxy Statement is incorporated herein by reference.
ITEM 13. Other Provisions of the Transaction.
(a) The information set forth in "Summary - Appraisal Rights," "Appraisal
Rights" and "Appendix C - Statement of Appraisal Rights" in the Proxy
Statement is incorporated herein by reference.
(b) - (c) Not applicable.
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ITEM 14. Financial Information.
(a) The information set forth in "Summary - Summary Historical and
Unaudited Pro Forma Financial Information - Summary Historical
Financial Information," "Selected Historical Financial Data" and
"Financial Statements and Supplementary Data" in the Proxy Statement
is incorporated herein by reference.
(b) "Summary - Summary Historical and Unaudited Pro Forma Financial
Information - Pro Forma Effect of the Proposed Merger" in the Proxy
Statement is incorporated herein by reference.
ITEM 15. Persons and Assets Employed, Retained or Utilized.
(a) - (b) The information set forth in "Special Factors - Sources of Funds;
Fees and Expenses," "The Special Meeting - Solicitation of Proxies,"
and "The Merger Agreement - Fees and Expenses" in the Proxy Statement
is incorporated herein by reference.
ITEM 16. Additional Information.
The information set forth in the Proxy Statement is incorporated herein
by reference.
ITEM 17. Material to be Filed as Exhibits.
*(a)(1) First American National Bank Commitment Letter dated May 21, 1999.
(a)(2) Amended and Restated Loan Agreement and the Amended and Restated
Security Agreement by and among United Foods, Inc., National Bank of
Canada and First American National Bank dated June 30, 1999.
(b)(1) Opinion of J.C. Bradford & Co., L.L.C., dated May 14, 1999.
*(b)(2) Report of the Special Transaction Committee of the Board of Directors
of United Foods, Inc., dated May 10, 1999.
*(b)(3) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated May 10, 1999.
*(b)(4) Fairness Opinion of J.C. Bradford & Co., L.L.C., dated January 20,
1999.
*(b)(5) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated January 20, 1999.
*(b)(6) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated December 21, 1998.
*(b)(7) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated December 8, 1998.
*(b)(8) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated November 18, 1998.
*(b)(9) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated October 14, 1998.
11
<PAGE> 12
*(b)(10) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated October 5, 1998.
(c) Agreement and Plan of Merger, dated as of May 14, 1999, among Company,
Pictsweet LLC and UF Acquisition Corp. (incorporated by reference to
Appendix A to the Proxy Statement attached hereto as Exhibit 17(d)).
(d) Preliminary copy of Notice of Special Meeting of Stockholders, Proxy
Statement and form of Proxy for the Special Meeting of Stockholders of
the Company.
(e) Statement of appraisal rights (Section 262 of the Delaware General
Corporation Law) (incorporated by reference to Appendix C to the Proxy
Statement attached hereto as Exhibit 17(d)).
(f) Not Applicable.
(g) Loan Agreement (including the related Secured Promissory Note, Deed of
Trust, Assignment of Rents, Security Agreement and Financing Statement
and Security Agreement) by and among United Foods, Inc. and
Metropolitan Life Insurance Company dated July 8, 1999.
- ----------
* previously filed
12
<PAGE> 13
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct.
Dated: July 21, 1999 UNITED FOODS, INC.
By: /s/ B. M. Ennis
----------------------------------------
Name: B.M. Ennis
Title: President
PICTSWEET LLC
By: /s/ James I. Tankersley
----------------------------------------
Name: James I. Tankersley
Title: President
UF ACQUISITION CORP.
By: /s/ James I. Tankersley
----------------------------------------
Name: James I. Tankersley
Title: Chairman of the Board and President
JAMES I. TANKERSLEY
/s/ James I. Tankersley
-------------------------------------------
EDNA W. TANKERSLEY
/s/ Edna W. Tankersley
-------------------------------------------
DARLA T. DARNALL
/s/ Darla T. Darnall
-------------------------------------------
KELLE T. NORTHERN
/s/ Kelle T. Northern
-------------------------------------------
JAMES W. TANKERSLEY
/s/ James W. Tankersley
-------------------------------------------
13
<PAGE> 14
Exhibit Index
*17(a)(1) First American National Bank Commitment Letter dated May 21, 1999.
17(a)(2) Amended and Restated Loan Agreement and the Amended and Restated
Security Agreement by and among United Foods, Inc., National Bank
of Canada and First American National Bank dated June 30, 1999.
17(b)(1) Opinion of J.C. Bradford & Co., L.L.C., dated May 14, 1999.
*17(b)(2) Report of the Special Transaction Committee of the Board of
Directors of United Foods, Inc., dated May 10, 1999.
*17(b)(3) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated May 10, 1999.
*17(b)(4) Fairness Opinion of J.C. Bradford & Co., L.L.C., dated January 20,
1999.
*17(b)(5) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated January 20, 1999.
*17(b)(6) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated December 21, 1998.
*17(b)(7) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated December 8, 1998.
*17(b)(8) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated November 18, 1998.
*17(b)(9) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated October 14, 1998.
*17(b)(10) Information for the Special Committee of the Board of Directors
prepared by J.C. Bradford & Co., L.L.C., dated October 5, 1998.
17(c) Agreement and Plan of Merger, dated as of May 14, 1999, among
Company, Pictsweet LLC and UF Acquisition Corp. (incorporated by
reference to Appendix A to the Proxy Statement attached hereto as
Exhibit 17(d)).
17(d) Preliminary copy of Notice of Special Meeting of Stockholders,
Proxy Statement and form of Proxy for the Special Meeting of
Stockholders of the Company.
17(e) Statement of appraisal rights (Section 262 of the Delaware General
Corporation Law) (incorporated by reference to Appendix C to the
Proxy Statement attached hereto as Exhibit 17(d)).
17(g) Loan Agreement (including the related Secured Promissory Note,
Deed of Trust, Assignment of Rents, Security Agreement and
Financing Statement and Security Agreement) by and among United
Foods, Inc. and Metropolitan Life Insurance Company dated
July 8, 1999.
- ----------
* previously filed
14
<PAGE> 1
EXHIBIT 17(a)(2)
AMENDED AND RESTATED LOAN AGREEMENT
Among
UNITED FOODS, INC.,
as Borrower
NATIONAL BANK OF CANADA,
as a Lender
And
FIRST AMERICAN NATIONAL BANK,
Individually as a Lender and as Agent for the Lenders
Dated: June 30, 1999
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS
1.1 Acceptable Account ............................................ 2
1.2 Acceptable Inventory .......................................... 3
1.3 Account Debtor ................................................ 3
1.4 Accounts Receivable ........................................... 3
1.5 Affiliates .................................................... 3
1.6 Agreement ..................................................... 4
1.7 Agent ......................................................... 4
1.8 Aggregate Commitment .......................................... 4
1.10 Borrowing Date ............................................... 4
1.11 Business Day ................................................. 4
1.12 Change in Law ................................................ 4
1.13 Closing Date ................................................. 4
1.14 Collateral ................................................... 4
1.15 Commitment ................................................... 4
1.16 Commitment Letter ............................................ 5
1.17 Eurodollar Loans ............................................. 5
1.18 Eurodollar Rate .............................................. 5
1.19 Event of Default ............................................. 5
1.20 Financing Statements ......................................... 5
1.21 FLSA ......................................................... 5
1.22 Foreign Receivable ........................................... 5
1.23 GAAP ......................................................... 5
1.24 Indebtedness ................................................. 5
1.25 Insolvent .................................................... 6
1.26 Interest Payment Date ........................................ 6
1.27 Interest Period .............................................. 6
1.28 Inventory .................................................... 7
1.29 L/C Application .............................................. 7
1.30 Lender(s) .................................................... 7
1.31 Lending Installation ......................................... 7
1.32 Letter of Credit ............................................. 7
1.33 Letter of Credit Obligations ................................. 7
1.34 Lien ......................................................... 7
1.35 Loan Documents ............................................... 7
1.36 Mushroom Collateral .......................................... 7
1.37 Notes ........................................................ 9
1.38 Operating Account ............................................ 9
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1.39 Percentage ................................................... 9
1.40 Permitted Exceptions ......................................... 9
1.41 Person ....................................................... 9
1.42 Plans ........................................................ 9
1.43 Prime Rate ................................................... 9
1.44 Prime Rate Loan .............................................. 9
1.45 Responsible Officer .......................................... 9
1.46 Revolving Credit Advances or Advances ........................ 9
1.47 Revolving Credit Loan Maturity Date .......................... 10
1.48 Revolving Credit Note ........................................ 10
1.49 Revolving Loan or Revolving Credit Loan ...................... 10
1.50 Security Agreement ........................................... 10
1.51 Standby L/C .................................................. 10
1.52 Swing Line Bank .............................................. 10
1.53 Swing Line Commitment ........................................ 10
1.54 Swing Line Loan .............................................. 10
1.55 Swing Line Note .............................................. 10
1.56 Total Exposure ............................................... 11
1.57 Trade L/C .................................................... 11
1.58 Unfunded Vested Accrued Benefit .............................. 11
1.59 United States Government Receivable .......................... 11
ARTICLE 2
REVOLVING LOAN DOCUMENTS
2.1 Loan Documents ................................................ 11
2.2 Other Closing Documents ....................................... 12
2.3 Delivery of Documents as Condition Precedent to Advances ...... 12
ARTICLE 3
LETTERS OF CREDIT
3.1 Issuance of Letters of Credit ................................. 13
3.2 Procedure for Opening Letters of Credit ....................... 13
3.3 Payments in Respect of Letters of Credit ...................... 13
3.4 Letter of Credit Fees ......................................... 13
3.5 Letter of Credit Reserves ..................................... 14
3.6 Further Assurances ............................................ 15
3.7 Obligations Absolute .......................................... 15
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ARTICLE 4
COMMITMENT, FUNDING AND TERMS OF REVOLVING CREDIT LOAN
4.1 The Commitment ................................................ 16
4.2 Swing Line Loans .............................................. 16
(a) Making of Swing Line Loans ........................... 16
(b) Swing Line Request ................................... 16
(c) Swing Line Notes ..................................... 17
(d) Repayment of Swing Line Loans ........................ 17
4.3 Ratable Loans: Types of Advances .............................. 17
4.4 Procedure for Borrowing ....................................... 17
4.5 Interest Rates and Payment Dates .............................. 18
4.6 Computation of Interest and Fees .............................. 19
4.7 Conversion Options ............................................ 19
4.8 Prepayments or Termination of the Revolving Credit Loan ...... 19
4.9 Use of Proceeds ............................................... 20
4.10 Conditions to Funding ........................................ 20
4.11 Unused Facility Fee .......................................... 20
4.12 Inability to Determine Interest Rate ......................... 20
4.13 Illegality ................................................... 21
4.14 Indemnity .................................................... 21
4.15 Closing Costs ................................................ 22
4.16 Security ..................................................... 22
4.17 Conditions Precedent to All Revolving Credit Loan Advances ... 22
4.18 Lending Installations ........................................ 22
4.19 Non-Receipt of Funds by the Agent ............................ 22
4.20 Withholding Tax Exemption .................................... 23
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BORROWER
5.1 Validity of Loan Documents ..................................... 23
5.2 Corporate Status .............................................. 23
5.3 No Violation of Agreements .................................... 24
5.4 No Burdensome Agreements ...................................... 24
5.5 No Litigation ................................................. 24
5.6 Tax Liability ................................................. 24
5.7 Governmental Action ........................................... 24
5.8 Disclosure .................................................... 25
5.9 Financial Condition ........................................... 25
5.10 Title to Assets .............................................. 25
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5.11 Licenses and Permits ......................................... 25
5.12 Patents and Trademarks ....................................... 25
5.13 ERISA ........................................................ 25
5.14 Fiscal Year-End; Organizational Documents .................... 25
5.15 Inventory .................................................... 25
ARTICLE 6
COVENANTS OF BORROWER
6.1 Affirmative Covenants ......................................... 26
(a) Taxes and Other Liens .................................... 26
(b) Financial Reports of Borrower ............................ 26
(c) Certificates; Other Information .......................... 27
(d) Warehouse Agreements ..................................... 28
(e) Casualty, Condemnation or Governmental Action ............ 28
(f) Maintenance of Corporate Existence and Borrower's Business 28
(g) Inspection ............................................... 29
(h) Maintain Collateral ...................................... 29
(i) Notice of Default ........................................ 29
(j) Additional Information ................................... 29
(k) Notice of Adverse Change in Assets or Business .......... 29
(l) Working Capital Floor .................................... 29
(m) Tangible Net Worth ....................................... 29
(n) Debt to Equity Ratio ..................................... 30
(o) Coverage Ratio ........................................... 30
(p) Change in Fiscal Year-End ................................ 30
(q) Insurance ................................................ 30
(r) Inventory ................................................ 31
(s) Borrowing Base Certificate ............................... 31
(t) [RESERVED] ................................................ 32
(u) Collection of Receivables ................................ 32
(v) Over-Advances ............................................ 32
(w) Stock Repurchase ......................................... 32
6.2 Negative Covenants ............................................ 32
(a) Mortgages, Liens, Etc .................................... 32
(b) Sale of Collateral ....................................... 33
(c) Disposition of Assets; Cessation of Business ............. 33
(d) Loans and Guarantees ..................................... 33
(e) New Business ............................................. 33
(f) Consolidation or Merger; Acquisition of Assets ........... 33
(g) Amendment to Organizational Documents .................... 33
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(h) Change in Fiscal Year-End ............................ 33
(i) Transactions with Affiliates ......................... 33
(j) Sale of Accounts Receivable .......................... 33
6.3 Payment of Taxes .............................................. 34
6.4 Expenses ...................................................... 34
6.5 Further Assurances; Additional Documents ...................... 34
ARTICLE 7
EVENTS OF DEFAULT
7.1 Payment of Principal, Interest ................................ 35
7.2 Payment of Other Obligations by Borrower ...................... 35
7.3 Representation or Warranty .................................... 35
7.4 Covenants ..................................................... 35
7.5 Bankruptcy, Etc ............................................... 35
7.6 Concealment of Property, Etc .................................. 36
7.7 Loan Documents Terminated or Void ............................. 36
7.8 Judgments ..................................................... 36
7.9 Attachments, Etc .............................................. 36
7.10 Termination of Employee Benefit Plans, Etc ................... 37
7.11 Performance of Other Obligations ............................. 37
7.12 Suits by Borrower or Affiliates .............................. 37
7.13 Accounts Payable to Growers .................................. 37
7.14 Failure to Complete Settlement of Lawsuit .................... 37
ARTICLE 8
REMEDIES OF LENDERS
8.1 Default Constitutes Default Under Other Documents ............. 38
8.2 Rights of Lender Upon Default ................................. 38
8.3 Cumulative Remedies ........................................... 38
ARTICLE 9
THE ADMINISTRATIVE AGENT
9.1 Appointment; Nature of Relationship............................ 38
9.2 Powers ........................................................ 39
9.3 General Immunity ............................................. 39
9.4 No Responsibility for Loans, Recitals, etc .................... 39
9.5 Action on Instructions of Lenders ............................. 39
9.6 Employment of Agents and Counsel .............................. 40
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9.7 Reliance on Documents: Counsel ................................ 40
9.8 Agent's Reimbursement and Indemnification ..................... 40
9.9 Funding of Loan by Lenders .................................... 40
9.10 Notice of Default ............................................ 40
9.11 Rights as a Lender ........................................... 41
9.12 Lender Credit Decision ....................................... 41
9.13 Successor Agent .............................................. 41
ARTICLE 10
GENERAL CONDITIONS
10.1 Rights of Third Parties ...................................... 42
10.2 Evidence of Satisfaction of Conditions ....................... 42
10.3 All Matters Satisfactory to Agent ............................ 42
10.4 No Agency .................................................... 42
10.5 No Partnership or Joint Venture .............................. 42
10.6 Interest Limitations ......................................... 42
10.7 No Assignment by Borrower .................................... 43
10.8 Assignment by Lender ......................................... 43
10.9 Entire Agreement ............................................. 43
10.10 Notices ..................................................... 44
10.11 Successors and Assigns Included in Parties .................. 44
10.12 Headings .................................................... 45
10.13 Invalid Provisions to Affect No Others ...................... 45
10.14 Number and Gender ........................................... 45
10.15 Amendments .................................................. 45
10.16 Indemnification ............................................. 45
10.17 Execution in Counterparts ................................... 45
10.18 Time of Essence ............................................. 45
10.19 Governing Law ............................................... 45
10.20 Security Interest; Setoff ................................... 46
10.21 Consent to Jurisdiction and Venue ........................... 46
10.22 Agent/Lenders' Consent ...................................... 46
10.23 Waiver of Right to Trial by Jury ............................ 46
10.24 Conflict .................................................... 47
10.25 Ratable Payments ............................................ 47
10.26 Amended and Restated Loan Agreement ......................... 47
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SCHEDULES:
Locations of Inventory ...................................................... 5.15
EXHIBITS:
A Borrowing Base Certificate ............................................... A-1
A-1 Amended and Restated Revolving Credit Note ............................. A-1-1
A-2 Revolving Credit Note .................................................. A-2-1
A-3 Amended and Restated Swing Line Note ................................... A-3-1
B-1 Annual Non-Default Certificate ......................................... B-1-1
B-2 Quarterly Non-Default Certificate ...................................... B-2-1
B-3 Monthly Non-Default Certificate ........................................ B-3-1
</TABLE>
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<PAGE> 9
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT (the "Agreement"), made and
entered into this 30 day of June, 1999, by and among UNITED FOODS, INC., a
Delaware corporation having its principal place of business at Ten Pictsweet
Drive, Bells, Tennessee 38006-0119 ("Borrower"), FIRST AMERICAN NATIONAL BANK
("FANB"), a national banking association organized and existing under the
statutes of the United States of America, with an office in Memphis, Tennessee,
as Agent ("Agent") for itself as a lender and the other undersigned lender, and
NATIONAL BANK OF CANADA ("NBC"), a commercial banking institution organized and
existing under the laws of Canada, with a United States domestic branch office
located at 125 W. 55th Street, 23rd Floor, New York, New York 10019 (FANB and
NBC hereinafter collectively referred to as "Lender");
W I T N E S S E T H:
WHEREAS, First American National Bank (sometimes also referred to
herein as "FANB") and Borrower executed a Loan Agreement dated as of April 7,
1993 (the "Original Loan Agreement"), pursuant to which FANB made a Twenty-Three
Million Dollar (U.S. $23,000,000.00) revolving credit loan to Borrower for the
purpose of providing working capital to Borrower (the "Original Revolving
Loan");
WHEREAS, FANB and Borrower amended the Original Revolving Loan by
amendments dated: June 2, 1994; June 1, 1995; September 1, 1995; February 6,
1997; May 15, 1997; June 17, 1997; and July 16, 1998 (collectively, the
"Amendments");
WHEREAS, Borrower has requested that FANB increase the Original
Revolving Loan, as amended by the Amendments, to Thirty-Five Million Dollars
(U.S. $35,000,000.00) and to make certain other modifications and changes to the
Original Revolving Loan, as amended by the Amendments; and
WHEREAS, FANB is willing to increase the amount of the Original
Revolving Loan, as amended by the Amendments, and has invited NBC to join as a
lender and FANB and NBC have agreed to make certain other modifications and
amendments to the credit facility, on the terms and subject to the conditions
herein set forth;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, it is agreed by the parties as follows:
<PAGE> 10
ARTICLE 1
DEFINITIONS
In addition to the other terms hereinafter defined, the following terms
shall have the meanings set forth in this Article 1:
1.1 Acceptable Account. "Acceptable Account" shall mean an Account
Receivable which meets all of the following requirements: (a) such Receivable is
owned by the Borrower and represents a complete bona fide transaction which
requires no further act under any circumstances on the part of the Borrower to
make such Receivable payable by the Account Debtor; (b) such Receivable is not
past due more than sixty (60) days, or ninety (90) days in the case of a United
States Government Receivable, from the date of the original invoice; (c) the
goods, the sale of which gave rise to such Receivable, were shipped or delivered
to the Account Debtor on an absolute sale basis and not on a bill and hold sale
basis, a consignment sale basis, a guaranteed sale basis, a sale or return
basis, or on the basis of any other similar understanding and no material part
of such goods has been returned or rejected; (d) such Receivable is not
evidenced by chattel paper or an "instrument" (as defined in Article IX of the
Tennessee Uniform Commercial Code) of any kind; (e) the Account Debtor with
respect to such Receivable is not Insolvent or the subject of any bankruptcy or
insolvency proceedings of any kind or of any other proceeding or action,
threatened or pending, which might have a materially adverse effect on such
Account Debtor and is not deemed ineligible for credit for other reasons; (f)
such Receivable is not owing by an Account Debtor having twenty-five percent
(25%) or more in face value of its then-existing accounts owing to the Borrower
past due more than sixty (60) days, or ninety (90) days in the case of a United
States Government Receivable, from the date of the original invoice; (g) such
Receivable is not owing by an Account Debtor whose then-existing accounts owing
to the Borrower exceed in face amount twenty percent (20%) of the Borrower's
total Acceptable Accounts; (h) if such Receivable arises from the performance of
services, such services have been fully rendered; (i) such Receivable is a
valid, legally enforceable obligation of the Account Debtor with respect thereto
and is not subject to any present, and no facts are known which are the basis
for any future, offset, deduction or counterclaim, dispute or other defense on
the part of such Account Debtor, other than allowances to the Account Debtor in
the ordinary course of the Borrower's business, which allowances shall reduce
the face amount of the Receivable for the purposes of determining its
eligibility; (j) except as provided in the last sentence of this Section 1.1
with respect to United States Government Receivables, such Receivable is subject
to a perfected security interest pursuant to the Security Agreement and is
subject to no other Lien whatsoever other than Permitted Exceptions; (k) such
Receivable is evidenced by an invoice or other documentation in form acceptable
to the Agent; (l) such Receivable does not arise out of any transaction with any
Affiliate of the Borrower; (m) the goods and services giving rise to such
Receivable were not, at the time of the sale or rendering thereof, subject to
any Lien, except the security interest granted hereunder and Permitted
Exceptions; (n) is not a Foreign Receivable; and (o) such Receivable does not
arise from the sale of goods or services to a military distributor. A United
States Government Receivable that otherwise satisfies the foregoing requirements
shall be an Acceptable Account notwithstanding the failure by the Agent or
Lenders and the Borrower to comply with the Federal Assignment of Claims Act of
1940, as amended; provided that the Agent,
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in its sole and absolute discretion, may notify the Borrower of the Agent's
determination to comply with such Act, and at the expiration of thirty (30) days
following such notice any United States Government Receivable will cease to be
an Acceptable Account unless and until all steps necessary under the Act to
complete an assignment of such United States Government Receivable to the Agent
have been taken.
1.2 Acceptable Inventory. "Acceptable Inventory" shall mean Inventory
of Borrower's frozen food division which meets all of the following
requirements: (a) such Inventory is owned by the Borrower, is subject to a
perfected security interest pursuant to the Security Agreement and is subject to
no other Lien whatsoever other than a lien for unpaid taxes which are not yet
due and payable and Permitted Exceptions; (b) such Inventory excludes the cost
of all freight and shipping subsequent to final packaging; (c) such Inventory is
calculated at the lower of current year anticipated cost or market value; (d)
such Inventory is in good condition and meets all standards imposed by any
governmental agency, or department or division thereof, having regulatory
authority over such goods, their processing, use or sale; (e) such Inventory can
currently be used or marketed in the normal course of the Borrower's business;
(f) such Inventory has been processed and frozen and (i) can pass without
objection in the trade, (ii) is of fair average quality throughout, and runs,
within reasonable variations, of even kind, quality and quantity within each
unit and among all units involved, (iii) is fit for the ordinary purposes for
which it is intended to be used, and (iv) is adequately contained, preserved,
packaged and labeled as required by applicable law or custom and usage, if
appropriate; (g) such Inventory is located at one of the locations set forth in
the most recent SCHEDULE 5.15; (h) such Inventory shall not have been held by or
on behalf of the Borrower as Inventory for a period in excess of twenty-four
(24) months; and (i) such Inventory is not held, processed or otherwise
maintained by the Borrower on a consignment basis or under a contract or
arrangement whereby the goods are to be held or sold on behalf of a Person other
than the Borrower.
1.3 Account Debtor. "Account Debtor" shall mean any Person which is now
or hereafter obligated or indebted to Borrower on any Account Receivable.
1.4 Accounts Receivable. "Accounts Receivable" or "Receivable" shall
mean all amounts owed to the Borrower on account of sales, leases or rentals of
goods or services rendered in the ordinary course of the Borrower's trade or
business, other than Mushroom Receivables, net of deposits and advance payments
made by Account Debtors (including, but not limited to, items listed on
Borrower's financial statement as Deferred Sales).
1.5 Affiliates. With respect to any entity, any Person that (i)
directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with such entity, (ii) directly or
indirectly beneficially owns or holds ten percent (10%) or more of any class of
voting stock of such entity, or (iii) ten percent (10%) or more of the voting
stock of which is directly or indirectly beneficially owned or held by such
entity; and the term "control"
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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
ownership of voting securities, by contract or otherwise.
1.6 Agreement. This Amended and Restated Loan Agreement and all
exhibits and schedules attached hereto or made a part hereof, as the same may be
amended from time to time hereafter.
1.7 Agent. First American National Bank in its capacity as agent for
the Lenders pursuant to Article 9, and not in its individual capacity as a
Lender, and any successor Agent appointed pursuant to Article 9.
1.8 Aggregate Commitment. The aggregate of the Commitments of all the
Lenders.
1.9 Borrowing Base. The limitation on the aggregate Total Exposure
which may be outstanding at any time during the term of this Agreement. The
Borrowing Base is the sum of (a) eighty-five percent (85%) of Acceptable
Accounts, such amounts to be decreased by an amount equal to (i) One Hundred
Twenty Thousand Dollars ($120,000.00) plus (ii) all amounts due on accounts
payable to growers of agricultural commodities that are outstanding for more
than thirty (30) days from due date, plus (b) sixty percent (60%) of Acceptable
Inventory, less (c) the amount of the then outstanding Swing Line Loan.
1.10 Borrowing Date. Any Business Day specified in a notice pursuant to
Section 4.4 of this Agreement as a date on which a Lender makes a Revolving
Credit Advance hereunder.
1.11 Business Day. A day other than a Saturday, Sunday or other day on
which commercial banks in Memphis, Tennessee are authorized or required by law
to close.
1.12 Change in Law. The adoption of any law, regulation, policy,
guideline or directive (whether or not having the force of law) or any change
therein or in the interpretation or application thereof by an governmental
authority having jurisdiction over a Lender, after the date hereof.
1.13 Closing Date. The date on which all conditions to funding set
forth in Section 4.10 have been satisfied or waived by Agent and Lenders make
the initial Revolving Credit Advance pursuant to this Agreement.
1.14 Collateral. The Accounts Receivable and the Inventory.
1.15 Commitment. For each Lender, the obligation of such Lender to make
Revolving Loans as provided herein, not exceeding the amount set forth opposite
its signature below, as such amount may be modified from time to time pursuant
to the terms hereof.
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1.16 Commitment Letter. The commitment letter dated March 5, 1999,
including the Summary of Terms appended thereto, which commitment letter was
issued by Agent and acknowledged and accepted by Borrower on April 28, 1999.
1.17 Eurodollar Loans. Revolving Loans at such time as they are made
and/or being maintained at a rate of interest based upon a Eurodollar Rate.
1.18 Eurodollar Rate. With respect to any Interest Period for any
Eurodollar Loan, (a) the rate per annum equal to the applicable London interbank
offered rate for U.S. Dollar deposits appearing on Telerate Page 3750 as of
11:00 a.m. London time two Business Days prior to the first day of such Interest
Period (and if no London interbank offered rate of such maturity then appears on
Telerate Page 3750, then the Eurodollar Rate shall be equal to the London
interbank offered rate for U.S. Dollar deposits maturing immediately before or
immediately after such maturity, whichever is higher, as determined by the Agent
from Telerate Page 3750) for the number of days during such Interest Period
divided by (b) a number equal to 1.00 minus the aggregate (without duplication)
of the rates (expressed as a decimal fraction) of reserve requirements current
on the date two (2) Business Days prior to the beginning of such Interest Period
(including, without limitation, basic, supplemental, marginal and emergency
reserves under any regulations of the Board of Governors of the Federal Reserve
System or other governmental authority having jurisdiction with respect
thereto), as now and from time to time hereafter in effect, dealing with reserve
requirements prescribed for Eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of such Board) maintained by a member
bank of such System (each Eurodollar Rate to be rounded upwards, if necessary,
to the next higher 1/100 of one percent), plus (c) one and one-half percent
(1 1/2%) per annum.
1.19 Event of Default. "Event of Default" is defined in Article 7 of
this Agreement.
1.20 Financing Statements. The UCC-1 Financing Statements and/or UCC-3
Amendments executed by Borrower of even date herewith in favor of Agent to
perfect Agent's security interest in the Accounts Receivable and Inventory
created by the Security Agreement and to evidence the agent-bank relationship
created hereunder.
1.21 FLSA. The Fair Labor Standards Act of 1938, as amended.
1.22 Foreign Receivable. Any Receivable arising out of a sale or
shipment of Inventory to a destination outside the United States of America.
1.23 GAAP. Generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board (or any successor boards), consistently
applied.
1.24 Indebtedness. All indebtedness and obligations evidenced by, and
all costs, fees, charges, expenses and advances incurred or made by Lenders
pursuant to this Agreement, the Notes, or any of the other Loan Documents,
including any amounts owing to Lenders or Agent pursuant to the provisions of
Section 10.16 hereof.
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1.25 Insolvent. When used with respect to any particular Person,
"Insolvent" shall mean that (A) such Person's liabilities exceed its assets, in
each case determined according to GAAP, or (B) such Person is unable to pay its
debts as they become due in the ordinary course of its business.
1.26 Interest Payment Date. In the case of Prime Rate Loans, the 15th
day of each June, September, December and March commencing on September 15, 1999
and the date of payment (including prepayment) in full of the Revolving Loans,
and, in the case of Eurodollar Loans, the last day of each Interest Period.
1.27 Interest Period. With respect to any Eurodollar Loan:
(a) initially, the period commencing on, as the case may be,
the Borrowing Date or conversion date with respect to such Eurodollar
Loan and ending one, two or three months thereafter as selected by the
Company in its notice of borrowing as provided in Section 4.4 or its
notice of conversion as provided in Section 4.7; and
(b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two or three months thereafter as selected by the Company
by irrevocable notice to the Agent not less than three Business Days
prior to the last day of the then current Interest Period with respect
to such Eurodollar Loan:
provided that the foregoing provisions relating to Interest
Periods are subject to the following:
(A) if any Interest Period would otherwise end on a
day which is not a Business Day, that Interest Period shall be
extended to the next succeeding Business Day, unless the
result of such extension would be to carry such Interest
Period into another calendar month, in which event such
Interest Period shall end on the immediately preceding
Business Day;
(B) any Interest Period that would otherwise extend
beyond the Revolving Credit Loan Maturity Date, shall end on
such Revolving Credit Loan Maturity Date, or if such Revolving
Credit Loan Maturity Date shall not be a Business Day, on the
immediately preceding Business Day;
(C) if the Company shall fail to give notice as
provided above in clause (b), it shall be deemed to have
selected a conversion of a Eurodollar Loan into a Prime Rate
Loan (which conversion shall occur automatically and without
need for compliance with the conditions for conversion set
forth in Section 4.7);
(D) any Interest Period that begins on the last day
of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar
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month at the end of such Interest Period) shall end on the
last Business Day of a calendar month; and
(E) the Company shall select Interest Periods so that
no part of an Interest Period coincides with any part of a
Clean-Up Period.
1.28 Inventory. Goods and products held for sale or furnished or to be
furnished under contracts of service, or raw materials, work-in-process,
finished goods or materials to be used or consumed in business, including
without limitation packaging materials, accessions to such raw materials,
products and goods, and documents therefor, excluding, however, the Mushroom
Inventory.
1.29 L/C Application. "L/C Application" is defined in Section 3.1.
1.30 Lender(s). The lending institution(s) listed on the signature
pages of this Agreement and their respective successors and assigns.
1.31 Lending Installation. With respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
1.32 Letter of Credit. A Standby L/C or a Trade L/C.
1.33 Letter of Credit Obligations. The obligations of the Borrower to
reimburse FANB for any payments made by FANB under any Standby L/C or Trade L/C
that have not been reimbursed by the Borrower pursuant to Section 3.4(a).
1.34 Lien. Any interest in real or personal property securing an
obligation owed to, or a claim by, a Person other than the owner of such real or
personal property, whether such interest is based upon the common law, statute
or contract, and including but not limited to the security interest or lien
arising from a deed of trust, mortgage, encumbrance, pledge, conditional sale,
or trust receipt or a lease, consignment or bailment for security purposes.
1.35 Loan Documents. Collectively, this Agreement, the Notes, the
Security Agreement, and any other documents executed pursuant to or in
connection with this Agreement, including, without limitation, the documents
specified in Article 2 hereof.
1.36. Mushroom Collateral. All of the Borrower's right, title and
interest in and to each of the following assets, but only to the extent such
assets are used in connection with or arise out of, the Borrower's division
known as Pictsweet Mushroom Farms (the "Mushroom Division"):
(a) all inventory in all of its forms, wherever located, now
or hereafter existing including, but not limited to, (i) all mature
mushrooms, growing crops of mushrooms, packaging materials, raw
materials and work in process therefor, finished goods thereof, and
materials used or consumed in the manufacture or production thereof,
(ii) goods in which the Borrower has an interest in mass or a joint or
other interest or right of any kind
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(including, without limitation, goods in which the Borrower has an
interest or right as consignee), (iii) goods which are returned to or
repossessed by the Borrower, and (iv) all accessions thereto and
products thereof and documents therefor (any and all such inventory,
accessions, products and documents being hereinafter called the
"Mushroom Inventory");
(b) all farm products in all of their respective forms,
wherever located, now or hereafter existing, including, but not limited
to, (i) all straw, compost, bedding materials, spawn and the products
thereof used in the Mushroom Division, and (ii) all agricultural
supplies used or consumed in the operations of the Mushroom Division,
including without limitation all chemicals used in maintaining,
growing, preserving or producing any such farm products, and (iii) all
accessions to and products of and documents for any of the foregoing
(any and all such farm products, accessions, products and documents
being hereinafter called the "Mushroom Farm Products");
(c) all accounts, accounts receivable, contract rights,
chattel paper, instruments, general intangibles and other obligations
of any kind owing to the Borrower with respect to or arising out of the
operations of the Mushroom Division (including, without limitation,
payment-in-kind certificates, rights to any government subsidy, set
aside, diversion, deficiency or disaster payment, and payments in
kind), now or hereafter existing, whether or not arising out of or in
connection with the sale of goods or the rendering of services, and all
rights now or hereafter existing in and to all security agreements,
leases, and other contracts securing or otherwise relating to any such
accounts, contract rights, chattel paper, instruments, general
intangibles or obligations (any and all such accounts, contract rights,
chattel paper, instruments, general intangible and obligations being
hereinafter called the "Mushroom Receivables", and any and all such
leases, security agreements and other contracts being hereinafter
called the "Related Contracts");
(d) all future contracts and funds, margin accounts and other
property of any kind relating to such futures contracts, funds and
margin accounts, including, without limitation, any balance credited to
any margin account upon closing;
(e) all mortgages, deeds to secure debt and deeds of trust on
real or personal property, guaranties, leases, security agreements, and
other agreements and property which secure or relate to the Mushroom
Receivables or other Mushroom Collateral, or are acquired for the
purpose of securing and enforcing any item thereof;
(f) all documents of title, instruments, policies and
certificates of insurance, securities, chattel paper, and other
documents and instruments evidencing or pertaining to any and all items
of Mushroom Collateral;
(g) all books, records, files, correspondence, computer
programs, tapes, discs and related data processing software which
contain information identifying or pertaining to any of the Mushroom
Receivables or any account debtor, or showing the amounts thereof
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or payments thereon or otherwise necessary or helpful in the
realization thereon or the collection thereof, but only to the extent
they pertain to the Mushroom Receivables;
(h) all cash related to or arising out of the operations of
the Mushroom Division; and
(i) all proceeds of any and all of the foregoing Mushroom
Collateral (including, without limitation, proceeds which constitute
property of the types described in clauses (a) through (h)), and, to
the extent not otherwise included, all payments under insurance, or any
indemnity, warranty or guaranty, payable by reason of loss or damage to
or otherwise with respect to any of the foregoing Mushroom Collateral.
1.37 Notes. Each of the Revolving Credit Notes and Swing Line Notes.
1.38 Operating Account. Borrower's checking and depository account
established with the Swing Line Bank which is used by the Borrower for working
capital purposes.
1.39 Percentage. For any Lender, one hundred percent (100%) times a
fraction (a) the numerator of which is such Lender's Commitment, and (b) the
denominator of which is the Aggregate Commitment.
1.40 Permitted Exceptions. Liens and other exceptions to title listed
in Section 6.2(a).
1.41 Person. Person shall mean an individual, corporation, partnership,
trust, limited liability company, association, joint venture, unincorporated
organization or government, or any agency or political subdivision thereof, or
any business or other legal entity.
1.42 Plans. Employee benefit plans maintained for employees of the
Borrower governed by Title IV of the Employment Retirement Income Security Act
of 1974 ("ERISA"), including such Plans as may be established after the Closing
Date.
1.43 Prime Rate. The reference or base rate of interest publicly
announced from time to time by the Lender as its prime or base lending rate
minus one-half percent (1/2%) per annum.
1.44 Prime Rate Loan. The Revolving Loan (or applicable portion
thereof) at such time as it is made and/or being maintained at a rate of
interest based upon the Prime Rate.
1.45 Responsible Officer. The Chief Financial Officer or some other
executive officer of Borrower.
1.46 Revolving Credit Advances or Advances. Advances of principal on
the Revolving Credit Loan by a Lender under the terms of this Agreement to the
Borrower during the term of the Revolving Credit Loan pursuant to Section 4.1
hereof.
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1.47 Revolving Credit Loan Maturity Date. June 1, 2002, provided,
however, that the Revolving Credit Loan Maturity Date may be extended by Agent,
at the request of the Borrower but in Agent's sole and absolute discretion, for
one additional year on each anniversary date of this Agreement.
1.48 Revolving Credit Note. With respect to Agent as Lender, an Amended
and Restated Revolving Credit Note, in substantially the form of EXHIBIT "A-1,"
attached hereto, duly executed by Borrower and payable to the order of FANB in
the amount of its Commitment, including any amendment, modification,
restatement, renewal or replacement of the Amended and Restated Promissory Note.
"Revolving Credit Note" means, with respect to NBC as Lender, a Revolving Credit
Note in substantially the form of EXHIBIT "A-2," attached hereto, duly executed
by Borrower and payable to the order of NBC in the amount of its Commitment,
including any amendment, modification, restatement, renewal or replacement of
the Revolving Credit Note.
1.49 Revolving Loan or Revolving Credit Loan. With respect to a Lender,
such Lender's loan made pursuant to Section 4.1 (or any portion thereof),
and/or, in the case of FANB, pursuant to Section 4.2 (or any portion thereof).
1.50 Security Agreement. That certain Amended and Restated Security
Agreement of even date herewith pursuant to which the Borrower grants to Agent,
on behalf of Lenders, a valid security interest in the Accounts Receivable and
Inventory.
1.51 Standby L/C. An irrevocable letter of credit under which FANB
agrees to make payments for the account of the Borrower, on behalf of the
Borrower in respect of obligations of the Borrower incurred pursuant to
contracts made or performances undertaken or to be undertaken or matters as to
which the Borrower is or proposes to become a party in the ordinary course of
the Borrower's business, including, without limitation, for insurance purposes
or in respect of advance payments or bid or performance bonds.
1.52 Swing Line Bank. FANB or any other Lender as a successor Swing
Line Bank.
1.53 Swing Line Commitment. The obligation of the Swing Line Bank to
make Swing Line Loans up to a maximum of Five Million Dollars (U.S.
$5,000,000.00) at any one time outstanding.
1.54 Swing Line Loan. A Revolving Credit Loan made available to the
Borrower by the Swing Line Bank pursuant to Section 4.2 hereof.
1.55 Swing Line Note. A Revolving Credit Note, in substantially the
form of EXHIBIT "A-3," attached hereto, duly executed by the Borrower and
payable to the order of the Swing Line Bank in the amount of its Swing Line
Commitment, including any amendment, modification, restatement, renewal or
replacement of such note and evidencing such Lender's Swing Line Loans.
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1.56 Total Exposure. The aggregate of (a) all Revolving Credit Advances
outstanding at any time, plus (b) the face amount of all outstanding Standby
L/C's and Trade L/C's, plus (c) the aggregate of outstanding Swing Line Loans.
1.57 Trade L/C. A commercial documentary letter of credit issued by
FANB for the account of the Borrower, payable in U.S. dollars, for the purchase
of materials, goods or services in the ordinary course of the Borrower's
business.
1.58 Unfunded Vested Accrued Benefit. With respect to any Plan at any
time, the amount, if any, by which (x) the present value of all vested
nonforfeitable benefits under such Plan exceeds (y) the fair market value of all
Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan.
1.59 United States Government Receivable. Any Account Receivable for
which the Account Debtor is the federal government of the United States of
America, or any department, agency or instrumentality thereof.
All accounting terms not specifically defined in this Agreement shall
have the meaning ascribed by, and be construed in accordance with, generally
accepted accounting principles, consistently applied. Whenever in this Agreement
the singular number is used, it shall include the plural where appropriate and
vice versa, and words of any gender shall include each other gender where
appropriate.
ARTICLE 2
REVOLVING LOAN DOCUMENTS
2.1 Loan Documents. At the closing of the Revolving Loan (the
"Closing") on the Closing Date, Borrower shall duly authorize, execute and
deliver to Agent (or cause to be delivered to Agent) this Agreement and the
following documents to evidence and secure the Revolving Loan, in form and
substance satisfactory to Agent:
(a) Amended and Restated Revolving Credit Note executed by
Borrower in the original principal amount not to exceed Thirteen
Million Dollars (U.S. $13,000,000.00), payable to the order of FANB in
accordance with the terms hereof and thereof;
(b) Revolving Credit Note executed by Borrower in the original
principal amount not to exceed Seventeen Million Dollars (U.S.
$17,000,000.00), payable to the order of NBC in accordance with the
terms hereof and thereof;
(c) Swing Line Note executed by Borrower in the original
principal amount not to exceed Five Million Dollars (U.S.
$5,000,000.00), payable to the order of FANB in accordance with the
terms hereof and thereof;
(d) Security Agreement;
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(e) Financing Statements; and
(f) L/C Applications.
2.2 Other Closing Documents. At the Closing, Borrower shall also
provide Agent with the following additional documents or copies thereof, in form
and substance satisfactory to Agent:
(a) certified corporate resolutions of the Borrower, and
certificates of existence or good standing, as the case may be, for
Borrower from the State of Delaware, and a certificate of authority to
transact business from the State of Tennessee, together with certified
copies of the charter and bylaws of the Borrower;
(b) to the extent requested by Agent, certificates of
authority to transact business and/or good standing from each
additional state in which the Borrower's ownership of assets or the
nature of its operations requires it to be qualified to do business as
a foreign corporation;
(c) an audited financial statement of the Borrower for the
fiscal year ending February 28, 1999 (the "1999 Audited Statement"),
together with an interim financial statement (consisting of a current
balance sheet and profit and loss statement) for the Borrower as of May
31, 1999 (the "Interim Financial Statement"), the accuracy of which is
certified to Agent by the Chief Financial Officer of Borrower;
(d) lien searches of Borrower in the states identified in
SCHEDULE 5.15 hereto;
(e) evidence that all warehouses in which Inventory may be
stored are adequately insured or bonded;
(f) a legal opinion executed by Borrower's counsel in form and
substance acceptable to Agent and Agent's counsel; and
(g) such other documents as Agent may reasonably require.
2.3 Delivery of Documents as Condition Precedent to Advances. If any of
the Loan Documents or other documents set forth in Section 2.2 are not delivered
to Agent concurrently with the execution hereof, the delivery of the remainder
of the Loan Documents and such other documents in form and substance acceptable
to Agent shall be an express condition precedent to Lenders' obligation to make
any disbursement of funds under the Revolving Loans. Agent may waive this
condition and thereby cause Lenders to advance loan proceeds to pay the costs of
closing the Revolving Loans; provided, however, the making of any such advance
or any future advance shall not be considered a waiver of this condition
precedent to its obligation to make any other advance, unless Agent specifically
so agrees in writing.
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ARTICLE 3
LETTERS OF CREDIT
3.1 Issuance of Letters of Credit. (a) Subject to the terms and
conditions hereof, FANB agrees to issue for the account of the Borrower, from
time to time during the term of this Agreement, Letters of Credit. Borrower may
from time to time request FANB to issue a Letter of Credit by delivering to FANB
at its address specified herein an application in FANB's customary form for
Standby L/C's or Trade L/C's, as applicable (an "L/C Application") completed to
the satisfaction of FANB, together with such other certificates, documents and
other papers and information as FANB may reasonably request.
(b) Each Letter of Credit issued hereunder shall, among other things,
be in such form requested by the Borrower as shall be acceptable to FANB in its
(i) reasonable discretion, and (ii) have an expiry date in no event later than
the Revolving Credit Loan Maturity Date and, in the case of Trade L/C's, no
later than 120 days following the date of issuance thereof. Each L/C Application
and each Letter of Credit shall be subject to the Uniform Customs and Practice
for Documentary Credit (1983 Revisions), International Chamber of Commerce
Publication No. 400 and subsequent revisions thereof approved by a Congress of
such Chamber, and if requested by FANB, Article V of the Tennessee Uniform
Commercial Code and, to the extent not inconsistent therewith, the laws of the
State of Tennessee.
3.2 Procedure for Opening Letters of Credit. Upon receipt of any L/C
Application from the Borrower, FANB will process such L/C Application, and the
other certificates, documents and other papers delivered to FANB in connection
therewith, in accordance with its customary procedures and, subject to the terms
and conditions hereof, shall promptly open such Letter of Credit by issuing the
original of such Letter of Credit to the beneficiary thereof and by furnishing a
copy thereof to the Borrower, provided that no such Letter of Credit shall be
issued if issuance thereof would cause the Total Exposure to exceed the
Commitment amount under Section 4.1.
3.3 Payments in Respect of Letters of Credit. The Borrower agrees
forthwith upon demand by FANB and otherwise in accordance with the terms of the
L/C Application relating thereto, (i) to reimburse FANB for any payment made by
FANB under any Letter of Credit and (ii) to pay interest on any unreimbursed
portion of any such payment from the date of such payment until reimbursement in
full thereof at a rate per annum equal to (A) prior to the date which is one
Business Day after the day on which FANB demands reimbursement from the Borrower
for such payment, at the current rate for Prime Rate Loans and (B) on such date
and thereafter, three percent (3%) above the Prime Rate; provided, however, that
at the Borrower's request the amount of FANB's payment under such Letter of
Credit may be treated as a Revolving Credit Advance.
3.4 Letter of Credit Fees. In lieu of any Letter of Credit commissions
and fees provided for in any L/C Application relating to Standby L/C (other than
standard issuance, amendment and negotiation fees customarily charged by FANB),
the Borrower agrees to pay FANB with respect to each Standby L/C, a Standby L/C
fee of one and one-quarter percent
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(1.25%) per annum on the amount available to be drawn under each Standby L/C
payable, in advance, on the date of issuance or renewal and calculated on the
basis of a 360-day year for actual days elapsed from such date of issuance to
the expiration date of such Standby L/C.
(b) With respect to each Trade L/C, the Borrower agrees to pay FANB a
document examination fee equal to three-eights of one percent (3/8%) of the
amount available to be drawn under such Trade L/C, payable only if a drawing is
made thereunder and at the time of such drawing, and such other fees in amounts
and at the times required under FANB's standard policies respecting documentary
letters of credit in effect from time to time.
(c) For purposes of any payment of fees required pursuant to this
Section 3.4, FANB agrees to provide to the Borrower a statement of any such fees
to be so paid; provided that the failure by FANB to provide the Borrower with
any such invoice shall not relieve the Borrower to pay such fees.
3.5 Letter of Credit Reserves. (a) If any Change in Law shall either
(i) impose, modify, deem or make applicable any reserve, special deposit,
assessment or similar requirement against letters of credit issued by FANB or
(ii) impose on FANB any other condition regarding this Agreement or any Letter
of Credit, and the result of any event referred to in clause (i) or (ii) above
shall be to increase the cost of FANB issuing or maintaining any Letter of
Credit (which increase in cost shall be the result of FANB's reasonable
allocation of the aggregate of such cost increases resulting from such events),
then, upon demand by FANB, the Borrower shall immediately pay to FANB, from time
to time as specified by FANB, additional amounts which shall be sufficient to
compensate FANB for such increased cost, together with interest on each such
amount from the date demanded until payment in full thereof at a rate per annum
equal to the Prime Rate. A certificate, setting forth in reasonable detail the
calculation of the amounts involved, submitted by FANB to the Borrower
concurrently with any such demand by FANB, shall be conclusive, absent manifest
error, as to the amount thereof.
(b) In the event that any Change in Law with respect to FANB shall, in
the opinion of FANB, require that any obligation under any Letter of Credit be
treated as an asset or otherwise be included for purposes of calculating the
appropriate amount of capital to be maintained by FANB or any corporation
controlling FANB, and such Change in Law shall have the effect of reducing the
rate of return on FANB's or such corporation's capital, as the case may be, as a
consequence of FANB's obligations under such Letter of Credit to a level below
that which FANB or such corporation, as the case may be, could have achieved but
for such Change in Law (taking into account FANB's or such corporation's
policies, as the case may be, with respect to capital adequacy) by an amount
deemed by FANB to be material, then from time to time following notice by FANB
to the Borrower of such Change in Law, within fifteen (15) days after demand by
FANB, the Borrower shall pay to FANB such additional amount or amounts as will
compensate FANB or such corporation, as the case may be, for such reduction. The
FANB agrees that, upon the occurrence of any event giving rise to the operation
of paragraph (a) or (b) of this Section 3.5 with respect to such FANB, it will,
if requested by the Borrower and to the extent permitted by law or by the
relevant governmental authority, endeavor in good faith to avoid or minimize the
increase in costs or reduction in payments resulting from such event;
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provided, however, that such avoidance or minimization can be made in such a
manner that FANB, in its sole determination, suffers no economic, legal or
regulatory disadvantage. If FANB becomes entitled to claim any additional
amounts pursuant to this Section 3.5(b), it shall promptly notify the Borrower
of the event by reason of which it has become so entitled. A certificate, in
reasonable detail setting forth the calculation of the amounts involved,
submitted by FANB to the Borrower concurrently with any such demand by FANB,
shall be conclusive, absent manifest error, as to the amount thereof.
3.6 Further Assurances. The Borrower hereby agrees, from time to time,
to do and perform any and all acts and to execute any and all further
instruments reasonably requested by FANB more fully to effect the purposes of
this Agreement and the issuance of Letters of Credit.
3.7 Obligations Absolute. The payment obligations of the Borrower under
this Agreement with respect to the Letters of Credit shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation, the following
circumstances:
(a) the existence of any claim, set-off, defense or other
right which the Borrower may have at any time against any beneficiary,
or any transferee, of any Standby Letter of Credit (or any Persons for
whom any such beneficiary or any such transferee may be acting), or any
other Person except FANB, whether in connection with this Agreement,
the Loan Documents, the transactions contemplated herein, or any
unrelated transaction;
(b) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent or invalid or any
statement therein being untrue or inaccurate in any respect, except for
any such circumstances or happening constituting gross negligence or
wilful misconduct on the part of FANB;
(c) payment by FANB under any Letter of Credit against
presentation of a draft or certificate which exactly or substantially
complies with the terms of such Letter of Credit or as to which the
Borrower, having had the opportunity to examine such draft, certificate
or other related documents, has not promptly alleged that the same do
not comply with the terms of the Letter of Credit, except where such
payment constitutes gross negligence or wilful misconduct on the part
of FANB; or
(d) any other circumstances or happening whatsoever, whether
or not similar to any of the foregoing, except for any such
circumstances or happening constituting gross negligence or wilful
misconduct on the part of FANB.
In the event that FANB refuses to honor any drawing under a Letter of Credit
based upon the Borrower's having alleged a discrepancy between the documents
presented in connection with such drawing and the requirements of the Letter of
Credit, the Borrower will indemnify FANB and hold FANB harmless from and against
all claims, causes of action, damages, liabilities, costs and expenses
(including court costs and reasonable attorney's fees) which FANB may incur as a
result of such dishonor.
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ARTICLE 4
COMMITMENT, FUNDING AND TERMS OF
REVOLVING CREDIT LOAN
4.1 The Commitment. Subject to the terms and conditions herein set out
and prior to the Revolving Credit Loan Maturity Date, each Lender severally
agrees and commits to make Revolving Credit Loans to the Borrower from time to
time in amounts not to exceed in the aggregate at any one time outstanding the
amount of its Commitment, in an aggregate amount of Total Exposure not to
exceed, at any one time outstanding, the lesser of (a) Thirty-Five Million
Dollars (U.S. $35,000,000.00), or (b) the Borrower's Borrowing Base, as defined
in Article 1, minus (c) amounts outstanding under any Letters of Credit.
4.2 Swing Line Loans. In addition to Revolving Credit Loans pursuant to
Section 4.1, but subject to the terms and conditions of this Agreement
(including, but not limited to, those limitations set forth in Section 4.1), the
Swing Line Bank agrees to make the Swing Line Loans to Borrower in accordance
with this Section 4.2 up to the amount of the Swing Line Commitment. Amounts
borrowed under this Section 4.2 may be borrowed, repaid and reborrowed to, but
not including, the Revolving Credit Loan Maturity Date. All outstanding Swing
Line Loans shall be paid in full on the Revolving Credit Loan Maturity Date. All
outstanding Swing Line Loans shall be made as Prime Rate Loans.
(a) Making of Swing Line Loans. Swing Line Loans shall be made
available to the Borrower by the Swing Line Bank's crediting the Operating
Account of the Borrower. Said crediting shall be made automatically as the
Borrower's Operating Account falls below a zero (-0-) balance (the "Zero Account
Balance"). Any funds in the Operating Account in excess of the Zero Account
Balance shall be applied first, to repay any outstanding principal on the Swing
Line Loans and second, to prepay any outstanding interest under the Swing Line
Loans. Notwithstanding the foregoing, the Swing Line Bank shall have the right,
in its reasonable discretion and upon written notice to the Borrower, to
terminate the automatic feature of the borrowings under the Swing Line Loans and
to require the Borrower to thereafter provide notice to the Swing Line Bank
prior to such borrowings in the manner provided by Section 4.2(b) below. The
Swing Line Bank is permitted to make any requested Swing Line Loan, in its sole
and absolute discretion, regardless of the availability established by the
Borrowing Base.
(b) Swing Line Request. If the Swing Line Bank requires notice as
provided in the penultimate sentence of Section 4.2(a) above, then Borrower may
request a Swing Line Loan from the Swing Line Bank on any Business Day before
the Revolving Credit Loan Maturity Date by giving the Agent and the Swing Line
Bank notice by 1:00 p.m. (Memphis time) on such Borrowing Date specifying the
aggregate amount of such Swing Line Loan, which shall be an amount not less than
Fifty Thousand Dollars (U.S. $50,000.00).
(c) Swing Line Notes. The Swing Line Loans shall be evidenced by the
Swing Line Notes and each Swing Line Loan shall be paid in full by the Borrower
on or before the Revolving Credit Loan Maturity Date.
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(d) Repayment of Swing Line Loans. Subject to the terms of Section
4.2(a) regarding funds in the Operating Account in excess of the Zero Account
Balance, Borrower may at any time pay, without penalty or premium, all
outstanding Swing Line Loans, or, in a minimum amount of Fifty Thousand Dollars
(U.S. $50,000.00) any portion of the outstanding Swing Line Loans upon notice to
the Agent and the Swing Line Bank received by 1:00 p.m. (Memphis time) on such
payment date. In addition, the Agent (i) may at any time in its sole discretion
or (ii) shall on the Revolving Credit Loan Maturity Date, require the Lenders
(including the Swing Line Bank) to make a Prime Rate Loan in an amount equal to
such Lender's Percentage of the unreimbursed Swing Line Loans outstanding on
such date for the purpose of repaying Swing Line Loans (to the extent that there
is availability under the Commitment). The Lenders shall deliver the proceeds of
such Advance to the Agent by 2:00 p.m. (Memphis time) on the applicable
Borrowing Date for application to the Swing Line Bank's outstanding Swing Line
Loans. Each Lender's obligation to make available its Percentage of the Advance
referred to in this Section shall be absolute and unconditional and shall not be
affected by any circumstances, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense or other right which such Lender may have
against the Swing Line Bank, or anyone else, (ii) the occurrence or continuance
of an Event of Default, (iii) any adverse change in the condition (financial or
otherwise) of the Borrower, or (iv) any other circumstances, happening or event
whatsoever. If for any reason a Lender does not make available its Percentage of
the foregoing Advance, such Lender shall be deemed to have unconditionally and
irrevocably purchased from the Swing Line Bank, without recourse or warranty, an
undivided interest and participation in each Swing Line Loan then being repaid,
equal to its Percentage of all such Swing Line Loans being repaid, so long as
such purchase would not cause such Lender to exceed its Commitment. If any
portion of any amount paid (or deemed paid) to the Agent should be recovered by
or on behalf of the Borrower from the Agent in bankruptcy or otherwise, the loss
of the amount so recovered shall be shared ratably among all Lenders.
4.3 Ratable Loans: Types of Advances. Each Advance hereunder (excluding
Swing Line Loans) shall consist of Revolving Credit Loans made from the Lenders
ratably in proportion to the ratio that their respective Commitments bear to the
Aggregate Commitment. The Advances may be Prime Rate Loans or Eurodollar Loans
selected by the Borrower in accordance with Section 4.4
4.4 Procedure for Borrowing. (a) Borrower may borrow under the
Commitment on any Business Day, provided that, with respect to any borrowings,
Borrower shall give Agent irrevocable notice (which notice must be received by
the Agent prior to 10:00 a.m., Memphis, Tennessee time), (i) three (3) Business
Days prior to the requested Borrowing Date if all or any part of the Revolving
Loan is to be a Eurodollar Loan and (ii) on or before the requested Borrowing
Date or Closing Date if the borrowing is to be solely of a Prime Rate Loan and
specifying (A) the amount of the borrowing, (B) whether such Revolving Loan is
initially to be Eurodollar Loan or a Prime Rate Loan or a combination thereof,
and (C) if the borrowing is to be entirely or partly a Eurodollar Loan, the
length of the Interest Period for such Eurodollar Loan. Revolving Loan proceeds
shall be made available to the Borrower by the Agent's crediting the operating
account of the Borrower at the office of the Agent, with the aggregate amount of
such borrowing.
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(b) Any borrowing or continuation of, or conversion to or from,
Eurodollar Loans hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, (i) the aggregate principal
amount of each Eurodollar Loan shall not be less than Five Hundred Thousand
Dollars (U.S. $500,000.00) for each Interest Period or a whole multiple of
$500,000 in excess thereof for each Interest Period and (ii) no more than three
(3) Interest Periods shall be in effect at any one time.
(c) All or any part of the outstanding Revolving Loan may be converted
in accordance with Section 4.7, provided that each partial conversion of a Prime
Rate Loan as to any Interest Period shall be in the aggregate principal amount
of Five Hundred Thousand Dollars (U.S. $500,000.00) or a whole multiple of
$500,000 in excess thereof and the aggregate principal amount of the resulting
Eurodollar Loan outstanding in respect of any one Interest Period shall be at
least Five Hundred Thousand Dollars (U.S. $500,000.00) or a whole multiple of
$500,000 in excess thereof.
4.5 Interest Rates and Payment Dates. (a) Eurodollar Loans shall bear
interest for each Interest Period applicable thereto, commencing on the first
day of such Interest Period to, but excluding, the last day of such Interest
Period, on the unpaid principal amount thereof at a rate per annum equal to the
Eurodollar Rate determined for such Interest Period.
(b) Prime Rate Loans shall bear interest for the period from and
including the date such Prime Rate Loans are made to, but excluding, the
maturity date thereof, or to, but excluding, the conversion date if such Prime
Rate Loans are earlier converted into Eurodollar Loans, on the unpaid principal
amount thereof at a rate per annum equal to the Prime Rate.
(c) If all or a portion of the principal amount of any of the Revolving
Loans shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise) such Revolving Loan, if a Eurodollar Loan, shall be
converted into a Prime Rate Loan at the end of the then-current Interest Period
for said Eurodollar Loan (which conversion shall occur automatically), and any
such overdue principal amount shall, without limiting the rights of the Lender
under Section 7, bear interest at a rate per annum which is three percent (3%)
above the Prime Rate from the date of such non-payment until paid in full
(including interest after judgment as well as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment Date.
All payments due under the Notes shall be made by Borrower to Agent for the
account of each Lender. The Agent will promptly thereafter cause to be
distributed to each Lender such payments of interest, and principal, in the
proportion of each Lender's Advances to which the payment applies.
4.6 Computation of Interest and Fees. (a) Interest and fees shall be
calculated on the basis of a three hundred sixty (360) day year, as applicable
for the actual days elapsed. The Agent shall as soon as practicable notify the
Borrower of each determination of a Eurodollar Rate. Any change in the interest
rate on the Prime Rate Loans resulting from a change in the Prime Rate shall
become effective, without notice, as of the opening of business on the day on
which such change in the Prime Rate shall become effective.
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(b) Each determination of an interest rate by the Agent pursuant to any
provision of this Agreement shall be conclusive and binding on the Borrower and
the Lenders in the absence of manifest error.
4.7 Conversion Options. The Borrower may elect from time to time to
convert Eurodollar Loans into Prime Rate Loans, provided that any such
conversion of Eurodollar Loans shall only be made on the last day of an Interest
Period with respect thereto. The Borrower shall notify the Agent not less than
three (3) Business Days prior to the end of each Interest Period if the Borrower
elects to continue the related Revolving Loan as a Eurodollar Loan (in which
case the notice shall also specify the next Interest Period), which notification
shall be irrevocable, and in the absence of such notification the entire
Eurodollar Loan shall automatically be converted into a Prime Rate Loan. The
Borrower may elect from time to time to convert all or a permissible portion of
the Prime Rate Loans then outstanding to Eurodollar Loans by giving the Agent
irrevocable notice of such election, to be received by the Agent prior to 10:00
a.m., Memphis, Tennessee time, at least three Business Days prior to the
proposed conversion date, specifying the amount thereof and the Interest Period
selected therefor, and, if no Default or Event of Default has occurred and is
continuing, such conversion shall be made on the requested conversion date or,
if such requested conversion date is not a Business Day, on the next succeeding
Business Day. Swing Line Loans are Prime Rate Loans and may not be converted to
Eurodollar Loans.
4.8 Prepayments or Termination of the Revolving Credit Loan. The
Borrower may, at its option, from time to time, subject to the terms and
conditions hereof, without penalty, borrow, repay and reborrow amounts of any
Prime Rate Loan and, on the last day of any Interest Rate Period, the Borrower
may repay and subsequently reborrow the amount of the related Eurodollar Loan.
By notice to the Agent in writing, Borrower shall be entitled to reduce the
amount of the maximum Commitment provided in Section 4.1, which reduction shall
be irrevocable, or to terminate the Lenders' commitment to make further advances
on the Revolving Credit Loan and to issue additional Letters of Credit. In the
case of any such termination, provided that the Revolving Credit Loan, all
interest thereon and all other costs and expenses due hereunder or under any
other Loan Documents shall have been paid in full, and that either (a) no
Letters of Credit remain outstanding or (b) the aggregate full amount of all
outstanding Letters of Credit has been fully cash collateralized, Agent shall
thereupon at Borrower's request release Lenders' security interest in all of
Borrower's Accounts Receivable and Inventory. With respect to Letters of Credit,
"fully cash collateralized" shall mean that the contingent obligation of the
Borrower to reimburse FANB for any subsequent drawings shall be fully secured
beforehand by cash collateral specifically held by FANB for such purposes in an
amount equal to the undrawn amount of such Letters of Credit or otherwise
secured in a manner acceptable to FANB.
4.9 Use of Proceeds. Advances under the Revolving Credit Loan shall be
used by Borrower for its working capital, or to reimburse the Lender for amounts
paid by the Lender pursuant to Letter of Credit drawings. Advances under the
Swing Line Loan shall be used to facilitate daily advances and cash management.
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4.10 Conditions to Funding. Agent shall not be required to cause
Lenders to disburse the Revolving Loan proceeds on or after the Closing Date
unless all of the following conditions are satisfied:
(i) All of the Loan Documents provided for herein in form and
substance satisfactory to Agent to evidence and secure the Revolving
Loans must have been executed and delivered to Agent, and all other
documents required hereunder shall have been delivered to Agent.
(ii) All warranties and representations made in the Loan
Documents, including the representations and warranties set forth in
Article 5 hereof, must be true and correct as of the date the funds are
advanced.
(iii) All covenants made in the Loan Documents must have been
fulfilled as of the date of the disbursement of the loan proceeds.
(iv) Borrower must not otherwise be in default hereunder or
under any other Loan Document.
4.11 Unused Facility Fee. Borrower shall pay Agent an unused facility
fee, payable quarterly in arrears on each June 15, September 15, December 15 and
March 15, and on the Revolving Credit Loan Maturity Date, equal to one-eighth of
one percent (1/8%) per year, calculated on the amount as to each such calendar
quarter by which (a) the average daily amount of the Commitment during the three
(3) months then ended exceeds (b) the average daily Total Exposure during such
period. Within a reasonable time of its receipt of each quarterly payment of the
unused facility fee, Agent shall remit to each Lender a portion of the unused
facility fee equal to each Lender's Percentage. Borrower agrees that this unused
facility fee is fair and reasonable considering the condition of the money
market, the creditworthiness of Borrower, the interest rate to be paid, and the
nature of the security for the Revolving Loans.
4.12 Inability to Determine Interest Rate. In the event that the Agent
shall have determined (which determination shall be conclusive and binding upon
the Borrower) that (a) by reason of circumstances affecting the interbank
eurodollar market, adequate and reasonable means do not exist for ascertaining
the Eurodollar Rate for any Interest Period with respect to (i) proposed
Revolving Loans that the Borrower has requested be made as Eurodollar Loans,
(ii) any Eurodollar Loans that will result from the requested conversion of all
or part of the Prime Rate Loans into Eurodollar Loans or (iii) the continuation
of any Eurodollar Loan as such for an additional Interest Period; or (b) dollar
deposits in the relevant amount and for the relevant period with respect to any
such Eurodollar Loan are not generally available to the Lenders in their
interbank eurodollar markets, the Agent shall forthwith give telex or telecopy
notice of such determination, confirmed in writing, to the Borrower at least one
(1) Business Day prior to, as the case may be, the requested Borrowing Date, the
conversion date or the last day of such Interest Period. If such notice is given
(i) any requested Eurodollar Loans shall be made as Prime Rate Loans, (ii) any
Prime Rate Loans that were to have been converted to Eurodollar Loans shall be
continued as Prime Rate Loans, and (iii) any outstanding Eurodollar Loans shall
be converted, on
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the last day of the then current Interest Period applicable thereto, into Prime
Rate Loans. Until such notice has been withdrawn by the Agent, no further
Eurodollar Loans shall be made.
4.13 Illegality. Notwithstanding any other provisions herein, if any
Change in Law occurring after the date hereof, shall make it unlawful for
Lenders to make or maintain Eurodollar Loans as contemplated by this Agreement,
the commitment of Lenders hereunder to make Eurodollar Loans or to convert all
or a portion of Prime Rate Loans into Eurodollar Loans shall forthwith be
canceled and Lenders' Revolving Credit Loans then outstanding as Eurodollar
Loans, if any, shall, if required by law, be converted automatically to Prime
Rate Loans. To the extent that such affected Eurodollar Loans are converted into
Prime Rate Loans, all payments of principal which would otherwise be applied to
such Eurodollar Loans shall be applied instead to Prime Rate Loans. The Borrower
hereby agrees promptly to pay Agent, upon its demand, any additional amounts
necessary to compensate Lenders for any costs incurred by Lenders in making any
conversion in accordance with this Section 4.13 including, but not limited to,
any interest or fees payable by Lenders and/or Agent to lenders of funds
obtained by them in order to maintain their Eurodollar Loans hereunder (Agent's
notice of such costs, as certified in reasonable detail as to such amounts to
the Borrower, to be conclusive absent manifest error).
4.14 Indemnity. The Borrower agrees to indemnify Lenders and Agent and
to hold Lenders and Agent harmless from any loss or expense which they may
sustain or incur as a consequence of (a) default by the Borrower in payment of
the principal amount of or interest on any Eurodollar Loans, including, but not
limited to, any such loss or expense arising from interest or fees payable by
Agent and/or Lenders to lenders of funds obtained by them in order to make or
maintain its Eurodollar Loans hereunder, (b) default by the Borrower in making a
borrowing after the Borrower has given a notice in accordance with Section 4.4
or in making a conversion of Prime Rate Loans to Eurodollar Loans after the
Borrower has given notice in accordance with Section 4.7, or (c) a payment or
prepayment of a Eurodollar Loan or conversion of any Eurodollar Loan into a
Prime Rate Loan, in either case on a day which is not the last day of an
Interest Period with respect thereto, including, but not limited to, any such
loss or expense arising from interest or fees payable by Agent and/or Lenders to
lenders of funds obtained by them in order to maintain their Eurodollar Loans
hereunder. Borrower further agrees to pay to Agent and/or Lender an amount equal
to the excess, if any, of (i) the amount of interest which otherwise would have
accrued on the principal amount paid, prepaid, converted or not borrowed for (A)
the period from the date of such payment or prepayment to the last day of the
Interest Period applicable to such Eurodollar Loan or (B) in the case of a
failure to borrow or to convert to a Eurodollar Loan, the Interest Period
applicable to such Eurodollar Loan which would have commenced on the date
specified for such borrowing or conversion, at the applicable rate of interest
for such Eurodollar Loan provided for herein minus (ii) the interest component
of the amount Agent and/or Lenders would have bid in the London interbank
market. This covenant shall survive termination of this Agreement and payment of
the outstanding Notes.
4.15 Closing Costs. On or before the Closing Date, Borrower shall pay
all costs incurred by Borrower and Agent and/or Lenders as a result of this
transaction, including Agent's and/or Lenders' reasonable counsel fees and
expenses.
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4.16 Security. The Revolving Loans, the Swing Line Loans, and any and
all expenses, liabilities or obligations of Borrower to Agent and/or Lenders
arising therefrom or associated therewith, whether now existing or hereafter
arising, including any indebtednesses or obligations created or arising under
any other Loan Document, shall be secured by the security interest in the
Accounts Receivable and Inventory created under the Security Agreement.
4.17 Conditions Precedent to All Revolving Credit Loan Advances. The
obligation of Lenders to make Revolving Credit Advances pursuant hereto
(including the initial advance at the Closing Date) shall be subject to the
following additional conditions precedent:
(a) The Borrower shall have furnished to Agent each of the
items referred to in Sections 2.1 and 2.2 hereof, all of which shall
remain in full force and effect as of the date of such Revolving Credit
Advance (notwithstanding that Agent may not have required any such item
to be furnished prior to the Closing Date).
(b) The Borrower shall not be in default of any of the terms
and provisions hereof or of any instrument or document now or at any
time hereafter evidencing or securing all or any part of the Revolving
Credit Loan indebtednesses. Each of the warranties and representations
of the Borrower, as set out in Article 5 hereof, shall remain true and
correct in all material respects as of the date of such Revolving
Credit Loan Advance.
(c) On the Closing Date and not later than the 15th day of
each calendar month thereafter, Borrower shall furnish to the Agent a
Borrowing Base Certificate and on the dates specified in Section 6.1(b)
Borrower shall furnish Agent a Non-Default Certificate executed by a
Responsible Officer of Borrower, in the form of EXHIBITS "A" and "B-1"
THROUGH "B-3," respectively, attached hereto.
4.18 Lending Installations. Each Lender may book its Revolving Credit
Loans at any Lending Installation selected by such Lender and may change its
Lending Installation from time to time. All terms of this Agreement shall apply
to any such Lending Installation and the Notes shall be deemed held by each
Lender for the benefit of such Lending Installation. Each Lender may, by written
or telex notice to the Agent and the Borrower, designate a Lending Installation
through which Revolving Credit Loans will be made by it and for whose account
Revolving Credit Loan payments are to be made.
4.19 Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Revolving Credit Loan or (ii) in the case of the Borrower, a
payment of principal, interest or fees to the Agent for the account of the
Lenders, that it does not intend to make such payment, the Agent may assume that
such payment has been made. The Agent may, but shall not be obligated to, make
the amount of such payment available to the intended recipient in reliance upon
such assumption. If such Lender or the Borrower, as the case may be, has not in
fact made such payment to the Agent, the recipient of such payment shall, on
demand by the Agent, repay to the Agent the amount so made available together
with interest thereon in respect of each day during the period commencing on the
date such amount was so
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made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to (i) in the case of payment by a Lender, the Prime Rate
for such day or (ii) in the case of payment by the Borrower, the interest rate
applicable to the relevant Revolving Credit Loan.
4.20 Withholding Tax Exemption. At least five (5) Business Days prior
to the first date on which interest or fees are payable hereunder for the
account of any Lender, each Lender that is not incorporated under the laws of
the United States of America, or a state thereof, agrees that it will deliver to
each of the Borrower and the Agent two (2) duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, certifying in either case
that such Lender is entitled to receive payments under this Agreement and the
Notes without deduction or withholding of any United States federal income
taxes. Each Lender which so delivers a Form 1001 or 4224 further undertakes to
deliver to each of the Borrower and the Agent two additional copies of such form
(or a successor form) on or before the date that such form expires [currently,
three (3) successive calendar years for Form 1001 and one (1) calendar year for
Form 4224] or becomes obsolete or after the occurrence of any event requiring a
change in the most recent forms so delivered by it, and such amendments thereto
or extensions or renewals thereof as may be reasonably requested by the Borrower
or the Agent, in each case certifying that such Lender is entitled to receive
payments under this Agreement and the Notes without deduction or withholding of
any United States federal income taxes, unless an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender advises the
Borrower and the Agent that it is not capable of receiving payments without any
deduction or withholding of United States federal income tax.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower hereby represents and warrants to Agent and Lenders as
follows:
5.1 Validity of Loan Documents. The execution, delivery and performance
of the Loan Documents have been duly authorized by all requisite action of the
Borrower, and the Loan Documents are in all respects legal, valid, binding and
enforceable in accordance with their respective terms.
5.2 Corporate Status. Borrower is a duly organized and validly existing
corporation in good standing under the laws of the State of Delaware and is
qualified to do business in the State of Tennessee. Borrower has the power and
authority to own and operate its properties and to transact the business in
which it is engaged or presently proposes to engage. Borrower is duly qualified
as a foreign entity and in good standing in each other state where the nature of
its business or the ownership or use of its property requires such qualification
and where the failure to so qualify would have a material adverse effect on the
conduct of the Borrower's business.
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5.3 No Violation of Agreements. The Borrower is not in material default
under any indenture, mortgage, deed of trust, agreement or other instrument to
which it is a party or by which it may be bound. Neither the execution and
delivery of this Agreement, the Notes, or any of the other Loan Documents, nor
the consummation of the transactions herein and therein contemplated, nor
compliance with the provisions hereof or thereof will violate any law or
regulation or any order or decree of any court or governmental instrumentality
in any material respect, or conflict with, result in the material breach of, or
constitute a material default under, any indenture, mortgage, deed of trust,
agreement or other instrument to which Borrower is a party or by which it may be
bound, or result in the creation or imposition of any lien, charge or
encumbrance upon any property of the Borrower, or violate any provision of the
charter or bylaws or any preferred stock provisions of Borrower.
5.4 No Burdensome Agreements. Borrower is not a party to any agreement
or instrument or subject to any restriction (including any restriction set forth
in Borrower's organizational documents) which could materially adversely affect
the operations, businesses, properties, or financial condition of Borrower, none
of which are presently in default or subject to a condition of default.
5.5 No Litigation. There are no actions, suits or proceedings pending,
or to the knowledge of Borrower, threatened, against or affecting Borrower
before any court, arbitrator or governmental or administrative body or agency
which might materially affect the Collateral or result in any material adverse
change in the business, operations or financial condition of the Borrower,
except matters fully covered by insurance or previously disclosed to Agent and
Lenders in writing and adequately reserved against on the financial books of
Borrower. Borrower is not in default in any material respect under any
applicable statute, rule, order, decree or regulation of any court, arbitrator
or governmental body or agency having jurisdiction over the Borrower.
5.6 Tax Liability. Borrower has filed all tax returns which are
required to be filed, and has paid all taxes which have become due pursuant to
such returns or pursuant to any assessments received by Borrower.
5.7 Governmental Action. No action of, or filing with, any governmental
or public body or authority is required to authorize, or is otherwise required
in connection with, the execution, delivery and performance of this Agreement or
any of the instruments or documents to be delivered pursuant to this Agreement
or to transact the business of Borrower in the manner and in each state
contemplated hereby, except such actions or filings in various states, including
the State of Tennessee, heretofore undertaken by Borrower, such actions and
filings as may be required under the Federal Assignment of Claims Act of 1940,
as amended, with respect to United States Government Receivables, and such
actions and filings required periodically in accordance with applicable state
law, rules or regulations.
5.8 Disclosure. Neither this Agreement, the financial statements
referred to in Section 6.1(b) hereof, nor any certificate, statement, report or
other document furnished or to be furnished to Agent and/or Lenders by Borrower
in connection herewith or in connection with any
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transaction contemplated hereby contains, or at the time furnished, will
contain, any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements contained therein or herein not
misleading.
5.9 Financial Condition. (a) The 1999 Audited Statement of Borrower and
the Interim Financial Statement of Borrower, copies of each of which have been
furnished to Agent, together with any explanatory notes therein referred to and
attached thereto, are correct and complete and fairly present the financial
condition of Borrower as of the date of said financial statements and the
results of the operations of Borrower for the periods covered thereby. All such
financial statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis maintained through
the period involved.
(b) There has been no material adverse change in the business,
properties or condition, financial or otherwise, of Borrower since May 31, 1999,
the date of the Interim Financial Statement.
5.10 Title to Assets. Borrower has good and marketable title to all of
its properties and assets reflected on the financial statements referred to in
Section 5.9 hereof, including the Collateral, and none of the Collateral is
presently leased from any Person or otherwise subject to any conditional sales
contract or other form of acquisition financing or other Lien, except for
Permitted Exceptions.
5.11 Licenses and Permits. Borrower possesses all necessary licenses,
permits and other governmental or regulatory approvals necessary to the conduct
of its business, except where the failure to have any such license, permit or
approval will not materially adversely affect the conduct of its business.
5.12 Patents and Trademarks. Borrower possesses all necessary patents,
trademarks, trade names, copyrights, and licenses necessary to the conduct of
its businesses.
5.13 ERISA. The Borrower is in substantial compliance with all
applicable provisions of ERISA and all other laws, state or federal, applicable
to any employees' retirement plan maintained or established by Borrower.
5.14 Fiscal Year-End; Organizational Documents. Except as provided in
Section 6.1(w), Borrower does not presently contemplate changing its fiscal
year-end or amending its Articles of Incorporation or Bylaws.
5.15 Inventory. All Inventory that Borrower has produced has been
produced in compliance with the minimum wage and overtime pay provisions of the
FLSA. The Inventory (other than Inventory in transit or in temporary storage as
provided in Section 6.1(r)) is stored only at the Borrower's own manufacturing
and production facilities or the locations identified on SCHEDULE 5.15 hereto,
which accurately identifies (a) the location of each warehouse or other facility
at which inventory is stored, and (b) the owner and operator of such facility.
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ARTICLE 6
COVENANTS OF BORROWER
Borrower hereby covenants and agrees with Agent and Lenders as follows:
6.1 Affirmative Covenants. Unless waived by Agent in writing, Borrower
covenants and agrees that from and after the date hereof until payment in full
of the Indebtedness, including the principal of, and interest on, the Revolving
Loans, the Swing Line Loan, and all other costs and expenses due and owing on
account of any of the Loan Documents:
(a) Taxes and Other Liens. Borrower will duly pay and discharge all
taxes, assessments, and governmental charges levied or assessed upon Borrower or
the Collateral, prior to the date on which penalties are attached thereto, and
shall pay all claims for labor, supplies, rent, and other obligations which, if
unpaid, might become a lien against the Collateral; provided, however, that to
the extent that any of the same shall be contested in good faith by appropriate
proceedings satisfactory to Agent and adequate reserves are set aside to pay the
tax or assessment and any interest charges or penalties associated therewith,
Borrower shall not be obligated to pay any of the foregoing unless and until any
of the aforementioned taxes, assessments, charges or claims shall finally be
resolved and become a lien against the Collateral.
(b) Financial Reports of Borrower. Borrower shall furnish to Agent:
(i) as soon as available, but in any event within ninety (90)
days after the end of each fiscal year of the Borrower, a copy of the
audited balance sheets of the Borrower as at the end of such fiscal
year, and the related statements of common stockholders' equity and
cash flows and the statement of income and retained earnings of the
Borrower for such fiscal year, setting forth in each case, in
comparative form the corresponding figures for the previous year or
portion thereof, all in reasonable detail and with Inventory calculated
on a first-in, first-out basis, certified for all fiscal years
commencing with the fiscal year ending February 29, 2000, without a
"going concern" or like qualification or exception, or qualification
arising out of the scope of the audit, by the accounting firm, BDO
Seidman, L.L.P., or some other independent certified public accountants
of nationally recognized standing acceptable to the Agent (such
accountants being called herein the "Reporting Accountants"), together
with (A) a letter from the Reporting Accountants stating that, in
making the examination necessary to express their opinion on such
financial statements, no knowledge was obtained of any Default or Event
of Default under subsections (l) through (o) hereof, except as
specified in such letter, and (B) a certificate signed by a Responsible
Officer in the form of EXHIBIT "B-1" hereto;
(ii) as soon as available, but in any event within forty-five
(45) days after the end of each of the first three quarterly periods of
each fiscal year of the Borrower, or if an extension has been granted
by the Securities and Exchange Commission (the "Commission") for the
filing by the Borrower of its quarterly report on Form 10-Q, then by
the earlier of the date such Form 10-Q is actually filed and the last
day of such
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extended time period, a copy of the unaudited balance sheets of the
Borrower as at the end of each such quarter and the related unaudited
statements of stockholders' equity and cash flows and the statement of
operations and retained earnings of the Borrower for such quarterly
period and the portion of the fiscal year through such date, setting
forth in each case in comparative form the figures for the previous
year, certified by the Responsible Officer (subject to normal year-end
audit adjustments), which certificate shall be in the form of EXHIBIT
"B-2" hereto;
(iii) as soon as available, but in any event within twenty
(20) days after the end of each month (other than months which coincide
with the end of a fiscal year or quarter), a copy of the unaudited
balance sheets of the Borrower as at the end of the preceding month and
the related unaudited statements of stockholders' equity and cash flows
and the statement of operations and retained earnings of the Borrower
for such monthly period and the portion of the fiscal year through such
date, setting forth in each case in comparative form the figures for
the previous year, certified by the Responsible Officer (subject to
normal year-end audit and quarterly adjustments) which certificate
shall be in the form of "EXHIBIT B-3" hereto; and
(iv) as soon as available, but in any event within forty-five
(45) days of the Borrower's fiscal year end, a copy of the preliminary
balance sheets of the Borrower as of the end of such fiscal year and
the related preliminary statements of stockholders' equity and cash
flows and the preliminary statements of operations and retained
earnings for such fiscal year.
All such financial statements shall be complete and correct in all material
respects (subject, in the case of interim statements, to normal year-end audit
and quarterly adjustments) and shall be prepared in reasonable detail and in
accordance with GAAP applied consistently throughout the periods reflected
therein (except as concurred in by such Reporting Accountants or Responsible
Officer, as the case may be, and disclosed therein).
(c) Certificates; Other Information. Borrower shall furnish to Agent:
(i) promptly upon receipt thereof, copies of all final reports
submitted to the Borrower by Reporting Accountants or other independent
certified public accountants in connection with each annual, interim or
special financial audit of the books of the Borrower made by such
accountants, including, without limitation, any final comment letter
submitted by such accountants to management in connection with their
annual audit;
(ii) promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent by the
Borrower to their security holders (or, if made available generally by
the Borrower to their security holders, Borrower shall make such
statements, reports and notices available to Agent on the same basis)
and shall furnish to Agent copies of all regular and periodic reports
and all final registration statements and final prospectuses, if any,
filed by the Borrower with any securities
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exchange or with the Commission or any governmental authority
succeeding to any of its functions;
(iii) unless such information is already contained in the
financial statements provided to Agent pursuant to subsections (b)(i),
(b)(ii) and (b)(iii) above or the reports and other information filed
with the Commission (copies of which are provided to Agent pursuant to
subsection (c)(ii) above), concurrently with the delivery of the
financial statements of the Borrower referred to in subsections (b)(i),
(b)(ii) and (b)(iii): (a) a summary of divisional sales for the month
or quarter, as applicable, and for the period from the beginning of the
fiscal year through the last month being reported on, with comparisons
for the corresponding periods in the preceding fiscal year; and (b)
with respect to annual and quarterly financial statements, the
Borrower's management's discussion of operations for the relevant
quarterly and annual results; and
(iv) promptly, such additional financial and other information
(including, without limitation, more frequent cash flow projections) as
Agent may from time to time reasonably request.
(d) Warehouse Agreements. Borrower shall not at any time be in
substantial default under any warehousing agreements pursuant to which Inventory
is stored or allow any material default by any other party thereto, and Borrower
shall take such action as reasonably necessary to maintain the warehouse
agreements without default and to protect Agent's security interest in the
Inventory therein.
(e) Casualty, Condemnation or Governmental Action. Within fifteen (15)
days of Borrower's receipt of any notice of any (i) casualty, (ii) condemnation
or (iii) inquiry, action, suit or proceeding by any federal, state or municipal
body, agency or instrumentality ("Governmental Action") affecting or otherwise
relating to (x) the Collateral or (y) any other asset of Borrower [but, in the
case of any asset other than the Collateral, only if the effect thereof could
adversely financially impact Borrower by more than Three Million Dollars (U.S.
$3,000,000)], Borrower shall notify Agent of such casualty, condemnation or
Governmental Action, the nature and scope of such matter and Borrower's intended
action to address such casualty, condemnation or Governmental Action.
(f) Maintenance of Corporate Existence and Borrower's Business. Unless
it shall be necessary to alter or change its legal existence in connection with
a change or alteration by Borrower of its present corporate structure, Borrower
shall maintain its legal existence and good standing in all states in which it
conducts business, and keep in full force and effect its existence, rights and
franchises, comply with all laws applicable to it and continue to conduct and
operate its business substantially as conducted and operated during the present
and preceding calendar years.
(g) Inspection. Borrower shall (i) admit to its business premises
representatives of Agent (at Agent's cost and expense prior to an Event of
Default) at all reasonable hours for the purpose of examining its business
operations, and the books and records pertaining thereto, and (ii) cause
representatives of Agent to be admitted to all warehouses at which Inventory is
stored at reasonable times and intervals as requested by Agent (at Borrower's
cost and expense to the
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extent of one visit to each company-controlled warehouse per year or following
an Event of Default, and otherwise at Agent's sole cost and expense).
(h) Maintain Collateral. Except for sales of Inventory in the ordinary
course of Borrower's business, Borrower shall maintain, preserve and protect all
of the Collateral in accordance with Borrower's customary business practice.
(i) Notice of Default. At the time of its first knowledge or notice,
Borrower shall furnish the Agent with written notice of the occurrence of any
event or the existence of any condition which constitutes or, upon written
notice or lapse of time or both, would constitute an Event of Default under the
terms of this Agreement or any of the Loan Documents.
(j) Additional Information. Borrower shall furnish such other
information regarding the operations, business affairs and financial condition
of Borrower and (to the extent reasonably available) its Account Debtors, and
regarding the condition of the Collateral, as Agent may reasonably request,
including, but not limited to, true and exact copies of Borrower's books of
account and tax returns, and all information furnished to the shareholders of
Borrower or to or from any governmental authority on account of Borrower;
provided, however, that Agent covenants and agrees that it will hold all such
information confidential, as required pursuant to the Tennessee Financial
Records Privacy Act, in effect from time to time and any similar federal
legislation.
(k) Notice of Adverse Change in Assets or Business. At the time of
Borrower's first knowledge or notice, Borrower shall immediately notify Agent of
any information that may adversely affect, in any material manner, the assets or
operations of the Borrower.
(l) Working Capital Floor. At the end of each fiscal year of Borrower,
Borrower's current assets minus current liabilities shall never be less than
Twenty-Five Million Dollars (U.S. $25,000,000.00).
(m) Tangible Net Worth. Borrower shall maintain on a consolidated basis
as of the last day of each fiscal quarter a Tangible Net Worth of not less than
Forty Two Million Dollars (U.S. $42,000,000.00), adjusted upward by fifty
percent (50%) of its net earnings, and adjusted downward by fifty percent (50%)
of its net losses, in each case on a cumulative basis during the term of the
Revolving Loan; provided that the adjustment required hereby as a result of
fifty percent (50%) of net losses shall never reduce the Tangible Net Worth
requirement below U.S. $42,000,000.00. The Tangible Net Worth requirement in
this covenant will be reduced by the amount of any additional liability
recognized by the Borrower as a result of the application of FASB 109 to the
Borrower's books and records, but this reduction shall not reduce the
requirement below U.S. $42,000,000.00. As used herein, the term "Tangible Net
Worth" means the remainder of (i) all assets of Borrower, other than intangible
assets (including, without limitation, patents, copyrights, licenses,
franchises, goodwill, trade names, trade secrets and leases other than leases
required to be capitalized under generally accepted accounting principles),
minus (ii) Borrower's Debt. The term "Borrower's Debt" means all liabilities and
similar balance sheet items of Borrower. Notwithstanding the foregoing, in the
event that the Stock Re-Purchase
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Transaction described in Section 6.1(w) closes on or before July 1, 2000, then
the required minimum Tangible Net Worth required pursuant hereto shall decrease
to Twenty-Seven Million Five Hundred Thousand Dollars (U.S. $27,500,000.00),
subject to adjustments for net income or net losses as noted above.
(n) Debt to Equity Ratio. At the end of each fiscal year of Borrower,
the ratio of Borrower's Debt to Borrower's Tangible Net Worth shall not be more
than 2.0 to 1.0; provided, however, that in the event the Stock Re-Purchase
Transaction described in Section 6.1(w) closes on or before July 1, 2000, then
the required Debt to Equity Ratio shall be revised to 3.5 to 1.0.
(o) Coverage Ratio. At the end of any fiscal year of Borrower in which
Borrower sustains a net loss of more than Three Million Dollars (U.S.
$3,000,000.00), the ratio of (i) Net Income for such fiscal year plus interest
expense for such fiscal year plus depreciation expense for such fiscal year to
(ii) such fiscal year's current maturities of long-term debt (excluding
principal payments on any revolving credit facilities) plus interest expense for
such fiscal year shall not be less than 1.2 to 1.0. For purposes hereof, the
term "Net Income" shall mean for the applicable period, Borrower's earnings,
less normal and customary business expenses and the payment of any state or
federal income taxes.
(p) Change in Fiscal Year-End. In the event Borrower shall change its
fiscal year-end, Lender shall have the option, at its sole discretion, of
determining the twelve (12) month period or other applicable periods against
which the financial covenants set forth in Subsections 6.1(l), (m), (n) and (o)
above shall be measured for purposes of determining Borrower's compliance
therewith.
(q) Insurance. Borrower will keep or cause to be kept the Inventory
adequately insured by its present insurers or other financially sound and
reputable insurers acceptable to Agent, in amounts and under policies acceptable
to the Agent. Any insurance policies covering the Collateral or any portion
thereof shall be endorsed (i) to provide for payment of losses to Agent as its
interests may appear, (ii) to provide that such policies may not be cancelled,
reduced or affected in any manner for any reason without ten (10) days prior
notice to Agent, (iii) to provide that no such insurance shall be affected by
any act or neglect of the insured or owner of the property described in such
policy, and (iv) to provide for insurance against fire, theft, burglary,
pilferage, loss in transit and such other hazards as the Agent shall reasonably
specify. Borrower shall at all times maintain adequate insurance against its
liability for injury to persons or property, which insurance shall be by
financially sound and reputable insurers and shall name Agent as additional
insured. Such policies shall provide deductible or co-insurance levels
commensurate with those currently in effect.
All premiums for all insurance policies shall be paid as and when due
by Borrower, and copies of the insurance policies and all amendments and
endorsements thereto shall be delivered by Borrower to Agent. Borrower shall
immediately notify Agent of any casualty or other claim in excess of Fifty
Thousand Dollars (U.S. $50,000.00) under any insurance policy relating to the
Collateral (or as otherwise required pursuant to subsection (e) above), and,
after an Event of Default, Agent is hereby authorized and empowered, at its
option, to adjust or compromise any
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loss under any of the insurance policies required hereby and all insurance
proceeds payable under any such insurance policies relating to the Collateral or
as otherwise required hereby shall be paid to Agent (subject to any superior
rights of any lender of Borrower under any loan existing as of the Closing
Date), which shall have the right to either apply the proceeds received
therefrom to the Revolving Loans or any other cost, expense or obligation
arising therefrom or otherwise related thereto or allow Borrower to apply all or
a portion of the insurance proceeds to the casualty loss for which the claim was
paid. However, if there shall be then no continuing Event of Default, Borrower
shall have the right to use the insurance proceeds as (A) a reduction of the
amount of Revolving Loans outstanding, to the extent such outstanding amount
exceeds the Borrowing Base, and (B) otherwise to meet its working capital needs
in the ordinary course of business.
(r) Inventory. Borrower shall cause all of the Inventory that Borrower
produces to be produced in compliance with the FLSA. Except for inventory in
transit and temporary storage to meet unanticipated warehousing needs or
conditions, all of Borrower's Inventory shall be kept and maintained at
Borrower's own facilities or at the warehouses identified on SCHEDULE 5.15
hereto, as it may be supplemented from time to time. Borrower shall supplement
such SCHEDULE 5.15 as provided in Section 6.1(s) by giving the Agent written
notice of each location not included therein at which the Borrower has commenced
to store Inventory, not later than the fifteenth (15th) day of the calendar
month following the date on which Borrower commenced using such new warehouse
facility.
(s) Borrowing Base Certificate. Borrower shall furnish to Agent on the
fifteenth (15th) day of each calendar month a Borrowing Base Certificate
substantially in the form of EXHIBIT "A" attached hereto, executed by a
Responsible Officer of Borrower stating the Borrowing Base as of the last day of
the immediately preceding calendar month, and having attached thereto an
inventory report, an accounts receivable aging report and a listing of accounts
receivable, listing each account, and an accounts payable summary aging report,
with a detail listing of those accounts payable due to growers of agricultural
commodities, all to be as of the last day of the immediately preceding calendar
month, certified by the Responsible Officer of Borrower. The inventory report
shall specify the location of all Acceptable Inventory, and shall report the
value of such Inventory at the lower of current year's anticipated cost or
market value. The accounts receivable aging report shall report Borrower's total
accounts receivable and shall segregate such accounts receivable into
categories, according to whether such accounts receivable remain unpaid for no
more than sixty (60) days from the date of invoice, or for more than sixty (60)
days, but no more than ninety (90) days from the date of invoice, or more than
ninety (90) days from the date of invoice, and according to whether the account
debtor is a department, agency or other instrumentality of the federal
government of the United States.
(t) [RESERVED]
(u) Collection of Receivables. Borrower shall cause all checks and
other items that it may receive in payment of Accounts Receivable to be
deposited in accounts that do not contain any proceeds of Mushroom Receivables
securing the Rabobank Indebtedness, and Borrower shall take
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such other actions as may be necessary to assure that no portion of the Accounts
Receivables (or proceeds thereof) is commingled with the Mushroom Receivables
(or proceeds thereof).
(v) Over-Advances. In the event the Total Exposure shall at any time
exceed the Lenders' Aggregate Commitment under Section 4.1, the Borrower shall,
within three (3) Business Days thereof, make a principal payment the effect of
which shall be to reduce the Total Exposure to not more than the Aggregate
Commitment.
(w) Stock Repurchase. Notwithstanding any other provision of this
Agreement to the contrary, Borrower shall be permitted to repurchase up to
Fifteen Million Dollars (U.S. $15,000,000.00) of its own shares through July 1,
2000. Agent and Lenders acknowledge that Borrower has notified them that
Borrower intends to convert from a publicly-traded company to a privately-held
company via this stock repurchase. Agent and Lenders have consented to the
proposed transaction, provided that it close on or before the date listed above,
and further provided that the final structure of the Borrower following the
transaction and the terms of the transaction do not materially differ from those
set out in the Agreement and Plan of Merger dated May 14, 1999 among Borrower,
Pictsweet LLC and UF Acquisition Corp., a copy of which has been provided to
Lenders.
6.2 Negative Covenants. Unless Borrower shall first obtain the prior
written consent of Agent (which consent shall not be unreasonably withheld),
from and after the date hereof until final payment in full of the principal of,
and interest on, the Revolving Loans and all other costs and expenses due and
owing on account of any of the Loan Documents, Borrower agrees that it will not,
either directly or indirectly:
(a) Mortgages, Liens, Etc. Create, assume or suffer to exist any
mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on
the Collateral, except for:
(i) Liens in favor of Agent and/or Lenders securing payment of
the Revolving Loan;
(ii) Liens for taxes not yet due and payable, provided that
adequate reserves with respect thereto are maintained on the books of
Borrower, in conformity with GAAP;
(iii) landlord's, mechanics', materialmen's, repairmen's,
warehousemen's, carriers' or other similar Liens (including Liens
created by creditors of Persons engaged in farming operations to the
extent that such Liens continue in farm products that are purchased by
the Borrower and become part of the Collateral) arising in the ordinary
course of Borrower's business, provided such liens are immediately
discharged in the event that steps are instituted to enforce such liens
unless the underlying obligations are being contested in good faith,
and an adequate reserve is maintained on the books of Borrower in
conformity with GAAP; or
(iv) judgment liens which do not otherwise constitute an Event
of Default.
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(b) Sale of Collateral. Sell, lease, transfer or dispose (other than in
the normal course of business) of all or a substantial part of the Collateral.
(c) Disposition of Assets; Cessation of Business. Dispose of a
substantial part of its assets except in the ordinary course of business, cease
its business operations or otherwise liquidate or dissolve.
(d) Loans and Guarantees. Loan or advance any funds to officers,
directors or other Affiliates or loan or advance or be or become liable with
respect to any guaranty of any obligation of any Person, which at any time
during the term of the Revolving Credit Loan, singly or in the aggregate,
exceeds Five Million Dollars (U.S. $5,000,000.00).
(e) New Business. Expand, acquire or enter into any business which is
substantially different than those businesses in which the Borrower is presently
engaged.
(f) Consolidation or Merger; Acquisition of Assets. Except with respect
to the Stock Re-Purchase Transaction described in Section 6.1(w), enter into any
transaction of merger or consolidation, acquire any other business or
corporation, or acquire all or substantially all of the property or assets of
any other Person or entity, (i) the result of which in any of the foregoing
transactions is to have acquired the assets of any Person which are not
primarily used in connection with a business which is agribusiness in nature or
(ii) the result of which is a surviving entity which is not primarily in a
business which is agribusiness in nature [for purposes of this Section 6.2(f),
the term "agribusiness" shall mean a business the principal product of which is
food or fiber-related], or (iii) which results in a Person, other than Borrower,
being the surviving entity.
(g) Amendment to Organizational Documents. Without the prior written
consent of the Lenders, which will not be unreasonably withheld, amend the
Articles of Incorporation and/or Bylaws of Borrower.
(h) Change in Fiscal Year-End. Change Borrower's fiscal year-end.
(i) Transactions with Affiliates. Enter into or otherwise effect any
transaction with any Affiliate on a basis less favorable to Borrower than would
be the case if such transaction had been effected with a Person who is not an
Affiliate.
(j) Sale of Accounts Receivable. Sell, factor or otherwise dispose of
any of its Accounts Receivable or any promissory note or obligation acquired by
it in satisfaction or settlement of an Account Receivable, with or without
recourse.
6.3 Payment of Taxes. If any documentary or recording tax should be
assessed or the affixing of any stamps be required in connection with the
borrowing hereunder or any security therefor by federal, state or local
governments, Borrower will pay all such taxes and the cost of any such stamps
and any other recording expenses and transfer taxes related thereto.
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In the event of passage of any state, federal, municipal or other
governmental law, order, rule or regulation, subsequent to the date hereof, in
any manner changing or modifying the laws now in force governing the taxation of
security agreements or debts secured thereby (excluding, however, any tax on or
measured by the income of Agent/Lenders received as a result of this
transaction), or the manner of collecting such taxes, so as to adversely affect
Agent/Lenders or their expected return on their investment in the Revolving
Loan, Borrower will pay any such tax on or before the due date thereof.
6.4 Expenses. Borrower shall pay all reasonable costs of closing the
Revolving Loan and all reasonable expenses of Agent and Lenders with respect
thereto and all reasonable expenses of Agent and Lenders thereafter incurred on
account of the Revolving Loan, including, but not limited to, all legal fees and
expenses, advances, recording expenses, documentary stamp fees, intangible
taxes, note taxes, mortgage taxes, transfer taxes, expenses of private or public
sale, repossession or foreclosure costs and expenses (including trustees' and
attorneys' fees) and all other similar items. In addition, Borrower shall pay
all reasonable costs of Agent as provided in Section 6.1(g) and after an Event
of Default, in inspecting the Borrower's business operations, books or records.
Borrower agrees that all Closing papers, Loan Documents and other legal
instruments and matters will be subject to the prior approval of Agent's and
Lenders' attorneys.
6.5 Further Assurances; Additional Documents. Borrower shall:
(a) furnish to Agent all instruments, documents, certificates,
insurance reports and agreements, and each and every other document and
instrument required to be furnished by the terms of the Loan Documents,
all at Borrower's expense;
(b) execute and deliver to Agent such documents, instruments,
assignments and other writings, and do such other acts necessary or
desirable to further evidence the obligations provided herein, as Agent
may reasonably require from time to time; and
(c) do and execute all and such further lawful and reasonable
acts, conveyances and assurances, including, but not limited to,
assignments and notices of assignments of United States Government
Receivables, as contemplated under the Federal Assignment of Claims Act
of 1940, as amended, for the better and more effective carrying out of
the intents and purposes of this Agreement as Agent shall reasonably
require from time to time.
ARTICLE 7
EVENTS OF DEFAULT
An Event of Default shall be deemed to have occurred hereunder if:
7.1 Payment of Principal, Interest. (i) Borrower defaults in the prompt
payment as and when due of principal or interest on the Revolving Credit Loan
pursuant to the Revolving Credit Note or any other Indebtedness due under this
Agreement or any of the other Loan Documents,
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(ii) Borrower defaults in the prompt payment as and when due of principal or
interest on the Swing Line Note and/or Swing Line Loan, or (iii) Borrower fails
to pay any other obligations to Agent and/or Lenders when due, and in any such
event such default is not cured within ten (10) days of the date such payment is
due; or
7.2 Payment of Other Obligations by Borrower. Unless, but only so long
as, the existence of any such default is being contested by the Borrower in good
faith by appropriate proceedings and adequate reserves in respect thereof have
been established on the books of the Borrower, (a) Borrower shall fail to pay
when due and payable in accordance with Borrower's normal cash management
practices the principal of or interest on any loan, debt, lease obligation or
guaranty (other than the Revolving Indebtedness or amounts due under the Swing
Line Note) which, in the aggregate, shall exceed at any time Five Hundred
Thousand Dollars (U.S. $500,000.00) (collectively, the "Other Obligations"); or
(b) the maturity of any such Other Obligation shall have (i) been accelerated in
accordance with the provisions of any indenture, contract or instrument
providing for the creation of or concerning such Other Obligation or (ii) been
required to be prepaid prior to the stated maturity thereof; or (c) any event
shall have occurred and be continuing which would permit any holder or holders
of such Other Obligation, any trustee or agent acting on behalf of such holder
or holders or any other Person so to accelerate such maturity; or
7.3 Representation or Warranty. Any representation or warranty made by
Borrower herein, or in any report, certificate, financial statement or other
writing furnished or to be furnished in connection with or pursuant to this
Agreement shall prove to be false, misleading or incomplete in any material
respect; or
7.4 Covenants. Borrower defaults in the performance or observance of
any covenant, condition, agreement or undertaking on its part to be performed or
observed in accordance with the terms hereof or the Notes or any other Loan
Document or pursuant to any instrument or document which now or hereafter
evidences or secures all or any part of the Revolving Loan and such default
shall continue uncured for a period of thirty (30) days after (unless as a
result of one or more of the provisions of this Article VII, different "cure
periods" are required, in which event the "cure period" required for the
particular provision shall control); or
7.5 Bankruptcy, Etc. (i) Borrower (a) commences a voluntary case under
the federal bankruptcy laws (as now or hereafter in effect); (b) files a
petition seeking to take advantage of any other laws, domestic or foreign
relating to bankruptcy, insolvency, reorganization, winding up or composition
for adjustment of debts; (c) consents to or fails to contest in a timely and
appropriate manner any petition filed against Borrower in an involuntary case
under such bankruptcy laws or other laws; (d) applies for or consents to, or
fails to contest in a timely and appropriate manner, the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of
Borrower or of a substantial part of its property, domestic or foreign; (e)
admits in writing its inability to pay its debts as they become due; (f) makes a
general assignment for the benefit of creditors; or (g) takes any formal
corporate action for the purpose of effecting any of the foregoing; or (ii) (x)
a case or other proceeding is commenced against Borrower in any court of
competent jurisdiction seeking relief under the federal bankruptcy laws (as now
or
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hereafter in effect) or under any other laws, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, winding up or adjustment of debts; or
(y) the appointment of a trustee, receiver, custodian, liquidator or the like of
the Borrower or of all or any substantial part of the assets, domestic or
foreign, of the Borrower, and, with respect to clauses (x) and (y) hereof, such
case, proceeding or appointment shall continue undismissed or unstayed for a
period of sixty (60) consecutive calendar days, or (iii) an order granting the
relief requested in the case, proceeding or appointment referred to in clauses
(ii)(x) and (ii)(y) above (including, but not limited to, an order for relief
under such federal bankruptcy laws) shall be entered; or
7.6 Concealment of Property, Etc. Borrower shall have concealed,
removed, or permitted to be concealed or removed, any part of its properties,
with the intent to hinder, delay or defraud its creditors or any of them, or
made or suffered a transfer of any of its properties which may be fraudulent
under any bankruptcy, fraudulent conveyance or similar law; or shall have made
any transfer of its properties to or for the benefit of a creditor at a time
when other creditors similarly situated have not been paid, or shall have
suffered or permitted, while insolvent, any creditor to obtain a lien upon any
of its properties through legal proceedings or distraint which is not vacated
within thirty (30) days from the date thereof; or
7.7 Loan Documents Terminated or Void. Any of Agent's/Lenders' liens,
mortgages or assignments, including the security interest and liens created
under the Loan Documents, are invalidated for any reason other than the
negligence on the part of Agent/Lenders, and Borrower shall fail to have the
security interest and/or liens reinstated to the extent originally contemplated
by this Agreement and the Loan Documents or provide other security or collateral
of equal or greater value acceptable to Agent, in either case within thirty (30)
days of Borrower's receipt of any notice regarding the invalidation of any
security interest or lien created by the Loan Documents in favor of
Agent/Lenders; or Borrower shall deny that it has any further liability under
this Agreement, the Notes or any other Loan Document; or
7.8 Judgments. Excluding the Settlement (defined in Section 7.14
below), there shall be entered by any court any judgment or order for the
payment of money which individually or in the aggregate exceeds Five Hundred
Thousand Dollars (U.S. $500,000.00) in amount at any time, and such judgment(s)
or order(s) shall continue undischarged or unstayed for a period of thirty (30)
days; or
7.9 Attachments, Etc. A judgment, lien, warrant or writ of attachment
or execution or similar process shall be issued against (i) any of the
Collateral or (ii) any other property of Borrower which individually or in the
aggregate exceeds Five Hundred Thousand Dollars (U.S. $500,000.00) at any time
in value and, in either case, such warrant or process shall continue
undischarged or unstayed for thirty (30) days; or
7.10 Termination of Employee Benefit Plans, Etc. (i) Any "Termination
Event" under a Plan (as determined by the Plan and applicable law, rules and
regulations relating thereto) shall occur that results in an Unfunded Vested
Accrued Benefit; or (ii) any Plan shall incur an "accumulating funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA) for
which a waiver has not been obtained in accordance with the applicable
provisions of
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the Code and ERISA; or (iii) Borrower is in "default" (as defined in Section
4219(c)(5) of ERISA) with respect to payments to a multi-employer Plan resulting
from Borrower's complete or partial withdrawal (as described in Section 4203 or
4206 of ERISA) from such Plan; or
7.11 Performance of Other Obligations. Borrower shall default in the
payment when due, or in the performance or observance, of any obligation or
condition of any contract or lease (other than one of the Loan Documents or one
relating to Revolving Indebtedness) which default shall have a materially
adverse effect on Borrower, unless, but only as long as, the existence of any
such default is being contested by Borrower in good faith by appropriate
proceedings and adequate reserves in respect thereof have been established on
the books of Borrower; or
7.12 Suits by Borrower or Affiliates. Except for good faith disputes
regarding the interpretation of this Agreement and any provisions contained in
the Loan Documents, Borrower or any Affiliate shall challenge or contest in any
action, suit or proceeding in any court or before any arbitrator or governmental
body the validity or enforceability of this Agreement, or the perfection or
priority of the security interest or any lien granted to Agent/Lenders under any
Loan Document; or
7.13 Accounts Payable to Growers. Any account payable to a grower of
agricultural commodities shall be outstanding and unpaid for more than sixty
(60) days from the due date of invoice to Borrower, except for good faith
disputes with growers that Borrower is actively attempting to resolve; or
7.14 Failure to Complete Settlement of Lawsuits. Borrower shall fail to
complete the settlement (the "Settlement") of those certain lawsuits styled
Rolfe Glover v. United Foods, Inc., et al, Chancery Court of the State of
Delaware (Newcastle County)(C.A. 17006 NC), filed March 8, 1999 as a Class
Action Complaint and Robert I. Strougo v. James I. Tankersley et. al., Chancery
Court of the State of Delaware (Newcastle County)(C.A. 17137 NC), filed May 3,
1999 as a Class Action Complaint, materially in accordance with the terms of the
settlement agreements reached between the parties to the lawsuits as of the date
of this Agreement; provided, however, that Borrower's failure to settle,
regardless of the reason or cause, shall not be an Event of Default so long as
the Settlement shall not result in a material adverse effect on Borrower's
business or financial condition.
ARTICLE 8
REMEDIES OF LENDERS
8.1 Default Constitutes Default Under Other Documents. Borrower agrees
that the occurrence of an Event of Default hereunder shall constitute a default
under each of the other Loan Documents, and the Notes, thereby entitling Agent,
on behalf of Lenders, cumulatively to exercise any of the various remedies
herein or therein provided, and to exercise all other rights, options,
privileges and remedies provided by law or in equity.
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8.2 Rights of Lender Upon Default. Upon the occurrence of any one or
more of the Events of Default set out in Article 7 hereof which is not otherwise
waived by Agent, and at any time thereafter, Agent, at its option and in
addition to and not in lieu of the remedies provided for in the other Loan
Documents, without demand, notice or presentment (except the notice and cure
provisions required to be given pursuant to the provisions of Article 7 hereof),
may (i) declare all Revolving Indebtedness to be immediately due and payable for
all purposes and may proceed to exercise all rights and remedies available to it
under this Agreement, the Revolving Credit Note and any other Loan Document, or
available at law or in equity, including the rights and remedies set forth in
Part 5, Article 9 of the Uniform Commercial Code, and (ii) charge interest on
the full amount of the Revolving Indebtedness then outstanding at a default rate
equal to three percent (3%) plus the Agent's Prime Rate.
8.3 Cumulative Remedies. All such rights and remedies are cumulative
and not exclusive of any other remedies that may be available to Agent under any
other Loan Document or at law or in equity, and may be exercised by Agent
concurrently or sequentially in such order as Agent may choose.
ARTICLE 9
THE ADMINISTRATIVE AGENT
9.1 Appointment; Nature of Relationship. FANB is hereby appointed by
the Lenders as the Agent herein and under each other Loan Document, and each of
the Lenders irrevocably authorizes the Agent to act as the contractual
representative of such Lender with the rights and duties expressly set forth
herein and in the other Loan Documents. The Agent agrees to act as such
contractual representative upon the express conditions contained in this Article
9. Notwithstanding the use of the defined term "Agent" it is expressly
understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Lender by reason of this Agreement or any other Loan
Document and that the Agent is merely acting as the representative of the
Lenders with only those duties as are expressly set forth in this Agreement and
the other Loan Documents. In its capacity as the Lenders contractual
representative, the Agent (i) does not hereby assume any fiduciary duties to any
of the Lenders, (ii) is a "representative" of the Lenders within the meaning of
Section 9-105 of the Uniform Commercial Code, and (iii) is acting as an
independent contractor, the rights and duties of which are limited to those
expressly set forth in this Agreement and the other Loan Documents. Each of the
Lenders hereby agrees to assert no claim against the Agent on any agency theory
or any other theory of liability for breach of fiduciary duty, all of which
claims each Lender hereby waives.
9.2 Powers. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto,
including the right to receive all payments, notices and other deliveries and
communications to be given Lenders or Agent under this Agreement or any other
Loan Document; provided, however, that Agent shall not, absent the prior
approval of all Lenders, waive any default under the Loan Documents or amend any
terms set out in the Loan Documents. The Agent shall have no implied duties to
the Lenders, or any
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obligation to the Lenders to take any action thereunder except any action
specifically provided by the Loan Documents to be taken by the Agent.
9.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
for its or their own gross negligence or willful misconduct.
9.4 No Responsibility for Loans, Recitals, etc. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (i) any statement, warranty
or representation made in connection with any Loan Document or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (iii) the satisfaction of any condition specified in Article 4, except
receipt of items required to be delivered to the Agent; (iv) the validity,
enforceability, effectiveness, sufficiency or genuineness of any Loan Document
or any other instrument or writing furnished in connection therewith; or (v) the
value, sufficiency, creation, perfection or priority of any interest in any
collateral security. The Agent shall have no duty to disclose to the Lenders,
unless requested, information that is not required to be furnished by the
Borrower to the Agent at such time, but is voluntarily furnished by the Borrower
to the Agent (either in their capacity as Agent or in their individual
capacity).
9.5 Action on Instructions of Lenders. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Lenders, and such instructions and any action taken or failure to act pursuant
thereto shall be binding on all of the Lenders and on all holders of Notes. The
Lenders hereby acknowledge that the Agent shall be under no duty to take any
discretionary action permitted to be taken by it pursuant to the provisions of
this Agreement or any other Loan Document unless it shall be requested in
writing to do so by the Lenders. The Agent shall be fully justified in failing
or refusing to take any action hereunder and under any other Loan Document
unless it shall first be indemnified to its satisfaction by the Lenders pro rata
against any and all liability, cost and expense that it may incur by reason of
taking or continuing to take any such action.
9.6 Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
9.7 Reliance on Documents: Counsel. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or
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persons, and, in respect to legal matters, upon the opinion of counsel selected
by the Agent, which counsel may be employees of the Agent.
9.8 Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to their
Commitments immediately prior to such termination) (i) for any amounts not
reimbursed by the Borrower for which the Agent is entitled to reimbursement by
the Borrower under the Loan Documents, (ii) for any other reasonable expenses
incurred by the Agent on behalf of the Lenders, in connection with the
preparation, execution, delivery, administration and enforcement of the Loan
Documents, and (iii) for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of the Loan Documents or
any other document delivered in connection therewith or the transactions
contemplated thereby, or the enforcement of any of the terms thereof or of any
such other documents, provided that no Lender shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Agent. The obligations of the Lenders under this Section 9.8
shall survive payment of the Indebtedness and termination of this Agreement.
9.9 Funding of Loan by Lenders. Following receipt of notice from Agent
that Borrower has requested or Agent has made an advance under the Loan, and
provided that all conditions to funding are believed to have been satisfied,
each Lender shall transfer its pro rata share of the requested funding in the
time and manner which follow: (i) in the event that Agent gives such notice to
Lenders by telephone or facsimile by 1:00 p.m., Memphis time, each Lender shall
fund its interest in the Loan by making cash payments in immediately available
funds to Agent, not later than 3:00 p.m., Memphis time, on the date of such
notice in an amount equal to the Percentage of such Lender's Commitment; or (ii)
in the event that Agent shall give the Lenders such notice of an advance after
1:00 p.m., Memphis time, each Lender shall fund its interest therein in the
manner described in the foregoing subsection not later than 3:00 p.m., Memphis
time, on the next business day following the date of such notice.
9.10 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Event of Default hereunder unless the Agent
has received written notice from a Lender or the Borrower referring to this
Agreement describing such Event of Default and stating that such notice is a
"notice of default". In the event that the Agent receives such a notice, the
Agent shall give prompt notice thereof to the Lenders.
9.11 Rights as a Lender. In the event the Agent is a Lender, the Agent
shall have the same rights and powers hereunder and under any other Loan
Document as any Lender and may exercise the same as though it were not the
Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent, is
a Lender, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Affiliates in which the Borrower or such
Affiliate is not restricted hereby from engaging with any other Person.
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9.12 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
9.13 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, such resignation to be
effective upon the appointment of a successor Agent or, if no successor new
Agent has been appointed, forty-five (45) days after the retiring Agent gives
notice of its intention to resign. Upon any such resignation, the Lenders shall
have the right to appoint, on behalf of the Borrower and the Lenders and with
the consent of the Borrower (which shall not be unreasonably withheld), a
successor Agent. If the Agent has resigned and no successor Agent has been
appointed, the Lenders may perform all the duties of the Agent hereunder and the
Borrower shall make all payments in respect of the Indebtedness to the
applicable Lender and for all other purposes shall deal directly with the
Lenders. No successor Agent shall be deemed to be appointed hereunder until such
successor Agent has accepted the appointment. Any such successor Agent shall be
a commercial bank having capital and retained earnings of at least Fifty Million
Dollars (U.S. $50,000,000.00). Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
resigning Agent. Upon the effectiveness of the resignation of the Agent, the
resigning Agent shall be discharged from its duties and obligations hereunder
and under the Loan Documents. After the effectiveness of the resignation of an
Agent, the provisions of this Article 9 shall continue in effect for the benefit
of such Agent in respect of any actions taken or omitted to be taken by it while
it was acting as the Agent hereunder and under the other Loan Documents.
ARTICLE 10
GENERAL CONDITIONS
The following conditions shall be applicable throughout the term of
this Agreement:
10.1 Rights of Third Parties. All conditions of the obligations of
Agent and Lenders hereunder, including the obligation to disburse funds in
accordance with the terms hereof, are imposed solely and exclusively for the
benefit of Agent and Lenders and their respective successors and assigns, and no
other person or entity shall have standing to require satisfaction of such
conditions in accordance with their terms or be entitled to assume that Agent
and/or Lenders will refuse to make a disbursement in the absence of strict
compliance with any or all thereof, and no other person or entity shall, under
any circumstances, be deemed to be a beneficiary of such conditions, any and all
of which may be freely waived in whole or in part by Agent and/or Lenders at any
time if in its or their sole discretion it or they deems it desirable to do so.
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10.2 Evidence of Satisfaction of Conditions. Any condition of this
Agreement which requires the submission of evidence of the existence or
non-existence of a specified fact or facts implies as a condition the existence
or non-existence, as the case may be, of such fact or facts, and Agent shall, at
all times, be free independently to establish to its satisfaction and in its
reasonable discretion such existence or non-existence.
10.3 All Matters Satisfactory to Agent. All proceedings taken in
connection with the transactions provided for herein, all documents required or
contemplated by this Agreement or any of the Loan Documents, and the persons
responsible for the execution and preparation thereof, shall be satisfactory to
Agent, and Agent's counsel shall receive copies (or certified copies where
appropriate in Agent's counsel's judgment) of all documents which it may request
in connection therewith.
10.4 No Agency. Agent is not the agent or representative of Borrower,
and Borrower is not the agent or representative of Agent or Lenders, and nothing
in this Agreement shall be construed to make Agent liable to anyone for debts or
claims accruing against Borrower.
10.5 No Partnership or Joint Venture. Nothing herein nor the acts of
the parties hereto shall be construed to create a partnership or joint venture
among Borrower, Agent and Lenders.
10.6 Interest Limitations. (a) The Revolving Credit Loans and the Notes
evidencing the Revolving Credit Loans, including any renewals or extensions
thereof, may provide for the payment of any interest rate (i) permissible at the
time the contract to make the Revolving Credit Loans is executed, (ii)
permissible at the time the Revolving Credit Loans were made or any advance
thereunder is made, or (iii) permissible at the time of any renewal or extension
of the Revolving Credit Loans or Notes evidencing the Revolving Credit Loans.
(b) It is the intention of Agent, Lenders and Borrower to comply
strictly with applicable usury laws; and, accordingly, in no event and upon no
contingency shall Lenders ever be entitled to receive, collect, or apply as
interest any interest, fees, charges or other payments equivalent to interest,
in excess of the maximum rate which Lenders may lawfully charge under applicable
statutes and laws from time to time in effect; and in the event that the holder
of the Notes ever receives, collects, or applies as interest any such excess,
such amount which, but for this provision, would be excessive interest, shall be
applied to the reduction of the principal amount of the indebtedness thereby
evidenced; and if the principal amount of the indebtedness evidenced thereby,
and all lawful interest thereon, is paid in full, any remaining excess shall
forthwith be paid to Borrower, or any other party lawfully entitled thereto. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the highest rate which Lenders may lawfully charge under
applicable law from time to time in effect, Borrower and Lenders shall, to the
maximum extent permitted under applicable law, characterize any non-principal
payment as a reasonable loan charge, rather than as interest. Any provision
hereof or of any other agreement between Lenders and Borrower that operates to
bind, obligate, or compel Borrower to pay interest in excess of such maximum
rate shall be construed to require the payment of the maximum rate only. The
provisions of this paragraph shall be given precedence over any other
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provision contained herein or in any other agreement between Lenders and
Borrower that is in conflict with the provisions of this paragraph.
The Notes shall be governed and construed according to the statutes and
laws of the State of Tennessee from time to time in effect, except to the extent
that Section 85 of Title 12 of the United States Code (or other applicable
federal statute) may permit the charging of a higher rate of interest than
applicable state law, in which event such applicable federal statute, as amended
and supplemented from time to time shall govern and control the maximum rate of
interest permitted to be charged hereunder; it being intended that, as to the
maximum rate of interest which may be charged, received, and collected
hereunder, those applicable statutes and laws, whether the state or federal,
from time to time in effect, which permit the charging of a higher rate of
interest, shall govern and control; provided, always, however, that in no event
and under no circumstances shall the Borrower be liable for the payment of
interest in excess of the maximum rate permitted by such applicable law, from
time to time in effect.
10.7 No Assignment by Borrower. This Agreement may not be assigned by
Borrower without the prior written consent of Agent.
10.8 Assignment by Lender. The Notes, this Agreement and any other Loan
Document may not be endorsed, assigned, or transferred in whole or in part by
Agent without the prior written approval of Borrower, which approval shall not
be unreasonably withheld, provided that Borrower agrees Agent and/or Lenders
shall have the right to sell a participation in the Notes, this Agreement and
the other Loan Documents to any other Person, as long as the exclusive right to
manage the relationship with Borrower (after consultation, in Agent's
discretion, with any such participant) shall remain solely with Agent.
10.9 Entire Agreement. The Commitment Letter and this Agreement contain
the entire terms of the agreements between Borrower and Lender covering the
disbursement of the Revolving Loan by Lender and the use of the Revolving Loan
and Swing Line Loan by Borrower. To the extent any conflicts exist between
provisions contained in the Commitment Letter and provisions contained in this
Agreement, the provisions contained herein shall control.
10.10 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally
or by an inner-city or overnight courier service, as the case may be, or sent by
registered or certified mail, to the other party at the address set forth below,
or at such other address as may be supplied in writing. All notices to Lenders
may be satisfied by delivering notice to Agent. The date of personal delivery or
the date such courier service delivers such notice or the date of mailing, as
the case may be, shall be the effective date of such notice, election or demand.
For the purposes of this Agreement:
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The address of
Borrower is: United Foods, Inc.
Ten Pictsweet Drive
Bells, TN 38006-0119
Attn: C.W. Gruenewald, II, Senior Vice President
With a copy to: United Foods, Inc.
Ten Pictsweet Drive
Bells, TN 38006-0119
Attn: Christopher Weeks, Corporate Attorney
The address of
Agent is: First American National Bank
6000 Poplar Avenue
Memphis, TN 38119
Attn: Jonathan C. Tutor, Vice-President
with a copy to: Baker, Donelson, Bearman & Caldwell
2000 First Tennessee Building
165 Madison Avenue
Memphis, TN 38103
Attn: Carla Peacher-Ryan
The address of NBC is: National Bank of Canada
165 Madison Avenue, Suite 1610
Memphis, TN 38103
Attn: Tom Simpson
10.11 Successors and Assigns Included in Parties. Whenever in this
Agreement one of the parties hereto is named or referred to, the legal
representatives, successors, and assigns of such parties shall be included, and
all covenants and agreements contained in this Agreement by or on behalf of
Borrower or by or on behalf of Agent or Lenders shall bind and inure to the
benefit of their respective legal representatives, successors, and assigns,
whether so expressed or not.
10.12 Headings. The headings of the Articles, paragraphs and
subparagraphs of this Agreement are for convenience of reference only, and are
not to be considered a part hereof and shall not limit or otherwise affect any
of the terms hereof.
10.13 Invalid Provisions to Affect No Others. If fulfillment of any
provision hereof or any transaction related hereto at the time performance of
such provisions shall be due, shall involve transcending the limit of validity
presently prescribed by law, with regard to obligations of like character and
amount, then ipso facto, the obligation to be fulfilled shall be reduced to the
limit of such validity; and if any clause or provision herein contained operates
or would prospectively operate to invalidate this Agreement in whole or in part,
then such clause or
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provision only shall be held for naught, as though not herein contained, and the
remainder of this Agreement shall remain operative and in full force and effect.
10.14 Number and Gender. Whenever the singular or plural number, or the
masculine, feminine or neuter gender is used herein, it shall equally include
the other.
10.15 Amendments. Neither this Agreement nor any provision hereof may
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
10.16 Indemnification. Borrower shall, and it does hereby agree to
indemnify, defend and hold Agent and/or Lenders harmless from and against any
claim, liability, cause of action, cost or expense, including attorneys' fees
and expenses and other costs of investigation, discovery and/or litigation,
which (i) Agent and/or Lenders or their respective agents may incur arising out
of or related to Borrower's businesses, involving any claim of any third party
against Borrower and/or Agent and/or Lenders (to the extent such relates to
Borrower), or (ii) Agent and/or Lenders may incur in connection with Agent
and/or Lenders' enforcing any of their respective rights and remedies under any
instrument executed in connection with the Loans and this Agreement, excepting
however, in each such case, those claims, liabilities, causes of action, or
costs or expenses arising out of Agent and/or Lenders' gross negligence or
willful misconduct. This indemnification shall survive the full payment and
performance of the Revolving Indebtedness, and is in addition to any other
indemnification provided for herein.
10.17 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
instrument.
10.18 Time of Essence. Time is of the essence of this Agreement, the
Notes, and the other instruments and documents executed and delivered in
connection herewith.
10.19 Governing Law. This Agreement has been negotiated, executed and
delivered in, and shall be governed by and construed in accordance with the laws
of the State of Tennessee, except (a) that the provisions hereof which relate to
the payment of interest shall be governed by (i) the laws of the United States
or (ii) the laws of the State of Tennessee, whichever permits the Lenders to
charge the higher rate, as more particularly set out in the Notes, and (b) to
the extent that the liens in favor of the Lenders, the perfection thereof, and
the rights and remedies of the Lenders with respect thereto, under mandatory
provisions of law, are governed by the laws of a state other than Tennessee.
10.20 Security Interest; Setoff. In order to further secure the payment
of the Revolving Indebtedness, Borrower hereby grants to Agent a security
interest and right of setoff against all of Borrower's presently owned or
hereafter acquired moneys, items, credits, deposits and instruments (including
certificates of deposit) presently or hereafter in the possession of Agent. By
maintaining any such accounts or property at Agent's, Borrower acknowledges that
it voluntarily subjects such accounts or property to Agent's rights hereunder,
and agrees that Agent
-45-
<PAGE> 54
shall not be liable for the dishonor of any instrument resulting from Agent's
proper exercise of its rights hereunder.
10.21 Consent to Jurisdiction and Venue. Borrower, Agent and Lenders
hereby irrevocably consent to the jurisdiction of the United States District
Court for the Western District of Tennessee, and of all Tennessee state courts
sitting in Shelby County, Tennessee, for the purpose of any litigation to which
Agent and/or Lenders may be a party and which concerns the Revolving
Indebtedness, provided that nothing herein shall preclude Agent and/or Lenders
from initiating suit against Borrower in any other proper jurisdiction.
10.22 Agent/Lenders' Consent. Except as otherwise expressly provided
herein, in any instance hereunder where Agent and/or Lenders' approval or
consent is required, the granting or denial of such approval or consent and the
exercise of such judgment shall be within the reasonable discretion of Agent
and/or Lenders, and Agent and/or Lenders shall not, for any reason or to any
extent, be required to grant such approval or consent or exercise such judgment.
Agent and/or Lenders may consult with counsel, and the written advice or opinion
of such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
10.23 Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
10.24 Conflict. In the event of any conflict between the provisions
hereof and the provisions of the Security Agreement, during the continuance of
this Agreement the provisions of this Agreement shall control.
10.25 Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Revolving Credit Loans (other than payments
received pursuant to Section 3.1, 3.2 or 3.4 and other payments received by the
Swing Line Bank with respect to the Swing Line Loan) in a greater proportion
than that received by any other Lender, such Lender agrees, promptly upon
demand, to purchase a portion of the Revolving Credit Loans held by the
-46-
<PAGE> 55
other Lenders so that after such purchase each Lender will hold its ratable
proportion of Loans. If any Lender, whether in connection with setoff or amounts
which might be subject to setoff or otherwise, receives collateral or other
protection for its Indebtedness or such amounts which may be subject to setoff,
such Lender agrees, promptly upon demand, to take such action necessary such
that all Lenders share in the benefits of such collateral ratably in proportion
to their Revolving Credit Loans. In case any such payment is disturbed by legal
process, or otherwise, appropriate further adjustments shall be made.
10.26 Amended and Restated Loan Agreement. This Amended and Restated
Loan Agreement amends, restates and replaces, in its entirety, the Original Loan
Agreement as amended by the Amendments. Nothing herein contained shall, however,
constitute a novation of the Original Revolving Loan, it being intended that the
Original Revolving Loan shall continue in full force and effect and shall
continue to be evidenced by the Notes. All references in the Notes or any other
Loan Document to the Original Loan Agreement, as amended, shall henceforth be
deemed to mean and constitute references to this Amended and Restated Loan
Agreement, as the same may be further amended, modified or restated hereafter.
IN WITNESS WHEREOF, Borrower, Agent and Lenders have caused this Loan
Agreement to be executed by their duly authorized officers on the date first
above written.
UNITED FOODS, INC. UNITED FOODS, INC.
By: /s/ Donald Dresser By: /s/ Carl W. Gruenewald, II
---------------------------------- ---------------------------------
Donald Dresser C.W. Gruenewald, II, Senior Vice
Senior Vice-President - Administration President
Commitment: FIRST AMERICAN NATIONAL BANK,
Individually as a Lender and
as Agent
$18,000,000.00
By: /s/ David C. May
----------------------------------
David C. May
Title: Executive Vice President
-------------------------------------
Commitment: NATIONAL BANK OF CANADA, Individually
as a Lender
$17,000,000.00
By: /s/ Tom Simpson
------------------------------------
Title: Vice President
------------------------------------
By: /s/ Jim Norvell
-------------------------------------
Title: Assistant Vice President
-------------------------------------
-47-
<PAGE> 56
SCHEDULE 5.15
Locations of Inventory
Schedule 5.15 - 1
<PAGE> 57
SCHEDULE 5.15
LOCATIONS OF INVENTORY
<TABLE>
<S> <C> <C> <C>
02 PICTSWEET FROZEN FOODS PLANT MGR. ALLEN WATTS
TEN PICTSWEET DR. WHSE. MGR. TERRY FRENCH
BELLS, TN 38006 APPOINTMENTS ANITRA HARWELL
PHONE: 800-621-7523
901-663-2346 COUNTY CROCKETT
FAX: 901-422-7639
- --------------------------------------------------------------------------------------------------------
06 PICTSWEET FROZEN FOODS PLANT MGR. MIKE WHALEN
1277 WEST 2350 NORTH OFF. MGR. AARON PATTILLO
P.O. BOX 9059 CONTACT JEAN ORTBERG
OGDEN, UT 84409 WHSE. MGR. TONY DEATON
PHONE: 801-782-2566 COUNTY WEBER
FAX: 801-782-2585
- --------------------------------------------------------------------------------------------------------
07 HOLLEY COLD STORAGE PRES. RALPH K. BECK
FRUIT & PRODUCE CO. INC. WHSE. MGR. JEFFREY SHAMPINE
16677 HOLLEY ROAD SECRETARY LINDA BECK
P.O. BOX 359 OFF. MGR. MARY SHAMPINE
HOLLEY, NY 14470
PHONE: 716-638-6393 COUNTY ORLEANS
FAX: 716-638-6730
- --------------------------------------------------------------------------------------------------------
08 PICTSWEET FROZEN FOODS PLANT MGR. TOM KERHULAS
732 S. HANSEN WAY OFF. MGR. DOROTHY MONTANEZ
SANTA MARIA, CA 93454 WHSE. MGR. DANNY CROWELL
APPOINTMENTS TERESA CAPELLE
NIGHT WHSE. STEVE BEWLEY
SUPERVISOR
PHONE: 805-928-4414 COUNTY SANTA BARBARA
FAX: 805-928-1364
FAX: 805-928-6730/DIRECT TO DAN CROWELL
- --------------------------------------------------------------------------------------------------------
</TABLE>
Page 1 of 9
<PAGE> 58
SCHEDULE 5.15
LOCATIONS OF INVENTORY
<TABLE>
<S> <C> <C> <C>
11 FROSTYAIRE FOR FROZEN PRES. JIM THOMAS, JR
FOODS, INC. PLANT MGR. JIMBO THOMAS
507 REMINGTON RD APPOINTMENTS LINDA LAWING
SEARCY, AR 72143 OFF. MGR. VIRGINIA NORRIS
SALES MGR. TOM BELL
VP OPERATIONS H. LYNN KELLEY
PHONE; 501-268-5888 COUNTY WHITE
FAX: 501-268-5889
- --------------------------------------------------------------------------------------------------------
12 U.S. COLD STORAGE, INC. V.P. MARLIN LUCAS
125 THREET INDUSTRIAL BLVD. OF. MGR. MARK ISENBERG
SMYRNA, TN 37167 CONTACT TONY CANTRELL
CHRIS KING
PHONE: 615-355-0047 COUNTY RUTHERFORD
FAX: 615-355-0129
- --------------------------------------------------------------------------------------------------------
13 TWIN CITY FOODS, INC. DIV. MGR. KEN STENSEN
1315 SHERMAN STREET PLT. MGR. REX BAILEY
LAKE ODESSA, MI 48849 WHSE. MGR. JEFF GEIGER
CONTACT CHRIS WICKHAM
PHONE: 616-374-8837 COUNTY IONIA
FAX: 616-374-4791
SERVICED BY CSX RAILROAD
- --------------------------------------------------------------------------------------------------------
15 ROCHELLE LOGISTICS CENTER MGR. RANDY WAKENIGHT
DIVISION TOTAL LOGISTICS OF. MGR. KAYLA WHITE
CONTROL, LLC
975 SOUTH CARON ROAD WHSE. MGR. BOB ROEGLIN
ROCHELLE, IL 61068 CONTACT TIFFANY OR GLENDA
PHONE: 815-562-2350 COUNTY RICHLAND
FAX: 815-562-5001
SERVICED BY CNW RAILROAD
- --------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 9
<PAGE> 59
SCHEDULE 5.15
LOCATIONS OF INVENTORY
<TABLE>
<S> <C> <C> <C>
20 FREEPORT COLD STORAGE, INC. VP/GEN.MGR. STUART K. SMITH
440 SOUTH MAIN STREET SHP/REC. WAYNE PLADAS
CLEARFIELD, UT 84015 CONTACT BONNIE JARVIS
PHONE: 801-773-5911 COUNTY DAVIS
FAX: 801-773-5912
- --------------------------------------------------------------------------------------------------------
21 CS INTEGRATED, LLC DIST. MGR. STEVE ALBERTI/201-422-7199
ONE ENTERPRISE AVENUE TRANSP. MGR. TIM DOVAN/201-422-7192
SECAUCUS, NJ 07094 OP. MGR. JAMES SWYRYT/201-422-7195
CUST. SERV. ANN D'AMICO/201-422-7196
PHONE: 201-422-7199 COUNTY HUDSON
FAX: 201-867-6320 (SHIPPING & RECEIVING)
- --------------------------------------------------------------------------------------------------------
23 CS INTEGRATED, LLC DIR SALES MGR. RICK BASTIANELLI
13033 ARCTIC CIRCLE WHSE. MGR. TONY ESQUIZEL
SANTA FE SPRINGS, CA 90670 OF MGR. NANCY CRAVESN
TRAFFIC MGR. BRENT LESLIE
PHONE. 562-921-7441 COUNTY LOS ANGELES
FAX: 562-921-1770
1415 RAYMOND AVE. WHSE. SUPERV. RICHARD GONZALES
ANAHEIM, CA 92801
(ORANGE COUNTY)
PHONE: 714-449-2880
FAX: 714-449-1145
- --------------------------------------------------------------------------------------------------------
34 SOUTHLAND REFRIGERATED LOGISTICS/CHIEF MGR. KARL A. SCHLEDWITZ
11420 GULF STREAM AVE. PRES./ RICHARD C. CARVER
ARLINGTON, TN 38002 VICE PRES. TERRY LYNCH
LOGISTICS MGR. MARY GARNER
PHONE: 901-867-8848 COUNTY SHELBY
FAX: 901-867-2424
- --------------------------------------------------------------------------------------------------------
</TABLE>
Page 3 of 9
<PAGE> 60
SCHEDULE 5.15
LOCATIONS OF INVENTORY
<TABLE>
<S> <C> <C> <C>
36 UNITED STATES COLD STG., INC. VP/MGR MICHAEL G. FRED
POLAR DIVISION OFF. MGR. MARK ISENBERG
326 11th AVE. NORTH CONTACT MELANIE GLOVER
INDUSTRIAL BLVD. CONTACT CINDY MANN
NASHVILLE, TN 37203 SUPERINTENDENT ED JONES
PHONE: 615-255-7376 COUNTY DAVIDSON
FAX: 615-242-3272
- --------------------------------------------------------------------------------------------------------
39 CS INTEGRATED, LLC V.P. GEN. MGR. JAKE EASTERLING
302 N. FRONTAGE RD. OP. MGR. JAMES NESTLE
P.O. BOX 2330 CUST. SERV. TONYA HARRIS
PLANT CITY, FL 33564 CONTROLLER PAM TUSHAUS
PHONE: 813-754-9341 COUNTY HILLSBOROUGH
FAX: 813-752-6147
- --------------------------------------------------------------------------------------------------------
41 MISCELLANEOUS (USED FOR CORRECTIONS BY LINDA BROOKS)
- --------------------------------------------------------------------------------------------------------
42 UNITED STATES COLD STORAGE, INC. V.P. MGR. MICHAEL FRED
PENGUIN DIVISION OFF. MGR. MARK ISENBERG
921 3rd AVE. NORTH CONTACT MELANIE GLOVER
NASHVILLE, TN 37201 CONTACT CINDY MANN
SUPERINTENDENT ED JONES
PHONE: 616-255-7376 COUNTY DAVIDSON
FAX: 615-242-3273
ALL INFORMATION, EXCEPT ADDRESS, SAME AS FOR POLAR WAREHOUSE
- --------------------------------------------------------------------------------------------------------
45, SOUTHLAND REFRIGERATED
LOGISTICS,INC. PRES. RICHARD C. CARVER
3264-2 DEMOCRAT ROAD
MEMPHIS, TN 38118
PHONE: 901-363-7553 COUNTY SHELBY
- --------------------------------------------------------------------------------------------------------
</TABLE>
Page 4 of 9
<PAGE> 61
SCHEDULE 5.15
LOCATIONS OF INVENTORY
<TABLE>
<S> <C> <C> <C>
47 ATLAS COLD STORAGE SVP MERLE LEMMEN
2500 ROSE PARKWAY OP. MGR. LARRY JONES
SIKESTON, MO 63801 CONTROLLER STEVEN BAULTMAN
CONTACT BRENDA KNUCKLES
CONTACT JULIE UNGER
PHONE: 573-471-7727 COUNTY SCOTT
920-468-8311/MERLE LEMMEN
FAX: 573-471 7728
- --------------------------------------------------------------------------------------------------------
48 CENTRAL STORAGE & WAREHOUSE CO/ PLT. MGR. JOHN WINEGARDEN
3120 9th STREET OFF. CLERK DEB KRESSIN
P.O. BOX 5 OFF. CLERK PAM BERGERON
EAU CLAIRE, WI 54703
PHONE: 715-834-2951 COUNTY EAU CLAIRE
FAX: 715-834-0428
CORPORATE: EX. V.P. TOM FITZGERALD
CENTRAL STORAGE & WAREHOUSE CO.
4309 COTTAGE GROVE V.P. OP. KURT L. BENCE
MADISON, WI 53707-7034
PHONE: 608-221-7600
FAX: 608-221-7603
- --------------------------------------------------------------------------------------------------------
56 HANSON COLD STORAGE CO. WHSE. MGR. JOHN R. KINAHAN
P.O. BOX 98
61834 RED ARROW HIGHWAY EAST
HARTFORD, MI 49057
PHONE: 616-621-3118 COUNTY VAN BUREN
FAX: 616-621-2789
- --------------------------------------------------------------------------------------------------------
</TABLE>
Page 5 of 9
<PAGE> 62
SCHEDULE 5.15
LOCATIONS OF INVENTORY
<TABLE>
<S> <C> <C> <C>
58 AMERICOLD LOGISTICS, INC. GEN. MGR. MIKE MEILINGER
SYRACUSE INDUSTRIAL PARK ADM. MGR. GREG WALCZAK
FARRELL ROAD/P.O. BOX 4892 TRAFFIC MGR. BOB MOORE
SYRACUSE, NEW YORK 13221 SALES MGR. GEORGE LENTNER
PHONE: 315-451-3150 COUNTY SULLIVAN
FAX: 315-451-2276
SERVICED BY CONRAIL RAILROAD
- --------------------------------------------------------------------------------------------------------
60 AMERICOLD LOGISTICS, INC. REG. V.P. TERRY BROWN
1100 E. PARKWAY S. GEN. MGR. ERIC WALDEN
MEMPHIS, TN 38114-0623 OP. MGR. JEFF FRAZIER
OFF. MGR. ANNA WYATT
PHONE: 901-452-1611 COUNTY SHELBY
FAX: 901-452-1620
SERVICED BY ICG RAILROAD
- --------------------------------------------------------------------------------------------------------
66 AMERICOLD LOGISTICS, INC. GEN. MGR. TIM HEFFERNAN
750 WEST RIVERSIDE DR. OFF. MGR. ANN CUNHA
P.O. BOX 1835 CONTACT SUSIE PUGH
WATSONVILLE, CA 95077 CONTACT LIZ KESELICA
PHONE 831-761-4526
PHONE: 831-761-4500 COUNTY SANTA CRUZ
FAX: 831-728-9176
- --------------------------------------------------------------------------------------------------------
67 UNITED STATES COLD STORAGE, INC. PLT. MGR. DOUG COULTER
INTERCHANGE CITY PLANT OF. MGR. MARK ISENBERG
1727 J. P. HENNESSY DRIVE OF. SUPERV. KIM SCHWIND
LAVERGNE, TN 37086
PHONE: 615-641-9800 COUNTY RUTHERFORD
FAX: 615-641-2824
- --------------------------------------------------------------------------------------------------------
</TABLE>
Page 6 of 9
<PAGE> 63
SCHEDULE 5.15
LOCATIONS OF INVENTORY
<TABLE>
<S> <C> <C> <C>
68 EAST COAST REFRIGERATED SERVICES GEN. MGR. JOHN HICKEY
SERVICES, CORP ADM. MGR. CHERYL BROWNLEE
215 NORTH MILL ROAD WHSE. MGR. GEORGE MCKALE
VINELAND, NEW JERSEY 08360 TRAFFIC MGR. GAIL BASILE
PHONE: 609-696-0055 COUNTY CUMBERLAND
FAX: 609-696-8807
ALVIE: EXTENSION 212
- --------------------------------------------------------------------------------------------------------
71 FROZSUN FOODS, INC. GEN. MGR. SIMON VERDIN
1315 S. BLOSSER RD. OFF. MGR. DINO PADUGANAN
P.O. BOX 698
SANTA MARIA, CA 93456
PHONE: 805-928-5843 COUNTY SANTA BARBARA
FAX: 805-925-3318
SIMON VERDIN - PHONE 805-928-4385
- --------------------------------------------------------------------------------------------------------
76 AMERICOLD LOGISTICS, INC. GEN. MGR. WALLY HANSON
5805 INDUSTRIAL WAY OFF. MGR. LAURIE KING
PASCO, WA 99301 DOCK SUPERINT. DARRIN SEELY
PHONE: 509-544-9045 COUNTY FRANKLIN
FAX: 509-544-0212
- --------------------------------------------------------------------------------------------------------
</TABLE>
Page 7 of 9
<PAGE> 64
SCHEDULE 5.15
LOCATIONS OF INVENTORY
<TABLE>
<S> <C> <C> <C>
78 NEW ORLEANS COLD STORAGE PRES. GARY ESCOFFIER
AND WAREHOUSE CO., LTD. VP MKT/SALES MARK BLANCHARD
P.O. BOX 26308 OFF. MGR. ANN MONTZ
NEW ORLEANS, LA 70186 CUST. SERV. RUTHALEE SIMONEAUX
PHONE: 800-782-2653 COUNTY ORLEANS
504-944-4400
FAX: 504-944-8539
WAREHOUSE/ALVOR ST. WHSE. MGR. RANDY SCARPARO
PHONE: 504-944-4400
WAREHOUSE/AIRLINE HWY. WHSE. MGR. DAVID THIBODEAUX
PHONE: 508-837-9150
WAREHOUSE/NASHVILLE AVE. WHSE. MGR. RICKY CALLAGAN
PHONE: 504-895-4826
- --------------------------------------------------------------------------------
79 AMERICOLD LOGISTICS, INC. GEN. MGR. ERIC WALDEN
2800 CHELSEA AVE. OP. MGR. JEFF FRAIZER
MEMPHIS, TN 38108 WHSE. SUPV. CHUCK BALL
PHONE: 901-320-7076 COUNTY SHELBY
- --------------------------------------------------------------------------------
80 COLUMBIA COLSTOR, INC. REGIONAL MGR. RUSS LYTLE
P.O. BOX 548 OFF. MGR. KRISTIN ROBERTS
QUINCY, WA 98848 PLANT MGR. BARNEY TREACY
SHIPPING CLERK HONOR ADKINS
INV. MGR. PAT CURREN
APPOINTMENTS VANGIE CRAGO
PHONE: 509-787-1577 COUNTY GRANT
FAX: 509-787-3640
509-750-9961/RUSS LYTLE CELL PHONE
- --------------------------------------------------------------------------------
</TABLE>
Page 8 of 9
<PAGE> 65
SCHEDULE 5.15
LOCATIONS OF INVENTORY
<TABLE>
<S> <C> <C> <C>
82 AMERICOLD LOGISTICS, INC. GEN. MGR. JEFF BROGAN
1651 S. AIRPORT RD. OFF. MGR. CHRISTI BAIRD
WEST MEMPHIS, AR 72301 WHSE. MGR. MIKE FRAZIER
PHONE: 870-732-4791 COUNTY CRITTENDEN
FAX: 870-732-4331
- --------------------------------------------------------------------------------------------------------
92 COLUMBIA COLSTOR, INC. GEN. MGR. DARRON CANNEDY
410 N. WORTHEN ST. OFF. MGR. KIM FRALEY
WENATCHEE, WA 98801 PLT. SUP. TONY BETTENCOURT
PHONE: 509-663-9504 COUNTY CHELAN
FAX: 509-663-9472
- --------------------------------------------------------------------------------------------------------
1A AMERICOLD LOGISTICS, INC. REG. MGR. KEVIN SKROCKI
3320 S. ARLINGTON AVE. GEN. MGR. STEVE COON
INDIANAPOLIS, IN 46203 OFF. MGR. DONNA SUMMERS
TRAFFIC MGR. JAY GRIFFITH
PHONE: 317-352-1211 COUNTY MARION
FAX: 317-356-4892
- --------------------------------------------------------------------------------------------------------
</TABLE>
Page 9 of 9
<PAGE> 66
EXHIBIT "A"
Borrowing Base Certificate
================================================================================
UNITED FOODS, INC.
BELLS, TN
Borrowing Base Certificate
================================================================================
Status as of __________.
(Date)
<TABLE>
<S> <C> <C>
1. Total Accounts Receivable balance $
-----------------
2. Less: Mushroom Receivables $
-----------------
3. Less: Non-Government Accounts over 60 days from invoice $
-----------------
4. Less: Government Accounts over 90 days $
-----------------
5. Less: Other Ineligible Accounts Receivable (including,
but not limited to, bill and hold and military
distributors) $
-----------------
6. Less: $120,000.00 plus all amounts due on accounts
payable to growers of agricultural commodities that
are outstanding for more than thirty (30) days from
due date $
-----------------
7. Total Acceptable Accounts $
-----------------
8. Advance rate on Acceptable Accounts 85%
-----------------
9. Availability from Account Receivable (Line 6 times Line 7) $
-----------------
10. Total Inventory balance $
-----------------
11. Less: Mushroom Inventory $
-----------------
12. Less: Other ineligible inventory $
-----------------
13. Total Acceptable Inventory $
-----------------
</TABLE>
A-1
<PAGE> 67
<TABLE>
<S> <C> <C>
14. Advance rate on Acceptable Inventory 60%
-----------------
15. Availability from Acceptable Inventory
(Line 13 times Line 14) $
-----------------
16. Total Availability
(Line 8 plus Line 14) $
-----------------
17. Outstanding Letters of Credit $
-----------------
18. Outstanding Revolving Loan Balance $
-----------------
19. Outstanding Swing Line Loan Balance
-----------------
20. Excess or (deficit)
(Line 16 minus Line 17 minus Line 18 minus Line 19) $
-----------------
</TABLE>
================================================================================
Exhibits Attached Hereto:
(a) Aging of Accounts Receivable (and Listing of Accounts
Receivable)
(b) Identification of Acceptable Inventory by location.
(c) Summary Aging of Accounts Payable with detail listing of
balances due to growers of agricultural commodities.
A-2
<PAGE> 68
The undersigned certifies that the information set out herein and the
Exhibits attached hereto is true and correct in all material respects as of the
status date above. The undersigned further certifies that the figures set out
herein pertain only to Acceptable Accounts, and Acceptable Inventory as those
terms are defined in the Amended and Restated Loan Agreement among United Foods,
Inc., First American National Bank and National Bank of Canada To the best of
the undersigned's knowledge, no Account Debtor is Insolvent.
UNITED FOODS, INC.
By:
-------------------------------------
Title:
----------------------------------
A-3
<PAGE> 69
EXHIBIT "A-1"
(Amended and Restated Revolving Credit Note)
A-1-1
<PAGE> 70
AMENDED AND RESTATED REVOLVING CREDIT NOTE
U.S. $13,000,000.00 Memphis, Tennessee
June , 1999
FOR VALUE RECEIVED, the undersigned, UNITED FOODS, INC., a Delaware
corporation (the "Company"), promises to pay on the Revolving Credit Loan
Maturity Date (hereinafter defined) or such earlier date as may be determined
pursuant to the Loan Agreement (as hereinafter defined) to the order of FIRST
AMERICAN NATIONAL BANK, a national banking association with a place for the
conduct of business in Memphis, Tennessee, (the "Bank"), at the office of the
Bank located at 4894 Poplar Avenue, Memphis, Tennessee 38117, or at such other
office as may be designated by the Bank by written notice to the Company, in
lawful money of the United States of America and in immediately available funds,
the principal amount of the lesser of (a) Thirteen Million Dollars (U.S.
$13,000,000.00) and (b) the sum of (i) the aggregate unpaid principal amount
then outstanding of all Revolving Credit Advances made by the Bank to the
Company pursuant to Section 4.1 of the Loan Agreement, and (ii) the aggregate
unpaid principal amount then outstanding of all Swing Line Loans (as defined in
the Loan Agreement) made by the Bank to the Company pursuant to Section 4.2 of
the Loan Agreement. The Company further agrees to pay interest in like money at
such office on the unpaid principal amount hereof from time to time (whether at
the stated maturity, by acceleration or otherwise) on the dates and at the
applicable rates per annum specified in Sections 4.5 and 4.6 of the Loan
Agreement until paid in full (both before and after judgment). Until the
Revolving Credit Loan Maturity Date the Company may use the Commitment by
borrowing, prepaying the Revolving Credit Loan in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof. For
purposes hereof, the term "Revolving Credit Loan Maturity Date" shall mean
either (i) June 1, 2002, or (ii) such later date to which the Revolving Credit
Loan Maturity Date may be extended as provided in the Loan Agreement.
The holder of this Note is authorized to record the date, type (whether
the Loan is a Prime Rate Loan or a Eurodollar Loan) and amount of each Revolving
Credit Advance made by the Bank pursuant to Section 4.1 of the Loan Agreement,
the date and amount of each payment or prepayment of principal hereof, and the
date of each interest rate conversion pursuant to Section 4.7 of the Loan
Agreement and the principal amount subject thereto, on EXHIBITS "A" AND "B,"
attached hereto and made a part hereof by reference, and any such recordation
shall constitute prima facie evidence of the information so recorded absent
manifest error.
This Note is one of the Amended and Restated Revolving Credit Notes
referred to in the Amended and Restated Loan Agreement of even date herewith
among the Company, the Bank and others therein mentioned and described, (as the
same may from time to time be amended, supplemented or otherwise modified, the
"Loan Agreement"), and is entitled to the benefits thereof and is subject to
optional and mandatory prepayment in whole or in part as provided therein. All
capitalized terms used herein not otherwise defined herein shall have their
respective meanings as defined in the Loan Agreement.
<PAGE> 71
Upon the occurrence of any one or more of the Events of Default
specified in the Loan Agreement, all amounts then remaining unpaid on this Note
shall become, or may be declared to be, immediately due and payable as provided
in the Loan Agreement.
If this Note is placed in the hands of an attorney for collection, by
suit or otherwise, or to protect the security for its payment, or to enforce its
collection, or to represent the rights of the Bank in connection with any loan
documentation executed in connection herewith, or to defend successfully against
any claim, cause of action or suit brought by the Company against the Bank, the
Company shall pay on demand all costs of collection and litigation (including
court costs), together with a reasonable attorney's fee.
The Company and any endorsers or guarantors hereof waive protest,
demand, presentment, and notice of dishonor, and agree that this Note may be
extended, in whole or in part, without limit as to the number of such extensions
or the period or periods thereof, without notice to them and without affecting
their liability thereon.
It is the intention of the Bank and the Company to comply strictly with
applicable usury laws; and, accordingly, in no event and upon no contingency
shall the holder hereof ever be entitled to receive, collect, or apply as
interest any interest, fees, charges or other payments equivalent to interest,
in excess of the maximum effective contract rate which the Bank may lawfully
charge under applicable statutes and laws from time to time in effect; and in
the event that the holder hereof ever receives, collects, or applies as interest
any such excess, such amount which, but for this provision, would be excessive
interest, shall be applied to the reduction of the principal amount of the
indebtedness hereby evidenced; and if the principal amount of the indebtedness
evidenced hereby, all lawful interest thereon and all lawful fees and charges in
connection therewith, are paid in full, any remaining excess shall forthwith be
paid to the Company, or other party lawfully entitled thereto. All interest paid
or agreed to be paid by the Company shall, to the maximum extent permitted under
applicable law, be amortized, prorated, allocated and spread throughout the full
period until payment in full of the principal so that the interest hereon for
such full period shall not exceed the maximum amount permitted by applicable
law. Any provision hereof, or of any other agreement between the holder hereof
and the Company, that operates to bind, obligate, or compel the Company to pay
interest in excess of such maximum effective contract rate shall be construed to
require the payment of the maximum rate only. The provisions of this paragraph
shall be given precedence over any other provision contained herein or in any
other agreement between the holder hereof and the Company that is in conflict
with the provisions of this paragraph.
This Note shall be governed and construed according to the statutes and
laws of the State of Tennessee from time to time in effect, except to the extent
that Section 85 of Title 12 of the United States Code (or other applicable
federal statute) may permit the charging of a higher rate of interest than
applicable state law, in which event such applicable federal statute, as amended
and supplemented from time to time shall govern and control the maximum rate of
interest permitted to be charged hereunder; it being intended that, as to the
maximum rate of interest which may be charged, received, and collected
hereunder, those applicable statutes and laws, whether state or federal, from
time to time in effect, which permit the charging of a higher rate of interest,
shall govern and control; provided, always, however, that in no event and under
no circumstances shall
-2-
<PAGE> 72
the Company be liable for the payment of interest in excess of the maximum rate
permitted by such applicable law, from time to time in effect.
To the extent of Thirteen Million Dollars (U.S. $13,000,000.00), this
Amended and Restated Revolving Credit Note evidences the same indebtedness as
that evidenced by the Revolving Credit Note (the "Note") dated as of April 7,
1993, in the principal amount of Twenty-Three Million Dollars (U.S.
$23,000,000.00) issued by the Company to the Bank, which Note was subsequently
reduced to Eighteen Million Dollars (U.S. $18,000,000.00). To the extent of
Thirteen Million Dollars (U.S. $13,000,000.00), this Amended and Restated
Revolving Credit Note is an amendment to and restatement of the Note. The
execution and delivery of this Amended and Restated Revolving Credit Note does
not constitute payment, cancellation, satisfaction, discharge, release or
novation of the Note or the indebtedness evidenced by the Note, and such Note
shall continue to constitute evidence of such indebtedness.
UNITED FOODS, INC.
By:
--------------------------------------
Title:
-----------------------------------
-3-
<PAGE> 73
EXHIBIT "A"
TO
AMENDED AND RESTATED REVOLVING CREDIT NOTE
================================================================================
PRIME RATE LOANS
REVOLVING CREDIT LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
=======================================================================================================
DATE AMOUNT AMOUNT AMOUNT UNPAID NOTATION
OF OF CONVERTED PRINCIPAL MADE BY
LOANS PRINCIPAL TO EURO- BALANCE
REPAID DOLLAR
LOANS
=======================================================================================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
=======================================================================================================
</TABLE>
A-1
<PAGE> 74
EXHIBIT "B"
TO
AMENDED AND RESTATED REVOLVING CREDIT NOTE
================================================================================
EURODOLLAR LOANS
REVOLVING CREDIT LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
=======================================================================================================
DATE AMOUNT AMOUNT AMOUNT UNPAID NOTATION
OF OF CONVERTED PRINCIPAL MADE BY
LOANS PRINCIPAL TO PRIME BALANCE
REPAID RATE
LOANS
=======================================================================================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
=======================================================================================================
</TABLE>
B-1
<PAGE> 75
EXHIBIT "A-2"
(Revolving Credit Note)
A-2-1
<PAGE> 76
REVOLVING CREDIT NOTE
U.S. $17,000,000.00 Memphis, Tennessee
June , 1999
FOR VALUE RECEIVED, the undersigned, UNITED FOODS, INC., a Delaware
corporation (the "Company"), promises to pay on the Revolving Credit Loan
Maturity Date (hereinafter defined) or such earlier date as may be determined
pursuant to the Loan Agreement (as hereinafter defined) to the order of NATIONAL
BANK OF CANADA, a commercial banking institution organized and existing under
the laws of Canada, with a United States domestic branch office located at 125
W. 55th Street, 23rd Floor, New York, New York 10019 (the "Bank"), at the office
of the Bank located at 125 W. 55th Street, 23rd Floor, New York, New York 10019,
or at such other office as may be designated by the Bank by written notice to
the Company, in lawful money of the United States of America and in immediately
available funds, the principal amount of the lesser of (a) Seventeen Million
Dollars (U.S. $17,000,000.00) and (b) the aggregate unpaid principal amount then
outstanding of all Revolving Credit Advances made by the Bank to the Company
pursuant to Section 4.1 of the Loan Agreement. The Company further agrees to pay
interest in like money at such office on the unpaid principal amount hereof from
time to time (whether at the stated maturity, by acceleration or otherwise) on
the dates and at the applicable rates per annum specified in Sections 4.5 and
4.6 of the Loan Agreement until paid in full (both before and after judgment).
Until the Revolving Credit Loan Maturity Date the Company may use the Commitment
by borrowing, prepaying the Revolving Credit Loan in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof. For
purposes hereof, the term "Revolving Credit Loan Maturity Date" shall mean
either (i) June 1, 2002, or (ii) such later date to which the Revolving Credit
Loan Maturity Date may be extended as provided in the Loan Agreement.
The holder of this Note is authorized to record the date, type (whether
the Loan is a Prime Rate Loan or a Eurodollar Loan) and amount of each Revolving
Credit Advance made by the Bank pursuant to Section 4.1 of the Loan Agreement,
the date and amount of each payment or prepayment of principal hereof, and the
date of each interest rate conversion pursuant to Section 4.7 of the Loan
Agreement and the principal amount subject thereto, on EXHIBITS "A" AND "B,"
attached hereto and made a part hereof by reference, and any such recordation
shall constitute prima facie evidence of the information so recorded absent
manifest error.
This Note is one of the Revolving Credit Notes referred to in the
Amended and Restated Loan Agreement of even date herewith among the Company, the
Bank and others therein mentioned and described (as the same may from time to
time be amended, supplemented or otherwise modified, the "Loan Agreement"), and
is entitled to the benefits thereof and is subject to optional and mandatory
prepayment in whole or in part as provided therein. All capitalized terms used
herein not otherwise defined herein shall have their respective meanings as
defined in the Loan Agreement.
<PAGE> 77
Upon the occurrence of any one or more of the Events of Default
specified in the Loan Agreement, all amounts then remaining unpaid on this Note
shall become, or may be declared to be, immediately due and payable as provided
in the Loan Agreement.
If this Note is placed in the hands of an attorney for collection, by
suit or otherwise, or to protect the security for its payment, or to enforce its
collection, or to represent the rights of the Bank in connection with any loan
documentation executed in connection herewith, or to defend successfully against
any claim, cause of action or suit brought by the Company against the Bank, the
Company shall pay on demand all costs of collection and litigation (including
court costs), together with a reasonable attorney's fee.
The Company and any endorsers or guarantors hereof waive protest,
demand, presentment, and notice of dishonor, and agree that this Note may be
extended, in whole or in part, without limit as to the number of such extensions
or the period or periods thereof, without notice to them and without affecting
their liability thereon.
It is the intention of the Bank and the Company to comply strictly with
applicable usury laws; and, accordingly, in no event and upon no contingency
shall the holder hereof ever be entitled to receive, collect, or apply as
interest any interest, fees, charges or other payments equivalent to interest,
in excess of the maximum effective contract rate which the Bank may lawfully
charge under applicable statutes and laws from time to time in effect; and in
the event that the holder hereof ever receives, collects, or applies as interest
any such excess, such amount which, but for this provision, would be excessive
interest, shall be applied to the reduction of the principal amount of the
indebtedness hereby evidenced; and if the principal amount of the indebtedness
evidenced hereby, all lawful interest thereon and all lawful fees and charges in
connection therewith, are paid in full, any remaining excess shall forthwith be
paid to the Company, or other party lawfully entitled thereto. All interest paid
or agreed to be paid by the Company shall, to the maximum extent permitted under
applicable law, be amortized, prorated, allocated and spread throughout the full
period until payment in full of the principal so that the interest hereon for
such full period shall not exceed the maximum amount permitted by applicable
law. Any provision hereof, or of any other agreement between the holder hereof
and the Company, that operates to bind, obligate, or compel the Company to pay
interest in excess of such maximum effective contract rate shall be construed to
require the payment of the maximum rate only. The provisions of this paragraph
shall be given precedence over any other provision contained herein or in any
other agreement between the holder hereof and the Company that is in conflict
with the provisions of this paragraph.
This Note shall be governed and construed according to the statutes and
laws of the State of Tennessee from time to time in effect, except to the extent
that Section 85 of Title 12 of the United States Code (or other applicable
federal statute) may permit the charging of a higher rate of interest than
applicable state law, in which event such applicable federal statute, as amended
and supplemented from time to time shall govern and control the maximum rate of
interest permitted to be charged hereunder; it being intended that, as to the
maximum rate of interest which may be charged, received, and collected
hereunder, those applicable statutes and laws, whether state or federal, from
time to time in effect, which permit the charging of a higher rate of interest,
shall
-2-
<PAGE> 78
govern and control; provided, always, however, that in no event and under no
circumstances shall the Company be liable for the payment of interest in excess
of the maximum rate permitted by such applicable law, from time to time in
effect.
UNITED FOODS, INC.
By:
--------------------------------------
Title:
-----------------------------------
-3-
<PAGE> 79
EXHIBIT "A"
TO
REVOLVING CREDIT NOTE
================================================================================
PRIME RATE LOANS
REVOLVING CREDIT LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
=======================================================================================================
DATE AMOUNT AMOUNT AMOUNT UNPAID NOTATION
OF OF CONVERTED PRINCIPAL MADE BY
LOANS PRINCIPAL TO EURO- BALANCE
REPAID DOLLAR
LOANS
=======================================================================================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
=======================================================================================================
</TABLE>
A-1
<PAGE> 80
EXHIBIT "B"
TO
REVOLVING CREDIT NOTE
================================================================================
EURODOLLAR LOANS
REVOLVING CREDIT LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
=======================================================================================================
DATE AMOUNT AMOUNT AMOUNT UNPAID NOTATION
OF OF CONVERTED PRINCIPAL MADE BY
LOANS PRINCIPAL TO PRIME BALANCE
REPAID RATE
LOANS
=======================================================================================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
=======================================================================================================
</TABLE>
B-1
<PAGE> 81
EXHIBIT "A-3"
(Amended and Restated Swing Line Note)
A-3-2
<PAGE> 82
AMENDED AND RESTATED
SWING LINE REVOLVING CREDIT NOTE
U.S. $5,000,000.00 Memphis, Tennessee
June , 1999
FOR VALUE RECEIVED, the undersigned, UNITED FOODS, INC., a Delaware
corporation (the "Company"), promises to pay on the Revolving Credit Loan
Maturity Date (hereinafter defined) or such earlier date as may be determined
pursuant to the Loan Agreement (as hereinafter defined) to the order of FIRST
AMERICAN NATIONAL BANK, a national banking association with a place for the
conduct of business in Memphis, Tennessee, (the "Bank"), at the office of the
Bank located at 4894 Poplar Avenue, Memphis, Tennessee 38117, or at such other
office as may be designated by the Bank by written notice to the Company, in
lawful money of the United States of America and in immediately available funds,
the principal amount of the lesser of (a) Five Million Dollars (U.S.
$5,000,000.00) and (b) the sum of (i) the aggregate unpaid principal amount then
outstanding of all advances under the Swing Line Loan made by the Bank to the
Company pursuant to Section 4.2 of the Loan Agreement. The Company further
agrees to pay interest in like money at such office on the unpaid principal
amount hereof from time to time (whether at the stated maturity, by acceleration
or otherwise) on the dates and at a per annum rate equal to the Prime Rate (as
defined in the Loan Agreement) until paid in full (before judgment), and at the
default rate specified in the Loan Agreement (after judgment). Until the
Revolving Credit Loan Maturity Date the Company may use the Commitment by
borrowing, prepaying the Revolving Credit Loan in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof. For
purposes hereof, the term "Revolving Credit Loan Maturity Date" shall mean
either (i) June 1, 2002, or (ii) such later date to which the Revolving Credit
Loan Maturity Date may be extended as provided in the Loan Agreement.
The holder of this Note is authorized to record the date and amount of
each advance under the Swing Line Loan made by the Bank pursuant to Section 4.2
of the Loan Agreement, the date and amount of each payment or prepayment of
principal hereof and the principal amount subject thereto, on EXHIBIT "A,"
attached hereto and made a part hereof by reference, and any such recordation
shall constitute prima facie evidence of the information so recorded absent
manifest error.
This Note is of the Swing Line Note referred to in the Amended and
Restated Loan Agreement of even date herewith among the Company, the Bank and
others therein mentioned and described, (as the same may from time to time be
amended, supplemented or otherwise modified, the "Loan Agreement"), and is
entitled to the benefits thereof and is subject to optional and mandatory
prepayment in whole or in part as provided therein. All capitalized terms used
herein not otherwise defined herein shall have their respective meanings as
defined in the Loan Agreement.
Upon the occurrence of any one or more of the Events of Default
specified in the Loan Agreement, all amounts then remaining unpaid on this Note
shall become, or may be declared to be, immediately due and payable as provided
in the Loan Agreement.
If this Note is placed in the hands of an attorney for collection, by
suit or otherwise, or to protect the security for its payment, or to enforce its
collection, or to represent the rights of the Bank
<PAGE> 83
in connection with any loan documentation executed in connection herewith, or to
defend successfully against any claim, cause of action or suit brought by the
Company against the Bank, the Company shall pay on demand all costs of
collection and litigation (including court costs), together with a reasonable
attorney's fee.
The Company and any endorsers or guarantors hereof waive protest,
demand, presentment, and notice of dishonor, and agree that this Note may be
extended, in whole or in part, without limit as to the number of such extensions
or the period or periods thereof, without notice to them and without affecting
their liability thereon.
It is the intention of the Bank and the Company to comply strictly with
applicable usury laws; and, accordingly, in no event and upon no contingency
shall the holder hereof ever be entitled to receive, collect, or apply as
interest any interest, fees, charges or other payments equivalent to interest,
in excess of the maximum effective contract rate which the Bank may lawfully
charge under applicable statutes and laws from time to time in effect; and in
the event that the holder hereof ever receives, collects, or applies as interest
any such excess, such amount which, but for this provision, would be excessive
interest, shall be applied to the reduction of the principal amount of the
indebtedness hereby evidenced; and if the principal amount of the indebtedness
evidenced hereby, all lawful interest thereon and all lawful fees and charges in
connection therewith, are paid in full, any remaining excess shall forthwith be
paid to the Company, or other party lawfully entitled thereto. All interest paid
or agreed to be paid by the Company shall, to the maximum extent permitted under
applicable law, be amortized, prorated, allocated and spread throughout the full
period until payment in full of the principal so that the interest hereon for
such full period shall not exceed the maximum amount permitted by applicable
law. Any provision hereof, or of any other agreement between the holder hereof
and the Company, that operates to bind, obligate, or compel the Company to pay
interest in excess of such maximum effective contract rate shall be construed to
require the payment of the maximum rate only. The provisions of this paragraph
shall be given precedence over any other provision contained herein or in any
other agreement between the holder hereof and the Company that is in conflict
with the provisions of this paragraph.
This Note shall be governed and construed according to the statutes and
laws of the State of Tennessee from time to time in effect, except to the extent
that Section 85 of Title 12 of the United States Code (or other applicable
federal statute) may permit the charging of a higher rate of interest than
applicable state law, in which event such applicable federal statute, as amended
and supplemented from time to time shall govern and control the maximum rate of
interest permitted to be charged hereunder; it being intended that, as to the
maximum rate of interest which may be charged, received, and collected
hereunder, those applicable statutes and laws, whether state or federal, from
time to time in effect, which permit the charging of a higher rate of interest,
shall govern and control; provided, always, however, that in no event and under
no circumstances shall the Company be liable for the payment of interest in
excess of the maximum rate permitted by such applicable law, from time to time
in effect.
To the extent of Five Million Dollars (U.S. $5,000,000.00), this
Amended and Restated Revolving Credit Note evidences the same indebtedness as
that evidenced by the Revolving Credit Note (the "Note") dated as of April 7,
1993, in the principal amount of Twenty-Three Million Dollars (U.S.
$23,000,000.00) issued by the Company to the Bank, which Note was subsequently
-2-
<PAGE> 84
reduced to Eighteen Million Dollars (U.S. $18,000,000.00). To the extent of Five
Million Dollars (U.S. $5,000,000.00), this Amended and Restated Revolving Credit
Note is an amendment to and restatement of the Note. The execution and delivery
of this Amended and Restated Revolving Credit Note does not constitute payment,
cancellation, satisfaction, discharge, release or novation of the Note or the
indebtedness evidenced by the Note, and such Note shall continue to constitute
evidence of such indebtedness.
UNITED FOODS, INC.
By:
--------------------------------------
Title:
-----------------------------------
-3-
<PAGE> 85
EXHIBIT "A"
TO
SWING LINE REVOLVING CREDIT NOTE
================================================================================
PRIME RATE LOANS
REVOLVING CREDIT LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
=======================================================================================================
DATE AMOUNT AMOUNT AMOUNT UNPAID NOTATION
OF OF CONVERTED PRINCIPAL MADE BY
LOANS PRINCIPAL TO EURO- BALANCE
REPAID DOLLAR
LOANS
=======================================================================================================
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
=======================================================================================================
</TABLE>
A-1
<PAGE> 86
EXHIBIT "B-1"
(Annual Non-Default Certificate)
ANNUAL NON-DEFAULT CERTIFICATE
The undersigned, a duly authorized officer of United Foods, Inc., a
Delaware corporation [referred to as "Borrower" in that certain Amended and
Restated Loan Agreement (the "Loan Agreement") dated June _____, 1999, among
Borrower, First American National Bank, and National Bank of Canada
(collectively, "Lender")], certifies to Lender, in accordance with the terms and
provisions of the Loan Agreement, as follows:
1. All of the representations and warranties set forth in Section 5 of
the Loan Agreement are and remain true and correct on and as of the date of this
Certificate with the same effect as though such representations and warranties
had been made on and as of this date.
2. As of the date hereof, the Borrower is in full compliance with all
of the terms and provisions set forth in the Loan Agreement and all of the
instruments and documents executed in connection therewith, and no Event of
Default, as specified in Section 7 of the Loan Agreement, nor any event which,
upon notice, lapse of time or both, would constitute an Event of Default, has
occurred or is continuing.
3. The financial statements that accompany this Certificate are
complete and correct in all material respects and have been prepared in
reasonable detail in accordance with GAAP consistently applied throughout the
periods reflected therein (except as disclosed therein).
4. Attached hereto and incorporated herein by reference is a statement
of calculations supporting the letter of the Reporting Accountants (as defined
in the Loan Agreement), with respect to the Borrower's compliance with the
covenants set forth in Sections 6.1(l) through (o) of the Loan Agreement.
DATED this _____ day of _________________, _____.
UNITED FOODS, INC.
By:
--------------------------------------
Title:
-----------------------------------
B-1-1
<PAGE> 87
EXHIBIT "B-2"
(Quarterly Non-Default Certificate)
QUARTERLY NON-DEFAULT CERTIFICATE
The undersigned, a duly authorized officer of United Foods, Inc., a
Delaware corporation [referred to as "Borrower" in that certain Amended and
Restated Loan Agreement (the "Loan Agreement") dated June _____, 1999, among
Borrower, First American National Bank, and National Bank of Canada
(collectively, "Lender")], certifies to Lender, in accordance with the terms and
provisions of the Loan Agreement, as follows:
1. All of the representations and warranties set forth in Section 5 of
the Loan Agreement are and remain true and correct on and as of the date of this
Certificate with the same effect as though such representations and warranties
had been made on and as of this date.
2. As of the date hereof, the Borrower is in full compliance with all
of the terms and provisions set forth in the Loan Agreement and all of the
instruments and documents executed in connection therewith, and no Event of
Default, as specified in Section 7 of the Loan Agreement, nor any event which,
upon notice, lapse of time or both, would constitute an Event of Default, has
occurred or is continuing.
3. The financial statements that accompany this Certificate are
complete and correct in all material respects and have been prepared in
reasonable detail in accordance with GAAP consistently applied throughout the
periods reflected therein (except as disclosed therein, and except for normal
year end audit or quarterly adjustments).
4. Attached hereto and incorporated herein by reference is a statement
of calculations supporting this Certificate, with respect to the Borrower's
compliance with the covenants set forth in Section 6.1(m) of the Loan Agreement.
DATED this _____ day of _________________, _____.
UNITED FOODS, INC.
By:
--------------------------------------
Title:
-----------------------------------
B-2-1
<PAGE> 88
EXHIBIT "B-3"
(Monthly Non-Default Certificate)
MONTHLY NON-DEFAULT CERTIFICATE
The undersigned, a duly authorized officer of United Foods, Inc., a
Delaware corporation [referred to as "Borrower" in that certain Amended and
Restated Loan Agreement (the "Loan Agreement") dated June _____, 1999, among
Borrower, First American National Bank, and National Bank of Canada
(collectively, "Lender")], certifies to Lender, in accordance with the terms and
provisions of the Loan Agreement, as follows:
1. All of the representations and warranties set forth in Section 5 of
the Loan Agreement are and remain true and correct on and as of the date of this
Certificate with the same effect as though such representations and warranties
had been made on and as of this date.
2. As of the date hereof, the Borrower is in full compliance with all
of the terms and provisions set forth in the Loan Agreement and all of the
instruments and documents executed in connection therewith, and no Event of
Default, as specified in Section 7 of the Loan Agreement, nor any event which,
upon notice, lapse of time or both, would constitute an Event of Default, has
occurred or is continuing.
3. The financial statements that accompany this Certificate are
complete and correct in all material respects and have been prepared in
reasonable detail in accordance with GAAP consistently applied throughout the
periods reflected therein (except as disclosed therein, and except for normal
year end audit and quarterly adjustments).
DATED this _____ day of ______________, _____.
UNITED FOODS, INC.
By:
--------------------------------------
Title:
-----------------------------------
B-3-1
<PAGE> 89
AMENDED AND RESTATED SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT (the "Agreement"), made
and entered into this 30th day of June, 1999, by UNITED FOODS, INC., a Delaware
corporation whose address is Ten Pictsweet Drive, Bells, Tennessee 38006-0119
(the "Grantor"), to FIRST AMERICAN NATIONAL BANK, a national banking association
whose address is 4894 Poplar Avenue, Memphis, Tennessee 38117 ("FANB"), as Agent
(the "Agent") for itself as a lender and for the other lender, NATIONAL BANK OF
CANADA, a commercial banking institution organized and existing under the laws
of Canada, with a United States domestic branch office located at 125 W. 55th
Street, 23rd Floor, New York, New York 10019 ("NBC") (FANB and NBC sometimes
collectively referred to herein as the "Lenders");
W I T N E S S E T H:
That for good and valuable considerations, the receipt and sufficiency
of which are hereby acknowledged, the Grantor hereby agrees with the Agent for
the ratable benefit of the Lenders, as follows:
1. DEFINITIONS. (a) Reference is made to that certain Amended and
Restated Loan Agreement (the "Loan Agreement") of even date herewith among the
Grantor, FANB, and NBC, said Loan Agreement being incorporated herein by
reference. All terms used in this Agreement which are defined in the Loan
Agreement or in the Uniform Commercial Code of the State of Tennessee (the
"Code") and which are not otherwise defined herein shall have the same meanings
herein as set forth therein.
(b) The term "Event of Default" shall have the meaning set out in
Article 7 of the Loan Agreement.
2. GRANT OF SECURITY INTEREST. As collateral security for all of the
Obligations (as defined in Section 3 hereof), the Grantor hereby pledges and
assigns to the Agent for the ratable benefit of the Lenders, and grants to the
Agent for the ratable benefit of the Lenders a continuing security interest in,
the following (the "Collateral"):
(a) All of the Grantor's inventory in all of its forms,
wherever located and whether now or hereafter existing, and all
accessions thereto and products thereof, including, but not limited to,
(i) all growing crops, packaging materials, raw materials and work in
process, finished goods, and materials used or consumed in the
manufacture or production thereof, (ii) goods in which the Grantor has
an interest in mass or a joint or other interest or right of any kind
(including, without limitation,
<PAGE> 90
goods in which the Grantor has an interest or right as consignee),
(iii) goods which are returned to or repossessed by the Grantor, and
(iv) all accessions thereto and all products thereof and all warehouse
receipts, bills of lading and other documents of title evidencing or
representing any part thereof, but excluding the Mushroom Inventory
(collectively hereinafter referred to as "Inventory");
(b) All farm products in all of their respective forms,
wherever located, now or hereafter existing, including but not limited
to (i) all agricultural supplies used or consumed in the operations of
the Grantor, including without limitation all chemicals used in
maintaining, growing, preserving or producing any such farm products,
and (ii) all accessions to and products of and documents for any of the
foregoing, but excluding the Mushroom Farm Products (any and all such
farm products, accessions, products and documents being hereinafter
called the "Farm Products");
(c) All of the Grantor's accounts, accounts receivable,
contract rights, chattel paper, instruments, general intangibles and
other obligations of any kind (including, without limitation,
payment-in-kind certificates, rights to any government subsidy, set
aside, diversion, deficiency or disaster payment, and
payments-in-kind), whether or not evidenced by an instrument or chattel
paper, and whether or not it has been earned by performance
(collectively hereinafter referred to as "Accounts Receivable" or
"Receivables"), whether now or hereafter existing, whether or not
arising out of or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing in and
to all security agreements, leases, and other contracts securing or
otherwise relating to any such Accounts Receivable, but excluding the
Mushroom Receivables;
(d) All future contracts and funds, margin accounts and other
property of any kind relating to such futures contracts, funds and
margin accounts, including, without limitation, any balance credited to
any margin account upon closing, excluding those relating to the
Mushroom Collateral;
(e) All mortgages, deeds to secure debt and deeds of trust on
real or personal property, guaranties, leases, security agreements, and
other agreements and property which secure or relate to the Collateral,
or are acquired for the purpose of securing and enforcing any item
thereof;
(f) All documents of title, instruments, policies and
certificates of insurance, securities, chattel paper, and other
documents and instruments evidencing or pertaining to any and all items
of Collateral;
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(g) All books, records, files, correspondence, computer
programs, tapes, discs and related data processing software which
contain information identifying or pertaining to any of the Accounts
Receivable or any account debtor, or showing the amounts thereof or
payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof;
(h) All lock boxes and deposit accounts maintained by the
Grantor with any financial institution relating to or into which any
proceeds of the Collateral are collected, deposited or maintained; and
(i) All proceeds ("Proceeds") of any and all of the foregoing
Collateral and, to the extent not otherwise included, all payments
under insurance (whether or not the Lenders are, or either FANB or NBC
is, the loss payee thereof), any indemnity, warranty, or guaranty,
payable by reason of loss or damage to or otherwise with respect to any
of the foregoing Collateral, and including, without limitation, all
moneys due or to become due in connection with any of the Collateral,
guaranties and security for the payment of such moneys, the right of
stoppage in transit, and all returned or repossessed goods arising from
a sale or lease thereof. (Although proceeds are covered, the Agent does
not authorize the sale or other transfer of any of the Collateral or
the transfer of any interest in the Collateral, except for the sale of
goods in the ordinary course of Grantor's business);
in each case, whether now owned or hereafter acquired by the Grantor and
howsoever Grantor's interest therein may arise or appear (whether by ownership,
lease, security interest, claim, or otherwise). The Collateral described in
subparagraph(s) (a) and (b) of this Section, and the products thereof, are
sometimes hereinafter called the "Tangible Collateral."
3. SECURITY FOR OBLIGATIONS. The security interest created hereby in
the Collateral constitutes continuing collateral security for all of the
following obligations, whether now existing or hereafter incurred (the
"Obligations"):
(a) The full and prompt payment when due of the indebtednesses
evidenced by that certain Amended and Restated Revolving Credit Note of
even date herewith, in the principal sum of Thirteen Million Dollars
($13,000,000.00) executed by Grantor and payable to the order of FANB,
and any and all renewals, modifications and extensions thereof, in
whole or in part; and
(b) The full and prompt payment when due of the indebtednesses
evidenced by that certain Revolving Credit Note of even date herewith,
in the principal sum of Seventeen Million Dollars ($17,000,000.00)
executed by Grantor and payable to the
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order of NBC, and any and all renewals, modifications and extensions
thereof, in whole or in part; and
(c) The full and prompt payment when due of the indebtednesses
evidenced by that certain Swing Line Note, of even date herewith, in
the principal sum of Five Million Dollars ($5,000,000.00), executed by
Grantor and payable to the order of FANB, and any and all renewals,
modifications and extensions thereof, in whole or in part; and
(d) The due performance and observance by the Grantor of all
of its covenants, agreements, representations, liabilities,
obligations, and undertakings as set forth herein, or in the Loan
Agreement (as the same may be modified renewed or extended from time to
time), or in any other instrument or document which now or at any time
hereafter evidences or secures all or any part of the Obligations
hereby secured;
howsoever and whensoever arising, whether absolute or contingent, joint or
several, matured or unmatured, direct or indirect, primary or secondary, and
including without limitation, all future advances to the Grantor, all
liabilities of the Grantor under any guaranty executed in favor of the Agent
and/or the Lenders at any time and all obligations of the Grantor with respect
to any letters of credit issued at any time by the Lenders or by either of the
Lenders for the benefit of Grantor.
4. REPRESENTATIONS AND WARRANTIES. The Grantor represents and warrants
as follows:
(a) Except for Inventory in transit and Inventory that is temporarily
stored elsewhere as permitted in Section 6.1(r) of the Loan Agreement, all
Tangible Collateral now existing is, and all Tangible Collateral hereafter
existing will be, located at the addresses specified in Schedule 5.15 to the
Loan Agreement, as said Schedule 5.15 may be supplemented and amended from time
to time in accordance with Section 5(b) hereof. The Grantor's chief place of
business and chief executive office, the place where the Grantor keeps Grantor's
records concerning Accounts Receivable and all originals of all chattel paper
which constitute Accounts Receivable are located at the address specified for
the Grantor in the initial paragraph hereof. Except as listed in Schedule III
attached hereto and made a part hereof by reference (as said Schedule III may be
supplemented from time to time), none of the Accounts Receivable is evidenced by
a promissory note or other instrument.
(b) To the best of Grantor's knowledge, the Grantor owns the Collateral
free and clear of any lien, security interest or other charge or encumbrance
except for the security interest created by this Agreement and except for
Permitted Exceptions, and except for the financing statements filed in favor of
Agent for the ratable benefit of the Lenders relating to this Agreement or
relating to the Permitted Exceptions, no other financing statement or other
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instrument similar in effect covering all or any part of the Collateral is on
file in any recording office.
(c) The exercise by Agent of its rights and remedies hereunder will not
contravene any law or governmental regulation or any contractual restriction
binding on or affecting the Grantor or any of Grantor's properties and will not
result in or require the creation of any lien, security interest or other charge
or encumbrance upon or with respect to any of the Grantor's properties.
(d) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or other regulatory body is required
either for the grant by the Grantor of the security interest created hereby in
the Collateral or for the exercise by Agent of its rights and remedies
hereunder, except for the filing of appropriate UCC-1 financing statements (the
"Financing Statements") as required by the Code (or comparable laws in
jurisdictions other than Tennessee) to perfect the Agent's security interest in
the Collateral.
(e) This Agreement creates a valid security interest in favor of the
Agent in the Collateral. The taking possession by the Agent of all instruments
and chattel paper constituting Collateral from time to time and the filing of
the Financing Statements with the various filing offices as described in
Schedule I attached hereto and made a part hereof by reference will perfect and
establish the first priority of the Agent's security interest hereunder in the
Collateral, subject to no other liens and encumbrances, except for Permitted
Exceptions. Except as set forth in this Section 4(e), no other action is
necessary or desirable to perfect or otherwise protect such security interest.
(f) All names under which Grantor presently does business are set forth
in Schedule II attached hereto and made a part hereof by reference, as
supplemented from time to time to include new names under which Grantor proposes
to do business.
5. COVENANTS AS TO THE COLLATERAL. So long as any of the Obligations
shall remain outstanding, unless the Agent shall otherwise consent in writing:
(a) Further Assurances. The Grantor will at Grantor's expense, at any
time and from time to time, promptly execute and deliver all further instruments
and documents and take all further action that the Agent deems necessary or
desirable or that the Agent may request in order (i) to perfect and protect the
security interest created or purported to be created hereby; (ii) to enable the
Agent to exercise and enforce its rights and remedies hereunder in respect of
the Collateral; or (iii) to otherwise effect the purposes of this Agreement,
including, without limitation: (A) executing and filing such financing or
continuation statements, or amendments thereto, as the Agent deems necessary or
desirable or that the Agent may request in order to perfect and preserve the
security interest created or purported to be created hereby;
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(B) furnishing to the Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Agent may reasonably request, all in reasonable
detail; (C) marking conspicuously each chattel paper included in the Accounts
Receivable and, at the request of the Agent, each of its records pertaining to
the Accounts Receivable with a legend, in form and substance satisfactory to the
Agent, indicating that such chattel paper is subject to the security interest
created hereby; (D) if any Account Receivable shall be evidenced by a promissory
note or other instrument or chattel paper, delivering and pledging to the
Lenders hereunder such note, instrument or chattel paper duly endorsed and
accompanied by executed instruments of transfer or assignment, all in form and
substance satisfactory to the Agent; and (E) if any Inventory shall be
represented by a negotiable warehouse receipt or other negotiable document of
title, delivering such warehouse receipt or other document to the Agent duly
endorsed or assigned to the Lenders or to the Agent for the ratable benefit of
the Lenders, all in form and substance satisfactory to the Agent.
(b) Location of Tangible Collateral. The Grantor will keep all of the
Tangible Collateral, both now owned and hereafter acquired, at the locations set
forth in Schedule 5.15 to the Loan Agreement, or at such other location or
locations as permitted under Section 6.1(r) of the Loan Agreement and Grantor
shall immediately upon request of the Agent execute such additional financing
statements as the Agent deems necessary or desirable to perfect the Lenders'
security interest created or purported to be created hereby with respect to such
additional location(s).
(c) Taxes. The Grantor will pay promptly before delinquent all property
and other taxes, assessments, and governmental charges or levies imposed upon,
and all claims (including claims for labor, materials, and supplies) against,
the Collateral, except to the extent the validity thereof is being contested
diligently and in good faith by proper proceedings and adequate reserves are set
aside to pay the tax or assessment and any interest charges or penalties
associated therewith.
(d) Insurance. The Grantor will, at Grantor's own expense, maintain
such insurance with respect to the Inventory as is required in Section 6.1(q) of
the Loan Agreement.
(e) As to Receivables.
(i) The Grantor will (A) keep Grantor's chief place of
business and chief executive office and the office where Grantor keeps
Grantor's records concerning Accounts Receivable, and all originals of
all chattel paper which constitute Accounts Receivable at the
location(s) specified in paragraph 5(b) hereof or at such other
locations as Grantor shall elect after giving sixty (60) days prior
written notice to the Agent of such new locations, and (B) hold and
preserve its records concerning the
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<PAGE> 95
Receivables and such chattel paper and permit representatives of the
Agent at any time during normal business hours to inspect and make
copies of or abstracts from such records and chattel paper.
(ii) The Grantor will, except as otherwise provided in this
paragraph (ii), continue to collect, at Grantor's own expense, all
amounts due or to become due under the Receivables. In connection with
such collections, the Grantor will take such action as the Grantor may
deem necessary or advisable to enforce collection or performance of the
Receivables, provided, however, that the Agent shall have the right at
any time, upon the occurrence and during the continuance of an Event of
Default or in the event that the Total Exposure shall at any time
exceed the Lenders' maximum Commitment under Section 4.1(a), and the
Grantor shall fail to make a principal payment within three (3)
Business Days thereof the effect of which shall be to reduce the Total
Exposure to not more than such maximum Commitment, to notify the
account debtors or obligors under any Receivables of the assignment of
such Receivables to the Lenders or to the Agent for the ratable benefit
of the Lenders and to direct such account debtors or obligors to make
payment of all amounts due or to become due to the Grantor thereunder
directly to the Agent for the ratable benefit of the Lenders and, upon
such notification and at the expense of the Grantor and to the extent
permitted by law, to enforce collection of any such Receivables and to
adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as the Grantor might have done. Upon and
after the giving of such notification, (A) all amounts and proceeds
(including instruments) received by the Grantor in respect of the
Receivables shall be received in trust for the benefit of the Lenders
hereunder, shall be segregated from other funds of the Grantor and
shall be forthwith paid over to the Agent in the same form as so
received (with any necessary indorsement) to be held as cash collateral
and either (1) released to the Grantor so long as no Event of Default
shall have occurred and be continuing or (2) if any Event of Default
shall have occurred and be continuing, applied as specified in Section
7(b) hereof, and (B) the Grantor will not adjust, settle or compromise
the amount of payment of any Receivable or release wholly or partly any
account debtor or obligor thereof or allow any credit or discount
thereon.
(f) Transfers and Other Liens. Without the prior written consent of
Agent, the Grantor will not (i) sell, assign (by operation of law or otherwise),
exchange, or otherwise dispose of any of the Collateral (except for sale or
other use of inventory in the ordinary course of business); or (ii) create or
suffer to exist any lien, security interest or other charge or encumbrance upon
or with respect to any of the Collateral except for the security interest
created by this Agreement and except for Permitted Exceptions.
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<PAGE> 96
(g) Condition of Collateral. The Grantor will promptly furnish to the
Agent a statement respecting any material loss or damage to any of the Tangible
Collateral.
(h) Field Warehouse Arrangement. Unless the Agent shall otherwise
consent, Grantor will at its own expense continue in force and effect and comply
with and operate under its existing field warehouse arrangements and future
warehousing arrangements of which the Grantor has notified the Agent, providing
for the warehousing of Grantor's Inventory.
6. ADDITIONAL PROVISIONS CONCERNING THE COLLATERAL. (a) The Grantor
hereby authorizes Agent to file, without the signature of the Grantor where
permitted by law, one or more financing or continuation statements, and
amendments thereto, relating to the Collateral.
(b) The Grantor hereby irrevocably appoints Agent the Grantor's
attorney-in-fact and proxy, with full authority in the place and stead of the
Grantor and in the name of the Grantor or otherwise, from time to time in the
Agent's discretion, to file one or more financing or continuation statements,
and amendments thereto, relating to the Collateral and, otherwise following an
Event of Default, to take any action and to execute any instrument which the
Agent may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation: (i) to obtain and adjust insurance
required to be paid to Agent pursuant to Section 5(d) hereof; (ii) to ask,
demand, collect, sue for, recover, compound, receive, and give acquittance and
receipts for moneys due and to become due under or in respect of any of the
Collateral; (iii) to receive, endorse, and collect any checks, drafts or other
instruments, documents, and chattel paper in connection with clause (i) or (ii)
above; and (iv) to file any claims or take any action or institute any
proceedings which Agent may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce the rights of Agent with respect
to any of the Collateral. Grantor hereby ratifies and approves all acts of said
attorney; and so long as the attorney acts in good faith and without gross
negligence it shall have no liability to Grantor for any act or omission as such
attorney.
(c) If the Grantor fails to perform any agreement contained herein,
Agent may itself perform, or cause performance of, such agreement or obligation,
and the expenses of Agent incurred in connection therewith shall be payable by
the Grantor under Section 9 hereof, and shall be fully secured hereby.
(d) The powers conferred on Agent hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise any
such powers. Except for the safe custody of any Collateral in its possession and
the accounting for moneys actually received by it hereunder, Agent shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral.
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(e) Anything herein to the contrary notwithstanding, (i) the Grantor
shall remain liable under any contracts and agreements included in or relating
to the Collateral to the extent set forth therein to perform all of the
Grantor's obligations thereunder to the same extent as if this Agreement had not
been executed; (ii) the exercise by Agent of any of its rights hereunder shall
not release the Grantor from any of the Grantor's duties or obligations under
the contracts and agreements included in or relating to the Collateral; and
(iii) Agent shall not have any obligation or liability by reason of this
Agreement under any contracts and agreements included in or relating to the
Collateral, nor shall Agent be obligated to perform any of the obligations or
duties of the Grantor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
7. REMEDIES UPON DEFAULT. If an Event of Default shall have occurred:
(a) Agent may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the Code (whether or
not the Code applies to the affected Collateral), and also may (i) require the
Grantor to, and the Grantor hereby agrees that the Grantor will at the Grantor's
expense and upon request of Agent forthwith, assemble all or part of the
Collateral as directed by Agent and make it available to Agent at a place to be
designated by Agent which is reasonably convenient to both parties; and (ii)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels or lots at public or private sale, at any of
Agent's offices or elsewhere, for cash, on credit or for future delivery, and at
such price or prices and upon such other terms as Agent may deem commercially
reasonable. The Grantor agrees that, to the extent notice of sale shall be
required by law, at least five (5) Business Days' notice to the Grantor of the
time and place of any public sale or the time after which any private sale is to
be made shall constitute reasonable notification. Agent shall not be obligated
to make any sale of Collateral regardless of notice of sale having been given.
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
(b) Any cash held by Agent as Collateral and all cash proceeds received
by Agent in respect of any sale of, collection from, or other realization upon,
all or any part of the Collateral under the provisions of the Code or this
Agreement shall be applied as follows:
(i) First, to the repayment of the reasonable costs and
expenses, including reasonable attorneys' fees and legal expenses,
incurred by Agent in connection with (A) the administration of this
Agreement, (B) the custody, preservation, use, or operation of, or the
sale of, collection from, or other realization upon, any Collateral,
(C) the exercise or enforcement of any of the rights of Agent
hereunder, or (D) the failure of the Grantor to perform or observe any
of the provisions hereof;
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(ii) Second, at the option of Agent, to the payment or other
satisfaction of any liens and other encumbrances upon any of the
Collateral;
(iii) Third, to the reimbursement of Agent for the amount of
any obligations of the Grantor paid or discharged by Agent pursuant to
the provisions of this Agreement, and of any expenses of Agent payable
by the Grantor hereunder;
(iv) Fourth, to the satisfaction of the Obligations, in such
order as Agent shall elect;
(v) Fifth, to the satisfaction of any other indebtedness of
the Grantor to Lenders;
(vi) Sixth, to the payment of any other amounts required by
applicable law [including, without limitation, Section 47-9-504(1)(c)
the Code or any successor or similar, applicable statutory provision];
and
(vii) Seventh, the surplus proceeds, if any, to the Grantor or
to whomsoever shall be lawfully entitled to receive the same or as a
court of competent jurisdiction shall direct.
(c) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Agent or the
Lenders is legally entitled, the Grantor shall be liable for the deficiency,
together with interest thereon at such rate(s) as shall be fixed by
instrument(s) evidencing the Obligation(s) with respect to which such deficiency
exists, together with the costs of collection and the reasonable fees of any
attorneys employed by Agent to collect such deficiency.
8. RIGHTS AND DUTIES OF AGENT, ETC. Agent undertakes, as to this
Agreement, to exercise only such duties as are specifically set forth in this
Agreement and to exercise such of the rights, powers and remedies as are vested
in it by this Agreement or by law. In any instance hereunder where Agent's
approval or consent is required or the exercise of Agent's judgment is required,
the granting or denial of such approval or consent and the exercise of such
judgment shall be within the sole discretion of Agent, and Agent shall not, for
any reason or to any extent, be required to grant such approval or consent or
exercise such judgment. Agent may consult with counsel, and the written advice
or opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
9. INDEMNITY AND EXPENSES. (a) The Grantor agrees to indemnify Agent
from and against any and all claims, losses, and liabilities growing out of or
resulting from this
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Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses, or liabilities resulting solely and directly from Agent's gross
negligence or willful misconduct.
(b) The Grantor will upon demand pay to Agent the amount of any and all
reasonable costs and expenses, including the fees and disbursements of the
Agent's counsel and of any experts and Agents, which Agent may incur in
connection with (i) the administration of this Agreement (excluding the salary
of Agent's employees and Agent's normal and usual overhead expenses); (ii) the
custody, preservation, use, or operation of, or the sale of, collection from, or
other realization upon, any Collateral; (iii) the exercise or enforcement of any
of the rights of Agent hereunder; or (iv) the failure by the Grantor to perform
or observe any of the provisions hereof, except expenses resulting solely and
directly from Agent's gross negligence or willful misconduct.
10. NOTICES, ETC. All notices and other communications provided for
hereunder shall be in writing and shall be mailed, certified mail, return
receipt requested, if to Grantor, to Grantor at United Foods, Inc., Ten
Pictsweet Drive, Bells, Tennessee 38006-0119, Attention: C.W. Gruenewald, II,
Senior Vice-President; if to Agent, to it at First American National Bank, 4894
Poplar Avenue, Memphis, Tennessee 38117, Attention: Jonathan C. Tutor,
Vice-President; or as to any such person to such other address as shall be
designated by such person in a written notice to the other party complying as to
delivery with the terms of this Section 10. All such notices and other
communications shall be effective (i) if mailed, when received or three (3) days
after mailing, whichever is earlier; or (ii) if delivered, upon delivery. All
required notices to Lenders may be satisfied by delivering notice to Agent.
11. SECURITY INTEREST ABSOLUTE. All rights of Agent, all security
interests and all Obligations of the Grantor hereunder shall be absolute and
unconditional irrespective of: (i) any lack of validity or enforceability of the
Loan Agreement, or any other agreement or instrument relating thereto; (ii) any
change in the time, manner, or place of payment of, or in any other term in
respect of, all or any of the Obligations, or any other amendment or waiver of
or consent to any departure from this Agreement, the Loan Agreement, or any
other agreement or instrument relating thereto; (iii) any increase in, addition
to, or exchange, release, or non-perfection of, any other collateral, or any
release or amendment or waiver of or consent to departure from any guaranty, for
all or any of the Obligations; (iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Grantor in respect of
the Obligations or this Agreement; or (v) the absence of any action on the part
of Agent to obtain payment or performance of the Obligations from the Grantor or
any other party.
12. MISCELLANEOUS. (a) No amendment of any provision of this Agreement
shall be effective unless it is in writing and signed by the Grantor and Agent,
and no waiver of any
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provision of this Agreement, and no consent to any departure by the Grantor
therefrom, shall be effective unless it is in writing and signed by Agent, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
(b) No failure on the part of Agent to exercise, and no delay in
exercising, any right hereunder or under any other instrument or document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of Agent provided herein and in the other
instruments and documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of Agent under
the Loan Agreement, any other instrument which now or hereafter evidences or
secures all or part of the Obligations, or any related document against any
party thereto are not conditional or contingent on any attempt by Agent to
exercise any of its rights under any other such instrument or document against
such party or against any other party.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or invalidity without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the payment in
full of the Obligations, (ii) be binding on the Grantor and the Grantor's
successors and permitted assigns and shall inure, together with all rights and
remedies of Agent hereunder, to the benefit of Agent and its respective
successors, transferees, and assigns. None of the rights or obligations of the
Grantor hereunder may be assigned or otherwise transferred without the prior
written consent of Agent.
(e) Upon the satisfaction in full of the Obligations, Agent will, upon
the Grantor's request and at the Grantor's expense, (i) return to the Grantor
such of the Collateral as shall not have been sold or otherwise disposed of or
applied pursuant to the terms hereof; and (ii) execute and deliver to the
Grantor such documents as the Grantor shall reasonably request to evidence
termination of the security interest herein granted.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of Tennessee, except as required by mandatory
provisions of law and except to the extent that the validity or perfection of
the security interest created hereby, or remedies hereunder, in respect of any
particular Collateral are governed by the laws of a jurisdiction other than the
State of Tennessee. If any provision hereof is in conflict with the provisions
of the Loan Agreement, the provisions of the Loan Agreement shall control.
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(g) The captions or headings of the Sections of this Agreement are
inserted merely for convenience of reference and shall not be deemed to limit or
modify the terms and provisions hereof.
IN WITNESS WHEREOF, the Grantor has caused the execution and delivery
of this Agreement by its duly authorized officers on the date first above
written.
ATTEST: UNITED FOODS, INC.
/s/ Donald Dresser By: /s/ Carl W. Gruenewald, II
- -------------------------------- --------------------------------------
Title: Senior Vice President Title: Sr. Vice President - Finance and
Administration Treasurer
-----------------------------------
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SCHEDULE I
List of Filing Offices
1. Secretary of State of Arkansas
2. Clerk of the Circuit Court and Ex-Officio Recorder of Crittenden County,
Arkansas
3. Secretary of State of California
4. Department of State of Florida
5. Secretary of State of Indiana
6. Secretary of State of Iowa
7. Secretary of State of Kansas
8. Recorder of Mortgages of Orleans Parish, Louisiana
9. Secretary of State of Minnesota
10. Secretary of State of New Jersey
11. Department of State of New York
12. County Court Clerk of Onondaga County, New York
13. Secretary of State of Oregon
14. Secretary of State of Tennessee
15. Division of Corporations and Commercial Code of Utah
16. Department of Licensing of Washington
17. Secretary of State of Wisconsin
18. Secretary of State of Illinois
19. Secretary of State of Michigan
20. Secretary of State of Missouri
I-1
<PAGE> 103
SCHEDULE II
List of Names Under Which Grantor Does Business
1. Pictsweet Frozen Foods
2. Pictsweet Farms
3. United Express
4. Pictsweet Express
II-1
<PAGE> 104
SCHEDULE III
List of Promissory Notes (or other instruments) Evidencing Accounts Receivable
1. None
III-1
<PAGE> 1
Exhibit 17(b)(1)
OPINION OF J.C. BRADFORD & CO., LLC
J.C. BRADFORD & CO. LOGO
May 14, 1999
Board of Directors
United Foods, Inc.
Ten Pictsweet Drive
Bells, TN 39006
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of United Foods, Inc. (the "Company") other than
James I. Tankersley, the Chief Executive Officer of the Company, and his wife
and children (the "Jim Tankersley Family") of $3.50 in cash, which is the
consideration to be received by such stockholders in the proposed merger (the
"Merger") in accordance with that certain draft Agreement and Plan of Merger
dated as of March 9, 1999 by and among the Company and two affiliates of the Jim
Tankersley Family (the "Draft Merger Agreement"). No opinion is rendered hereby,
nor should one be implied, with regard to the fairness to any member of the Jim
Tankersley Family of the consideration, if any, to be received by them in the
Merger.
J.C. Bradford & Co., LLC, as part of its investment banking business,
engages in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements, and valuations for estate,
corporate, and other purposes. We have been engaged by the Special Transaction
Committee of the Board of Directors of the Company to render this opinion in
connection with the Merger pursuant to an engagement letter dated September 29,
1998 and received a fee from the Company for our services as set forth in the
engagement letter.
In conducting our analysis and arriving at our opinion, we have considered
such financial and other information as we deemed appropriate including, among
other things, the following: (i) the Draft Merger Agreement; (ii) the historical
and current financial position and results of operations of the Company, as set
forth in its periodic reports and proxy materials filed with the Securities and
Exchange Commission; (iii) certain internal operating data and financial
analyses and forecasts for the fiscal year beginning March 1, 1999 and ending
February 28, 2000, prepared by the Company's senior management; (iv) certain
internal operating data of the Company for the fiscal years beginning March 1,
1980 and ending April 30, 1999; (v) reported securities trading data of the
Company; (vi) certain financial and securities trading data of certain other
companies, the securities of which are publicly traded, that we believed to be
comparable to the Company or relevant to the Merger; (vii) the financial terms
of certain other transactions that we believed to be comparable to the Merger or
otherwise relevant; (viii) the results of certain stock repurchase programs
carried out by the Company in the recent past; and (ix) such other financial
studies, analyses, and investigations as we deemed appropriate for purposes of
our opinion. We also have held discussions with members of the senior management
of the Company regarding the Company's past and current business operations,
financial condition, and its future prospects.
1
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We have taken into account our assessment of general economic, market, and
financial and other conditions and our experience in other transactions, as well
as our experience in securities valuation and our knowledge of the industry in
which the Company operates. Our opinion is necessarily based upon the
information made available to us and conditions as they exist and can be
evaluated as of the date hereof.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us for purposes of our opinion and have not
assumed any responsibility for, nor undertaken an independent verification of,
such information. Without limiting the generality of the foregoing, we have
assumed, without independent investigation, that (i) the reserves reflected in
the Company's balance sheets with respect to environmental liabilities, taxes,
and litigation are not overstated and are adequate and that no additional
reserves with respect to such matters have been or should be recorded since the
latest balance sheet date except in the ordinary course of business consistent
with past practice; (ii) the Company is not contemplating a material acquisition
or disposition of its assets; (iii) the Company has not repurchased any of its
common stock in the open market except as disclosed to us; and (iv) no
disclosure by the Company or the Jim Tankersley Family to us misstates a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances in which such disclosure is made, not
misleading. We have also assumed that the funds necessary to pay the Merger
consideration to the stockholders of the Company (other than the Jim Tankersley
Family) will be available at the closing of the Merger and that the definitive
merger agreement will not differ from the Draft Merger Agreement in any material
respect. With respect to the internal operating data and financial analyses and
forecasts supplied to us by the Company's senior management (including
participants in the Jim Tankersley Family), we have assumed that such data,
analyses, and forecasts (including projected capital expenditures) were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the Company's senior management as to the recent and likely
future performance of the Company. Accordingly, we express no opinion with
respect to such analyses or forecasts or the assumptions on which they are
based.
We were not asked to consider and our opinion does not address the relative
merits of the Merger as compared to any alternative business strategies that
might exist for the Company or the effect of any other transactions in which the
Company might engage. Furthermore, we have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or its affiliates and
have not been furnished with any such evaluation or appraisal.
We were engaged by the Special Transaction Committee of the Board of
Directors of the Company to render this opinion in connection with the Special
Transaction Committee's discharge of its fiduciary obligations. This opinion
does not constitute a recommendation to any stockholder to vote in favor of the
Merger. We have advised the Special Transaction Committee and the Board of
Directors that we do not believe that any person (including a stockholder of the
Company) other than the Special Transaction Committee and the Board of Directors
has the legal right to rely on this opinion for any claim arising under state
law and that, should any such claim be brought against us, this assertion will
be raised as a defense.
2
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Based upon and subject to the foregoing, and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof and based
on conditions as they currently exist, $3.50 in cash, which is the consideration
to be received in the Merger by the stockholders of the Company (other than the
Jim Tankersley Family), is fair to such stockholders from a financial point of
view.
Very truly yours,
J.C. BRADFORD & CO., LLC
By: /s/ N. B. Forrest Shoaf
-------------------------------------------
N. B. Forrest Shoaf
Senior Vice President
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<PAGE> 1
PRELIMINARY COPY
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST , 1999
UNITED FOODS, INC.
TEN PICTSWEET DRIVE
BELLS, TENNESSEE 38006-0119
July , 1999
Dear Stockholders:
You are cordially invited to attend a Special Meeting of stockholders of
United Foods, Inc. to be held in the Corporate Conference Room of United Foods,
Inc., Ten Pictsweet Drive, Bells, Tennessee, on August , 1999, at 9:00 a.m.
local time.
This proxy statement is being furnished to the holders of outstanding
shares of Class A Common Stock and Class B Common Stock of United Foods, Inc.,
in connection with the solicitation of proxies by the Board of Directors of
United Foods, Inc. for use at the Special Meeting of stockholders. The Board of
Directors has fixed the close of business on July , 1999 as the record date
for the determination of stockholders entitled to notice of, and to vote at, the
Special Meeting.
As described in this proxy statement, at the Special Meeting you will be
asked to consider and vote upon a proposal to approve and adopt a merger
agreement dated May 14, 1999, pursuant to which you will receive $3.50 in cash,
unless you dissent from the merger and perfect your appraisal rights in
accordance with Delaware law. If the stockholders approve and adopt the merger
agreement, United Foods, Inc. will become a private company and will be owned
wholly by James I. Tankersley, the Company's Chairman and Chief Executive
Officer, and members of his immediate family.
Your Board of Directors, based upon the unanimous recommendation of a
special committee comprised of two disinterested directors, has determined that
the merger agreement is advisable and is fair to, and in the best interests of,
United Foods, Inc. and the Public Stockholders (as defined in the Proxy
Statement) and has approved the merger agreement. In arriving at its decision,
the Board of Directors gave careful consideration to a number of factors
described in the accompanying proxy statement, including the opinion of J.C.
Bradford & Co., L.L.C., financial advisor to the special committee, to the
effect that, as of the date of the opinion and based upon and subject to certain
matters stated in the opinion, the consideration to be received in the merger by
you is fair to you from a financial point of view. Accordingly, the Board of
Directors, acting on the recommendation of the special committee, recommends
that you vote "For" approval and adoption of the merger agreement.
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WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD. EXECUTED PROXIES WITH NO
INSTRUCTIONS INDICATED THEREON WILL BE VOTED "FOR" APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
Sincerely,
B.M. Ennis
President
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY UNITED
FOODS, INC. OR ANY OTHER PERSON.
This proxy statement, the accompanying Notice of Special Meeting and the
accompanying proxy are first being mailed to stockholders on or about July
, 1999.
The date of this proxy statement is July , 1999.
<PAGE> 3
PRELIMINARY COPY
UNITED FOODS, INC.
TEN PICTSWEET DRIVE
BELLS, TENNESSEE 38006-0119
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST , 1999
To the Stockholders of UNITED FOODS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of United Foods, Inc., a Delaware corporation (the "Company"), will be
held in the Corporate Conference Room of United Foods, Inc., Ten Pictsweet
Drive, Bells, Tennessee, on August , 1999, at 9:00 a.m., local time, for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated May 14, 1999 (the "Merger Agreement"),
among Pictsweet LLC ("Parent"), UF Acquisition Corp., a wholly-owned
subsidiary of Parent ("Purchaser") and the Company. A copy of the Merger
Agreement is attached to the accompanying Proxy Statement as Appendix A. As
more fully described in the Proxy Statement, the Merger Agreement provides
that: (i) Purchaser would be merged with and into the Company (the
"Merger"), with the Company continuing as the surviving corporation; (ii)
the Company would thereupon become a wholly-owned subsidiary of Parent; and
(iii) each outstanding share of Class A common stock and Class B common
stock (the "Class A Common Stock" and "Class B Common Stock," respectively,
and together, the "Common Stock") of the Company would be converted into
the right to receive $3.50 in cash, without interest, except for (x) all
shares of Common Stock owned by the Jim Tankersley Family (as defined
below), (y) shares of Common Stock owned by the Company as treasury stock
and (z) shares of Common Stock held by stockholders who perfect their
appraisal rights in accordance with Delaware law; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on July , 1999 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Special Meeting. Only holders of Common Stock of record at the
close of business on that date will be entitled to notice of and to vote at the
Special Meeting or any adjournments or postponements thereof.
Parent and Purchaser are newly formed entities organized by James I.
Tankersley (the Company's Chairman and Chief Executive Officer), his wife, Edna
W. Tankersley, and their children, Darla T. Darnall (a director of the Company),
Kelle T. Northern (a director of the Company) and James W. Tankersley (a
director of the Company) (together with their affiliates, the "Jim Tankersley
Family") for the purpose of effecting the transactions described in the Proxy
Statement. The members of the Jim Tankersley Family directly own no outstanding
Class A Common Stock and an aggregate of 2,553,415 outstanding shares, or
approximately 60.9%, of the Class B Common Stock. Each member of the Jim
Tankersley Family has agreed to transfer to Parent immediately prior to the
effective time of the merger all of such person's shares of Common Stock, and
each member of the Jim Tankersley Family will receive membership interests in
Parent. At the effective time of the Merger, the Jim Tankersley Family will own
in the aggregate 100% of
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Parent's total issued and outstanding interests, and Parent will own
approximately 60.9% of the total issued and outstanding Class B Common Stock.
See "The Special Meeting--Vote Required; Revocability of Proxies."
The accompanying Proxy Statement describes the Merger Agreement, the
proposed Merger and the actions to be taken in connection with the Merger. To
ensure that your vote will be counted, please complete, date, sign and return
the enclosed proxy card, whether or not you plan to attend the Special Meeting.
You may revoke your proxy in the manner described in the accompanying Proxy
Statement at any time before it is voted at the Special Meeting.
If the Merger is consummated, holders of Common Stock who properly demand
appraisal prior to the stockholder vote on the Merger Agreement, do not vote in
favor of approval and adoption of the Merger Agreement and otherwise comply with
the requirements of Section 262 of the Delaware General Corporation Law will be
entitled to statutory appraisal rights. See "Appraisal Rights" in the
accompanying Proxy Statement for a statement of the rights of dissenting
stockholders and a description of the procedures required to be followed.
UNITED FOODS, INC.
Donald Dresser
Secretary and
Senior Vice President, Administration
THE BOARD OF DIRECTORS, ACTING ON THE RECOMMENDATION OF A DISINTERESTED
SPECIAL COMMITTEE, RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT.
THE MERGER AGREEMENT MUST BE APPROVED AND ADOPTED BY TWO SEPARATE VOTING
REQUIREMENTS:
1. THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF
COMMON STOCK ENTITLED TO VOTE. FOR THIS FIRST VOTING REQUIREMENT, THE VOTES
OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK WILL BE COUNTED TOGETHER
AS A SINGLE CLASS, WITH EACH SHARE OF CLASS A COMMON STOCK HAVING ONE-TENTH
VOTE AND EACH SHARE OF CLASS B COMMON STOCK HAVING ONE VOTE; AND
2. THE AFFIRMATIVE VOTE OF A MAJORITY OF ALL SHARES OF COMMON STOCK
ENTITLED TO VOTE WHICH ARE ACTUALLY VOTED "FOR" OR "AGAINST" THE PROPOSAL,
EXCLUDING ALL COMMON STOCK OWNED BY THE JIM TANKERSLEY FAMILY, WITH EACH
SHARE OF COMMON STOCK HAVING ONE FULL VOTE REGARDLESS OF CLASS.
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. YOU MAY
REVOKE THE PROXY AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN
THE ATTACHED PROXY STATEMENT. ANY STOCKHOLDER PRESENT AT THE SPECIAL MEETING,
INCLUDING ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, MAY REVOKE SUCH HOLDER'S
PROXY AND VOTE PERSONALLY ON THE MERGER AGREEMENT AT THE SPECIAL MEETING.
EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED THEREON WILL BE VOTED "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Dated: July , 1999
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 4
The Special Meeting....................................... 4
Special Factors........................................... 5
The Merger................................................ 9
Appraisal Rights.......................................... 11
The Parties............................................... 11
Market Price and Dividend Information..................... 12
Summary Historical and Unaudited Pro Forma Financial
Information............................................ 13
THE SPECIAL MEETING......................................... 15
Matters to Be Considered at the Special Meeting........... 15
Record Date and Voting.................................... 15
Vote Required; Revocability of Proxies.................... 16
Solicitation of Proxies................................... 17
SPECIAL FACTORS............................................. 18
Background of the Merger.................................. 18
Purpose and Structure of the Merger....................... 25
Recommendation of the Special Committee................... 25
Recommendation of the Board of Directors.................. 29
Opinion of the Special Committee's Financial Advisor...... 29
Plans For the Company After the Merger.................... 35
Plans for the Company if the Merger is Not Consummated.... 36
Interests of Certain Persons in the Merger................ 36
Perspective of the Jim Tankersley Family, Pictsweet LLC
and UF Acquisition Corp. on the Merger................. 37
Certain Effects of the Merger............................. 38
Federal Income Tax Consequences........................... 39
Risk of Fraudulent Conveyance............................. 40
Anticipated Accounting Treatment.......................... 40
Regulatory Approvals...................................... 41
Sources of Funds; Fees and Expenses....................... 41
THE MERGER AGREEMENT........................................ 44
General................................................... 44
Representations and Warranties............................ 45
Conduct of the Business Pending the Merger................ 46
Other Potential Bidders................................... 47
Conditions to the Merger.................................. 48
Termination............................................... 49
Fees and Expenses......................................... 50
Indemnification of Directors and Officers................. 50
Access to Information..................................... 51
Legal Compliance.......................................... 51
Amendment................................................. 51
STOCKHOLDER LITIGATION...................................... 52
APPRAISAL RIGHTS............................................ 52
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS OF THE COMPANY..................................... 56
SELECTED HISTORICAL FINANCIAL DATA.......................... 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 61
Financial Condition....................................... 61
Results of Operations..................................... 67
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 72
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, PICTSWEET
LLC AND UF ACQUISITION CORP. ............................. 72
Information Concerning Directors and Executive Officers of
the Company............................................ 72
Information Concerning Directors and Executive Officers of
Pictsweet LLC and UF Acquisition Corp.................. 74
Information Concerning Directors and Executive Officers of
the Surviving Corporation.............................. 74
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS.................................................... 75
MARKET PRICE AND DIVIDEND INFORMATION....................... 76
CERTAIN TRANSACTIONS IN THE COMMON STOCK.................... 77
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 78
STOCKHOLDER PROPOSALS....................................... 78
ADDITIONAL INFORMATION...................................... 78
AVAILABLE INFORMATION....................................... 79
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDIX A -- THE MERGER AGREEMENT.......................... A-1
APPENDIX B -- OPINION OF J.C. BRADFORD & CO. , L.L.C........ B-1
APPENDIX C -- SECTION 262 OF THE DELAWARE GENERAL
CORPORATION LAW........................................... C-1
</TABLE>
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<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE PROPOSED TRANSACTION?
A: United Foods, Inc. will be acquired in a merger transaction by the Jim
Tankersley Family.
Q: WHO IS THE JIM TANKERSLEY FAMILY?
A: The Jim Tankersley Family is composed of James I. Tankersley, Chairman and
Chief Executive Officer of United Foods, Inc., his wife, Edna W.
Tankersley, and their children, Darla T. Darnall, Kelle T. Northern and
James W. Tankersley. Each member of the Jim Tankersley Family is a
stockholder of United Foods, Inc., and James I. Tankersley, Darla T.
Darnall, Kelle T. Northern and James W. Tankersley are also directors. The
Jim Tankersley Family does not include Daniel B. Tankersley and Julia T.
Wells, brother and sister of James I. Tankersley, who are directors and
stockholders of United Foods, Inc.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: You will be entitled to receive $3.50 in cash, without interest, for each
share of United Foods, Inc. Common Stock you own, unless you properly
demand appraisal prior to the stockholder vote on the merger agreement, do
not vote in favor of approval and adoption of the merger agreement and
otherwise perfect your appraisal rights under Delaware law. See "What
Rights Do I Have if I Oppose the Merger" below.
Q: WHAT DOES THE BOARD OF DIRECTORS RECOMMEND REGARDING
THE MERGER AGREEMENT?
A: In the opinion of the board of directors, based upon the unanimous
recommendation of a disinterested special committee, the merger agreement
is advisable and is fair to you and in your best interests, and the board
of directors has accordingly unanimously approved the merger agreement
and recommends that you vote "For" approval and adoption of the merger
agreement. To review the background and reasons for the merger in greater
detail, see pages 18 to 29.
Q: WHAT CONFLICTS OF INTEREST DOES THE BOARD OF DIRECTORS
HAVE IN RECOMMENDING APPROVAL AND ADOPTION OF THE MERGER AGREEMENT?
A: Four of the eleven members of the board of directors have a conflict of
interest in recommending that you vote "For" approval and adoption of the
merger agreement because they are members of the Jim Tankersley Family. If
the merger occurs, the Jim Tankersley Family will own United Foods, Inc.
and will receive the benefits of any future earnings and any increase in
value. To review the factors considered by the special committee and the
board of directors in approving the merger agreement and in making their
recommendation, see pages 25 to 35.
Q: WHAT VOTE IS REQUIRED TO APPROVE AND ADOPT THE MERGER
AGREEMENT?
A: The merger agreement must be approved and adopted by two separate voting
requirements:
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<PAGE> 8
1. the affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote. For this first voting requirement, the votes of
Class A Common Stock and Class B Common Stock will be counted together
as a single class, with each share of Class A Common Stock having
one-tenth vote and each share of Class B Common Stock having one vote.
The Jim Tankersley Family's shares of Common Stock represent 57.3% of
the votes entitled to be counted for this voting requirement, and they
intend to vote "For" approval and adoption of the merger agreement.
Therefore, this voting requirement will be met regardless of how you
vote; and
2. the affirmative vote of a majority of all shares of Common Stock
entitled to vote which are actually voted "For" or "Against" the
proposal, excluding all Common Stock owned by the Jim Tankersley
Family, with each share of Common Stock having one full vote regardless
of class. On the record date, for purposes of the second voting
requirement, there are 4,256,514 shares entitled to vote, and assuming
all such shares are voted, the number of shares necessary to approve
and adopt the merger agreement is 2,128,258. Members of the board of
directors other than the Jim Tankersley Family own 1,041,946 shares of
Common Stock representing 24.5% of the votes entitled to be counted for
this voting requirement and intend to vote "For" approval and adoption
of the merger agreement.
Q: HOW DID THE BOARD OF DIRECTORS DETERMINE THAT THE PRICE
PER SHARE I WILL RECEIVE IN THE PROPOSED MERGER IS FAIR TO ME?
A: The board of directors formed a special committee consisting of two
disinterested directors to evaluate and negotiate the terms of the merger
with the Jim Tankersley Family. The special committee selected and
retained independent legal and financial advisors to assist it in the
evaluation and negotiation, and received an opinion from its financial
advisor, on which the special committee and the board of directors relied,
that as of its date the $3.50 per share you will receive in the proposed
merger is fair to you from a financial point of view. To review the
factors considered by the special committee and the board of directors in
approving the merger agreement, see pages 25 to 35.
Q: WHAT ARE THE DISADVANTAGES TO ME OF THE PROPOSED
MERGER?
A: Following the proposed merger, you will no longer benefit from any
earnings or increase in value of United Foods, Inc.
Q: WHAT DO I NEED TO DO NOW?
A: Please mark your vote on, sign, date and mail your proxy card in the
enclosed return envelope as soon as possible, so that your shares may be
counted at the special meeting.
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?
A: If you oppose the merger, you may choose not to vote in favor of the
merger agreement and seek appraisal of the fair value of your shares, but
only if you comply with the Delaware law procedures set forth on pages 52
to 55 and in Appendix C to this proxy statement.
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<PAGE> 9
Q: WHO CAN VOTE ON THE MERGER AGREEMENT?
A: If you owned shares as of the close of business on July , 1999, you are
entitled to notice of, and to vote at, the special meeting regarding the
proposal to approve and adopt the merger agreement.
Q: SHOULD I SEND MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, we will send you a transmittal form and
written instructions for exchanging your share certificates.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL
MY BROKER VOTE MY SHARES FOR ME?
A: Your broker will vote your shares ONLY if you provide instructions on how
to vote. You should follow the directions provided by your broker
regarding how to instruct your broker to vote your shares.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY
CARD?
A: Yes. Just send in a written revocation or another signed proxy card with a
later date to Donald Dresser at United Foods, Inc. before the special
meeting or simply attend the special meeting and vote in person. Mr.
Dresser's address is Ten Pictsweet Drive, Bells, Tennessee 38006-0119.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. If the
merger agreement is approved and adopted and the other conditions to the
merger are satisfied, we expect to complete the merger on or shortly after
the date of the special meeting.
Q: WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER TO ME?
A: This transaction generally will be taxable to you for U.S. federal income
tax purposes. To review the federal income tax consequences to
stockholders in greater detail, see pages 39 to 40.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL
MEETING?
A: We do not expect that any other matters will be voted upon at the special
meeting.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the merger or would like additional
copies of this proxy statement, you should contact Donald Dresser,
Secretary and Senior Vice President, Administration of United Foods, Inc.,
at (901) 422-7600.
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<PAGE> 10
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that may be important to you. To understand the
transaction fully and for a more complete description of the legal terms of the
transaction, you should read carefully this entire document and the documents to
which we have referred you.
THE SPECIAL MEETING
Matters to be Considered at the Special Meeting. The special meeting is
scheduled to be held in the Corporate Conference Room of United Foods, Inc. (the
"Company"), Ten Pictsweet Drive, Bells, Tennessee, on August , 1999, at 9:00
a.m., local time. At the special meeting, stockholders will consider and vote
upon (i) a proposal to approve and adopt the merger agreement and (ii) such
other matters as may properly be brought before the special meeting. See "The
Special Meeting -- Matters To Be Considered at the Special Meeting." The merger
agreement provides that the Company will be acquired in a merger transaction by
Pictsweet LLC and UF Acquisition Corp., newly formed entities organized by James
I. Tankersley, Edna W. Tankersley, Darla T. Darnall, Kelle T. Northern and James
W. Tankersley (together with their affiliates, the "Jim Tankersley Family"). In
the merger, all holders of United Foods Class A Common Stock and Class B Common
Stock other than the Jim Tankersley Family (the "Public Stockholders") will
receive the same merger consideration of $3.50 per share in cash, without
interest.
Record Date and Voting. The record date for the special meeting is the
close of business on July , 1999. At the close of business on the record date,
there were 2,617,243 shares of Class A Common Stock outstanding and entitled to
vote, held by approximately 2,000 stockholders of record, and there were
4,192,686 shares of Class B Common Stock outstanding and entitled to vote, held
by approximately 1,500 stockholders of record. The presence, either in person or
by proxy, of a majority of the outstanding shares of the Common Stock entitled
to be voted is necessary to constitute a quorum for the transaction of business
at the special meeting. See "The Special Meeting -- Record Date and Voting."
Vote Required; Revocability of Proxies. The merger agreement must be
approved and adopted by two separate voting requirements:
1. the affirmative vote of a majority of the outstanding shares of
Common Stock (including both Class A Common Stock and Class B Common Stock)
entitled to vote. For this first voting requirement, the votes of Class A
Common Stock and Class B Common Stock will be counted together as a single
class, with each share of Class A Common Stock having one-tenth vote and
each share of Class B Common Stock having one vote. The Jim Tankersley
Family's shares of Common Stock represent 57.3% of the votes entitled to be
counted for this voting requirement, and they intend to vote "For" approval
and adoption of the merger agreement. Therefore, this voting requirement
will be met regardless of how you vote; and
2. the affirmative vote of a majority of all shares of Common Stock
entitled to vote which are actually voted "For" or "Against" the proposal,
excluding all Common Stock owned by the Jim Tankersley Family, with each
share of Common Stock having one full vote regardless of class. On the
record date, for purposes of the second voting requirement, there are
4,256,514 shares entitled to vote, and assuming all such
4
<PAGE> 11
shares are voted, the number of shares necessary to approve and adopt the
merger agreement is 2,128,258. Members of the board of directors other than
the Jim Tankersley Family own 1,041,946 shares of Common Stock representing
24.5% of the votes entitled to be counted for this voting requirement and
intend to vote "For" approval and adoption of the merger agreement.
The first voting requirement is required by the Delaware General
Corporation Law ("DGCL") and the Company's Certificate of Incorporation. The
second voting requirement is required by the merger agreement (the first and
second voting requirements together being the "Required Stockholder Vote").
Because the first voting requirement of the Required Stockholder Vote on
the merger agreement is based upon the total number of outstanding shares of
Common Stock, the failure to submit a proxy card (or to vote in person at the
special meeting) or the abstention from voting by a stockholder (including
broker non-votes) will have the same effect as a vote "Against" approval and
adoption of the merger agreement. Because the second voting requirement of the
Required Stockholder Vote on the merger agreement is based upon votes actually
cast "For" or "Against" the proposal, the failure to submit a proxy card (or to
vote in person at the special meeting) or the abstention from voting by a
stockholder (including broker non-votes) will have no effect on the outcome of
such voting requirement. Brokers who hold shares of Common Stock as nominees
will not have discretionary authority to vote such shares in the absence of
instructions from the beneficial owners thereof. See "The Special
Meeting -- Vote Required; Revocability of Proxies."
A stockholder may revoke a proxy at any time prior to its exercise by doing
the following:
- delivering to Donald Dresser, Secretary and Senior Vice President,
Administration, United Foods, Inc., Ten Pictsweet Drive, Bells, Tennessee
38006-0119, a written notice of revocation prior to the special meeting;
- delivering prior to the special meeting a duly executed proxy bearing a
date later than the prior proxy; or
- attending the special meeting and voting in person.
The presence of a stockholder at the special meeting will not in and of
itself automatically revoke such stockholder's proxy. If no instructions are
indicated on a properly executed proxy, such proxy will be voted "For" approval
and adoption of the merger agreement.
SPECIAL FACTORS
Background of the Merger. For a description of the events leading to the
approval of the merger agreement by the Company's board of directors and its
special committee, see "Special Factors -- Background of the Merger."
Purpose and Structure of the Merger. For the Jim Tankersley Family, the
purpose of the merger is to acquire all the equity interests of the Company for
the reasons described in "Special Factors -- Purpose and Structure of the
Merger." The acquisition of those equity interests, represented by the shares of
the Class A Common Stock and Class B Common Stock outstanding as of the
effective time of the merger and held by persons other than the Jim Tankersley
Family, is to be effected through a cash merger in order to
5
<PAGE> 12
provide a prompt and orderly transfer to the Jim Tankersley Family of ownership
of the equity interests represented by the shares held by the Public
Stockholders and prompt payment of the merger consideration to the Public
Stockholders. See "Special Factors -- Purpose and Structure of the Merger."
Recommendation of the Special Committee. A special committee comprised of
two disinterested directors of the Company concluded, and based on such
conclusion the board of directors concluded, that the terms of the merger are
fair to, and in the best interests of, the Public Stockholders and the Company
and recommended that the board of directors approve the merger agreement. For a
discussion of the factors considered by the special committee in making its
recommendation, see "Special Factors -- Recommendation of the Special
Committee."
Recommendation of the Board of Directors. On May 14, 1999, by unanimous
vote of all directors, based on the recommendation of the special committee, the
board of directors (i) determined that the merger agreement is advisable and is
fair to, and in the best interests of, the Company and the Public Stockholders,
including without distinction all holders of Class A Common Stock and Class B
Common Stock, (ii) approved the merger agreement and (iii) recommended that the
stockholders vote "For" approval and adoption of the merger agreement. See
"Special Factors -- Recommendation of the Board of Directors."
Factors Considered by the Special Committee and the Board of Directors. In
reaching their decisions to recommend the approval and adoption of the merger
agreement, the special committee and the board of directors considered a number
of factors, including the following:
- the belief that stockholder value was not likely to be higher than $3.50
per share if the Company remained a public company, which belief was
based on, among other things, the competitive condition of a
consolidating industry, the lack of consistent growth expectations, the
limited trading volume and market sponsorship of the Common Stock, and
the firm commitment of the Jim Tankersley Family not to sell their Common
Stock or liquidate the Company.
- the belief that the $3.50 per share to be received by the Public
Stockholders was the highest price which could be negotiated by the
special committee with the Jim Tankersley Family and the fact that such
price represented significant premiums over the closing sale price
immediately prior to the announcement of the merger proposal as well as
one year prior to that announcement.
- the opinion of the financial advisor to the special committee, that
subject to the assumptions and limitations stated therein, as of May 14,
1999, the $3.50 per share consideration to be received by the Public
Stockholders was fair from a financial point of view.
- the terms of the merger agreement which include a voting requirement that
the merger agreement be approved and adopted by a majority of the votes
cast by the Public Stockholders.
Additional factors considered by the special committee and the board of
directors are set forth on pages 25 to 35.
Opinion of the Financial Advisor to the Special Committee. On January 20,
1999, J.C. Bradford & Co., L.L.C. ("J.C. Bradford"), as financial advisor to the
special
6
<PAGE> 13
committee, delivered its written opinion, which was confirmed orally on May 10,
1999 and in writing on May 14, 1999 and on the date of this proxy statement, to
the special committee and to the board of directors that, subject to the
assumptions and limitations stated therein, as of such dates, the $3.50 cash per
share of Common Stock to be received by the Public Stockholders in the merger is
fair to the Public Stockholders from a financial point of view. The full text of
the written opinion of J.C. Bradford, which sets forth assumptions made, matters
considered and limitations on the review undertaken in connection with the
opinion, is attached hereto as Appendix B. Stockholders are urged to, and
should, read such opinion in its entirety. See "Special Factors -- Opinion of
the Special Committee's Financial Advisor."
Interest of Certain Persons in the Merger. In considering the
recommendation of the board of directors with respect to the merger, Public
Stockholders should be aware that certain officers and directors have certain
interests that present actual or potential conflicts of interest in connection
with the merger. For a more detailed discussion of such interests, see "Special
Factors -- Interests of Certain Persons in the Merger." The special committee
and board of directors were aware of potential or actual conflicts of interest
and considered them along with other matters described under "Special
Factors -- Recommendation of the Special Committee."
As of July , 1999, the members of the Jim Tankersley Family directly
owned no outstanding shares of Class A Common Stock, and an aggregate of
2,553,415 outstanding shares, or approximately 60.9%, of the Class B Common
Stock. The directors of the Company (excluding members of the Jim Tankersley
Family) owned 1,041,946 shares of Class A Common Stock, representing 27.8% of
such shares outstanding, and owned 313,783 shares of Class B Common Stock
representing approximately 7.5% of such shares outstanding.
Shares of Class B Common Stock may be converted into shares of Class A
Common Stock on a one-for-one basis at the election of the holder pursuant to
the Company's Certificate of Incorporation. Accordingly, the Jim Tankersley
Family is deemed to own beneficially 2,553,415 shares, or approximately 49.4% of
the Class A Common Stock, even though its members directly own no Class A Common
Stock. The Jim Tankersley Family has advised the Company that they do not intend
to convert any shares of Class B Common Stock into Class A Common Stock.
The members of the Jim Tankersley Family are James I. Tankersley, his wife,
Edna W. Tankersley, and their children, Darla T. Darnall, Kelle T. Northern and
James W. Tankersley. The Jim Tankersley Family has formed Pictsweet LLC and UF
Acquisition Corp. to effect the merger through a merger of UF Acquisition Corp.
with and into United Foods, Inc., with United Foods, Inc. as the surviving
corporation. The members of the Jim Tankersley Family comprise the membership of
Pictsweet LLC. Pictsweet LLC owns all of the outstanding shares of UF
Acquisition Corp. James I. Tankersley is the Chairman and Chief Executive
Officer of United Foods, Inc. Mrs. Darnall, Mrs. Northern and Mr. James W.
Tankersley are directors of United Foods, Inc. The Jim Tankersley Family does
not include Daniel B. Tankersley or Julia T. Wells, brother and sister of James
I. Tankersley, who are also directors of the Company.
For a description of the relationships between the Jim Tankersley Family,
Pictsweet LLC and UF Acquisition Corp., and United Foods, Inc., see "Special
Factors -- Interests of Certain Persons in the Merger." For a discussion of
certain agreements by Pictsweet
7
<PAGE> 14
LLC with respect to indemnification of directors and officers of United Foods,
Inc., see "The Merger Agreement -- Indemnification of Directors and Officers."
Perspective of the Jim Tankersley Family, Pictsweet LLC and UF Acquisition
Corp. on the Merger. Each of the members of the Jim Tankersley Family,
Pictsweet LLC and UF Acquisition Corp. has concluded that the merger agreement
is fair to the Company and the Public Stockholders based upon the opinion of the
financial advisor to the special committee, and the conclusions and
determinations of the special committee and the board of directors that the
merger agreement was advisable and is fair to, and in the best interests of, the
Public Stockholders. None of the Jim Tankersley Family, Pictsweet LLC or UF
Acquisition Corp. attached specific weights to any factors in reaching their
conclusions, nor did they request or receive any separate reports, opinions or
appraisals from an outside party related to the merger agreement. See "Special
Factors -- Perspective of the Jim Tankersley Family, Pictsweet LLC and UF
Acquisition Corp. on the Merger."
Certain Effects of the Merger. Upon consummation of the merger, each
outstanding share of Common Stock held by a Public Stockholder, other than
dissenting shares held by stockholders who properly exercise their appraisal
rights under the DGCL and which are not withdrawn as of the effective time of
the merger ("Dissenting Shares") will be converted into the right to receive the
merger consideration of $3.50 in cash, without interest. The Public Stockholders
will cease to have any ownership interest in the Company or rights as
stockholders. The Public Stockholders will no longer benefit from any increases
in the value of the Company and will no longer bear the risk of any decreases in
the value of the Company.
Following the merger, the Jim Tankersley Family, which currently owns 60.9%
of the outstanding shares of Class B Common Stock, will own through Pictsweet
LLC all of the surviving corporation's outstanding shares of common stock. The
Jim Tankersley Family will have complete control over the management and conduct
of the Company's business, all income generated by the Company and any future
increase in the Company's value. Similarly, the Jim Tankersley Family will also
bear the risk of any losses incurred in the operation of the Company and any
decrease in the value of the Company.
As a result of the merger, the Company will be privately held and there
will be no public market for the Common Stock. Upon consummation of the merger,
it is anticipated that the Common Stock will cease to be listed on the American
Stock Exchange and the Pacific Exchange and the registration of the Common Stock
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") will
be terminated. Moreover, the Company will be relieved of the obligation to
comply with the proxy rules of Regulation 14A under Section 14 of the Exchange
Act, and its officers, directors and 10% stockholders will be relieved of the
reporting requirements and restrictions on insider trading under Section 16 of
the Exchange Act. Accordingly, less information will be required to be made
publicly available than presently is the case. See "Special Factors -- Certain
Effects of the Merger."
U.S. Federal Income Tax Consequences. The receipt of cash in exchange for
Common Stock pursuant to the merger will be a taxable transaction for United
States federal income tax purposes and may also be a taxable transaction under
applicable state, local and foreign tax laws. Stockholders should consult their
own tax advisors regarding the U.S. federal income tax consequences of the
merger, as well as any tax consequences
8
<PAGE> 15
under the laws of any state or other jurisdiction. See "Special
Factors -- Federal Income Tax Consequences."
Stockholder Litigation. During March 1999, a complaint was filed in a
Delaware Court of Chancery against the Company and directors of the Company by a
stockholder of the Company. The complaint seeks class action status and requests
injunctive and other relief with respect to the proposal by the Jim Tankersley
Family to acquire the remaining shares of the Common Stock that are not owned by
them. During May 1999, a second complaint was filed in a Delaware Court of
Chancery against the Company and its directors seeking class action status and
similar relief. See "Stockholder Litigation."
THE MERGER
General. Upon consummation of the merger, UF Acquisition Corp. will be
merged with and into United Foods, Inc. and United Foods, Inc. will be the
surviving corporation. The surviving corporation will succeed to all the rights
and obligations of United Foods, Inc. and UF Acquisition Corp.
Treatment of Shares in the Merger. Subject to the provisions of the merger
agreement, at the effective time of the merger, each share of Common Stock
outstanding immediately prior to the effective time of the merger will be
converted into the right to receive the merger consideration by virtue of the
merger and without any action on the part of the holder thereof, except for all
shares of Common Stock owned by the Jim Tankersley Family, treasury stock and
Dissenting Shares. The merger consideration will be payable upon surrender of
the certificate representing these shares of Common Stock. See "The Merger
Agreement -- General."
Effective Time. Pursuant to the merger agreement, the effective time of
the merger will occur upon the filing of a certificate of merger with the
Secretary of State of the State of Delaware or at such time thereafter as is
agreed to between Pictsweet LLC and United Foods, Inc. and provided in the
certificate of merger. See "The Merger Agreement -- General."
Exchange of Share Certificates. As soon as reasonably practicable after
the effective time of the merger, Pictsweet LLC and United Foods, Inc. shall
cause First Union National Bank, as paying agent, to mail to each holder of
record as of the effective time of the merger (other than the Jim Tankersley
Family) of an outstanding certificate or certificates for shares of Common
Stock, a letter of transmittal and instructions for use in effecting the
surrender of such certificate for payment in accordance with the merger
agreement. Upon surrender to the paying agent of a certificate, together with a
duly executed letter of transmittal, the holder thereof shall be entitled to
receive cash in an amount equal to the product of the number of shares of Common
Stock represented by such certificate and the merger consideration in cash,
without interest thereon, less any applicable withholding tax, and such
certificate shall then be canceled.
Until surrendered pursuant to the procedures described above, each
certificate (other than certificates representing shares of Common Stock owned
by the Jim Tankersley Family, treasury stock and Dissenting Shares) shall
represent for all purposes solely the right to receive the merger consideration
multiplied by the number of shares of Common Stock evidenced by such
certificate, without any interest thereon, subject to any applicable withholding
obligation. See "The Merger Agreement -- General." STOCKHOLDERS
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<PAGE> 16
SHOULD NOT SEND ANY COMMON STOCK CERTIFICATES WITH THEIR PROXY CARDS.
Conditions to the Merger. Consummation of the merger is subject to various
conditions, including, among others: (i) the approval and adoption of the merger
agreement by the Required Stockholder Vote; (ii) the absence of claims to
prevent or delay the consummation of the merger; (iii) the number of Dissenting
Shares shall not exceed 250,000 shares of Common Stock; and (iv) no loss of a
significant customer of the Company as specified in the merger agreement.
Certain of the conditions must be satisfied on or before the date of the special
meeting. See "The Merger Agreement -- Conditions to the Merger."
Other Potential Bidders. Pursuant to the merger agreement, the Company has
agreed that it shall furnish information and access, in response to unsolicited
requests for information and access, received prior to or after the date of the
merger agreement, to the same extent as provided to Pictsweet LLC or UF
Acquisition Corp., to any person, pursuant to appropriate confidentiality
agreements, and may participate in discussions and negotiations with any such
person concerning any merger, sale of assets, sale of shares of capital stock or
similar transaction (such transactions being referred to herein as a "Competing
Transaction") involving the Company or any division of the Company, only if the
special committee determines, after consultation with its counsel and financial
advisor, that such action is necessary in light of the fiduciary duties of the
board of directors to the public stockholders. The Jim Tankersley Family has
stated that it will not vote in favor of any Competing Transaction or sell their
shares of Common Stock to any third party. Except as described above, the
Company has agreed not to solicit, participate in or initiate discussions with
any person concerning any merger, sale of assets, sale of shares of capital
stock or similar transaction involving the Company. See "The Merger Agreement
-- Other Potential Bidders."
Termination of the Merger Agreement. The merger agreement may be
terminated at any time prior to the effective time of the merger, whether before
or after approval and adoption by the stockholders, for a number of reasons,
including: (i) by the mutual written consent of the Company and Pictsweet LLC;
(ii) by either the Company or Pictsweet LLC if the merger agreement shall have
been voted on by the stockholders of the Company at the special meeting and the
vote shall not have been sufficient to approve and adopt the merger agreement;
(iii) by either the Company or Pictsweet LLC if any governmental entity has
issued an order, decree or ruling prohibiting the merger and such ruling has
become final and non-appealable; (iv) by either the Company or Pictsweet LLC in
the event the merger is not consummated by September 30, 1999; or (v) by either
the Company or Pictsweet LLC, if, consistent with the terms of the merger
agreement, the board of directors of the Company withdraws, modifies or changes
its recommendation of the merger agreement in a manner adverse to the Company or
Pictsweet LLC or shall have resolved to do any of the foregoing or the board of
directors of the Company shall have recommended to the stockholders of the
Company any Competing Transaction or resolved to do so. See "The Merger
Agreement -- Termination."
Sources of Funds; Fees and Expenses. It is currently expected that
approximately $15.8 million will be required to pay the merger consideration to
the public stockholders (assuming no such holders exercise appraisal rights),
and to pay the expenses of the Company and the Jim Tankersley Family in
connection with the merger. The sources for the $15.8 million will be available
cash and borrowings under the Company's revolving
10
<PAGE> 17
credit facility with First American National Bank and National Bank of Canada.
See "Special Factors -- Sources of Funds; Fees and Expenses."
Accounting Treatment. It is expected that the merger will be accounted for
as a "leveraged recapitalization" under generally accepted accounting
principles, with the Company's assets and liabilities carrying over into the
surviving corporation at their respective historical bases.
APPRAISAL RIGHTS
Under the DGCL, holders of Common Stock who properly demand appraisal prior
to the stockholder vote on the merger agreement, do not vote in favor of
approval and adoption of the merger agreement and otherwise comply with the
requirements of DGCL Section 262 ("Section 262") will be entitled to statutory
appraisal rights. Any deviation from the requirements of Section 262 may result
in a forfeiture of statutory appraisal rights. See "Appraisal Rights" and DGCL
Section 262, a copy of which is attached hereto as Appendix C.
THE PARTIES
The Company. The Company was incorporated under the laws of the State of
Texas on March 9, 1956 and became a Delaware corporation on September 30, 1983.
The Company is principally engaged in the growing, processing, marketing and
distribution of food products. The Company's primary food products include
frozen asparagus, black-eyed peas, broccoli, Brussels sprouts, carrots,
cauliflower, corn, green beans, green peas, green peppers, lima beans,
mushrooms, onions, okra, southern greens, spinach, squash, turnips, white acre
peas, various vegetable mixes and blends, and fresh mushrooms. The Company's
principal executive offices are located at Ten Pictsweet Drive, Bells, Tennessee
38006, and its telephone number is (901) 422-7600.
The Jim Tankersley Family. The members of the Jim Tankersley Family are
James I. Tankersley, Edna W. Tankersley, Darla T. Darnall, Kelle T. Northern and
James W. Tankersley, each of whom is a stockholder of the Company. James I.
Tankersley, Darla T. Darnall, Kelle T. Northern and James W. Tankersley are also
directors of the Company. The Jim Tankersley Family does not include Daniel B.
Tankersley and Julia T. Wells, the brother and sister of James I. Tankersley.
Pictsweet LLC. Pictsweet LLC, a Delaware limited liability company, is a
holding company which has not engaged in any activities since its formation
other than in connection with the merger agreement. Pursuant to the merger
agreement, UF Acquisition Corp. will be merged with and into the Company, with
the Company being the surviving corporation and becoming a wholly-owned
subsidiary of Pictsweet LLC. As of the date of this proxy statement, the
directors and officers of Pictsweet LLC are as set forth under "Directors and
Executive Officers of the Company, Pictsweet LLC and UF Acquisition
Corp. -- Information Concerning Directors and Executive Officers of Pictsweet
LLC and UF Acquisition Corp." The directors and members of Pictsweet LLC have
approved and adopted the merger agreement. Pictsweet LLC's executive offices are
located at Ten Pictsweet Drive, Bells, Tennessee 38006-0119, and its telephone
number is (901) 422-7600.
UF Acquisition Corp. UF Acquisition Corp. is a Delaware corporation
recently organized for the purpose of effecting the merger. UF Acquisition Corp.
has no material
11
<PAGE> 18
assets and it has not engaged in any activities since its formation other than
in connection with the merger agreement. The sole stockholder of UF Acquisition
Corp. is Pictsweet LLC. As of the date of this proxy statement, the directors
and officers of UF Acquisition Corp. are as set forth under "Directors and
Executive Officers of the Company, Pictsweet LLC and UF Acquisition
Corp. -- Information Concerning Directors and Executive Officers of Pictsweet
LLC and UF Acquisition Corp." The directors and stockholders of UF Acquisition
Corp. have approved and adopted the merger agreement. UF Acquisition Corp.'s
executive offices are located at Ten Pictsweet Drive, Bells, Tennessee
38006-0119, and its telephone number is (901) 422-7600.
MARKET PRICE AND DIVIDEND INFORMATION
The Class A Common Stock and Class B Common Stock are listed on the
American Stock Exchange and the Pacific Exchange, respectively, under the
symbols "UFDA" and "UFDB." On September 15, 1998, the last trading day before
the public announcement of the Jim Tankersley Family's proposal to acquire all
the shares of the Class A Common Stock and Class B Common Stock held by the
public stockholders, the reported closing price per share of the Class A Common
Stock was $2.375 and the reported closing price per share of the Class B Common
Stock was $2.50. On May 14, 1999, the last trading day before the public
announcement of the execution of the merger agreement, the reported closing sale
price per share of the Class A Common Stock was $2.50 and the reported closing
sale price per share of the Class B Common Stock was $2.50. On July , 1999,
the last full trading day prior to the date of this Proxy Statement, the
reported closing sale price per share of the Class A Common Stock was
$ and the reported closing sale price per share of the Class B Common
Stock was $ . The Company has not paid a dividend on its Common Stock
in recent years. For additional information concerning historical market prices
of both classes of Common Stock, see "Market Price And Dividend Information."
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<PAGE> 19
SUMMARY HISTORICAL
AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
SUMMARY HISTORICAL FINANCIAL INFORMATION
Set forth below is certain historical financial information of the Company.
Certain of the summary financial information for, and as of the end of, each of
the years in the two year period ended February 28, 1999 is derived from, and
should be read in conjunction with, the historical financial statements of the
Company and notes thereto, which financial statements have been audited by BDO
Seidman, LLP, independent accountants. The summary financial information for,
and as of the end of, each of the three months ended May 31, 1999 and 1998 is
unaudited. The historical financial information that follows is qualified by
reference to the financial statements and related notes included therein.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
FEBRUARY 28, ENDED MAY 31,
------------------------ ----------------------
1999 1998 1999 1998
-------- -------- ------- -------
(AMOUNTS IN THOUSANDS (AMOUNTS IN THOUSANDS
EXCEPT PER SHARE EXCEPT PER SHARE
DATA AND RATIOS) DATA AND RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Net sales and service revenue...... $206,760 $195,087 $47,520 $49,934
Net income......................... 520 460 226 247
Basic and diluted earnings per
common share..................... $ 0.08 $ 0.06 $ 0.03 $ 0.04
Weighted average common shares
outstanding...................... 6,810 8,257 6,810 6,810
Ratio of Earnings to Fixed
Charges(a)......................... 1.19 1.15 1.31 1.37
BALANCE SHEET INFORMATION:
Working capital.................... 39,585 39,179 43,399 32,854
Total assets....................... 123,400 115,884 131,229 111,896
Total assets, less goodwill........ 123,400 115,884 131,229 111,896
Total indebtedness................. 77,132 70,136 84,735 65,901
Stockholders' equity............... 46,268 45,748 46,494 45,995
Shares outstanding................. 6,810 6,810 6,810 6,810
Book value per share............... $ 6.79 $ 6.72 $ 6.83 $ 6.75
</TABLE>
- ---------------------
(a) Earnings used in computing the ratio of earnings to fixed charges consists
of income before fixed charges and income taxes. Fixed charges consist of
interest expense and the portion of rent expense representative of interest
expense.
13
<PAGE> 20
PRO FORMA EFFECT OF THE PROPOSED MERGER
The following unaudited pro forma financial information is based on the
historical financial results of the Company. The pro forma information presented
in the table below assumes that the merger occurred on March 1, 1998 and that UF
Acquisition Corp. had no operating history prior to the consummation of the
merger. The adjustment to net income results from interest expense related to
borrowings incurred to finance the merger. Adjustments to working capital and
total indebtedness reflect the use of cash and borrowings to finance the merger.
Adjustments to basic and diluted earnings per share, ratio of earnings to fixed
charges and book value per share reflect the mathematical difference between the
historical and pro forma amounts for these items. Such pro forma financial
information should be read in conjunction with the financial statements of the
Company and related notes included therein.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, 1999 THREE MONTHS ENDED MAY 31, 1999
------------------------------------ ------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
(AMOUNTS IN THOUSANDS EXCEPT PER (AMOUNTS IN THOUSANDS EXCEPT PER
SHARE DATA AND RATIOS) SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
INFORMATION:
Net sales and service
revenue...................... $206,760 $ -- $206,760 $ 47,520 $ -- $ 47,520
Net income..................... 520 (643) (123) 226 (143) 83
Basic and diluted earnings per
common share................. $ 0.08 $ (0.13) $ (0.05) $ 0.03 $ -- $ 0.03
Weighted average common shares
outstanding.................. 6,810 (4,257) 2,553 6,810 (4,257) 2,553
Ratio of Earnings to Fixed
Charges(a)..................... 1.19 (0.23) 0.96 1.31 (0.21) 1.10
BALANCE SHEET INFORMATION:
Working capital................ 39,585 -- 39,585 43,399 (5,689) 37,710
Total assets................... 123,400 -- 123,400 131,229 -- 131,229
Total assets, less goodwill.... 123,400 -- 123,400 131,229 -- 131,229
Total indebtedness............. 77,132 15,800 92,932 84,735 10,111 94,846
Stockholders' equity........... 46,268 (15,800) 30,468 46,494 (15,800) 30,694
Shares outstanding............. 6,810 (4,257) 2,553 6,810 (4,257) 2,553
Book value per share........... $ 6.79 $ 5.14 $ 11.93 $ 6.83 $ 5.19 $ 12.02
</TABLE>
- ---------------------
(a) Earnings used in computing the ratio of earnings to fixed charges consists
of income before fixed charges and income taxes. Fixed charges consist of
interest expense and the portion of rent expense representative of interest
expense.
14
<PAGE> 21
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
Each copy of this proxy statement mailed to stockholders is accompanied by
a proxy card furnished in connection with the solicitation of proxies by the
board of directors for use at the special meeting. The special meeting is
scheduled to be held in the Corporate Conference Room of the Company, Ten
Pictsweet Drive, Bells, Tennessee, on August , 1999, at 9:00 a.m., local time.
At the special meeting, stockholders will consider and vote upon (i) a proposal
to approve and adopt the merger agreement and (ii) such other matters as may
properly be brought before the special meeting.
On May 14, 1999, by unanimous vote of all directors, based on the
recommendation of the special committee, the Company's board of directors (i)
determined that the merger agreement is advisable and is fair to, and in the
best interests of, the Company and the Public Stockholders, including without
distinction all holders of Class A Common Stock and Class B Common Stock, (ii)
approved the merger agreement and (iii) recommended that the stockholders vote
"For" approval and adoption of the merger agreement. ACCORDINGLY, THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT. See "Special Factors -- Background of the Merger," "-- Purpose
and Structure of the Merger" and "-- Recommendation of the Special Committee."
The members of the Jim Tankersley Family and the directors and executive
officers of Pictsweet LLC and UF Acquisition Corp. intend to vote their shares
of Common Stock in favor of the approval and adoption of the merger agreement.
STOCKHOLDERS ARE REQUESTED TO PROMPTLY COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO
VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE
PROPOSAL FOR PURPOSES OF THE FIRST VOTING REQUIREMENT THAT THE PROPOSAL RECEIVE
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK
ENTITLED TO VOTE, BUT WILL HAVE NO EFFECT ON THE SECOND VOTING REQUIREMENT THAT
THE PROPOSAL RECEIVE THE AFFIRMATIVE VOTE OF ALL SHARES OF COMMON STOCK ACTUALLY
VOTED "FOR" OR "AGAINST" THE PROPOSAL, EXCLUDING ALL COMMON STOCK OWNED BY THE
JIM TANKERSLEY FAMILY, WITH EACH SHARE OF COMMON STOCK HAVING ONE VOTE
REGARDLESS OF CLASS.
RECORD DATE AND VOTING
The board of directors has fixed the close of business on July , 1999, as
the record date for the determination of the holders of Common Stock entitled to
notice of, and to vote at, the special meeting. Only stockholders of record at
the close of business on that date will be entitled to receive notice of, or to
vote at, the special meeting. The Company has outstanding and entitled to vote
at the special meeting an aggregate of 6,809,929 shares of Common Stock, of
which 2,617,243 shares are Class A Common Stock held by approximately 2,000
holders of record and 4,192,686 shares are Class B Common Stock held by
approximately 1,500 holders of record.
The Class A Common Stock and the Class B Common Stock will vote together as
a single class with respect to the proposal to approve and adopt the merger
agreement. See "-- Vote Required; Revocability of Proxies." With respect to the
transaction of such other business as may properly come before the special
meeting, the Class A Common Stock and the Class B Common Stock will vote
together as a single class, unless the DGCL or
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the Company's Certificate of Incorporation require otherwise. A majority of the
shares of Common Stock entitled to vote, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at the special
meeting. Abstentions (including broker non-votes) will be included in the
calculation of the number of votes represented at the special meeting for
purposes of determining whether a quorum has been achieved.
If the enclosed proxy card is properly executed and received by the Company
in time to be voted at the special meeting, the shares represented thereby will
be voted in accordance with the instructions marked thereon. Properly executed
proxies with no instructions indicated thereon will be voted "For" approval and
adoption of the merger agreement.
The board of directors is not aware of any matters other than those set
forth in the Notice of Special Meeting of Stockholders that may be brought
before the special meeting. If any other matters properly come before the
special meeting, including a motion to adjourn the meeting for the purpose of
soliciting additional proxies, the persons named in the accompanying proxy will
vote the shares represented by all properly executed proxies on such matters in
their discretion, except that shares represented by proxies which have been
voted "Against" the merger agreement will not be used to vote "For" adjournment
of the special meeting for the purpose of allowing additional time for
soliciting additional votes "For" the Merger Agreement. See "-- Vote Required;
Revocability of Proxies."
STOCKHOLDERS SHOULD NOT FORWARD ANY COMMON STOCK CERTIFICATES WITH THEIR PROXY
CARDS. IN THE EVENT THE MERGER IS CONSUMMATED, STOCK CERTIFICATES SHOULD BE
DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL,
WHICH WILL BE SENT TO STOCKHOLDERS BY FIRST UNION NATIONAL BANK, IN ITS CAPACITY
AS THE PAYING AGENT, PROMPTLY AFTER THE EFFECTIVE TIME OF THE MERGER.
VOTE REQUIRED; REVOCABILITY OF PROXIES
The merger agreement must be approved and adopted by two separate voting
requirements:
1. the affirmative vote of a majority of the outstanding shares of
Common Stock (including both Class A Common Stock and Class B Common Stock)
entitled to vote. For this first voting requirement, the votes of Class A
Common Stock and Class B Common Stock will be counted together as a single
class, with each share of Class A Common Stock having one-tenth vote and
each share of Class B Common Stock having one vote. The Jim Tankersley
Family's shares of Common Stock represent 57.3% of the votes entitled to be
counted for this voting requirement, and they intend to vote "For" approval
and adoption of the merger agreement. Therefore, this voting requirement
will be met regardless of how you vote; and
2. the affirmative vote of a majority of all shares of Common Stock
entitled to vote which are actually voted "For" or "Against" the proposal,
excluding all Common Stock owned by the Jim Tankersley Family, with each
share of Common Stock having one full vote regardless of class. On the
record date, for purposes of the second voting requirement, there are
4,256,514 shares entitled to vote, and assuming all such shares are voted,
the number of shares necessary to approve and adopt the merger agreement is
2,128,258. Members of the board of directors other than the Jim Tankersley
Family own 1,041,946 shares of Common Stock representing 24.5% of the
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votes entitled to be counted for this voting requirement, and they intend
to vote "For" the approval and adoption of the merger agreement.
The first voting requirement is required by the Delaware General
Corporation Law and the Company's Certificate of Incorporation. The second
voting requirement is required by the merger agreement. To the knowledge of the
Company, except as set forth in this proxy statement, no executive officer,
director or affiliate of the Company, Pictsweet LLC or UF Acquisition Corp. has
made a recommendation in support of, or in opposition to, the merger agreement.
Because the first voting requirement of the Required Stockholder Vote is
based upon the total number of outstanding shares of Common Stock, the failure
to submit a proxy card (or to vote in person at the special meeting) or the
abstention from voting by a stockholder (including broker non-votes) will have
the same effect as a vote "Against" approval and adoption of the merger
agreement. Because the second voting requirement of the Required Stockholder
Vote on the merger agreement is based upon votes actually cast "For" or
"Against" the proposal, the failure to submit a proxy card (or to vote in person
at the special meeting) or the abstention from voting by a stockholder
(including broker non-votes) will have no effect on the outcome of such voting
requirement. The merger agreement does not require the approval of a majority of
stockholders who are not affiliates of the Company. Brokers holding shares of
Common Stock as nominees will not have discretionary authority to vote such
shares in the absence of instructions from the beneficial owners thereof.
A stockholder may revoke a proxy at any time prior to its exercise by doing
the following:
- delivering to Donald Dresser, Secretary and Senior Vice President,
Administration, United Foods, Inc., Ten Pictsweet Drive, Bells, Tennessee
38006-0119, a written notice of revocation prior to the special meeting;
- delivering prior to the special meeting a duly executed proxy bearing a
date later than the prior proxy; or
- attending the special meeting and voting in person.
If for any reason the special meeting is adjourned, at any subsequent
reconvening of the special meeting, all proxies will be voted in the same manner
as such proxies would have been voted at the original convening of the special
meeting, except for any proxies which have theretofore effectively been revoked
or withdrawn.
The obligations of the Company, Pictsweet LLC and UF Acquisition Corp. to
consummate the merger are subject, among other things, to the condition that the
stockholders approve and adopt the merger agreement by the Required Stockholder
Vote. See "The Merger Agreement -- Conditions to the Merger."
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from stockholders,
including reimbursement of banks, brokerage firms, custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy material
to the beneficial owners of stock. Proxies may be solicited personally, by mail,
by telephone, by facsimile or by telegraph by officers, directors, or other
employees of the Company, without remuneration other than their regular
compensation.
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SPECIAL FACTORS
BACKGROUND OF THE MERGER
From time to time during 1998, members of the Jim Tankersley Family
discussed the competitive circumstances facing the Company and the Company's low
historic growth rate. These discussions also reflected a recognition that the
stockholders of the Company generally had achieved little or no return on their
investment during the last three years and had virtually no liquidity or market
sponsorship for their stock. The Jim Tankersley Family also considered the fact
that stockholders had oversubscribed significantly the $2.50 tender offer made
by the Company in May 1997. As a result of these discussions, during the summer
of 1998 the Jim Tankersley Family began to consider the available alternatives
to provide additional value and liquidity for the stockholders of the Company.
The Jim Tankersley Family learned that two significant stockholders, Daniel B.
Tankersley and Julia T. Wells, the brother and sister of Jim Tankersley, owning
directly in the aggregate 27.8% of Class A Common Stock, and 7.5% of Class B
Common Stock, desired to sell their stock. The alternatives principally
discussed by the Jim Tankersley Family were whether the Company might be sold to
some unaffiliated party, or whether the stock of only Daniel B. Tankersley and
Julia T. Wells in the Company might be purchased by the Jim Tankersley Family.
Both of these alternatives were rejected by the Jim Tankersley Family because
the Jim Tankersley Family had determined that they did not wish to sell their
stock (which controlled more than 50% of the voting equity interests), and
because they believed that to purchase exclusively the interests of their
relatives would be providing a preferential opportunity not generally available
to Public Stockholders. In September 1998, the Jim Tankersley Family determined
that since they would not agree to sell their Common Stock or liquidate the
Company, the only alternative which could provide liquidity for all other
stockholders at a premium to the existing market price was a cash merger
proposal pursuant to which they would acquire the Company. Following this
determination, James I. Tankersley was authorized by the Jim Tankersley Family
to formulate, with the assistance of counsel for the Jim Tankersley Family, a
merger proposal to be presented to the board of directors. The Jim Tankersley
Family did not consult with or engage a financial advisor in connection with
formulating its proposal.
At a regular quarterly board of directors meeting held on September 16,
1998, at which all directors were present, James I. Tankersley delivered to the
board of directors a written proposal for the Jim Tankersley Family to acquire
all of the outstanding Common Stock owned by the Public Stockholders for $3.00
per share. The written proposal also requested the appointment of an independent
committee to consider the proposal on behalf of the Public Stockholders and to
take actions necessary to effect the proposed merger transaction if the proposal
were accepted. The proposal also asked the Company to pay all reasonable
expenses of the independent committee and the Jim Tankersley Family in
considering the proposal and, if the proposal were accepted in preparing for and
consummating the merger, except for the cost of financing incurred by the Jim
Tankersley Family. In connection with the written proposal, James I. Tankersley
presented a number of reasons why he believed the proposal was in the best
interests of the Company and the Public Stockholders. Among the reasons
presented were the following:
- Business conditions which made it likely that the Company's earnings
growth would continue to be small or negligible, thereby providing a low
return on investment for the Company and little prospect for better stock
prices for the Public Stockholders.
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- Among the business conditions underlying his conclusion are the
overcapacity of the industries in which the Company conducts its
business, the consolidations of the Company's customers and competitors,
the increasing demand for "slotting fees" by customers, and the
increasing competitive presence of farmer cooperatives which sell
competitive products at lower margins than the Company.
- The lack of liquidity for the Public Stockholders and the desire of
Daniel B. Tankersley and Julia T. Wells, two significant stockholders
owning in the aggregate 27.8% of Class A Common Stock and 7.5% of Class B
Common Stock, to sell their shares.
- No additional equity funds are needed by the Company. Also, the Company
would benefit from the cost savings of not being a public company, a
factor considered by the Jim Tankersley Family in determining the price
and other terms of their offer.
Mr. Tankersley also stated that the Jim Tankersley Family would not vote their
controlling voting shares of Class B Common Stock to sell the Company to a third
party.
In responding to the proposal presented by James I. Tankersley at the
September 16 meeting of the board of directors, several members of the board of
directors expressed their view that they had possible or actual conflicts of
interest in considering the proposal either as a result of being a member of the
Jim Tankersley Family, being a current and prospective employee and officer of
the Company, or being a relative or a business associate of a relative of the
Jim Tankersley Family. In light of these possible and actual conflicts of
interest, the board of directors formed the special committee, comprised of
disinterested directors, Dr. Joseph A. Geary and John S. Wilder, who was elected
Chairman of the special committee. The special committee was created for the
purpose of evaluating and making recommendations with respect to the proposal
made by the Jim Tankersley Family. The special committee was authorized to
retain such financial and legal advisors as it deemed appropriate and to
negotiate the terms of any transaction.
On September 21, the special committee decided to retain the law firm of
Doramus, Trauger & Ney ("DTN") as its legal counsel. After being engaged, DTN
discussed with the special committee its roles and responsibilities, and the
process of selecting a financial advisor. The special committee interviewed two
investment banking firms to act as its financial advisor and on September 25,
the special committee engaged J.C. Bradford as the special committee's financial
advisor. J.C. Bradford was selected by the special committee because of its
expertise and reputation in the areas of mergers and acquisitions, "going
private" transactions and providing financial advisory services to special
committees as well as its experience with transactions involving similar
industries and companies.
Following its engagement on September 25, J.C. Bradford reviewed financial
and operating information relating to the Company. On October 5, J.C. Bradford
presented an overview of the financial analyses it intended to use as well as
its preliminary view that the proposed consideration of $3.00 might be
inadequate. On October 14, the special committee met with representatives of DTN
and J.C. Bradford to discuss J.C. Bradford's analysis of the proposal. At the
October 14 meeting, J.C. Bradford presented its conclusion that based on its
analysis of discounted cash flow, EBITDA multiples and book value, the proposed
consideration of $3.00 was inadequate. The special committee also discussed with
representatives of DTN the fiduciary duties and legal standards applicable to
the special committee. DTN advised the special committee that it was under no
obligation to recommend any agreement with the Jim Tankersley Family, unless it
determined that any
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such agreement was advisable and in the best interests of the Public
Stockholders and the Company. The special committee determined that pursuing an
offer from the Jim Tankersley Family and considering such a transaction was in
the best interests of the Public Stockholders and the Company for a number of
reasons, including (i) the lack of appreciation in the price of the Common
Stock, (ii) the historically low trading volume of the Common Stock, (iii) the
competitive position of the Company, (iv) the fact that the Company's current
line of business was generally not perceived by analysts to be a growth
industry, and (v) the consolidating nature of the frozen food industry. In light
of this determination, the special committee requested its financial and legal
advisors to negotiate with the Jim Tankersley Family to obtain a higher price
than $3.00 per share. For information regarding the market price and historical
trading volume of the Common Stock, see "Market Price and Dividend Information."
During October and November, representatives of J.C. Bradford and DTN
continued their review of financial and other information about the Company,
conducted interviews of management of the Company, considered the availability
of alternatives to the merger transaction and met with a representative of the
Jim Tankersley Family to negotiate a merger price of more than $3.00 per share.
During the negotiations, Mr. Tankersley discussed the factors which he believed
indicated that $3.00 per share was a fair price for the Common Stock, including
the poor prospects for earnings growth in light of the consolidation of the
Company's competitors and customers and the need for increasing capital
expenditures to remain competitive, the lack of liquidity in the trading markets
for the Common Stock, and the approximate 20% market premium which the $3.00
offer presented to the Public Stockholders. Representatives of DTN and J.C.
Bradford continued to express the view that $3.00 was not adequate and to seek a
higher price, indicating that it was unlikely that the current proposal would be
recommended to the board of directors. In response, representatives of the Jim
Tankersley Family requested the special committee to make a specific
counter-offer which would include both a proposed price per share and the other
principal terms of a potential transaction.
On November 23, the special committee met with representatives of J.C.
Bradford and DTN to receive a report on the negotiations with the Jim Tankersley
Family. J.C. Bradford representatives discussed the results of the negotiations,
each of the Jim Tankersley Family's arguments supporting their position that
$3.00 per share was a fair price for the Common Stock and the request for a
specific counter-offer by the special committee. Additionally, J.C. Bradford
presented a financial valuation overview of the Company, including analyses of
comparable transactions, discounted cash flow, liquidation and leveraged buyout
transactions, as well as historical trading data. After discussions with
representatives of DTN and J.C. Bradford, the special committee determined to
propose a price of $3.85 per share. In addition, the special committee
determined to present the following additional terms to the Jim Tankersley
Family: (i) any transaction which implemented the merger must be approved and
adopted by a majority of the Public Stockholders, (ii) the Public Stockholders
must have appraisal rights, and (iii) the Company's reimbursement of the
expenses of the Jim Tankersley Family must be limited if the merger were not
completed for any reason other than a breach of the merger agreement by the
Company. The special committee instructed DTN to attempt to negotiate a merger
agreement with the Jim Tankersley Family on these terms, including a price of
$3.85 per share. The special committee believed, based on previous negotiations
with the Jim Tankersley Family, that the Jim Tankersley Family would not
consider a price higher than $3.85 per share. The special committee also
considered the analyses presented by J.C. Bradford, including the trading
history of the Common Stock and the
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fact that a price of $3.85 per share would exceed the highest price at which
substantially all of the shares of Common Stock had traded during the previous
12 months.
From November 23 to December 8, representatives of DTN engaged in
negotiations with representatives of the Jim Tankersley Family. On December 8,
the special committee met to receive a report of DTN on the status of the
negotiations with the Jim Tankersley Family. DTN representatives reported that
the Jim Tankersley Family had rejected the special committee's counter-offer of
$3.85 per share and the other terms proposed by the special committee. DTN
representatives reported that counsel for the Jim Tankersley Family had
indicated that they would accept an offer on the following terms: (i) a price of
$3.50 per share; (ii) appraisal rights for the Public Stockholders but with the
limitation that the Jim Tankersley Family would have a right to withdraw from
the transaction if more than 250,000 shares of Common Stock sought appraisal
rights; (iii) any vote of the Public Stockholders must include the votes of
Daniel B. Tankersley and Julia T. Wells; (iv) payment by the Company of the
expenses of the Jim Tankersley Family if the transaction did not close; and (v)
the right to withdraw if there occurred a material adverse change with respect
to the Company. J.C. Bradford representatives presented its valuation analysis,
including analyses relating to comparable companies, comparable transactions,
discounted cash flow, liquidation and historical trading data. Based on its
analysis, J.C. Bradford reported that they believed that J.C. Bradford could
render an opinion that $3.50 per share is a fair price for the Common Stock from
a financial point of view. The special committee then discussed further the
proposed price of $3.50 per share and the other terms of the Jim Tankersley
Family's offer, including the importance of the vote of the Public Stockholders,
the appraisal rights, and the impact of the participation of Daniel B.
Tankersley and Julia T. Wells on any vote of the Public Stockholders. The
special committee discussed the requirement of allowing withdrawal of the offer
in the event of a material adverse change with respect to the Company. The
special committee determined that such right should be limited to changes
outside the control of the Jim Tankersley Family. After discussion, the special
committee adopted the position that the Company should reimburse the costs of
the Jim Tankersley Family only in the event the transaction did not close
because the special committee determined to withdraw its recommendation of the
transaction. The special committee determined to meet again to consider further
whether or not to accept the proposed terms.
On December 14, the special committee met with its financial and legal
advisors to consider again the Jim Tankersley Family's revised proposal.
Representatives of J.C. Bradford confirmed its previous advice to the special
committee that they believed J.C. Bradford could opine that $3.50 per share was
fair from a financial point of view, subject to their review of the Company's
most recent operating results. The special committee discussed with its
financial advisors whether there was another potential buyer for the Company
that might be willing to offer a higher price per share. The representatives of
J.C. Bradford noted that the Jim Tankersley Family proposal had been public
since September 1998 and no other proposals had been submitted. Based on their
experience and considering the totality of the surrounding circumstances,
including the Jim Tankersley Family's controlling position and Mr. Tankersley's
stated position that the members of the Jim Tankersley Family would not sell
their common stock to a third party, they stated that they did not believe that
there would be another offer for the Company and that there were no alternative
transactions the special committee could reasonably consider. Accordingly, the
special committee determined it would not consider further any unaffiliated or
other transactions unless circumstances changed. The special committee discussed
whether the Jim Tankersley Family might be willing to pay more than $3.50 per
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share and instructed DTN representatives to contact counsel for the Jim
Tankersley Family and attempt to obtain an offer of $3.60 per share. The special
committee adjourned while DTN representatives contacted counsel for the Jim
Tankersley Family who after discussing the $3.60 proposal with the Jim
Tankersley Family stated that the Jim Tankersley Family was firm that $3.50 per
share was their final offer. The special committee then determined that it would
consider recommending that the board of directors approve a transaction at $3.50
per share, provided that approval and adoption of the transaction by a majority
of the Public Stockholders was a condition to the Company's obligation to
consummate the transaction, and provided further that other outstanding issues
relating to the terms of the Jim Tankersley Family's proposal could be resolved
to the special committee's satisfaction.
On December 21, the special committee met with its financial and legal
advisors. DTN reviewed with the special committee a letter to the board of
directors received by the Company in December from Robert I. Strougo, a
stockholder of the Company, reflecting his conclusion that $3.00 per share was
not an acceptable offer. See "Stockholder Litigation." Following the discussion
of the letter from Mr. Strougo, J.C. Bradford representatives presented an
analysis of the $3.50 offer from a financial point of view, including analyses
relating to comparable companies, comparable transactions, discounted cash flow,
liquidation and historical trading data. Based on its analysis, J.C. Bradford
stated it could deliver an opinion that $3.50 per share was fair to the public
stockholders from a financial point of view. The special committee discussed the
J.C. Bradford analysis and the special committee's belief that $3.50 per share
was the highest price that would be offered by the Jim Tankersley Family. The
special committee next reviewed with DTN a draft of the merger agreement and
discussed a number of issues to be negotiated with representatives of the Jim
Tankersley Family, including the issue of the merger agreement being approved
and adopted by the Public Stockholders and whether the votes of Daniel B.
Tankersley and Julia T. Wells would be counted in that vote.
During December 1998 and January 1999, representatives of the special
committee and of the Jim Tankersley Family negotiated the terms of the merger
agreement. On January 20, the special committee met with representatives of J.C.
Bradford and DTN to review the analysis of J.C. Bradford and the results of the
negotiation of the terms of the merger agreement. Representatives of J.C.
Bradford presented an updated analysis of the proposed merger price of $3.50 per
share and delivered J.C. Bradford's written opinion to the effect that $3.50 is
fair to the Public Stockholders from a financial point of view. DTN reviewed the
status of the negotiations of the terms of the merger agreement and reported
that the Jim Tankersley Family would not agree to a provision requiring approval
and adoption of the merger agreement by a vote of a majority of the Common Stock
held by the Public Stockholders excluding the votes of Daniel B. Tankersley and
Julia T. Wells. DTN noted that they believed that the Jim Tankersley Family
would agree to a provision requiring the approval and adoption of the merger
agreement by a vote of a majority of Common Stock held by the Public
Stockholders who vote, including the votes of Daniel B. Tankersley and Julia T.
Wells. At this meeting and at meetings on January 21 and 22, the special
committee discussed with representatives of DTN the issue of what vote of the
Public Stockholders should be required to approve and adopt the merger
agreement. The special committee considered the impact of the Common Stock which
could be voted by Daniel B. Tankersley and Julia T. Wells on the potential
outcome of the Public Stockholders' vote. The special committee also considered
whether to require approval and adoption of the transaction by a majority of the
Common Stock held by Public Stockholders or approval and adoption by a majority
of the Common Stock actually voted
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by the Public Stockholders. The special committee asked DTN to continue to
negotiate this issue.
On January 27, the special committee met and DTN reported that the Jim
Tankersley Family would agree only to a requirement that the transaction be
approved and adopted by a vote of the Public Stockholders who voted and which
included the votes of Daniel B. Tankersley and Julia T. Wells. The special
committee discussed this issue as well as the other open issues in the merger
agreement. The special committee also discussed whether the Jim Tankersley
Family would in fact sell to a third party and asked DTN to raise that question.
On February 4, the special committee met with the representatives of DTN.
DTN reported to the special committee that counsel to the Jim Tankersley Family
had repeated that the Jim Tankersley Family would not be willing to sell their
Common Stock to any third party. The special committee determined that, in its
view, it was unlikely that there would be another potential purchaser of Common
Stock owned by the Public Stockholders because it believed that the Jim
Tankersley Family would not sell their Common Stock and a third party purchaser
would not want to acquire a minority position in the Company. The special
committee also expressed its view that the price of $3.50 per share was the best
price which could be negotiated by it with the Jim Tankersley Family. After
reviewing the benefits of the revised proposal, the special committee voted
unanimously to recommend to the board of directors approval of the revised
proposal subject to the negotiation of a satisfactory merger agreement which
included appraisal rights and the approval and adoption of the merger agreement
by the vote of a majority of the Common Stock held by Public Stockholders who
actually voted including the votes of Daniel B. Tankersley and Julia T. Wells.
DTN next reviewed the status of the negotiations on the merger agreement and in
particular reviewed with the special committee the conditions to the obligations
of the Jim Tankersley Family to close the proposed transaction, including the
proposed condition relating to the actual or prospective loss of a significant
customer. After discussion, the special committee concluded that after the
merger agreement had been approved and adopted by the requisite vote of the
Public Stockholders, the Jim Tankersley Family should not be able to exercise
their right not to close based on the loss of a significant customer condition
and no such condition should be exercisable based on information which the Jim
Tankersley Family had a reasonable basis to know at the time the merger
agreement was executed. On that basis, DTN was asked to continue its
negotiations of the merger agreement.
During February and March, representatives of the special committee and of
the Jim Tankersley Family continued to negotiate the terms of the merger
agreement. On February 18, the special committee met and reaffirmed that subject
to the satisfactory negotiation of the terms of the merger agreement they were
prepared to recommend to the board of directors approval of the proposed merger
agreement providing $3.50 per share to the Public Stockholders. On March 5, the
special committee met to discuss the issues remaining unresolved on the merger
agreement, including issues relating to the payment by the Company of the
expenses of the Jim Tankersley Family and relating to the conditions to the
obligations of Jim Tankersley Family to close the proposed merger. During the
course of negotiations between DTN and counsel to the Jim Tankersley Family,
these issues were negotiated in a series of arm's-length discussions, which the
special committee believed resulted in several issues being resolved favorably
for the Public Stockholders. These favorably resolved issues included the
agreements of the Jim Tankersley Family that expenses of the Jim Tankersley
Family would not be paid by the Company if there were a breach of the terms of
the Merger Agreement by Pictsweet LLC or UF Acquisition Corp.,
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if the Required Stockholder Vote were not obtained or if the number of
dissenting shares were to equal or exceed 250,000, and that the Jim Tankersley
Family's ability not to close the transaction based upon various conditions
would be substantially limited once the Required Stockholder Vote had been
obtained.
On March 18 and April 5, the special committee met to discuss the results
of the negotiations and their proposed recommendation to the board of directors.
At these meetings, DTN discussed the litigation filed by Rolfe Glover, a
stockholder, in a Delaware Court of Chancery on March 8. On May 10, the special
committee met with representatives of DTN and J.C. Bradford to consider
finalizing their recommendation to the board of directors. At this meeting, J.C.
Bradford updated its analysis and confirmed its earlier opinion that the merger
consideration of $3.50 was fair to the Public Stockholders from a financial
point of view. The special committee discussed its previous proposed
recommendation, the results of the negotiations of the merger agreement and its
belief that the Jim Tankersley Family would not sell their shares of Common
Stock, and would not vote such shares for any acquisition proposal made by a
third party. Based upon the existing circumstances and on the information and
advice received since September 16, the special committee determined unanimously
that the proposed merger was fair to and in the best interests of the Public
Stockholders and recommended to the board of directors the approval of the
merger agreement. The special committee further approved its written report
prepared by DTN and directed that it be provided to the board of directors.
On May 10, following the special committee meeting, the board of directors
met and the Chairman of the special committee presented the written report and
recommendation to the board of directors. Representatives of J.C. Bradford
confirmed that J.C. Bradford was prepared to deliver a written fairness opinion
to the board of directors and distributed to the board of directors materials
supporting its opinion. The board of directors deferred action on the
recommendation of the special committee to provide the board of directors with
an opportunity to review the recommendation and related materials.
On May 14, at a meeting of the board of directors, the special committee,
along with representatives of DTN and J.C. Bradford, recommended the merger
agreement to the board of directors on the terms negotiated by the special
committee. Presentations were made by J.C. Bradford regarding the fairness of
$3.50 per share to the Public Stockholders from a financial point of view, by
DTN as to the terms of the merger agreement, and by counsel to the Company as to
the fiduciary obligations of the directors and J.C. Bradford delivered its
written fairness opinion to the board of directors. The board of directors
determined that the merger was advisable and was fair to, and in the best
interests of, the Company and the Public Stockholders, and adopted resolutions
to determine that the merger agreement was advisable and to approve the merger
and the merger agreement, and to recommend that the holders of Common Stock vote
to approve and adopt the merger agreement. The merger agreement was then
executed and delivered by authorized representatives of the Company and the Jim
Tankersley Family. Following the close of trading of the Common Stock on the
American Stock Exchange and the Pacific Exchange, the Company and the Jim
Tankersley Family issued a press release on May 14 disclosing that the Company
and the Jim Tankersley Family executed the definitive merger agreement pursuant
to which the Jim Tankersley Family would acquire all the shares held by Public
Stockholders at price of $3.50 per share in cash.
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<PAGE> 31
PURPOSE AND STRUCTURE OF THE MERGER
For the Jim Tankersley Family, the purpose for the merger is to acquire all
the equity interests of the Company represented by the shares held by Public
Stockholders for the reasons described below. The Jim Tankersley Family has
advised the Company in connection with its proposal of the merger, that they
would not sell their shares of Common Stock to any third party or vote their
shares to approve a competing transaction or the liquidation of the Company. In
the merger, each share held by Public Stockholders will be converted into the
right to receive $3.50 in cash. The acquisition of the shares held by Public
Stockholders has been structured as a cash merger in order to provide a prompt
and orderly transfer to the Jim Tankersley Family of ownership of the equity
interests represented by the shares held by Public Stockholders and prompt
payment in cash of the merger consideration to the Public Stockholders.
In determining to acquire the shares held by Public Stockholders at this
time, the Jim Tankersley Family focused on a number of factors, including (i)
the nature of the Company's business and recent developments in the industries
in which the Company competes, (ii) requests of Daniel B. Tankersley and Julia
T. Wells for a transaction resulting in cash for their Common Stock, as well as
similar requests made from time to time by stockholders who were not affiliates
of the Company and (iii) the advantages and disadvantages of remaining
registered under the Exchange Act. Among the considered advantages of remaining
a publicly traded company registered under the Exchange Act were the
availability of a trading market which provided an opportunity for public sale
of shares by stockholders and for capital raising activities of the Company.
Among the considered disadvantages of remaining a publicly traded company were
the costs of being a public company and the inability to develop a liquid
trading market supported by research analysts. The primary benefit to the Public
Stockholders is the opportunity to sell all of their Common Stock at a cash
price which represents a premium over trading prices in effect immediately prior
to the announcement of the merger. The structure of the transaction as a cash
merger provides a cash payment at a premium price to all holders of outstanding
shares held by Public Stockholders and an orderly transfer of ownership of the
equity interests represented by the shares held by Public Stockholders to the
Jim Tankersley Family. The structure of the merger also ensures the acquisition
by the Jim Tankersley Family of all the outstanding shares held by Public
Stockholders.
Following the merger, it is anticipated that the Common Stock will be
delisted from the American Stock Exchange and the Pacific Exchange and the
registration of such securities under the Exchange Act will be terminated,
thereby allowing the Company to eliminate certain overhead costs (including the
time devoted by its employees and the fees and expenses of various professional
advisors and service providers of the Company) which relate exclusively to the
Company being a public company. See "-- Plans for the Company After the Merger"
and "-- Certain Effects of the Merger."
RECOMMENDATION OF THE SPECIAL COMMITTEE
The board of directors created the special committee, which consists of two
disinterested directors, for purposes of evaluating and making recommendations
to the board of directors with respect to the offer by the Jim Tankersley
Family. The special committee retained DTN as its legal counsel and J.C.
Bradford as its financial advisor to assist it in negotiating and determining
the fairness of the merger on behalf of the Public Stockholders. On January 20,
1999, the special committee received a written opinion of
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<PAGE> 32
J.C. Bradford as to fairness of the merger consideration for the Public
Stockholders from a financial point of view and on May 10, 1999, the special
committee, after receiving an oral opinion of J.C. Bradford confirming its
January 20, 1999 written opinions, reached the following conclusions:
- the Jim Tankersley Family stated that they were not willing to sell their
Common Stock to any third party;
- the sale of the Common Stock is in the best interest of the Public
Stockholders;
- the best price that can be negotiated by the special committee with the
Jim Tankersley Family is $3.50 per share;
- the proposed purchase price of $3.50 per share is a fair price for the
Common Stock;
- the terms of the merger agreement on substantially the terms of the draft
of March 9, 1999, including, without limitation, the nature of the
parties' representations, warranties, covenants and agreements and the
conditions of obligations of Pictsweet LLC and UF Acquisition Corp. are
reasonable;
- the merger is fair to the Public Stockholders; and
- the special committee recommends that the board of directors approve the
merger agreement on the terms described in the merger agreement,
including a price per share of $3.50.
The special committee, in reaching its conclusion that the merger and
merger agreement are fair to the Public Stockholders, and in determining to
recommend approval of the merger and the merger agreement to the board of
directors, considered a number of factors, including, without limitation:
- The oral and written presentations of J.C. Bradford to the special
committee on January 20, 1999 and May 10, 1999 and the written opinion of
J.C. Bradford, dated January 20, 1999, and confirmed orally on May 10,
1999 and in writing on May 14, 1999, to the effect that, as of the date
of such opinion and based upon and subject to assumptions and limitations
stated therein, the $3.50 per share of Common Stock to be received by the
Public Stockholders in the merger is fair to the Public Stockholders from
a financial point of view. See "-- Opinion of the Special Committee's
Financial Advisor." The written opinion of J.C. Bradford as delivered to
the board of directors on May 14, 1999 and updated as of the date of this
proxy statement is attached hereto as Appendix B. Public Stockholders are
urged to, and should, read such opinion in its entirety, including the
assumptions and limitations set forth therein.
- The oral and written presentations of J.C. Bradford with respect to (i)
recent market prices of the Common Stock; (ii) historical market prices
of the Common Stock; (iii) net book value; (iv) going concern value; and
(v) liquidation value, as well as the price paid by the Company for
shares of Common Stock in the issuer tender offer in 1997 which was
oversubscribed at a price of $2.50 per share.
- The Jim Tankersley Family's stated position that they would not sell
their shares of Common Stock to a third party or vote their shares to
approve a competing
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<PAGE> 33
transaction or the liquidation of the Company, as well as the absence of
any offers from unaffiliated third parties for such a transaction.
- The special committee's conclusion that $3.50 per share represented the
highest price that the special committee could negotiate with the Jim
Tankersley Family. This determination was the result of the special
committee's extensive and arms'-length negotiations with the Jim
Tankersley Family in an attempt to obtain the highest possible price for
the Public Stockholders. The special committee retained DTN and J.C.
Bradford, unaffiliated representatives, to act on behalf of the special
committee in such negotiations.
- The terms of the merger agreement, including without limitation, the
amount and form of the merger consideration; the nature of the parties'
representations, warranties, covenants and agreements; and the conditions
to the obligations of the Jim Tankersley Family and the Company. In this
regard, the special committee considered the extensive and arms'-length
nature of the negotiations relating to the merger agreement and
considered significant the negotiated requirement that the merger
agreement be approved and adopted by the Required Stockholder Vote as a
condition to the Company's obligation to consummate the merger. Although
the transaction is not structured to require the approval of a majority
of the stockholders who are not affiliates of the Company, the special
committee believed that the terms of the merger agreement provide
procedural fairness because (i) the Required Stockholder Vote requires
the affirmative vote of a majority of all shares of Common Stock held by
Public Stockholders which are actually voted "For" or "Against" the
proposal and (ii) the interests of the Public Stockholders who are not
affiliates of the Company are aligned with the interests of Daniel B.
Tankersley and Julia T. Wells who as directors may be deemed to be
affiliates of the Company and who are sellers of the Common Stock they
own. The special committee also viewed favorably the fact that the merger
agreement contained a limited number of representations and warranties by
the Company, a limited number of conditions to consummation of the
merger, making consummation of the transaction more likely than one in
which the agreement imposed more significant conditions to consummation,
and the requirement that the merger agreement contain only limited
conditions to closing which could be exercised by the Jim Tankersley
Family or UF Acquisition Corp. after the vote of the Public Stockholders
in favor of the merger. The special committee also considered the fact
that the merger agreement could be terminated without making any payment
to the Jim Tankersley Family (other than payment for fees and expenses)
if the special committee withdrew its recommendation of the merger
agreement or the merger and the Company's right to terminate the merger
agreement if the Jim Tankersley Family does not deliver a written
financing commitment substantially on the terms presented to the special
committee in the merger agreement within fifteen (15) days of the
execution of the merger agreement.
- The fact that the merger consideration represented (i) a 47% premium over
the last reported sales price ($2.375) of the Class A Common Stock and a
40% premium over the last reported sales price ($2.50) of the Class B
Common Stock on September 15, 1998, the last trading day immediately
preceding the public announcement of the proposal by the Jim Tankersley
Family; (ii) a 33% premium over the last reported sales price ($2.63) of
the Class A Common Stock and a 24% premium over the last reported sales
price ($2.81) of the Class B Common Stock
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<PAGE> 34
on September 9, 1998, the day one week preceding the announcement of the
negotiations; and (iii) a 27% premium over the last reported sales price
($2.75) of the Class A Common Stock and a 28% premium over the last
reported sales price ($2.72) of the Class B Common Stock on September 16,
1997, the last day that the Common Stock traded one year prior to the
announcement of the negotiations.
- The fact that book value per share of the Common Stock was $6.79 as of
February 28, 1999 and that J.C. Bradford concluded that a reasonable
liquidation value in an orderly liquidation was $2.51 per share. The
special committee also considered the stated position of the Jim
Tankersley Family that they would not vote their shares in favor of a
liquidation.
- The special committee's knowledge of the business, financial condition,
results of operations and prospects of the Company. The members of the
special committee were generally familiar with and knowledgeable about
the Company's affairs, including the present and possible future economic
and competitive environment in which the Company operates its businesses.
- The historical trading prices of the Common Stock and the limited trading
volume and market sponsorship for the Common Stock, which has resulted in
limited liquidity for the Public Stockholders. Also, the special
committee considered that the Jim Tankersley Family indicated that they
would not sell their shares of Common Stock to a third party, and that,
since the public announcement of the Jim Tankersley Family's offer on
September 16, 1998, and, during the 18 months preceding such
announcement, the special committee was not aware of any third party
which had expressed any interest in acquiring, or making an offer to
acquire, the Company.
- The special committee considered that dissenters' rights of appraisal
will be available to the holders of Common Stock under Delaware law,
thereby providing Public Stockholders with the opportunity to seek a
judicially determined appraisal of fair value of the Common Stock as an
alternative to the merger consideration.
- The special committee considered the fact that if the merger agreement
were approved and adopted, the Public Stockholders would not participate
in any future growth of the Company. Because of the risks and
uncertainties associated with the Company's future prospects in light of
the competitive and consolidating conditions in the industries in which
the Company operates and the limited trading market for the Common Stock,
the special committee concluded the merger was preferable to maintaining
the publicly held status of the Company with a speculative future return
for the Public Stockholders.
- The special committee considered that it was composed of disinterested
directors, none of whom were employed by or affiliated with the Company
(except as directors) or would have any interest in the Company after the
merger. The special committee also considered that it had retained and
was advised by its own legal counsel and financial advisor who were
independent of the Company and the Jim Tankersley Family and who
negotiated on behalf of the special committee, assisted the special
committee in evaluating the merger and provided the special committee
with financial and legal advice.
In view of the number and disparate nature of the factors considered by the
special committee, the special committee did not assign relative weights to the
factors considered
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<PAGE> 35
in reaching its conclusions. The special committee did, however, rely
significantly on the presentations and opinion of J.C. Bradford described above.
On May 10, 1999, following a presentation by J.C. Bradford to the special
committee of its opinion that the $3.50 per share of Common Stock to be received
by the Public Stockholders in the merger is fair to the Public Stockholders from
a financial point of view, the special committee concluded that the merger and
the merger consideration are fair to the Public Stockholders and recommended to
the board of directors that it approve the merger and the merger agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS
On May 14, 1999, after consideration of the matters described above under
"-- Recommendation of the Special Committee", by unanimous vote of all directors
of the Company, based on the recommendation and approval of the special
committee, the board of directors (i) determined that the merger agreement was
advisable and is fair to, and in the best interests of, the Company and the
Public Stockholders, including without distinction all holders of Class A Common
Stock and Class B Common Stock, (ii) approved the merger agreement and (iii)
recommended that the stockholders approve and adopt the merger agreement. In
considering the recommendation of the board of directors with respect to the
merger, stockholders should be aware that certain officers and directors of the
Company and Pictsweet LLC have interests in the merger which may present them
with certain potential and actual conflicts of interest in connection with the
merger. See "-- Interests of Certain Persons in the Merger." In view of the
number and disparate nature of the factors considered by the board of directors,
it did not assign relative weights to the factors considered in reaching its
conclusions.
OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL ADVISOR
J.C. Bradford was retained by the special committee to assist the special
committee in evaluating the proposed merger and to render its opinion as to the
fairness from a financial point of view of the consideration to be received by
the Public Stockholders in the merger. J.C. Bradford is a nationally recognized
investment banking firm that engages in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate,
and other purposes. J.C. Bradford was selected as the special committee's
financial advisor based upon such expertise.
On January 20, 1999, J.C. Bradford delivered its written opinion, which was
confirmed orally on May 10, 1999 and in writing on May 14, 1999, and as of the
date of this proxy statement, to the special committee to the effect that, as of
such date, the merger consideration was fair to the Public Stockholders from a
financial point of view. J.C. Bradford's opinion is directed only to the
fairness from a financial point of view of the merger consideration to be
received by the Public Stockholders in the merger and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
merger. J.C. Bradford conducted valuation analyses of the Common Stock and
evaluated the merger consideration, but was not asked to and did not recommend a
specific per share price to be issued pursuant to the merger. J.C. Bradford's
opinion does not address the likely tax consequences of the merger to any Public
Stockholder. In addition, J.C. Bradford's opinion does not address the relative
merits of the proposed
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merger as compared to any alternative business strategies that might exist for
the Company or the effect of any other transactions in which the Company might
engage. J.C. Bradford did not make an independent evaluation or appraisal of the
assets and liabilities of the Company or any of its subsidiaries or affiliates
and has not been provided with any such evaluation or appraisal. The full text
of J.C. Bradford's written opinion dated July , 1999, which sets forth the
assumptions made, procedures followed, matters considered, and limits of its
review undertaken in connection with the opinion, is included as Appendix B and
is incorporated by reference herein. The Public Stockholders are urged to and
should read such opinion in its entirety. J. C. Bradford's written opinion is
available for inspection and copying at the Company's principal executive
offices during its regular business hours by any interested stockholder or their
representative who has been so designated in writing.
In conducting its analyses and delivering its opinion, J.C. Bradford
considered such financial and other factors as it deemed appropriate and
feasible under the circumstances including, among other things, (i) the merger
agreement; (ii) the historical and current financial position and results of
operations of the Company, as set forth in its periodic reports and proxy
materials filed with the Securities and Exchange Commission; (iii) certain
internal operating data and financial analyses and forecasts for the year
beginning March 1, 1999 and ending February 28, 2000, prepared by the Company's
senior management; (iv) certain internal operating data of the Company for the
fiscal years beginning March 1, 1980 and ending February 28, 1999; (v) reported
securities trading data of the Company; (vi) certain financial and market data
of certain other companies, the securities of which are publicly traded, that
J.C. Bradford believed to be comparable to the Company or relevant to the
merger; (vii) the financial terms of certain other transactions that J.C.
Bradford believed to be comparable to the merger or otherwise relevant; (viii)
the results of certain stock repurchase programs carried out by the Company in
the recent past; and (ix) such other financial studies, analyses, and
investigations as J.C. Bradford deemed appropriate for purposes of its opinion.
J.C. Bradford also held discussions with members of the senior management of the
Company regarding the past and current business operations, financial condition,
and future prospects of the Company.
J.C. Bradford also took into account its assessment of general economic,
market, and financial and other conditions and its experience in other
transactions, as well as its experience in securities valuation and its
knowledge of the industry in which the Company operates. J.C. Bradford reviewed
and analyzed competitive pressures in the food distribution industry generally
and found that, over the last few years, the industry has experienced
overcapacity, consolidation of competitors and customers, "slotting" pressures
(in which grocery chains essentially require food distributors "rent" space for
their products in the stores), and the increasing strength of farmer
cooperatives. These circumstances have placed severe margin and market share
pressures on food distributors generally and have accounted, in part, for the
stagnation of some of the industry's publicly traded securities. In fact, during
the pendency of the special committee's assignment, no fewer than twelve grocery
store chains were acquired by grocery wholesalers or other grocery store chains.
Moreover, J.C. Bradford noted that only one other public company, Hanover Foods
Corporation ("Hanover Foods"), remains primarily in the frozen vegetable
processing business. J.C. Bradford also noted that there is limited market
liquidity for the shares of the Common Stock and that sales of a significant
number of shares probably would have the effect of reducing the price. In light
of these matters, J.C. Bradford concluded that the Company would likely remain
under severe margin pressures with a corresponding stagnation in the price of
the Common Stock.
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J.C. Bradford's opinion is necessarily based upon general economic, market,
financial and other conditions as they existed on the date of the opinion and
the information made available to J.C. Bradford through such date. For purposes
of the opinion, J.C. Bradford relied upon and assumed the accuracy,
completeness, and fairness of the financial and other information made available
to it and did not assume responsibility for independent verification of such
information. J.C. Bradford has also assumed, and the management of the Company
has represented, that internal operating data and financial analyses and
forecasts supplied to J.C. Bradford by the Company had a reasonable basis and
reflected the best currently available estimates and judgments of the Company's
management as to the recent and likely future performance of the Company. J.C.
Bradford also relied upon the representations of the Company's management that
they were not aware of any information or fact that would make the information
provided to J.C. Bradford incomplete or misleading. J.C. Bradford was not
authorized by the special committee or the Company to solicit, and did not
solicit, other entities for purposes of considering an alternative to the
merger. No limitations were imposed by the special committee or the Company on
the scope of J.C. Bradford's investigation or the procedures to be followed in
rendering its opinion. The opinion was based upon the information available to
J.C. Bradford and the facts and circumstances as they existed and were subject
to evaluation on the date of the opinion. Events occurring after such date could
materially affect the assumptions used in preparing the opinion and J.C.
Bradford has no duty or obligation to update or amend its opinion, or otherwise
advise the special committee or any other party or person, of the occurrence of
any such events.
In preparing its report to the special committee, J.C. Bradford performed a
variety of financial and comparative analyses and considered a variety of
factors, including (i) comparable company analysis; (ii) comparable transaction
analysis; (iii) discounted cash flow analysis; (iv) premium analysis; (v) stock
price analysis; (vi) stock trading analysis; and (vii) liquidation analysis. The
summary of J.C. Bradford's analyses set forth below does not purport to be a
complete description of the analyses underlying J.C. Bradford's opinion. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis or summary
description. In arriving at its opinion, J.C. Bradford did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, J.C. Bradford believes that its analyses must be considered
as a whole and that selecting portions of its analyses and the factors
considered by it, without considering all analyses and factors, could create a
misleading or incomplete view of the processes underlying such analyses and its
opinion. With respect to the comparable company analysis summarized below, no
company used as a comparison is identical to the Company and such analysis
necessarily involves complex considerations and judgments concerning the
differences in financial and operating characteristics of the companies and
other factors that could affect the acquisition or public trading values of the
companies concerned. The analyses performed by J.C. Bradford are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, J.C. Bradford
does not assume responsibility if future results are materially different from
those forecast.
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The following is a summary of the report presented by J.C. Bradford to the
special committee on May 10, 1999 and the board of directors on May 14, 1999:
Comparable Company Analysis. The purpose of this analysis is to consider
the fairness of the merger consideration from a financial point of view by
reviewing certain financial and operating data of the Company to that of
comparable companies. Using publicly available information, J.C. Bradford
reviewed certain financial and operating data for three publicly traded
companies (Hanover Foods Corp., Smithfield Companies, Inc. and Sylvan, Inc.)
engaged in businesses with characteristics similar to the Company and with total
market capitalization under $100 million that shared the Company's SIC code (the
"Small Cap Comparable Company Group"). J.C. Bradford calculated the current
market price of each company in the Small Cap Comparable Company Group as a
multiple of the latest available twelve months ("LTM") earnings ("LTM P/E")
which ranged from 4.8x to 12.6x, with an average of 9.4x; current equity value
as a multiple of book value ("Book Value Multiple"), which ranged from 0.7x to
1.4x, with an average multiple of 1.1x; and total firm value (defined as equity
market value plus net debt) as a multiple of LTM earnings before interest,
depreciation and taxes ("EBITDA") (the "EBITDA Multiple"), which ranged from
3.6x to 5.6x, with an average of 4.7x, J.C. Bradford compared the Small Cap
Comparable Company Group multiples to the corresponding implied multiples in the
merger, which were 43.8x LTM P/E for the period ended February 28, 1999, 0.5x
Book Value Multiple, and 5.9x EBITDA Multiple, respectively. J.C. Bradford
considered that the Book Value Multiple based on the Small Cap Comparable
Company Group suggested a value for the Company higher than the merger
consideration. However, J.C. Bradford determined that this was only one of many
factors and that analyses based on book value were less useful indicators of
value than analyses based on earnings and EBITDA in this instance.
J.C. Bradford also reviewed certain financial data for thirteen publicly
traded companies (including the Small Cap Comparable Company Group) engaged in
businesses with characteristics similar to the Company (the "Comparable Company
Group"). J.C. Bradford calculated the current market price of each company in
the Comparable Company Group as a multiple of LTM earnings, which ranged from
4.8x to 25.1x, with an adjusted average multiple (the average excluding the high
and low, the "Adjusted Average Multiple") 16.3x; the current market price as a
multiple of estimated calendar 1999 earnings ("1999 P/E"), which ranged from
9.1x to 19.0x, with an adjusted average 13.4x; current market price as a
multiple of estimated calendar 2000 earnings ("2000 P/E"), which ranged from
7.7x to 17.2x, with an Adjusted Average Multiple of 11.7x; current equity value
as a multiple of book value which ranged from 0.6x to 5.9x, with an Adjusted
Average Multiple of 1.7x; and total firm value as a multiple of EBITDA, which
ranged from 3.6x to 10.8x, with an Adjusted Average Multiple of 7.4x. J.C.
Bradford compared the Comparable Company Group multiples to the corresponding
implied multiples in the merger, which were 43.8x LTM P/E for the period ended
February 28, 1999, 55.4x 1999 P/E, 47.0x 2000 P/E, 0.5x Book Value Multiple, and
5.9x EBITDA Multiple, respectively. J.C. Bradford considered that certain of the
values suggested by analyses based on the Comparable Company Group were higher
than the merger consideration. However, J.C. Bradford determined that in its
professional judgment analyses referencing the Small Cap Comparable Company
Group were more meaningful indicators of value in this instance given their
greater similarity to the Company.
Comparable Transaction Analysis. The purpose of this analysis is to
consider the fairness of the merger consideration from a financial point of view
by reviewing the
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multiples paid in similar transactions and comparing then to the multiples
implied by the merger consideration. J.C. Bradford reviewed the multiples paid
in acquisitions of food distribution companies since January 1, 1990. J.C.
Bradford calculated the EBITDA Multiple paid for each acquired company, which
ranged from 5.5x to 19.1x, with an Adjusted Average Multiple of 12.4x, LTM P/E,
which ranged from 7.5x to 73.4x, with an Adjusted Average Multiple of 23.9x, and
Book Value Multiple which ranged from 0.5x to 18.3x with an Adjusted Average
Multiple of 3.6x. J.C. Bradford compared the Comparable Transaction Group
multiples to the corresponding multiples implied in the merger, which were 5.9x
EBITDA Multiple, 43.8x LTM P/E and 0.5x Book Value Multiple. Although two of the
implied multiples for the merger were lower than the corresponding multiples for
the Comparable Transaction Group, J.C. Bradford noted that of the eight
transactions with an aggregate consideration under $100 million which are set
forth in the table below, only three closed after September 1, 1997, with the
remaining five transactions occurring prior to May 1, 1994. Moreover, the EBITDA
Multiple for the most recent transaction was not available. J.C. Bradford
therefore concluded that the comparable transaction analysis was not as
meaningful as the other methodologies that it employed given the scarcity of
sufficient comparable data.
CERTAIN COMPARABLE TRANSACTION GROUP TRANSACTIONS
<TABLE>
<CAPTION>
DATE ANNOUNCED ACQUIROR TARGET
-------------- -------- ------
<S> <C> <C>
October 19, 1990 MANO Holdings B. Manischewitz Co.
January 24, 1992 Burns Philip Inc. Durkee-French Foods
April 9, 1992 Ben Hill Griffin Inc. Orange Co. (Stoneridge Restaurant Inc.)
October 12, 1992 Dean Foods Co. W.B. Roddenberry Co.
April 20, 1994 Schreiber Foods Inc. Arden International Kitchens
September 18, 1997 Chiquita Brands International Stokely USA Inc.
October 1, 1997 Chiquita Brands International American Fine Foods Inc.
February 18, 1998 Agrilink Foods (Pro-Fac) Delagra Corp.
</TABLE>
Discounted Cash Flow Analysis. The purpose of this analysis is to consider
the fairness of the merger consideration from a financial point of view by
discounting to a present value the cash flow the Company is projected to
generate. Using discounted cash flow analysis, based on projections obtained
from the senior management of the Company, including projected net sales and
service revenue of $212.4 million, net income of $.7 million, and projected
capital expenditures of $17.4 million for fiscal 2000, J.C. Bradford discounted
to present value the future cash flows that the Company is projected to generate
through 2004, under various circumstances. J.C. Bradford calculated terminal
values for the Company (i.e., the values at the 2004 fiscal year-end) by
applying multiples of EBITDA ranging from 5.0x to 7.0x. The cash flow streams
and terminal values were then discounted to present values using different
discount rates ranging from 8.0% to 12.0% chosen to reflect different
assumptions regarding the Company's weighted average cost of capital. Based on
the above described analysis, using the capital expenditure estimates provided
by the Company's management team of $17.4 million for fiscal 2000 and 0.0% and
2.5% revenue growth scenarios, respectively, the implied value per share ranged
from $0.00 to $5.63 as compared to the closing stock price of the Class A Common
Stock and Class B Common Stock on January 19, 1999, of $2.50 and $2.44,
respectively. J.C. Bradford also concluded that under the most likely scenario
of growth in operating
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<PAGE> 40
income of up to 2.5% through fiscal 2004, and a 6.0x EBITDA exit multiple and
applying a 10.0% discount rate to that scenario, the implied value per share
ranged from $1.46 to $2.99.
Premium Analysis. The purpose of this analysis is to consider the fairness
of the merger consideration from a financial point of view by comparing the
premiums paid in comparable transactions to the premium associated with the
merger consideration. J.C. Bradford prepared an analysis of the premiums paid in
391 completed cash acquisitions of public companies announced after January 1,
1996 where 100% of the target's shares were controlled by the acquiror following
the acquisition. J.C. Bradford considered, among other factors, the type of
consideration used in the acquisition and the premiums paid based on the closing
price of the target's shares at one day, one week, and four weeks prior to the
announcement. For all cash acquisitions where 100% of the target's shares were
controlled by the acquiror following the acquisition, J.C. Bradford calculated
adjusted average premiums of 37.5% and 44.0% at one week and four weeks prior to
the announcement, respectively. These premiums, based upon the announcement date
of September 16, 1998, imply per share equity values for the Class A Common
Stock of $3.62 and $4.23, respectively. These premiums, based upon the
announcement date of September 16, 1998 imply per share equity values for the
Class B Common Stock of $3.86 and $4.32, respectively. J.C. Bradford also noted
that the offer price implied by the merger represents a premium in excess of 40%
to the Company's Class A and Class B shares, respectively, one day prior to the
announcement.
Stock Price and Trading Analysis. The purpose of this analysis is to
consider the fairness of the merger consideration from a financial point of view
based on the historical trading volume and prices of the Common Stock. J.C.
Bradford reviewed and analyzed the historical trading volume and prices at which
the Common Stock has traded since January 2, 1997. J.C. Bradford noted that
trading activity was limited and that the trading market was relatively
illiquid. J.C. Bradford also noted that the highest traded price for the Class A
Common Stock since January 16, 1998 was $3.94 which occurred in February 1998
and the lowest traded price was $2.38, which last occurred in January 1999.
Since January 16, 1998, the highest traded price for the Class B Common Stock
was $3.88, which occurred in February 1998, and the lowest traded price was
$2.38, which occurred in April 1999.
Liquidation Analysis. The purpose of this analysis is to consider the
fairness of the merger consideration from a financial point of view by
estimating the value of the Company if all its assets were sold and all its
liabilities were repaid. J.C. Bradford prepared a liquidation analysis analyzing
the theoretical residual value of the Company after all assets of the Company
were sold and all outstanding liabilities were repaid. Based on discussions with
management and other analyses, regarding the likely results of liquidating the
Company's perishable inventories, J.C. Bradford noted that the liquidation value
of the Company based on management estimates was below $2.00, even though book
value of the Company at February 28, 1999 was $6.79 per share. J.C. Bradford
considered its discussions with management, the perishable nature of the
commodities comprising the Company's inventory, overcapacity in the industries
in which the Company operates, supply and demand with respect to the Company's
inventory and property and equipment, and such other factors as J.C. Bradford
deemed relevant. Moreover, J.C. Bradford noted the stated position of the Jim
Tankersley Family that they would not vote their shares in favor of a
liquidation. Accordingly, J.C. Bradford concluded that it is unlikely that book
value could be realized in a liquidation and that a reasonable liquidation value
of the
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<PAGE> 41
Company in an orderly liquidation would be $2.51 per share, which is less than
the merger consideration.
J.C. Bradford was engaged by the special committee to render its opinion as
to the fairness from a financial point of view of the consideration to be
received by the Public Stockholders in the merger. J.C. Bradford has advised the
board of directors and the special committee that it does not believe that any
person (including any stockholder of the Company) other than the board of
directors and the special committee has the legal right to rely upon J.C.
Bradford's opinion for any claim arising under state law and that, should any
such claim be brought against J.C. Bradford, this assertion will be raised as a
defense. In the absence of governing authority, this assertion will be resolved
by the final adjudication of such issue by a court of competent jurisdiction.
Resolution of this matter under state law, however, will have no effect on the
rights and responsibilities of any person under the federal securities laws or
on the rights and responsibilities of the Company's board of directors and the
special committee under applicable state law.
Pursuant to the terms of an engagement letter dated September 29, 1998, the
Company agreed to pay J.C. Bradford for acting as financial advisor to the
special committee in connection with the merger a cash fee of $185,000 as
follows: (i) $25,000 upon execution of the engagement letter; (ii) $25,000 at
the conclusion of the first meeting of the special committee; and (iii) the
balance when J.C. Bradford rendered the opinion, none of which was contingent
upon the consummation of the merger. In addition, the Company has agreed to
reimburse J.C. Bradford for its reasonable out-of-pocket expenses, including the
fees and disbursements of its counsel, and to indemnify J.C. Bradford and
certain related persons against certain liabilities relating to or arising out
of its engagement, including certain liabilities under the federal securities
laws. This indemnification of J.C. Bradford against liabilities under the
federal securities laws may be unenforceable as against public policy. IN THE
ORDINARY COURSE OF ITS BUSINESS, J.C. BRADFORD HAS TRADED, AND MAY IN THE FUTURE
TRADE, SECURITIES OF THE COMPANY FOR ITS OWN ACCOUNT AND FOR THE ACCOUNTS OF ITS
CUSTOMERS AND, ACCORDINGLY, MAY AT ANY TIME HOLD A LONG OR SHORT POSITION IN
SUCH SECURITIES.
PLANS FOR THE COMPANY AFTER THE MERGER
Except as indicated in this proxy statement, the Jim Tankersley Family has
no present plans or proposals which relate to, or would result in, an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation involving the Company, a sale or transfer of a material amount of
assets of the Company or any other material changes in the Company's corporate
structure or business. The terms of the merger agreement require the Company's
directors to tender their resignation, effective as of 12:01 a.m. of the day
next after the closing date.
Upon consummation of the merger, the Jim Tankersley Family intends to
retain the Company as a wholly-owned subsidiary of Pictsweet LLC. The Jim
Tankersley Family anticipates that the assets, business and operations of the
Company will be continued substantially as they are currently being conducted.
The Jim Tankersley Family may, however, cause the Company to make such changes
as are deemed appropriate and intends to continue to review the Company and its
assets, businesses, operations, properties, policies, corporate structure,
capitalization and management and consider if any changes would be desirable in
light of the circumstances then existing. In addition, the Jim Tankersley Family
intends to continue to review the business of the Company and identify synergies
and potential cost savings.
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<PAGE> 42
PLANS FOR THE COMPANY IF THE MERGER IS NOT CONSUMMATED
If the merger is not consummated, the Company expects to retain its current
directors and officers, although there can be no assurance it will be successful
in doing so. There are no plans under such circumstances to operate the
Company's business in a manner substantially different than presently operated.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the board of directors with respect
to the merger, the Public Stockholders should be aware that certain officers and
directors of the Company have certain interests summarized below that may be in
addition to, or different from, the interests of the Public Stockholders. The
special committee and the board of directors were aware of these interests and
considered them along with other matters described under "-- Recommendation of
the Special Committee."
Common Stock Ownership. As of July , 1999, the executive officers and
directors of the Company beneficially owned an aggregate of 1,052,146 shares of
Class A Common Stock and 318,283 shares of Class B Common Stock (excluding the
shares of Common Stock which may be deemed to be beneficially owned by the Jim
Tankersley Family), constituting approximately 35.8% and 7.6% of the total
number of shares of Class A Common Stock and Class B Common Stock then
outstanding. If the merger is consummated, such persons will receive, in the
aggregate, approximately $3,682,511 for their shares of Common Stock. See
"Security Ownership of Management and Certain Beneficial Owners."
Ownership of Interests of Pictsweet LLC and other Pictsweet LLC
Relationships. The following directors and executive officers of the Company own
interests in Pictsweet LLC:
James I. Tankersley -- Mr. Tankersley (together with his wife)
beneficially owns in excess of 48% of the interests of Pictsweet LLC and
controls in excess of 48% of the voting power in Pictsweet LLC. Mr.
Tankersley is also President of Pictsweet LLC.
Darla T. Darnall -- Mrs. Darnall beneficially owns in excess of 17% of
the interests of Pictsweet LLC and controls in excess of 17% of the voting
power in Pictsweet LLC. Mrs. Darnall is also Secretary of Pictsweet LLC.
Kelle T. Northern -- Mrs. Northern beneficially owns in excess of 17%
of the interests of Pictsweet LLC and controls in excess of 17% of the
voting power in Pictsweet LLC. Mrs. Northern is also Treasurer of Pictsweet
LLC.
James W. Tankersley -- Mr. Tankersley beneficially owns in excess of
17% of the interests of Pictsweet LLC and controls in excess of 17% of the
voting power in Pictsweet LLC.
Directors and Officers. The merger agreement provides that after the
merger, the officers and directors of the Company will become the officers and
directors of the surviving corporation. However, pursuant to the terms of the
merger agreement, each director of the Company personally agrees to deliver to
Pictsweet LLC, at Pictsweet LLC's request, such director's resignation effective
immediately at 12:01 a.m. of the day next after the closing date. It is
anticipated that all of the current officers of the Company will become officers
of the surviving corporation with similar duties and responsibilities, but
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<PAGE> 43
there are no written agreements to that effect and no person other than members
of the Jim Tankersley Family is expected to own an equity interest in the
surviving corporation.
Indemnification of Officers and Directors. The parties have agreed that
for six years, or for the period provided in the applicable statute of
limitations, whichever is longer, from and after the effective time of the
merger, Pictsweet LLC will or will cause the surviving corporation to indemnify
and hold harmless the present and former officers and directors of the Company
in respect of acts or omissions occurring at or prior to the effective time of
the merger to the fullest extent provided under the DGCL or under the Company's
Certificate of Incorporation and By-laws in effect on the date of the merger
agreement. The Company's Certificate of Incorporation and By-Laws provided for
indemnification of the Company's officers and directors under certain
circumstances for actions taken on behalf of the Company and the board of
directors has authorized the advancement of expenses incurred in defending the
litigation relating to the merger subject to the execution of an undertaking to
repay such advances in the event it is determined that such officer or director
is not entitled to indemnification.
Special Committee. John S. Wilder, one of the two members of the special
committee, owns 1,000 shares of Class B Common Stock which will be exchanged for
the merger consideration if the merger is consummated. Mr. Wilder has been a
director of the Company since 1979. Joseph A. Geary, the other member of the
special committee, owns 1,000 shares of Class A Common Stock which will be
exchanged for the merger consideration if the merger is consummated. Dr. Geary
has been a director of the Company since 1991. Neither member of the special
committee is entitled to a fee for serving on the special committee.
PERSPECTIVE OF THE JIM TANKERSLEY FAMILY, PICTSWEET LLC AND UF ACQUISITION CORP.
ON THE MERGER
For the Jim Tankersley Family, Pictsweet LLC and UF Acquisition Corp., the
purpose of the merger is to acquire all the equity interests of the Company
represented by the shares held by the Public Stockholders for the reasons
described below. The Jim Tankersley Family has advised the Company that they
would not sell their shares of Common Stock to any third party or vote their
shares to approve a competing transaction or the liquidation of the Company. In
the merger, each share held by a Public Stockholder will be converted into the
right to receive an amount in cash equal to the merger consideration, without
interest. The acquisition of the shares held by Public Stockholders has been
structured as a cash merger in order to provide a prompt and orderly transfer to
Pictsweet LLC of ownership of the equity interests represented by the shares
held by public stockholders and prompt payment in cash of the merger
consideration to the Public Stockholders.
In determining to acquire the shares held by Public Stockholders at this
time, the Jim Tankersley Family focused on a number of factors, including (i)
the nature of the Company's business and recent developments in the food
industry, (ii) requests of other stockholders (including Daniel B. Tankersley
and Julia T. Wells, the brother and sister of James I. Tankersley, respectively)
for a transaction resulting in cash for their Common Stock and (iii) the
advantages and disadvantages of remaining registered under the Exchange Act.
Among the considered advantages of remaining a publicly traded company
registered under the Exchange Act were the availability of a trading market
which provided an opportunity for public sale of shares by stockholders and for
capital raising
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<PAGE> 44
activities by the Company. Among the considered disadvantages of remaining a
publicly traded company were the costs of being a public company and the
inability to develop a liquid trading market supported by research analysts. The
primary benefit to the Public Stockholders is the opportunity to sell all of
their Common Stock at a price which represents a premium over trading prices in
effect immediately prior to the announcement of the merger. The structure of the
transaction as a cash merger provides a cash payment at a premium price to all
holders of outstanding shares held by Public Stockholders and an orderly
transfer of ownership of the equity interest represented by the shares held by
Public Stockholders to the Jim Tankersley Family. The structure of the merger
also ensures the acquisition by the Jim Tankersley Family of all the outstanding
shares held by Public Stockholders.
Each of the members of the Jim Tankersley Family, Pictsweet LLC and UF
Acquisition Corp. has concluded that the merger agreement is fair to the Company
and the Public Stockholders based upon the opinion of the financial advisor to
the special committee, and the conclusions and the determination of the special
committee and the board of directors that the merger agreement was advisable and
is fair to, and in the best interests of, the Public Stockholders. None of the
Jim Tankersley Family, Pictsweet LLC or UF Acquisition Corp. attached specific
weights to any factors in reaching their conclusions, nor did they request or
receive any separate reports, opinions or appraisals from an outside party
related to the merger agreement.
CERTAIN EFFECTS OF THE MERGER
As a result of the merger, the entire equity interest of the surviving
corporation will be owned by the Jim Tankersley Family. Therefore, following the
merger, the Public Stockholders will no longer benefit from any increases in the
value of the Company and will no longer bear the risk of any decreases in the
value of the Company. In addition, following the merger, the interest of the Jim
Tankersley Family in the Company's net book value and net income will increase
to 100%. Following the merger, the Jim Tankersley Family will benefit from any
increases in the value of the Company and also bear the risk of any decreases in
the value of the Company.
The Public Stockholders will have no continuing interest in the Company
following the merger. As a result, the shares of Common Stock will no longer
meet the requirements of the American Stock Exchange and the Pacific Exchange
for continued listing and will, therefore, be delisted from the American Stock
Exchange and the Pacific Exchange.
The Common Stock is currently registered under the Exchange Act.
Registration under the Exchange Act may be terminated upon application of the
Company to the Commission if such securities are not listed on a national
securities exchange or quoted on Nasdaq and there are fewer than 300 record
holders of such securities. Termination of registration of the Common Stock
under the Exchange Act would mean certain provisions of the Exchange Act, such
as the short-swing trading provisions of Section 16(b), the requirement to file
periodic reports, the requirement of furnishing a proxy statement in connection
with stockholders' meetings pursuant to Section 14(a), and the requirements of
Rule 13e-3 under the Exchange Act with respect to "going private" transactions,
would no longer be applicable to the Company. If registration of the shares of
Common Stock under the Exchange Act is terminated, the Common Stock would no
longer be eligible for listing on the American Stock Exchange or the Pacific
Exchange. In addition, "affiliates" of the Company and persons holding
"restricted securities" of the Company might as a result be
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<PAGE> 45
deprived of the ability to dispose of such securities pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended. It is the present
intention of the Jim Tankersley Family to seek to cause the Company to make an
application for the termination of the registration of the Common Stock under
the Exchange Act as soon as practicable after the effective time of the merger.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
that may be relevant to the stockholders. This discussion does not address all
aspects of taxation that may be relevant to particular stockholders or to
particular types of stockholders subject to special tax treatment under the
federal income tax laws (including, without limitation, tax exempt
organizations, insurance companies, financial institutions, broker-dealers,
foreign corporations, and persons who are not citizens of the United States),
nor does it address the impact of state, local or foreign tax laws. This
discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), applicable Department of Treasury regulations ("Treasury Regulations"),
judicial authority and administrative rulings and practice, all as of the date
of this Proxy Statement and all of which are subject to change (possibly
retroactively).
EACH STOCKHOLDER IS URGED TO CONSULT ITS TAX ADVISER REGARDING THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER, INCLUDING THE STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF THE MERGER, AND OPERATION OF AND POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
The receipt of cash in exchange for Common Stock pursuant to the merger
will be a taxable transaction for United States federal income tax purposes and
may also be a taxable transaction under applicable state, local and foreign tax
laws. A stockholder will generally recognize gain or loss for U.S. federal
income tax purposes in an amount equal to the difference between the
stockholder's adjusted tax basis in that stockholder's Common Stock and the
consideration received by the stockholder in the merger. This gain or loss will
be calculated separately for each block of Common Stock exchanged by a
stockholder. The gain or loss with respect to each block of Common Stock
exchanged by a stockholder shall be treated as long-term capital gain or loss
if, at the effective time of the merger, the Common Stock was held for more than
one year. In the case of individuals, any long-term capital gain will be subject
to U.S. federal income tax at a maximum rate of 20% and any short-term capital
gains will be subject to U.S. federal income tax at a maximum rate of 39.6%.
The Company will report to each stockholder and to the Internal Revenue
Service ("IRS") the amount of merger consideration received by that stockholder
and the amount of tax withheld, if any. Under certain circumstances, a
stockholder may be subject to backup withholding at a rate of 31% with respect
to the merger consideration paid. Backup withholding will apply only if the
stockholder (i) fails to furnish or certify his correct taxpayer identification
number ("TIN") to UF Acquisition Corp. in the manner required by the Treasury
Regulations, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that
it has failed properly to report payments of interest and dividends, or (iv)
under certain circumstances, fails to certify, under penalties of perjury, that
it has furnished a correct TIN and has not been notified by the IRS that it is
subject to backup withholding for failure to report interest and dividend
payments. Backup withholding will not apply with respect to payments made to
certain exempt recipients, such as corporations and tax exempt organizations.
Stockholders should consult their own tax advisors regarding their
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<PAGE> 46
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a
stockholder will be allowed as a credit against such stockholder's United States
federal income tax liability and may entitle such stockholder to a refund,
provided that the required information is furnished to the IRS.
RISK OF FRAUDULENT CONVEYANCE
If a court in a lawsuit brought by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy, or by the surviving corporation, as
debtor in possession, were to find that at the effective time of the merger or
at the time the surviving corporation distributed the merger consideration to
the Public Stockholders, the surviving corporation (a) made such payment with
fraudulent intent, or (b) received less than a reasonably equivalent value or
consideration in exchange for the merger consideration, and the surviving
corporation (i) was insolvent, (ii) had unreasonably small assets, property or
capital in relation to its ongoing business, or (iii) would be unable to pay its
debts as they came due or matured, then such court could (A) find that the
merger, the merger consideration and the financing thereof constituted
fraudulent transfers or conveyances, (B) void the merger and require that the
assets of the surviving corporation be placed in a fund for the benefit of the
Company's creditors, (C) void the distribution of the merger consideration to
the Public Stockholders and require that the Public Stockholders return the same
to the surviving corporation or a fund for the benefit of its creditors, and/or
(D) void or modify the rights and obligations with respect to the financing of
the merger.
The measure of insolvency for the purposes of the foregoing will vary
depending upon the law of the jurisdiction which is being applied. Generally,
however, the surviving corporation would be considered insolvent if the sum of
the surviving corporation's assets is less than the amount that it will be
required to pay its probable liability on its debts as they become due. No
assurance can be given as to the method a court would use to determine whether
the surviving corporation was insolvent at the effective time of the merger or
at the time the surviving corporation distributed the merger consideration, nor
can assurance be given that a court would not find that the surviving
corporation was insolvent at the effective time of the merger. The voiding of
the merger consideration as described above could result in the public
stockholders losing the entire value of their equity investment in the Company.
The Company believes that the payments to be made in connection with the
merger will be made for proper purposes and in good faith, and that, based on
present forecasts and other financial information, the Company is, and the
surviving corporation will be, solvent, and will have sufficient assets,
property and capital to conduct its ongoing business and pay its debts as they
come due and mature. However, no investigation was conducted by, or opinion
received from, any independent third party, with respect to the solvency of the
Company or the surviving corporation.
ANTICIPATED ACCOUNTING TREATMENT
It is expected that the merger will be accounted for as a "leveraged
recapitalization" under generally accepted accounting principles, with the
Company's assets and liabilities carrying over into the surviving corporation at
their respective historical bases.
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REGULATORY APPROVALS
No federal or state regulatory approvals are required to be obtained, nor
any regulatory requirements complied with, in connection with the consummation
of the merger by any party to the merger agreement, except for (i) the
requirements of the DGCL in connection with stockholder approvals and adoptions
and consummation of the merger and (ii) the requirements of federal securities
laws.
SOURCES OF FUNDS; FEES AND EXPENSES
The total funds required to pay the merger consideration of $3.50 per share
to all Public Stockholders, consummate the other transactions contemplated by
the merger agreement and pay all related fees, costs and expenses are estimated
to be $15.8 million. The sources for the $15.8 million will be available cash
and borrowings under the Company's revolving credit facility with First American
National Bank ("FANB"). The credit facility was amended and restated on June 30,
1999 to provide for a total amount available of $35 million and to change
certain of the restrictive covenants contained in the prior credit facility.
Further, the amended and restated credit facility includes the National Bank of
Canada ("NBC") as a lending participant along with FANB (each a "Lender" and,
together, the "Lenders"). Should the merger not be consummated, the terms and
conditions of the credit facility that existed prior to the amendment and
restatement will be restored. The Company has been advised that the Jim
Tankersley Family, Pictsweet LLC and UF Acquisition Corp. intend to cause the
money borrowed for payment of the merger consideration to be repaid with cash
from operations.
The credit facility matures on June 1, 2002. One-year extensions of the
maturity date will be considered annually by the Lenders. The borrowing
availability of the Company under the credit facility will generally be limited
to an amount determined under a formula that takes into account the amount of
certain of the Company's accounts receivables and inventories. The annual
interest rate on the credit facility will be either (i) the Lender's Index Rate
minus .5%, or (ii) LIBOR plus 1.50%. In addition, the credit facility will be
subject to a 0.125% per annum commitment fee on the average unused portion of
the commitment. Standby letters of credit will count as "usage." All new standby
letters of credit (i) will be issued by FANB as the Issuing Bank, (ii) will have
maturities equal to the lesser of either 364 days or the minimum maturity
required by the beneficiary, provided that all new standby letters of credits
mature prior to the maturity of the credit facility, and (iii) will bear a fee
equal to 1.25% per annum.
The credit facility is secured by a perfected first priority interest in
all of the Company's accounts receivable and inventory (excluding the accounts
receivable and inventory associated with the Company's mushroom farms).
Events of default include, but are not limited to, (i) nonpayment of any
principal or interest when due, (ii) nonpayment of any other obligations owed to
the Lender(s) within 10 days of the due date, (iii) default by the Company under
any other agreements for funded debt with a principal amount in excess of
$500,000, (iv) misleading, false or incomplete representations or warranties,
(v) breach or failure to observe or perform any covenant or undertaking
contained in the credit agreement, subject to a 30 day cure period, (vi) any
judgment in excess of $500,000 against the Company not cured, waived or
dismissed within 30 days, (vii) any bankruptcy filing or other insolvency
proceeding of the Company, and (viii) occurrence of any liability, or reasonable
threat of such liability,
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<PAGE> 48
under any employee benefit plan which may have a material adverse effect on the
Company.
Additionally, the Company represented and warranted to the Lenders, among
other things, that (i) it is a valid and existing corporation in good standing
under the laws of the State of Delaware, (ii) it possess all necessary
governmental authorizations to go forward with the contemplated transactions,
(iii) it is in compliance with all applicable governmental laws, including
environmental laws and ERISA, (iv) it is involved in no material litigation, (v)
it has paid, in full, all applicable state and federal taxes, and (vi) there are
no liens except as acceptable to the Lender(s) and except those required in the
ordinary course of business.
Affirmative covenants of the Company include, but are not limited to, (i)
maintenance of corporate existence, government authorization, and business, (ii)
properly maintaining the required insurance and maintaining the property of the
Company, (iii) payment of taxes and compliance with laws, (iv) maintenance of
warehouse agreements and collateral, and rights of inspection, (v) notice of
defaults, and adverse changes, and (vi) notice of covenant compliance
immediately preceding and immediately following any acquisition. Negative
covenants include, but are not limited to, (i) prohibitions on any change in the
business of the Company, (ii) prohibitions against any change in the charter
documents or in the fiscal year-end, and (iii) limitations on mergers,
investments, consolidations, transactions with affiliates, and the sale of
assets or collateral. Financial reporting covenants include, but are not limited
to, (i) the Company providing annual audited consolidated and reconciled
consolidating balance sheets and income statements and statements of cash flows
for the Company due within 90 days of fiscal year-end complete with confirming
letter from accountant and officer's compliance certificates, (ii) monthly
consolidated financial statements for the Company due within 20 days of each
month end, (iii) borrowing base certificate due within 15 days of the month end,
(iv) quarterly certificates of compliance with all financial covenants, due
within 45 days of quarter end, and (v) annual forecasts to include balance
sheet, income statement and statement of cash flows, due within 90 days of
fiscal year-end. Moreover the Company must maintain a minimum working capital
floor of $25,000,000, calculated annually, a tangible net worth minimum of
$27,500,000, calculated quarterly, and a debt to equity ratio maximum of
3.5:1.0, calculated annually.
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Estimated fees, costs and expenses incurred or to be incurred by the
Company and the Jim Tankersley Family in connection with the merger are
approximately as follows:
<TABLE>
<S> <C>
Payment of merger consideration(1).......................... $14,897,799
Advisory fees(2)............................................ 185,000
Legal fees and expenses(3)..................................
Accounting fees and expenses................................
Securities and Exchange Commission filing fee............... 2,980
Printing and mailing expenses...............................
Paying agent fees and expenses..............................
Miscellaneous expenses......................................
-----------
Total............................................. $
===========
</TABLE>
- -------------------------
(1) Includes payment for all outstanding shares of Common Stock other than
shares owned by the Jim Tankersley Family and treasury stock at the
effective time of the merger.
(2) Includes the fees and estimated expenses of J.C. Bradford.
(3) Includes the estimated fees and expenses of counsel for the Company, the
special committee, and the Jim Tankersley Family.
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THE MERGER AGREEMENT
A copy of the merger agreement among the Company, Pictsweet LLC and UF
Acquisition Corp. is attached to this proxy statement as Appendix A and
incorporated by reference herein. While the Company believes the information
contained in this proxy statement provides an accurate summary of the merger
agreement, stockholders are urged to read the merger agreement carefully and in
its entirety.
GENERAL
The Merger. The merger agreement provides for the merger of UF Acquisition
Corp. with and into United Foods, Inc. United Foods, Inc. will be the surviving
corporation and it will continue its corporate existence under the laws of the
State of Delaware. At the effective time of the merger, the separate corporate
existence of UF Acquisition Corp. shall cease. The surviving corporation shall
possess all the property, rights, privileges, immunities, powers and franchises
of UF Acquisition Corp. and United Foods, Inc. and the surviving corporation
shall assume and become liable for all liabilities, obligations and penalties of
United Foods, Inc. and UF Acquisition Corp.
Effective Time of Merger. The effective time of the merger will occur upon
the filing of the certificate of merger with the Delaware Secretary of State or
at such time thereafter as is agreed to between Pictsweet LLC, UF Acquisition
Corp. and United Foods, Inc. and specified in the Certificate of Merger. See
"-- Conditions to the Merger."
Treatment of Shares in the Merger. Subject to the provisions of the merger
agreement, at the effective time of the merger, each share of Common Stock
outstanding immediately prior to the effective time of the merger shall, by
virtue of the merger, and without any action on the part of the holder thereof,
be converted into the merger consideration, except for shares of Common Stock
owned by the Jim Tankersley Family, treasury stock and dissenting shares held by
stockholders who properly exercise their appraisal rights under the DGCL and
which are not withdrawn as of the effective time of the merger. The merger
consideration will be payable upon surrender of the certificate representing the
shares of Common Stock to be converted pursuant to the merger agreement. Under
the DGCL, record holders of shares of Common Stock who follow the procedures set
forth in Section 262 and who have not voted in favor of the merger agreement
will be entitled to have their shares of Common Stock appraised by the Delaware
Court of Chancery and to receive payment of the "fair value" of such shares
(exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, if any, as
determined by such court). See "Appraisal Rights" and Appendix C hereto.
Certificate of Incorporation and By-Laws. The Certificate of Incorporation
and By-Laws of the Company in effect at the effective time of the merger shall
be the Certificate of Incorporation and By-Laws of the surviving corporation
until amended in accordance with applicable law.
Surrender of Stock Certificates. Pictsweet LLC has designated First Union
National Bank to act as the paying agent under the merger agreement. At or prior
to the effective time of the merger, Pictsweet LLC shall, or Pictsweet LLC shall
cause the surviving corporation to, deposit with the paying agent, for purposes
of establishing an exchange fund, cash in an amount sufficient to pay the merger
consideration. The paying agent shall,
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pursuant to irrevocable instructions, make the payments provided for under the
merger agreement out of the exchange fund.
As soon as reasonably practicable after the effective time of the merger,
the paying agent shall mail to each holder of record as of the effective time of
the merger (other than the Jim Tankersley Family) of an outstanding certificate
or certificates for Common Stock, a letter of transmittal and instructions for
use in effecting the surrender of such certificates for payment in accordance
with the merger agreement. Upon the surrender to the paying agent of a
certificate, together with a duly executed letter of transmittal, the holder
thereof shall be entitled to receive cash in an amount equal to the product of
the number of shares of Common Stock represented by such certificate and the
merger consideration, less any applicable withholding tax, and such certificate
shall then be canceled.
Until surrendered pursuant to the procedures described above, each
certificate (other than certificates representing Common Stock owned by the Jim
Tankersley Family, treasury stock or Dissenting Shares) shall represent for all
purposes the right to receive the merger consideration in cash multiplied by the
number of shares of Common Stock evidenced by such certificate, without any
interest thereon, subject to any applicable withholding obligation.
After the effective time of the merger, there shall be no transfers on the
stock transfer books of the surviving corporation of shares of Common Stock
which were outstanding immediately prior to the effective time of the merger.
If, after the effective time of the merger, certificates are presented to the
surviving corporation, they shall be canceled and exchanged for an amount in
cash equal to the merger consideration multiplied by the number of shares of
Common Stock evidenced by such certificate, without any interest thereon,
subject to any withholding obligation.
Any portion of the exchange fund which remains unclaimed by the
stockholders of the Company for one year after the effective time of the merger
(including any interest received with respect thereto) shall be repaid to the
surviving corporation, upon demand. Any stockholders of the Company who have not
theretofore complied with the procedures set forth above shall thereafter look
only to the surviving corporation for payment of their claim for the merger
consideration per share of Common Stock, without any interest thereon, but shall
have no greater rights against the surviving corporation than may be accorded to
general creditors of the surviving corporation under Delaware law.
Notwithstanding the foregoing, neither the paying agent nor any party to the
merger agreement shall be liable to any holder of certificates formerly
representing Common Stock for any amount to be paid to a public official in good
faith pursuant to any applicable abandoned property, escheat or similar law.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties of the
Company to Pictsweet LLC and UF Acquisition Corp., including with respect to the
following matters: (i) the due organization and valid existence of the Company
and similar corporate matters; (ii) the capitalization of the Company in
connection with the transactions contemplated by the merger agreement; (iii) the
due authorization, execution and delivery of the merger agreement and its
binding effect on the Company; (iv) regulatory filings and approvals, and the
lack of conflicts between the merger agreement and the transactions contemplated
thereby with the Company's Certificate of Incorporation or By-Laws or any
contract to which it is a party; (v) the accuracy of the
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Company's filings with the Commission in connection with the transactions
contemplated by the merger agreement; and (vi) various other matters. Such
representations and warranties are subject, in certain cases, to specified
exceptions and qualifications, including without limitation, those exceptions
that are disclosed to Pictsweet LLC pursuant to the merger agreement.
The merger agreement also includes certain representations and warranties
by Pictsweet LLC and UF Acquisition Corp., including representations and
warranties regarding: the due organization, good standing and authority to enter
into the merger agreement; the absence of conflict between the transactions
contemplated by the merger agreement with other agreements and documents;
solvency matters; and consents and approvals.
CONDUCT OF THE BUSINESS PENDING THE MERGER
The Company has agreed that, except as expressly contemplated in the merger
agreement or as agreed to by Pictsweet LLC, during the period from the date of
the merger agreement and continuing until the effective time of the merger, the
business of the Company will be conducted only in the ordinary course consistent
with past practice and the Company shall use all commercially reasonable efforts
to preserve intact its business organization and relationships with third
parties and to keep available the services of its present officers and
employees. The Company has further agreed that during such period, and subject
to the same exceptions, the Company will not, among other things: (a) directly
or indirectly: (i) issue, sell, transfer or pledge or agree to sell, transfer or
pledge any treasury stock of the Company or any capital stock or equity
interests in any person owned by it; (ii) amend its Certificate of Incorporation
or By-laws or similar organizational documents; or (iii) split, combine or
reclassify (except for the issuance of Class A Common Stock upon conversion of
Class B Common Stock in accordance with the Certificate of Incorporation) the
outstanding shares of Common Stock; (b)(i) declare, set aside or pay any
dividend or other distribution payable in cash, stock or property with respect
to its capital stock; (ii) issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire any
shares of, capital stock of any class of the Company (except for issuance of
Class A Common Stock resulting from conversions of Class B Common Stock into
Class A Common Stock in accordance with the Certificate of Incorporation); (iii)
transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any
assets other than in the ordinary and usual course of business and consistent
with past practice; (iv) except for the financing pursuant to the permitted
financing terms described in the merger agreement, incur or modify any
indebtedness or other liability, other than in the ordinary and usual course of
business and consistent with past practice; or (v) redeem, purchase or otherwise
acquire directly or indirectly any of its capital stock; (c) other than in the
ordinary course of business: (i) grant any increase in the compensation payable
or to become payable by the Company to any of its executive officers; or (ii)
adopt any new, or amend or otherwise increase, or accelerate the payment or
vesting of the amounts payable or to become payable under, any existing bonus,
incentive compensation, deferred compensation, severance, profit sharing, stock
option, stock purchase, insurance, pension, retirement, or other employee
benefit plan, agreement or arrangement; or (iii) enter into any employment or
agreement with or, except in accordance with the existing written policies of
the Company, grant any severance or termination pay to any officer, director or
employee of the Company; (d) shall not permit any insurance policy naming it as
a beneficiary or a loss payable payee to be canceled or
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terminated without notice to Pictsweet LLC, except in the ordinary course of
business and consistent with past practice; (e) shall not enter into any
contract or transaction relating to the purchase of assets other than in the
ordinary course of business consistent with prior practice; (f) shall not, other
than in the ordinary course of business: (i) change any of the accounting
methods used by it unless required by GAAP; (ii) make any material tax election;
(iii) change any material tax election already made; (iv) adopt any material tax
accounting method; (v) change any material tax accounting method unless required
by GAAP; (vi) enter into any closing agreement, settle any tax claim or
assessment or consent to any tax claim or assessment or any waiver of the
statute of limitations for any such claim or assessment; (g) except for the
financing pursuant to the permitted financing terms described therein and other
than in the ordinary course of business, shall not: (i) incur or assume any
long-term debt; (ii) consistent with past practice, incur or assume any
short-term indebtedness; (iii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person; (iv) make any loans, advances or capital
contributions to, or investment in, any other person (other than customary loans
or advances to employees in accordance with past practice); or (v) enter into
any material commitment or transaction (including, but not limited to, any
borrowing, capital expenditure or purchase, sale or lease of assets); (h) shall
not: (i) settle or compromise any material claim, lawsuit, liability or
obligation; (ii) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of any such
claims, liabilities or obligation, (x) to the extent reflected or reserved
against it, or contemplated by, the consolidated financial statements (or the
notes thereto) of the Company on a consolidated basis, (y) incurred in the
ordinary course of business and consistent with past practice or (z) which are
legally required to be paid, discharged or satisfied; (i) shall not take, or
agree to commit to take, any action that would make any representation or
warranty of the Company contained herein inaccurate in any respect at, or as of
any time prior to, the effective time of the merger; (j) shall not enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
OTHER POTENTIAL BIDDERS
Pursuant to the merger agreement, the Company has agreed that it shall
furnish information and access in response to unsolicited requests for
information and access, received prior to or after the date of the merger
agreement, to the same extent as provided to Pictsweet LLC or UF Acquisition
Corp., to any person pursuant to appropriate confidentiality agreements, and may
participate in discussions and negotiate with any such person concerning any
merger, sale of assets, sale of shares of capital stock or similar transaction
involving the Company or any division of the Company, only if the special
committee determines, after consultation with its counsel and financial advisor,
that such action is necessary in light of the fiduciary obligations of the board
of directors to the Public Stockholders of the Company. Except as described
above, the Company has agreed not to solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any person
(other than Pictsweet LLC or UF Acquisition Corp.) concerning any merger, sale
of assets, sale of shares of capital stock or similar transaction involving the
Company, and no such discussions or negotiations have taken place as of the date
of this proxy statement.
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CONDITIONS TO THE MERGER
All Parties. Pursuant to the merger agreement, the respective obligations
of each party to effect the merger are subject to the satisfaction at or prior
to the effective time of the merger of each of the following conditions, any and
all of which may be waived in whole or in part by the party intended to benefit
therefrom, to the extent permitted by law: (a) the merger agreement and
transactions contemplated thereby shall have been approved and adopted at the
special meeting by the Required Stockholder Vote; (b) there are no claims,
actions, suits, proceedings or investigations pending or threatened, against the
Company, Pictsweet LLC or UF Acquisition Corp. before any governmental
authority, that seek to prevent or delay the performance of the merger agreement
or the transactions, or that would result in a material adverse effect (as
defined in the merger agreement), and no governmental authority shall have
enacted, issued, promulgated, enforced or entered any law or order (whether
temporary, preliminary or permanent) which is in effect and which has the effect
of making the transactions illegal or otherwise prohibiting consummation of the
transactions; (c) all actions by or in respect of, or filings with, any
governmental authority required to permit the consummation of the transactions
shall have been made or obtained; (d) at the time of mailing of this Proxy
Statement, J.C. Bradford (i) shall have delivered and reaffirmed in writing (to
the special committee and the board of directors of the Company, with a copy to
Pictsweet LLC) its opinion, originally dated as of January 20, 1999, to the
effect that the merger consideration to be received by the public stockholders
pursuant to the merger is fair to such public stockholders from a financial
point of view, and (ii) shall not have withdrawn such opinion; (e) Pictsweet LLC
or UF Acquisition Corp. shall have received and caused the financing to be
closed in accordance with the permitted financing terms described in the merger
agreement, and the proceeds of the financing shall have been made available for
the consummation of the transactions; (f) Pictsweet LLC shall have received all
documents it may reasonably request relating to the existence of the Company and
the authority of the Company to enter into the merger agreement, all in form and
substance reasonably satisfactory to Pictsweet LLC; and (g) Pictsweet LLC and
the Company shall have received or be satisfied that it will receive all
consents and approvals contemplated by Sections 3.3 and 3.4 of the merger
agreement related to governmental authorization and non-contravention, and any
other consents of third parties necessary in connection with the consummation of
the merger, if failure to obtain any such consent would have a material adverse
effect or violate any law or order.
Pictsweet LLC and UF Acquisition Corp. Pursuant to the merger agreement,
the obligations of Pictsweet LLC and UF Acquisition Corp. to effect the merger
are also subject to satisfaction, at or prior to the time of obtaining the
Required Stockholder Vote, of the following conditions: (a) the Required
Stockholder Vote shall have been obtained, and the number of Dissenting Shares
shall not equal or exceed 250,000 shares of Common Stock; (b) the Company shall
have performed in all material respects all of its obligations under the merger
agreement required to be performed by it at or prior to the effective time of
the merger, the representations and warranties of the Company contained in the
merger agreement and in any certificate delivered by the Company pursuant to the
merger agreement shall be true and correct in all material respects, at and as
of the effective time of the merger as if made at and as of such time, except
that those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, and Pictsweet LLC
shall have received a certificate signed by an executive officer who may be the
principal financial officer of the Company to the foregoing effect; (c) no
material adverse effect shall have occurred or shall be pending; (d) Pictsweet
LLC shall have received a certificate signed by an executive officer of the
Company, certifying
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the foregoing items (a) and (c); (e) no reasonable basis (including, but not
limited to, information from a customer(s) or available from public or reliable
industry sources) exists for UF Acquisition Corp. or Pictsweet LLC to believe
that any significant customer(s) for products sold by either division of the
Company, representing individually ten percent (10%) or more (or representing
one of the top three customers [measured by gross sales of that division during
fiscal 1999]), or in the aggregate representing twenty-five percent (25%) or
more of the gross sales of that division during fiscal 1999, will reduce its
annual purchases from the Company after consummation of the transactions to a
level less than eighty percent (80%) of the amount it purchased from the Company
during fiscal 1999 (provided, however, that such reasonable basis must be
materially different from the state of facts known to Pictsweet LLC and UF
Acquisition Corp. at the date of execution of the merger agreement); (f) all of
the directors of Company shall have delivered to Pictsweet LLC in writing their
resignations as directors of surviving corporation, with such resignations to
become effective immediately at 12:01 a.m. of the day next after the Closing
Date; (g) all actions to be taken by the Company in connection with consummation
of the transactions, and all certificates, instruments, and other documents
required to effectuate the transactions, shall be reasonably satisfactory in
form and substance to Pictsweet LLC and UF Acquisition Corp.; and (h) the fees
to be paid J.C. Bradford by the Company shall not exceed $185,000 plus (i)
out-of-pocket expenses and (ii) legal fees not to exceed $10,000, for its
services rendered to the special committee.
The Company. Pursuant to the merger agreement, the obligation of the
Company to effect the merger is also subject to the fulfillment of the following
conditions: (a) Pictsweet LLC and UF Acquisition Corp. shall have performed in
all material respects all of their respective obligations under the merger
agreement required to be performed by them at or prior to the effective time of
the merger, the representations and warranties of Pictsweet LLC and UF
Acquisition Corp. contained in the merger agreement and in any certificate
delivered by Pictsweet LLC or UF Acquisition Corp. pursuant to the merger
agreement shall be true and correct in all material respects at and as of the
effective time of the merger as if made at and as of such time, except that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, and the Company
shall have received a certificate signed by the President or any Vice President
of each of Pictsweet LLC and UF Acquisition Corp. to the foregoing effect; (b)
the Company shall have received all documents it may reasonably request relating
to the existence of Pictsweet LLC or UF Acquisition Corp. and the authority of
Pictsweet LLC or UF Acquisition Corp. to enter into the merger agreement, all in
form and substance reasonably satisfactory to the Company; and (c) all actions
to be taken by Pictsweet LLC or UF Acquisition Corp. in connection with
consummation of the transactions, and all certificates, instruments, and other
documents required to effectuate the transactions, shall be satisfactory in form
and substance to Company.
TERMINATION
The merger agreement may be terminated and the transactions may be
abandoned at any time prior to the effective time of the merger (notwithstanding
any adoption and approval of the merger agreement by stockholders): (a) by
mutual written consent of the Company and Pictsweet LLC; (b) by either Pictsweet
LLC or the Company, if the merger has not been consummated by September 30,
1999; provided, however, that the right to terminate the merger agreement under
the applicable sections of the merger agreement shall not be available to any
party whose failure to fulfill any obligation under
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the merger agreement has been the cause of, or resulted in, the failure of the
effective time of the merger to occur on or before such date; (c) by either
Pictsweet LLC or the Company, if there shall be any law that makes consummation
of the transactions illegal or otherwise prohibited or if any order enjoining
Pictsweet LLC or the Company from consummating the transactions is entered and
such order shall become final and nonappealable; (d) by either Pictsweet LLC or
the Company if the merger agreement and the transactions shall fail to be
approved and adopted by the Required Stockholder Vote at the special meeting
called for such purpose; (e) by either Pictsweet LLC or the Company, if,
consistent with the terms of the merger agreement, the board of directors of the
Company withdraws, modifies or changes its recommendation of the merger
agreement or the transactions in a manner adverse to Pictsweet LLC or UF
Acquisition Corp. or shall have resolved to do any of the foregoing or the board
of directors of the Company shall have recommended to stockholders of the
Company any competing transaction or resolved to do so; or (f) by the Company,
if Pictsweet LLC and UF Acquisition Corp. have not delivered to the Company
within fifteen (15) days of the date of the merger agreement copies of a written
commitment(s) from a lending institution(s) (which institution the Company
determines to be acceptable to it), pursuant to which financing will be received
on terms at least as favorable as the permitted financing terms.
If the merger agreement is terminated pursuant to the applicable provisions
listed above, the merger agreement shall become void and of no effect with no
liability on the part of any party thereto, except that the agreements regarding
payment of expenses shall survive the termination of the merger agreement;
provided, however, that, except as specifically provided in the merger
agreement, nothing shall relieve any party of liability for any breach of the
merger agreement.
FEES AND EXPENSES
The merger agreement provides that all fees and expenses incurred in
connection with the merger agreement and the transactions contemplated thereby
will be paid by the Company if the merger is consummated. If the merger is not
consummated, the Company shall likewise pay all reasonable expenses incurred by
all parties in connection with the merger agreement or the transactions;
provided, however, that the Company may refuse to pay any expenses incurred by
Pictsweet LLC or UF Acquisition Corp. if the failure to consummate the merger
arose from (i) a breach of the terms of the merger agreement by either Pictsweet
LLC or UF Acquisition Corp., (ii) a failure to obtain the Required Stockholder
Vote or (iii) the number of Dissenting Shares equaling or exceeding 250,000
shares.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The parties have agreed that for six years, or for the period provided in
the applicable statute of limitations, whichever is longer, from and after the
effective time of the merger, Pictsweet LLC will or will cause the surviving
corporation to indemnify and hold harmless the Indemnified Parties in respect of
acts or omissions occurring at or prior to the effective time of the merger to
the fullest extent provided under the DGCL or under the Company's Certificate of
Incorporation and Bylaws in effect on the date of the merger agreement. The
Parties have agreed with respect to matters occurring through the effective time
of the merger, existing in favor of directors and officers of the Company as
provided in the Company's Certificate of Incorporation, By-Laws or certain
existing indemnification agreements between the Company and such parties, shall
survive the merger and shall
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continue in full force and effect for a period of not less than six years from
the effective time of the merger. The Company's Certificate of Incorporation,
By-Laws and such existing indemnification agreements provide for indemnification
of the Company's directors and officers under certain circumstances for actions
taken on behalf of the Company.
ACCESS TO INFORMATION
The Company has agreed to afford Pictsweet LLC and its representatives,
upon reasonable advance notice, access during normal business hours prior to the
effective time of the merger to the properties, books, contracts, insurance
policies, commitments and records of the Company and its subsidiaries, and
during such period promptly to furnish Pictsweet LLC with such other information
concerning its business, properties and personnel as Pictsweet LLC may
reasonably request.
LEGAL COMPLIANCE
Subject to the terms and conditions in the merger agreement, each of the
parties to the merger agreement has agreed to use its reasonable best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the merger and the other transactions contemplated
by the merger agreement. Pursuant to the merger agreement, each of the Company,
Pictsweet LLC and UF Acquisition Corp. has agreed to use its reasonable best
efforts to comply promptly with all legal requirements that may be imposed on it
with respect to the merger agreement and the transactions contemplated thereby
and to cooperate with, and furnish information to, each other in connection with
any such requirements imposed upon any of them or any of the subsidiaries in
connection with the merger agreement and the transactions contemplated thereby.
AMENDMENT
The merger agreement provides that it may be amended, modified and
supplemented in any and all respects, whether before or after any approval and
adoption of the merger agreement by the stockholders of the Company, by written
agreement of the Company, Pictsweet LLC and UF Acquisition Corp., at any time
prior to the effective time of the merger; provided, however, that the Company
shall only agree to any material modification, amendment, supplement or waiver
with the consent of the special committee; and provided, further, that after the
approval and adoption of the merger agreement by the stockholders of the
Company, no such amendment, modification or supplement shall reduce the amount
or change the form of the merger consideration to be received in exchange for
shares of Common Stock or any of the terms or conditions of the merger agreement
if such alternative or change would adversely affect the Public Stockholders.
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STOCKHOLDER LITIGATION
A complaint was filed by a stockholder of the Company on March 8, 1999,
against the Company and directors of the Company in the matter of Rolfe Glover
v. United Foods, Inc., et al., Court of Chancery of the State of Delaware (New
Castle County)(C.A. No. 17006 NC). The complaint seeks class action status and
alleges (among other things) that the defendants breached their fiduciary duties
to the Company's stockholders with respect to a proposal by the Jim Tankersley
Family to acquire the remaining shares of the Company's Common Stock that are
not owned by them in a merger in which the other stockholders would receive
$3.00 per share. The complaint requests an injunction prohibiting the
consummation of the transaction, damages and other relief. A second complaint
was filed by a stockholder of the Company on May 3, 1999, against the Company
and its directors in the matter of Robert I. Strougo v. James I. Tankersley, et
al., Court of Chancery of the State of Delaware (New Castle County)(C.A. No.
17137 NC). This complaint also seeks class action status, makes similar
allegations with respect to the transaction and requests similar relief. The
Company has received a request for production of documents to which it intends
to respond in the ordinary course. Although the parties have engaged in
preliminary settlement discussions, there has been no agreement for the
resolution of these matters.
APPRAISAL RIGHTS
If the merger is consummated, holders of shares of Common Stock are
entitled to appraisal rights under Section 262 of the DGCL, provided that they
comply with the conditions established by Section 262.
Section 262 is reprinted in its entirety as Appendix C to this Proxy
Statement. The following discussion is not a complete statement of the law
relating to appraisal rights and is qualified in its entirety by reference to
Appendix C. This discussion and Appendix C should be reviewed carefully by any
stockholder who wishes to exercise statutory appraisal rights or who wishes to
preserve the right to do so, as failure to comply with the procedures set forth
herein or therein will result in the loss of appraisal rights.
A record holder of shares of Common Stock who makes the demand described
below with respect to such shares, who continuously is the record holder of such
shares through the effective time of the merger, who otherwise complies with the
statutory requirements of Section 262 and who neither votes in favor of the
merger nor consents thereto in writing will be entitled to an appraisal by the
Delaware Court of Chancery (the "Delaware Court") of the fair value of his or
her shares of Common Stock. All references in this summary of appraisal rights
to a "stockholder" or "holders of shares of Common Stock" are to the record
holder or holders of shares of Common Stock. Except as set forth herein,
stockholders of the Company will not be entitled to appraisal rights in
connection with the merger.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, such as the special meeting, not less than 20 days
prior to the meeting a constituent corporation must notify each of the holders
of its stock for whom appraisal rights are available that such appraisal rights
are available and include in each such notice a copy of Section 262. This proxy
statement constitutes such notice to the record holders of Common Stock.
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Holders of shares of Common Stock who desire to exercise their appraisal
rights must not vote in favor of the merger and must deliver a separate written
demand for appraisal to the Company prior to the vote by the stockholders of the
Company on the merger. A demand for appraisal must be executed by or on behalf
of the stockholder of record and must reasonably inform the Company of the
identity of the stockholder of record and that such stockholder intends thereby
to demand appraisal of the Common Stock. A proxy or vote against the merger will
not by itself constitute such a demand. Within ten days after the effective time
of the merger the Company must provide notice of the effective time of the
merger to all stockholders who have complied with Section 262.
A stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to: United Foods, Inc., Attention: Donald
Dresser, Secretary and Senior Vice President, Administration, Ten Pictsweet
Drive, Bells, Tennessee 38006-0119.
A person having a beneficial interest in shares of Common Stock that are
held of record in the name of another person, such as a broker, fiduciary,
depositary or other nominee, must act promptly to cause the record holder to
follow the steps summarized herein properly and in a timely manner to perfect
appraisal rights. If the shares of Common Stock are owned of record by a person
other than the beneficial owner, including a broker, fiduciary (such as a
trustee, guardian or custodian), depositary or other nominee, such demand must
be executed by or for the record owner. If the shares of Common Stock are owned
of record by more than one person, as in a joint tenancy or tenancy in common,
such demand must be executed by or for all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner. If a stockholder holds
shares of Common Stock through a broker who in turn holds the shares through a
central securities depository nominee such as Cede & Co., a demand for appraisal
of such shares must be made by or on behalf of the depository nominee and must
identify the depository nominee as record holder.
A record holder, such as a broker, fiduciary, depositary or other nominee
who holds shares of Common Stock as a nominee for others, may exercise appraisal
rights with respect to the shares held for all or less than all beneficial
owners of shares as to which such person is the record owner. In such case, the
written demand must set forth the number of shares covered by such demand. Where
the number of shares is not expressly stated, the demand will be presumed to
cover all shares of Common Stock outstanding in the name of such record owner.
Within 120 days after the effective time of the merger, either the Company
or any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court, with a copy served on the Company in
the case of a petition filed by a stockholder, demanding a determination of the
fair value of the shares of all dissenting stockholders. There is no present
intent on the part of the Company to file an appraisal petition and stockholders
seeking to exercise appraisal rights should not assume that the Company will
file such a petition or that the Company will initiate any negotiations with
respect to the fair value of such shares. Accordingly, holders of Common Stock
who desire to have their shares appraised should initiate any petitions
necessary for the perfection of their appraisal rights within the time periods
and in the manner prescribed in Section 262. Within 120 days after the effective
time of the merger, any stockholder who has theretofore complied with the
applicable provisions of Section 262 will be entitled, upon written request, to
receive from the Company a statement setting forth
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<PAGE> 60
the aggregate number of shares of Common Stock not voting in favor of the merger
and with respect to which demands for appraisal were received by the Company and
the number of holders of such shares. Such statement must be mailed (i) within
10 days after the written request therefor has been received by the Company or
(ii) within 10 days after the expiration of the period for the delivery of
demands as described above, whichever is later.
If a petition for an appraisal is filed timely, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court may dismiss
the proceedings as to such stockholder. Where proceedings are not dismissed, the
Delaware Court will appraise the shares of Common Stock owned by such
stockholders, determining the fair value of such shares exclusive of any element
of value arising from the accomplishment or expectation of the merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value.
Although the Company believes that the merger consideration for each share
held by a Public Stockholder is fair, no representation is made as to the
outcome of the appraisal of fair value as determined by the Delaware Court and
stockholders should recognize that such an appraisal could result in a
determination of a value higher or lower than, or the same as, the merger
consideration. Moreover, the Company does not anticipate offering more than the
merger consideration to any stockholder exercising appraisal rights and reserves
the right to assert, in any appraisal proceeding, that, for purposes of Section
262, the "fair value" of a share of Common Stock is less than the merger
consideration. In determining "fair value," the Delaware Court is required to
take into account all relevant factors. In Weinberger v. UOP, Inc. the Delaware
Supreme Court discussed the factors that could be considered in determining fair
value in an appraisal proceeding, stating that "proof of value by any techniques
or methods which are generally considered acceptable in the financial community
and otherwise admissible in court" should be considered and that "[f]air price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court has stated that in making this
determination of fair value the court must consider market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other facts
which could be ascertained as of the date of the merger which throw any light on
future prospects of the merged corporation. Section 262 provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Cede & Co. v. Technicolor, Inc., the Delaware
Supreme Court stated that such exclusion is a "narrow exclusion [that] does not
encompass known elements of value," but which rather applies only to the
speculative elements of value arising from such accomplishment or expectation.
In Weinberger, the Delaware Supreme Court construed Section 262 to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered."
Stockholders considering seeking appraisal should recognize that the fair
value of their shares determined under Section 262 could be more than, the same
as or less than the consideration they are entitled to receive pursuant to the
merger agreement if they do not seek appraisal of their shares. The cost of the
appraisal proceeding may be determined by the Delaware Court and taxed against
the parties as the Delaware Court deems equitable
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in the circumstances. However, costs do not include attorneys' and expert
witness fees. Each dissenting stockholder is responsible for his or her
attorneys' and expert witness expenses, although, upon application of a
dissenting stockholder of the Company, the Delaware Court may order that all or
a portion of the expenses incurred by any dissenting stockholder in connection
with the appraisal proceeding, including without limitation, reasonable
attorneys' fees and the fees and expenses of experts, be charged pro rata
against the value of all shares of stock entitled to appraisal.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the effective time of the merger, be entitled to vote for
any purpose any shares subject to such demand or to receive payment of dividends
or other distributions on such shares, except for dividends or distributions
payable to stockholders of record at a date prior to the effective time of the
merger.
At any time within 60 days after the effective time of the merger, any
stockholder will have the right to withdraw such demand for appraisal and to
accept the terms offered in the merger; after this period, the stockholder may
withdraw such demand for appraisal only with the consent of the Company. If no
petition for appraisal is filed with the Delaware Court within 120 days after
the effective time of the merger, stockholders' rights to appraisal shall cease,
and all holders of shares of Common Stock will be entitled to receive the
consideration offered pursuant to the merger agreement. Inasmuch as the Company
has no obligation to file such a petition, and the Company has no present
intention to do so, any stockholder who desires such a petition to be filed is
advised to file it on a timely basis. Any stockholder may withdraw such
stockholder's demand for appraisal by delivering to the Company a written
withdrawal of his or her demand for appraisal and acceptance of the merger
consideration, except (i) that any such attempt to withdraw made more than 60
days after the effective time of the merger will require written approval of the
Company and (ii) that no appraisal proceeding in the Delaware Court shall be
dismissed as to any stockholder without the approval of the Delaware Court, and
such approval may be conditioned upon such terms as the Delaware Court deems
just.
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BUSINESS OF THE COMPANY
General. The Company was incorporated under the laws of the State of Texas
on March 9, 1956 and became a Delaware corporation on September 30, 1983. The
Company is principally engaged in the growing, processing, marketing and
distribution of food products.
Products. The Company's primary food products include frozen asparagus,
black-eyed peas, broccoli, Brussels sprouts, carrots, cauliflower, corn, green
beans, green peas, green peppers, lima beans, mushrooms, onions, okra, southern
greens, spinach, squash, turnips, white acre peas, various vegetable mixes and
blends, and fresh mushrooms.
Marketing. The Company's food products are primarily sold directly to
large national grocery chains and through food brokers to numerous independent
food stores located throughout the United States for resale in the retail
market. These products are sold both under the Company's brand names and under
buyers' labels, and to military commissaries in the United States and overseas
under the Company's brand names. Such sales represented approximately 75% of the
Company's revenue for the year ended February 28, 1999. The Company's principal
brand name is "Pictsweet," which is used throughout the United States and in
military commissaries overseas. Since such a large part of the Company's sales
are made in the retail market and since a significant proportion of the retail
grocery trade in the United States is concentrated in the hands of national
grocery chains, a large part of the Company's revenue is derived from sales to
these chains. The retail market has experienced a consolidation of participants
in recent years, furthering a trend towards fewer and larger customers. The
Company's five largest customers are the Defense Personnel Support Center, Food
Lion, Inc., The Kroger Company, Publix Supermarkets, Inc. and the J. R. Simplot
Company. Sales to these five customers represented approximately 36% of the
Company's revenue for the fiscal year ended February 28, 1999, with sales to one
particular customer representing approximately 13.1% of such revenue. Due to
competition, the Company's mix of customers may change. The Company primarily
conducts its business through purchase orders. Therefore, it is possible that
the Company may lose one or more of its larger customers from time to time, and
such loss could have a material adverse effect on revenue and results of
operations.
As a part of its marketing program, the Company may use sales allowances in
certain instances. These sales allowances may include cash discounts for prompt
payment, freight allowances, customer incentive programs, advertising allowances
and other sales allowances based on competitive factors. The Company may also
make additional expenditures in connection with the introduction of new products
or the maintenance or expansion of its market position.
The Company primarily conducts its business through purchase orders. The
Company accepts purchase orders, and may invoice such purchases, electronically.
The Company also monitors the inventory levels of certain of its customers
electronically and, based on the customer's stated expectations, automatically
generates a purchase order on such customer's behalf, ships and invoices the
appropriate food products and then invoices the customer. The Company believes
that it and its significant customers will be Year 2000 compliant. However, if
the Company or one or more significant third parties with whom the Company does
business fail to become Year 2000 compliant in a timely manner, such failure may
have a material adverse effect on the Company's results of operations.
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The Company also sells certain of its food products, directly and through
food brokers, to institutions located throughout the United States, such as
restaurants, schools, hospitals, hotels, and federal and state government
agencies. Such sales represented approximately 16% of the Company's revenue for
the year ended February 28, 1999.
In addition, the Company sells certain of its food products directly to
other food companies. Such sales represented approximately 7% of the Company's
revenue for the year ended February 28, 1999.
The Company's food brokers are compensated on a commission basis.
The Company does not consider backlog at fiscal year end to be material to
an understanding of its business.
Sales are somewhat seasonal. Historically, sales have been lower during the
Company's second quarter (summer months) when larger volumes of fresh fruits and
vegetables are available.
The Company operates a truck fleet which transports a substantial portion
of the Company's products. Transportation services are also provided to
customers other than the Company and accounted for less than 1% of the Company's
revenue for the year ended February 28, 1999.
Rental and miscellaneous income accounted for less than 1% of the Company's
revenue for the year ended February 28, 1999.
Trademarks. Approximately 67% of the Company's revenues are derived from
sales under the "Pictsweet" brand and other registered trademarks. The
"Pictsweet" trademark expires during 2002. The Company also uses the "United
Express" and "Product of the USA" and design trademarks which expire in 2007.
All of the Company's trademarks may be renewed upon their expiration.
Operations. Agricultural products comprising approximately 22% of the
total pounds of product sold by the Company are grown on Company-operated farms.
The Company farms approximately 8,000 acres of land in west Tennessee, of which
approximately 7,000 acres are leased, and operates mushroom farms on the west
coast and in Utah. Procurement of the remaining requirements is generally either
by contract with growers, from assemblers or from other food processing
companies. Agricultural crops have seasonal features and availability is subject
to unpredictable changes in growing conditions that are inherent in the
agriculture industry. The Company bears part of the growing risks and all of the
processing and marketing risks associated with its agricultural products.
Weather abnormalities and other adverse growing conditions sometimes result in
substantial reductions in the annual volumes processed in the Company's
facilities. When this occurs, the Company may have to procure raw and processed
products from alternative sources at higher than expected costs and the reduced
volume of products grown and/or processed by the Company results in increased
unit costs. When growing conditions result in yields that exceed expectations,
the Company will generally pack only volumes required by anticipated demand, or
will sell excess inventory through alternative channels. Additionally, selling
prices are impacted by industry-wide production and inventory levels. Bumper
crops and resulting increased inventory levels will tend to decrease average
selling prices, while crop shortages typically do not result in increased
selling prices.
The Company has entered into multi-year supply agreements with other food
processing companies. Prices for food products pursuant to these agreements are
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determined annually. Through these agreements, the Company procures food
products to meet its production and inventory requirements. Quantities available
pursuant to these agreements are generally limited as to individual food
products and in the aggregate. Generally, the purchaser bears the risks
associated with limited supplies under these agreements. Under these supply
agreements, the Company also is obligated to sell food products produced at its
Tennessee and Santa Maria, California facilities to the other food processing
companies.
The time and duration of production seasons vary considerably according to
the specific product. For example, the annual requirement for white acre peas is
available only during a period of approximately two weeks, while broccoli is
available for approximately ten months of each year and mushrooms are available
year round. Thus, substantial inventories are required for long periods of time
to support the consumer demand for certain items throughout the year.
Working capital requirements generally follow inventory levels and the
Company looks to its lenders to meet its working capital requirements. The
interest rate on the Company's working capital loan fluctuates with the prime
rate.
Competition. The Company is faced with substantial competition in all
aspects of its business. The food industry is highly competitive and the
competition has increased in intensity in recent years. The principal methods of
competition in the food industry involve product branding, price, service and
advertising. Over the past several years, imports of food products have
increased substantially and significant new production capacity has been put in
place in the United States, Mexico and Canada. As a result, the industry's total
production capacity is now substantially in excess of current requirements.
The foregoing factors, coupled with low overall growth and retail grocery
consolidation, have led to weak market pricing. In an effort to address this
intense competition, the Company intends to continue to invest in maintaining
and expanding its distribution base and to make substantial expenditures to
maintain and improve its plants, equipment and technological systems.
The Company has developed the "Pictsweet" brand into a national brand which
enables it to differentiate its products on a basis other than price.
Additionally, the Company has a broad-based distribution system for its products
that gives it a competitive advantage in the area of customer service. The
Company also offers electronic links with customers which may be used to
transmit purchase orders and invoices and to monitor customers' inventory
levels.
Employees. At February 28, 1999, the Company had approximately 2,100
employees, of whom approximately 1,960 were engaged in farming, manufacturing,
distribution and service activities and 140 in sales and administration. Because
of the seasonal nature of its production activities, the Company utilizes
temporary employees. Peak employment during the year was approximately 2,400
employees of whom approximately 2,100 were full time employees and approximately
300 were temporary employees.
Properties. The Company owns and is currently operating six facilities in
California, Oregon, Tennessee and Utah. Although production varies with the
seasons at certain of the
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facilities, all the facilities operate during a substantial part of the year.
Set forth in the table below is a list of all facilities with certain
information concerning each:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION SPACE DEVOTED TO FOOTAGE(1)
-------- ---------------- -----------
<S> <C> <C>
Bells, Tennessee................. Processing Plant 212,000
Cold Storage and Distribution
Warehouse 239,000
Ogden, Utah...................... Processing Plant 68,000
Cold Storage and Distribution
Warehouse 150,000
Fillmore, Utah................... Mushroom farming, packaging and
distribution 186,000
Santa Maria, California.......... Processing Plant 150,000
Cold Storage Warehouse 42,000
Ventura, California.............. Mushroom farming, packaging and
distribution 282,000
Salem, Oregon.................... Mushroom farming, packaging and
distribution 289,000
West Tennessee................... Farming 8,000
</TABLE>
- -------------------------
(1) Except for farm land in west Tennessee which is measured in acres.
The Company believes the condition of its facilities, in the aggregate, are
within industry standards. However, in response to competitive factors, the
Company anticipates making substantial expenditures to maintain and improve its
plants, equipment and technological systems.
Substantially all land, buildings and equipment are pledged as collateral
for outstanding debt (See Note 3 -- Notes to the Financial Statements).
Approximately 7,000 acres of the farm land are leased (See Note 7 -- Notes to
the Financial Statements) and approximately 1,000 acres are owned. The Company
owns or leases the machinery and equipment located at all of its facilities.
Although utilization of production capacity varies from facility to facility,
overall utilization is approximately 75% for the Bells, Tennessee facility and
near 100% for all other facilities.
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SELECTED HISTORICAL FINANCIAL DATA
Set forth below is certain historical financial information of the Company.
The selected financial information for, and as of the end of, each of the years
in the five year period ended February 28, 1999 is derived from, and should be
read in conjunction with, the historical financial statements of the Company and
notes thereto, which financial statements have been audited by BDO Seidman, LLP,
independent accountants. The selected financial information for, and as of the
end of, each of the three months ended May 31, 1998 and 1999 is unaudited. The
historical financial information that follows is qualified by reference to the
financial statements and related notes included therein.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED FEBRUARY 28 OR 29, ENDED MAY 31,
---------------------------------------------------- -------------------
1999 1998 1997 1996 1995 1999 1998
-------- -------- -------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Statement Data:
Net sales and service
revenues............. $206,760 $195,087 $195,820 $191,714 $190,256 $ 47,520 $ 49,934
Gross Profit........... 39,352 36,452 36,700 36,371 41,496 9,160 9,389
Operating expenses..... 34,133 31,610 32,028 33,457 34,512 7,741 8,101
Operating income....... 5,219 4,842 4,672 2,914 6,984 1,419 1,288
Interest expense....... 4,138 4,141 3,871 3,976 2,831 1,052 887
Miscellaneous income
(expense), net....... (155) 53 707 28 (176) 1 --
Income (loss) before
taxes on income
(benefit)............ 926 754 1,508 (1,034) 3,977 368 401
Taxes on income
(benefit)............ 406 294 586 (374) 1,575 142 154
Net income (loss)...... 520 460 922 (660) 2,402 226 247
Per Share Data:
Basic and diluted
earnings (loss) per
common share(1)...... .08 .06 .08 (.06) .19 .03 .04
Cash dividends per
common share:
Class A.............. -- -- -- -- -- -- --
Class B.............. -- -- -- -- -- -- --
Balance Sheet Data:
Working capital........ 39,585 39,179 40,738 42,164 41,013 43,399 32,854
Current Ratio.......... 2.63:1 2.68:1 2.82:1 2.93:1 2.98:1 2.74:1 2.28:1
Property and equipment,
net.................. 58,553 52,086 54,638 62,336 49,229 61,877 52,156
Long-term debt......... 48,302 42,168 36,244 46,650 30,076 55,271 35,504
Total assets........... 123,400 115,884 119,108 128,188 114,157 131,229 111,896
Stockholders' equity... 46,268 45,748 55,456 54,534 57,440 46,494 45,995
</TABLE>
- -------------------------
(1) Basic and diluted earnings per common share have been computed using the
average number of shares required to be recognized during the respective
periods. Earnings per share are the same for basic and diluted computations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial condition and
earnings as of and during the periods included in the accompanying balance
sheets and statements of income. This proxy statement, including the discussion
below, and other reports and statements issued on behalf of the Company may
include forward-looking statements. These forward-looking statements are subject
to substantial risks and uncertainties, including those discussed below, and
actual results may differ materially from those contained in any such forward-
looking statement. The review of factors should not be construed as exhaustive.
Further, the Company undertakes no obligation to update or revise any such
forward-looking statements to reflect subsequent events or circumstances.
The Company's liquidity, capital resources and results of operations may be
affected from time to time by a number of factors and risks, including, but not
limited to: the impact of the merger agreement and merger; trends in the economy
as a whole, which may affect consumer confidence and consumer demand for the
types of food products sold by the Company; competitive pressures from domestic
and foreign processors and distributors of fresh, dry, frozen and canned food
products which may affect the nature and viability of the Company's business
strategy; competitive pressures from imported food products; unpredictable
changes in growing conditions inherent in agriculture; other agricultural risks,
including those associated with pesticides, herbicides and disease control and
crop protection efforts; the Company's ability to maintain and expand its
distribution base; the Company's ability to maintain and improve its plants,
equipment and technological systems; changes in the Company's customer base as
the result of competition and/or consolidation of retail grocery chains; risks
associated with governmental regulation and taxation, including the existence or
effects of tariffs; availability and cost of labor employed; changes in industry
capacity and production; the availability, costs and terms of financing,
including the risk of rising interest rates; availability of trade credit and
terms with vendors; the Company's use of financial leverage and the potential
impact of such leverage on the Company's ability to execute its operating
strategies; the ability to maintain gross profit margins; the seasonal nature of
the Company's business and the ability of the Company to predict consumer demand
as a whole, as well as demand for specific items; costs associated with the
storage, shipping, handling and control of inventory; potential adverse
publicity for the food industry or certain of the Company's food products; and
the ability of the Company and significant third parties with whom it does
business to effect conversions to new technological systems, including becoming
Year 2000 compliant.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
On September 16, 1998, the Company received an offer from its chairman and
chief executive officer, James I. Tankersley, and his family to acquire the
remaining shares of the Company's Common Stock that are not already owned by the
Jim Tankersley Family, in a merger in which the other stockholders would receive
$3.00 per share. On receiving the proposal, the Board of Directors of the
Company appointed two disinterested directors to a special committee. The Board
designated the committee for the purpose of evaluating and making
recommendations with respect to the proposal. After receiving the recommendation
of the special committee, on May 14, 1999, the Company entered into an
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Agreement and Plan of Merger with Pictsweet LLC, a Delaware limited liability
company and UF Acquisition Corp., a wholly-owned subsidiary of Pictsweet LLC,
pursuant to which UF Acquisition Corp. will be merged with and into the Company
with the Company being the surviving corporation and becoming a wholly-owned
subsidiary of Pictsweet LLC, subject to the conditions set forth in the merger
agreement. Pursuant to the merger agreement, outstanding shares of the Company's
Common Stock, except for Common Stock held by the Jim Tankersley Family and
Common Stock owned by stockholders who perfect their appraisal rights in
accordance with Delaware law, will be converted into the right to receive $3.50
per share in cash. If consummated, the Jim Tankersley Family will directly or
indirectly own the entire equity interest of the Company. The Company has
recorded approximately $400,000 of expenses with respect to the proposed
transaction through June 30, 1999.
The total funds required to pay the merger consideration of $3.50 per share
to all Public Stockholders, consummate the other transactions contemplated by
the merger agreement and pay all related fees, costs and expenses are estimated
to be approximately $15,800,000. The sources of the $15,800,000 will be
available cash and borrowings under the Company's amended and restated revolving
credit facility.
The Company's primary sources of cash are operations and external committed
credit facilities. At May 31, 1999, the Company's revolving credit facility
totaled $18,000,000, all of which was available. The revolving credit facility
was amended and restated on June 30, 1999 to increase the total amount available
to $35,000,000 and also to change certain of the restrictive covenants contained
in the revolving credit facility. The Company's sources of liquidity are
expected to meet adequately the requirements for the upcoming year and the
foreseeable future; however, new financing alternatives are constantly evaluated
to determine their practicality and availability in order to provide the Company
with sufficient and timely funding at the least possible costs. The Company's
revolving credit facility currently matures in fiscal 2003. The Company's
$3,000,000 revolving credit facility was canceled upon the closing of a term
loan during December 1998. One-year extensions of maturity dates of the
$35,000,000 revolving credit facility will be considered by the lender annually.
If annual extensions are not granted, the Company will then investigate
revolving credit facilities with other lenders and believes it can replace any
current revolving credit facility within its remaining 24-month term.
The Company closed on two term loans during December 1998. One term loan in
the amount of $15,000,000 has a ten year term, provides for monthly principal
and interest payments based on a twelve year amortization, with an interest rate
of 6.8% per annum and is secured by the Company's mushroom farms located in
California, Utah and Oregon. The other term loan in the amount of $10,000,000
has a ten year term, provides for monthly principal and interest payments based
on a fifteen year amortization, with an interest rate of 6.8% per annum and is
secured by the Company's Santa Maria, California vegetable processing facility.
The proceeds of the loans were used to repay the balances outstanding under
existing mortgages on these properties totaling approximately $9,000,000, to
repay the outstanding balance of $3,000,000 on the Company's $3,000,000
revolving credit note, and to repay fully the outstanding balance under the
other revolving credit facility.
In April 1999, the Company borrowed $5,400,000 under the terms of a note
that bears interest at 7.73%, has a ten-year term, requires monthly principal
and interest payments, and is secured by certain equipment. Proceeds from the
loan of approximately $3,056,000 were used to purchase equipment that the
Company had previously leased. The
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balance of the loan proceeds of approximately $2,344,000 was held as a portion
of the Company's available cash at May 31, 1999.
During July 1999 the Company borrowed $4,000,000 under the terms of a note
that bears interest at 7.56%, has a ten-year term, requires monthly principal
and interest payments based on a fifteen year amortization and is secured by
certain farm land and improvements.
In March 1998, the Company entered into a $10,000,000 credit facility to
support the acquisition of trucks, trailers and similar equipment. The agreement
was terminated during March 1999 and all outstanding borrowings under the
facility, which totaled approximately $740,000, were repaid. Another $10,000,000
credit facility was entered into with a different lender during March 1999.
Interest under the terms of the new facility will be 225 basis points over the
yield for treasuries with a maturity equal to the amortization period of the
equipment being financed. Each loan will be secured by specific equipment and
will be amortized over three to seven years, depending on the type of equipment.
Through May 31, 1999 the Company has borrowed approximately $3,600,000 under the
terms of this credit facility.
Operations provided net cash of $2,044,000 during the three months ended
May 31, 1999 and $11,361,000 during the same period of the prior year. Changes
in inventories resulted in a decrease in cash of $3,920,000 during the three
months ended May 31, 1999 and a cash increase of $2,073,000 during the same
period of the prior year. Adverse weather conditions during the first quarter of
the prior year resulted in less than expected packs while favorable weather
conditions resulted in increased inventories during the current year.
Investing activities used cash of $2,243,000 for the three months ended May
31, 1999 compared with cash used of $2,110,000 during the same period of the
prior year, with the only investing activity being capital expenditures for each
period.
Financing activities provided cash of $4,936,000 for the three months ended
May 31, 1999 as compared with cash used of $6,725,000 during the same period of
the prior year. For the three months ended May 31, 1999 the Company borrowed
approximately $3,600,000, as previously mentioned, under the terms of a credit
facility used for the acquisition of certain equipment. Further, the Company
borrowed $5,400,000, as previously mentioned, to acquire certain equipment that
the Company had previously leased for a purchase price of approximately
$3,056,000. The purchase price was disbursed directly to the seller; therefore,
only the net proceeds to the Company are reflected as proceeds from long-term
borrowings in the statement of cash flows.
Working capital at May 31, 1999 was $43,399,000 and was $39,585,000 at
February 28, 1999. The increase results primarily from changes in cash and
inventories, previously mentioned.
The Company's ratio of debt to equity increased to 1.82 to 1 at May 31,
1999 from 1.67 to 1 at February 28, 1999, primarily as a result of additional
long-term debt incurred by the Company during the three months ended May 31,
1999.
Operating activities provided net cash of $9,699,000 in fiscal 1999, as
compared with $5,917,000 provided in fiscal 1998. The increase from 1998 to 1999
resulted primarily from changes in accounts receivable during fiscal 1998.
Increases in accounts receivable during
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fiscal 1998 resulted from increased sales during the month of February, as well
as from normal timing factors associated with cash receipts.
Investing activities used cash of $12,521,000 in fiscal 1999 and $4,454,000
in 1998 and provided cash of $205,000 in 1997. These changes resulted primarily
from an increase in capital expenditures from $693,000 in 1997 to $4,546,000 in
1998 and $12,538,000 in 1999. Proceeds from the sale of property and equipment
totaled $17,000 in fiscal 1999, compared with $92,000 in 1998 and $898,000 in
1997.
Financing activities provided cash of $4,203,000 during fiscal 1999 and
used cash of $4,589,000 during fiscal 1998 and $10,301,000 during fiscal year
1997. The Company closed on two term loans totaling $25,000,000 during December
1998, the proceeds of which were used to repay existing mortgages on the
financed properties totaling approximately $9,000,000 and to repay borrowings
under revolving credit agreements.
On May 19, 1997, the Company initiated a cash tender offer for up to
1,000,000 shares of its Class A and Class B Common Stock at a price of $2.50 per
share. On June 17, 1997, the Company amended the cash tender offer by extending
the expiration date to July 3, 1997 and by increasing the number of shares it
offered to purchase from 1,000,000 shares of its Class A and Class B Common
Stock to up to 2,500,000 shares of its Class A Common Stock and up to 1,500,000
shares of its Class B Common Stock, each at a price of $2.50 per share. A total
of approximately 2,641,299 shares of Class A common Stock and approximately
1,720,932 shares of Class B Common Stock were validly tendered and not withdrawn
in response to the offer, as amended. The purchases of shares were prorated in
accordance with the terms of the offer, as amended, for each class of Common
Stock. The purchase, which totaled approximately $10,168,000, including
expenses, was funded with borrowings from the Company's revolving credit
facilities and available cash.
Proceeds totaling approximately $14,000,000 from two term loans that closed
during the fourth quarter of fiscal 1997 and cash provided by operations during
fiscal 1997 were used to reduce borrowings under the Company's revolving credit
agreements.
Working capital at February 28, 1999 amounted to $39,585,000, compared to
working capital of $39,179,000 at February 28, 1998. The increase in working
capital in fiscal 1999 resulted primarily from an increase in cash as a result
of the operating, investing and financing activities previously mentioned.
The Company's ratio of debt to equity was 1.67 to 1 at February 28, 1999,
an increase from 1.53 to 1 at February 28, 1998. The increase resulted primarily
from the increased borrowings previously mentioned.
A complaint was filed by a stockholder of the Company on March 8, 1999,
against the Company and its directors in a Delaware Court of Chancery. The
complaint seeks class action status and alleges (among other things) that the
defendants breached their fiduciary duties to the Company's stockholders with
respect to the proposal by the Jim Tankersley Family to acquire the remaining
shares of the Company's Common Stock that are not owned by them. The complaint
requests an injunction prohibiting the consummation of the transaction, damages
and other relief. A second complaint was filed by a stockholder of the Company
on May 3, 1999, against the Company and its directors in a Delaware Court of
Chancery. This complaint also seeks class action status, makes similar
allegations with respect to the transaction and requests similar relief. See
"Stockholder Litigation."
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<PAGE> 71
CAPITAL EXPENDITURES
Capital expenditures, on an accrual basis, amounted to $12,953,000 in
fiscal 1999 as compared with $4,774,000 and $533,000 in fiscal 1998 and 1997,
respectively. Fiscal 1999 capital spending included expenditures for new
equipment, farm land, increased storage, trucks, trailers and similar equipment
and vehicles. Capital expenditures for fiscal 2000 are estimated to be
approximately $17,500,000, which is approximately $9,100,000 more than
depreciation expense projected for fiscal 2000. Capital expenditures anticipated
in fiscal 2000 include outlays to be funded under the terms of the $10,000,000
credit facility, previously mentioned, as well as for improvements to the
Company's plants, equipment and technological systems, and the purchase of
certain leased equipment. The Company's capital expenditures plan may change
from time to time and the actual amount spent may vary materially from the
amounts anticipated herein.
YEAR 2000 ISSUES
The Company believes it has developed a comprehensive strategy for updating
its systems for Year 2000 ("Y2K") compliance. The Company's information
technology ("IT") systems include in-house developed software, as well as
software purchased from third parties. All software has been identified and
assessed to determine the extent of renovations required in order to be Y2K
compliant. Renovations to programs that utilize in-house developed computer code
are complete and have been validated. The Company believes vendor developed
software will be made Y2K compliant before the end of the current calendar year
through vendor-provided updates or replacement with other Y2K compliant hardware
and software.
The Company has identified significant non-IT systems which may be impacted
by the Y2K problem, including those relating to production, processing, storage,
and communication equipment, and is in the process of determining through
inquiries of equipment suppliers, as well as testing of such equipment, the
extent of renovations required, if any. The Company believes the assessment will
be completed before the end of the Company's second quarter, and that
renovation, validation and implementation will be completed before the end of
the current calendar year.
The Company has identified third parties with which it has a significant
relationship that, in the event of a Y2K failure, could have a material impact
on the Company's financial position or operating results. The third parties
include energy and utility suppliers, creditors, material and product suppliers,
communication vendors, including value-added network vendors, and the Company's
significant customers. These relationships, especially those associated with
certain suppliers and customers, are material to the Company and a Y2K failure
for one or more of these parties could result in a material adverse effect on
the Company's operating results and financial position. The Company is making
inquiries of these third parties to assess their Y2K readiness. The Company
expects that this process will be on-going throughout the remainder of the
current calendar year.
The Company expects that the costs to address the Y2K issues will total
approximately $600,000, of which approximately $500,000 (approximately 35% of
fiscal 1999 management information system expense) was spent in fiscal 1999. The
remainder will be spent during the first three quarters of fiscal 2000. These
costs include salary and fringe benefits for personnel, hardware and software
costs, and consulting and travel expenses associated, directly or indirectly,
with addressing Y2K issues. Y2K issues have received a high priority within the
Company and, as a result, certain other IT projects have
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<PAGE> 72
been delayed. While such non-Y2K projects are expected to enhance operational
efficiencies and improve the quality of information available to management, the
delay of such projects is not expected to have material impact on the Company's
operations.
The impact of Y2K scenarios could be limited to insignificant matters such
as a minor interruption in production or shipping resulting from unanticipated
problems encountered in the IT systems of the Company, or any of the significant
third parties with whom the company does business. The pervasiveness of the Y2K
issue makes it likely that previously unidentified issues will require
remediation during the normal course of business. In such a case, the Company
anticipates that transactions could be processed manually while IT and other
systems are repaired, and that such interruptions would have a minor effect on
the Company's operations. Worst case Y2K scenarios could be as catastrophic as
an extended loss of utility service resulting from interruptions at the point of
power generation, long-line transmission, or local distribution to the Company's
processing and storage facilities. Such an interruption could result in an
inability to provide products to the Company's customers, as well as impairment
of the Company's production capabilities and its fresh and frozen inventories,
resulting in a material adverse effect on the Company's operating results and
financial position.
IMPACT OF INFLATION
Whether current selling prices will be maintained or future selling price
increases will be sufficient to match any future cost increases is not
determinable at the present time due to the highly competitive conditions which
exist in the food industry.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133 requires companies to recognize all derivatives contracts as either assets
or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged assets or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS 133 amends the guidance in
SFAS No. 52, "Foreign Currency Translation," to permit special accounting for a
hedge of a foreign currency forecasted transaction with a derivative. It also
supersedes SFAS No. 80, "Accounting for Futures Contracts," SFAS No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk," and SFAS No.
119, "Disclosure about Derivative Financial Instruments." In addition, it amends
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," to
include in SFAS No. 107 the disclosure provisions about concentrations of credit
risk from SFAS No. 105.
SFAS 133 is effective for financial statements for periods beginning after
June 15, 1999. Historically, the Company has not entered into derivatives
contracts either to hedge existing risk or for speculative purposes.
Accordingly, the Company does not expect adoption of the new standard to affect
its financial statements.
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<PAGE> 73
RESULTS OF OPERATIONS
OVERVIEW AND TRENDS
The Company's product line is made up of agricultural products which are
subject to the cyclical conditions and risks inherent in the agricultural
industry. The Company bears part of the growing risks and all of the processing
and marketing risks of these agricultural products. Weather abnormalities and
excess inventories sometimes cause substantial reductions in the annual volume
of product processed in the Company's facilities. When this happens, the unit
cost of that year's production will increase substantially, resulting in reduced
profit margins for one or more years. On the other hand, when bumper crops occur
unit costs may decrease but selling prices will, in general, be depressed.
The Company is faced with strong competition in the marketplace from large
brand name competitors, private regional U.S. growers and processors, and
privately-owned Mexican and Canadian growers and processors. These competitive
pressures, coupled with low overall growth and retail grocery consolidation,
have led to weak market pricing, and a substantial increase in trade spending
required for the Company to maintain its market position. These factors have
adversely impacted earnings in certain prior periods and, as a result, certain
discretionary repair and maintenance projects were deferred to later periods.
The Company anticipates that these competitive conditions will continue.
The Company believes that recently imposed interim tariffs on imported
canned mushrooms from certain countries may have had the effect of increasing
prices and profitability for this portion of the Company's product line. In
cases involving imported canned mushrooms from Chile, India, Indonesia and
China, the tariff has been approved for a five-year period. It is anticipated
that any effect of such tariffs might be temporary, due to world wide shifts in
production and distribution of mushrooms resulting from the tariffs.
The Company believes that, in order to address the intense competition
within its industry, it must improve its operational efficiency, lower its
costs, improve its customer service and provide value-added services to its
customers. Accordingly, the Company intends to continue to invest in maintaining
and expanding its distribution base and to make substantial expenditures to
maintain and improve its plants, equipment and technological systems. The
Company believes these expenditures are necessary to keep its business
competitive and will fund such spending during periods when earnings are
available. As a result, the Company expects that its future net income may be
adversely affected during certain periods.
In addition to general inflation and the growing, processing and marketing
risks described above, the Company is facing the significant costs associated
with governmental regulation, the loss of land and water available for
agriculture in California and the increasing competition due to world wide
facilitation of trade, notwithstanding the impact of the previously mentioned
tariff on certain imported canned mushrooms. As a result of these factors, the
Company's earnings are subject to fluctuations and will continue to be so for
the foreseeable future.
The effect on the Company's operations and its ability to withstand the
costs of developing healthcare, OSHA, EPA, taxation and other governmental
regulations is unknown.
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<PAGE> 74
SERVICE REVENUES
Service revenues consist primarily of outside revenue from the Company's
trucking operations, rental and miscellaneous income.
SUPPLY AGREEMENTS
The Company has entered into multi-year supply agreements with other food
processing companies. Through these agreements the Company procures food
products to meet production and inventory requirements. The Company is obligated
to sell food products processed at its Tennessee and Santa Maria, California
facilities to the other food processing companies.
FIRST QUARTER FISCAL 2000 COMPARED TO FIRST QUARTER FISCAL 1999
Revenues
Net sales and service revenue decreased $2,414,000 (4.8%); sales volume
decreased 4.5% accounting for approximately $2,247,000 of the decrease, and the
average per pound selling price decreased .3% for the three months ended May 31,
1999, as compared with the same period of the prior year. Excluding the effect
of sales to other food processors, sales volume decreased 6.3% and the average
per pound selling price increased 1.0% for the quarter ended May 31, 1999, as
compared with the same prior year period. The sales volume decrease for the
three months ended May 31, 1999, as compared with the same period of the prior
year, is primarily attributable to competitive market conditions. Sales
allowances decreased $382,000 (4.0%), primarily as a result of the sales volume
decrease previously mentioned.
Cost of Sales and Services
Gross profit decreased $229,000 (2.4%) for the quarter ended May 31, 1999,
as compared with the same period of the prior year and the gross margin
increased to 19.3% from 18.8%. The decrease in gross profit results primarily
from the decreased sales volumes, previously mentioned. The gross margin
improvement is attributable to the increased average per pound selling price, as
well as improved production costs, as compared with the prior year. The gross
profit method, at the estimated annual gross profit rate, is used to determine
frozen vegetable cost of goods sold in interim financial statements (See Note
3 -- Notes to Unaudited Financial Statements). Cost of sales and services
decreased $2,185,000 (5.4%) for the three months ended May 31, 1999, as compared
with the same period of the prior year, primarily as the result of the sales
volume decrease, which accounted for approximately $1,800,000 of the decrease,
and improved production costs, previously mentioned.
Selling, Administrative and General Expenses
Selling, general and administrative expenses decreased $360,000 (4.4%) for
the quarter compared with the same period of the prior year. Storage expense
decreased $352,000 (13.8%) for the quarter as compared with the same period of
the prior year, primarily as the result of repairs to the Company's cold storage
facilities during the prior fiscal year.
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<PAGE> 75
Interest Expense
Interest expense -- net increased $165,000 (18.6%) for the quarter ended
May 31, 1999, as compared with the prior year, primarily as the result of
increased borrowings which were incurred during December 1998 and during the
three months ended May 31, 1999, previously mentioned.
Taxes on Income
Taxes on income for the three months ended May 31, 1999 and 1998 consist of
current and deferred taxes provided at the estimated effective federal and state
tax rates expected to be recognized for the respective periods.
FISCAL 1999 COMPARED TO FISCAL 1998
Net Sales and Service Revenues. Net sales and service revenues increased
$11,673,000 or 6.0% for fiscal 1999 as compared with fiscal 1998 as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Gross Sales Revenues:
Food Products................................. $247,795,000 $231,430,000
Services...................................... 2,831,000 3,557,000
------------ ------------
Total Gross Revenues.................. 250,626,000 234,987,000
Less Sales Allowances on Food Products.......... (43,866,000) (39,900,000)
------------ ------------
Net Sales and Service Revenues................ $206,760,000 $195,087,000
============ ============
</TABLE>
Food product gross sales revenue increased $16,365,000 or 7.1% in fiscal
1999 as compared with fiscal 1998 and included sales volume increases of 6.1% or
approximately $14,130,000. The average selling price of food products increased
.9% or approximately $2,235,000. The average selling price of food products
sales, excluding the effect of sales to other food processing companies,
increased 1.7% from fiscal 1998 to 1999. Sales allowances increased $3,966,000
or 9.9% from the prior year primarily as a result of sales volume increase,
which accounted for approximately $2,400,000 of the increase, with the balance
of the increase being attributable to competitive market conditions and the
Company's efforts in maintaining current and obtaining additional distribution.
Cost of Sales and Services. Cost of sales and services increased
$8,773,000 or 5.5% in fiscal 1999 as compared with the previous year. The sales
volume increase of 6.1% had the effect of increasing cost of sales by
approximately $9,500,000. Adverse weather conditions were the primary factor
contributing to reduced yields and increased unit costs during fiscal 1999 the
effect of which was an increase of approximately $4,200,000 in cost of sales as
compared with the prior year. However, the increased unit costs were partially
mitigated by the relatively lower average unit costs with respect to beginning
year inventories, the effect of which was approximately $2,100,000. Moreover,
cost of sales was reduced as the result of changes in the overall sales mix.
Gross profit increased $2,900,000 or 8.0% in fiscal 1999 as compared with the
previous year and the gross profit margin was 19.0% for fiscal 1999 and 18.7%
for fiscal 1998. The increase in gross profit resulted primarily from the
increased sales volume and increased average selling prices previously
mentioned.
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<PAGE> 76
Operating results for fiscal 1999 included a charge to operations of
approximately $2,200,000 as compared with approximately $1,850,000 in fiscal
1998, as the result of a plant repair and maintenance program. It is expected
that repair and maintenance expenditures under this program will continue to be
significant during fiscal 2000.
Selling, Administrative and General Expenses. Selling, administrative and
general expenses increased $2,523,000 (8.0%) in fiscal 1999 as compared with the
previous year. Administrative and general selling expense increased $1,237,000
(8.2%) primarily as the result of costs associated with the Company's Y2K
efforts, an increase in expense related to the allowance for possible losses
associated with accounts receivable totalling $129,000, and increases in other
general, administrative and selling expenses. The increase in the allowance for
accounts receivable losses resulted from increasing concentrations of credit
risk associated with consolidation of retail grocery chains and the financial
condition of certain of the Company's customers. Incentive compensation expense
increased $624,000 (81%). Storage expense increased $187,000 (1.9%), primarily
as the result of repairs to the Company's cold storage facilities. Brokerage
expense increased $276,000 (6.5%), primarily as the result of increased sales.
Advertising and other direct selling expenses increased $199,000 (11.6%).
Interest Expenses. Interest expenses was substantially unchanged from
fiscal 1999 to fiscal 1998, decreasing $3,000 (.1%).
Miscellaneous Income. Miscellaneous Income (Expense) -- Net was $(155,000)
in fiscal 1999 as compared with $53,000 for fiscal 1998. Fiscal 1999 includes
expense of $145,000 related to disposals of property, plant and equipment and
leasehold improvements. Fiscal 1998 includes $51,000 resulting from net gains
realized on disposal of property, plant and equipment.
Taxes on Income. Taxes on income consist of current and deferred income
taxes required to be recognized for fiscal 1999 and 1998.
FISCAL 1998 COMPARED TO FISCAL 1997
Net Sales and Service Revenues. Net sales and service revenues decreased
$733,000 or .4% for fiscal 1998 as compared with fiscal 1997 as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Gross Sales Revenues:
Food Products................................. $231,430,000 $227,192,000
Services...................................... 3,557,000 3,173,000
------------ ------------
Total Gross Revenues.................. 234,987,000 230,365,000
Less Sales Allowances on Food Products.......... (39,900,000) (34,545,000)
------------ ------------
Net Sales and Service Revenues................ $195,087,000 $195,820,000
============ ============
</TABLE>
Food product gross sales revenue increased $4,238,000 or 1.9% in fiscal
1998 as compared with fiscal 1997 and included sales volume increases of 3.0% or
approximately $6,894,000. The average selling price of food products decreased
1.1% or approximately $2,656,000, primarily as the result of a five million
pound (14.0%) increase in sales to other food processing companies in connection
with the previously mentioned multi-year reciprocal supply agreements. The
volume increase in sales to other food processing
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<PAGE> 77
companies accounted for approximately one half of the Company's total sales
volume increase. The average selling price of food products sales, excluding the
effect of sales to other food processing companies, increased .3% from 1997 to
1998. Sales allowances increased $5,355,000 or 15.5% from the prior year
primarily as the result of competitive market conditions and the Company's
efforts in maintaining current, and obtaining additional, distribution.
Cost of Sales and Services. Cost of sales and services decreased $485,000
or .3% in fiscal 1998 as compared with the previous year. The sales volume
increase had the effect of increasing cost of sales by approximately $4,700,000
for fiscal 1998 as compared with fiscal 1997. During fiscal 1998 favorable
production efficiencies contributed to a reduction in unit costs that had the
effect of reducing cost of sales by approximately $2,300,000 as compared with
fiscal 1997. Other decreases in cost of sales of approximately $2,900,000 are
primarily attributable to changes in the overall sales mix for 1998 as compared
with 1997. Gross profit decreased $248,000 or .7% in fiscal 1998 as compared
with the previous year and the gross profit margin was 18.7% for both fiscal
1998 and 1997. The decrease in gross profit resulted primarily from the
increased promotional allowances previously mentioned, the effects of which were
partially mitigated primarily by the effect of favorable production efficiencies
in fiscal 1998 as compared with fiscal 1997.
Operating results for fiscal 1998 include a charge to operations of
approximately $1,850,000 as compared with approximately $1,100,000 in fiscal
1997, as the result of a plant repair and maintenance program.
Selling, Administrative and General Expenses. Selling, administrative and
general expenses decreased $418,000 (1.3%) in fiscal 1998 as compared with the
previous year, primarily as the result of a fiscal 1997 charge of approximately
$829,000 resulting from the Company's adoption of a non-contributory,
unqualified supplemental retirement plan for management employees. Storage
expense increased $443,000 for fiscal 1998 as compared with fiscal 1997
primarily as the result of repairs to the Company's cold storage facilities.
Other expenses increased $32,000 in fiscal 1998 as compared with fiscal 1997.
Interest Expense. Interest expense increased $270,000 (7.0%) in fiscal
1998 from fiscal 1997, primarily as the result of higher average borrows
resulting from the stock purchase previously mentioned.
Miscellaneous Income. Miscellaneous Income -- Net was $53,000 in fiscal
1998 as compared with $707,000 for fiscal 1997. Fiscal 1997 includes $314,000
resulting from net gains realized on disposal of property, plant and equipment,
and $212,000 to restore the carrying value of certain property held for disposal
to original cost, based on its current fair market value. Further, miscellaneous
income in fiscal 1997 includes the realization of a claim in the amount of
$167,000 related to operations which were discontinued in 1992.
Taxes on Income. Taxes on income consist of current and deferred income
taxes required to be recognized for fiscal 1998 and 1997.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company does not engage in hedging or other market structure derivative
trading activities. Additionally, the Company's debt obligations are primarily
fixed-rate in nature and, as such, are not sensitive to changes in interest
rates. The following table summarizes as of February 28, 1999, the amount of
fixed-rate indebtedness and the amount of variable-rate indebtedness that will
mature during the fiscal years indicated. The Company's exposure to interest
rate risk has not changed materially through the date of this Proxy Statement.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATES OF LONG-TERM DEBT AS OF FEBRUARY 28, 1999
(INCLUDING CURRENT PORTION)($000)
---------------------------------------------------------------------------
FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
------ ------ ------ ------ ------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt........... $2,278 $2,457 $2,498 $2,630 $2,841 $32,069 $44,773 $45,757
Average interest rate..... 7.7% 7.7% 7.7% 7.7% 7.7% 7.8%
Variable rate debt........ 218 220 221 221 223 4,922 6,025 6,025
Average interest rate..... 7.3% 7.3% 7.3% 7.3% 7.3% 7.3%
------- -------
$50,798 $51,782
======= =======
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY, PICTSWEET LLC AND UF ACQUISITION CORP.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors. The following table sets forth the name of each director and a
description of such director's positions and offices with the Company, if any; a
brief description of such director's principal occupation and business
experience during at least the last five years; certain directorships presently
held by such director in companies other than the Company; and certain other
information including such director's age. Unless otherwise indicated, the
address of each director and executive officer of the Company is that of the
Company at Ten Pictsweet Drive, Bells, Tennessee 38006-0119. Each person listed
below is a citizen of the United States.
<TABLE>
<CAPTION>
DIRECTOR
DIRECTOR NAME AGE SINCE
------------- --- --------
<S> <C> <C>
Darla T. Darnall............................................ 36 1990
B. M. Ennis................................................. 61 1978
Dr. Joseph A. Geary......................................... 46 1991
Carl W. Gruenewald, II...................................... 66 1981
Thomas A. Hopper, Jr........................................ 39 1997
Kelle T. Northern........................................... 32 1991
Daniel B. Tankersley........................................ 52 1979
James I. Tankersley......................................... 57 1972
James W. Tankersley......................................... 27 1997
Julia T. Wells.............................................. 60 1990
John S. Wilder.............................................. 78 1979
</TABLE>
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The following is a summary of the principal business associations of the
Company's directors.
Darla T. Darnall has been Marketing Analyst for the Company's Pictsweet
Frozen Foods Division from 1985 to 1990. Mrs. Darnall has been associated with
the Company since 1981.
B. M. Ennis has been President of the Company since 1989. Mr. Ennis has
been associated with the Company since 1968.
Dr. Joseph A. Geary has been a Minister at St. Paul United Methodist
Church, Memphis, Tennessee since 1996. He has been a Director of the Company
since 1991.
Carl W. Gruenewald, II has been Senior Vice President-Finance of the
Company since 1982 and Treasurer of the Company since 1977. Mr. Gruenewald has
been associated with the Company since 1966.
Thomas A. Hopper, Jr. has been President since 1993 of the Hopper Company,
a media and strategic consulting business. He was a regional director of the
Republican National Committee from 1993 to 1997.
Kelle T. Northern has been Manager -- Human Resources for the Company's
Pictsweet Frozen Foods Division from 1990 to 1996. Mrs. Northern has been
associated with the Company since 1982.
Daniel B. Tankersley has been Chief Manager of Dover Communications LLC, a
political consulting, direct mail and media broker since August 1998.
Previously, Mr. Tankersley served as the Company's Vice Chairman of the Board
from 1992 through 1998 and as Secretary of the Company from 1978 through 1998.
Mr. Tankersley was Executive Vice President and General Counsel of the Company
from 1989 to 1992 and Vice President of the Company from 1979 to 1989. He has
been associated with the Company since 1973.
James I. Tankersley has been Chairman of the Board of the Company since
1986. Mr. Tankersley has been the Chief Executive Officer of the Company since
1983 and served as President of the Company from 1977 to 1989. He has been
associated with the Company since 1964.
James W. Tankersley has been Purchasing Manager for the Company since 1995
and has been associated with the Company since 1987.
Julia T. Wells has been Director of Marketing Services for the Company's
Pictsweet Frozen Foods Division since 1986. Mrs. Wells has been associated with
the Company since 1964.
John S. Wilder has been Speaker of the Senate and Lieutenant Governor of
the State of Tennessee since 1970 and has served continuously in the Tennessee
State Legislature since 1968, having served two year terms in 1959 and 1966. Mr.
Wilder is an attorney with Wilder and Saunders, PLC, a law firm in Somerville,
Tennessee and is also Chairman of the Board of Cumberland Bancorp, Inc., a
director of Cumberland Bank of Carthage, Tennessee, a director of Bank
Tennessee, of Collierville, Tennessee and a director of the Community Bank of
Nashville, Tennessee. He is Vice-President of the Longtown Supply Company, Inc.
of Longtown, Tennessee, a farming, cotton-ginning and merchandise
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<PAGE> 80
business, a partner in Longtown Farms, a partnership engaged in the business of
farming and a director of Health Management, Inc., a pathological waste disposal
company.
Executive Officers. The following sets forth the name of each executive
officer of the Company other than those previously listed as directors and a
description of such person's positions and offices with the Company; a brief
description of such person's business experience during at least the last five
years; and certain other information including such person's age. Each person
listed below is a citizen of the United States.
Donald Dresser, age 51, has been Senior Vice President, Administration and
Secretary since 1998. Previously Mr. Dresser served as Executive Vice-President
and Director of Development for the Company since 1989.
Mason A. Leonard, age 54, has been Division President, Pictsweet Frozen
Foods, since 1989.
John D. Haltom, age 51, has been Division President, Pictsweet Mushroom
Farms, since 1990.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF PICTSWEET LLC AND UF
ACQUISITION CORP.
Set forth below is the name of each director and executive officer of
Pictsweet LLC and UF Acquisition Corp. and, unless disclosed elsewhere in this
Proxy Statement, the present principal occupation or employment of each such
person and a brief description of his principal occupation and business
experience during at least the last five years. Each person listed below is a
citizen of the United States.
<TABLE>
<S> <C> <C>
Pictsweet LLC............. James I. Tankersley: President, Director
Darla T. Darnall: Secretary, Director
Kelle T. Northern: Treasurer, Director
James W. Tankersley: Director
Edna W. Tankersley: Director
UF Acquisition Corp....... James I. Tankersley: Chairman of the Board and
President, Director
Donald Dresser: Secretary and Treasurer
Darla T. Darnall: Director
Kelle T. Northern: Director
James W. Tankersley: Director
Edna W. Tankersley: Director
</TABLE>
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING
CORPORATION
The merger agreement provides that after the merger, the officers and
directors of the Company will become the officers and directors of the surviving
corporation. However, pursuant to the terms of the merger agreement, each
director of the Company personally agrees to deliver to Pictsweet LLC, at
Pictsweet LLC's request, such director's resignation effective immediately at
12:01 a.m. on the day next after the closing date. It is anticipated that all of
the current officers of the Company will become officers of the surviving
corporation with similar duties and responsibilities, but there are no written
agreements to that effect and no person other than the members of the Jim
Tankersley Family is expected to own an equity interest in the surviving
corporation.
74
<PAGE> 81
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth as of July , 1999 the number of shares of
Common Stock which are, to the best of management's belief, controlled or
beneficially owned, directly or indirectly, by each of the present directors,
each of the executive officers of the Company, all directors and executive
officers of the Company as a group, and any holders of five percent or more of
either class of Common Stock:
<TABLE>
<CAPTION>
BENEFICIAL STOCK OWNERSHIP
--------------------------------------------------
PERCENT OF PERCENT OF
NAME CLASS A(1) CLASS(2)(3) CLASS B CLASS(3)
---- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Darla T. Darnall..................... 440,871 14.4% 440,871 10.5%
Donald Dresser....................... -- -- -- --
B. M. Ennis.......................... -- -- -- --
Dr. Joseph A. Geary.................. 1,000 * -- --
Carl W. Gruenewald, II............... -- -- -- --
John D. Haltom....................... 9,200 * 4,000 *
Thomas A. Hopper, Jr................. -- -- -- --
Mason A. Leonard..................... 1,000 * 500 *
Kelle T. Northern.................... 440,871 14.4% 440,871 10.5%
Daniel B. Tankersley................. 712,176 24.3% 312,783 7.5%
James I. Tankersley(4)............... 2,553,415 49.4% 2,553,415 60.9%
James W. Tankersley.................. 440,871 14.4% 440,871 10.5%
Julia T. Wells....................... 327,770 12.5% -- --
John S. Wilder....................... 1,000 * 1,000 *
Jim Tankersley Family(5)............. 2,553,415 49.4% 2,553,415 60.9%
Don C. Whitaker(6)................... 132,000 5.0% -- --
All Directors and Executive Officers
of the Company as a Group (14
persons)........................... 3,605,561 65.7% 2,871,698 68.5%
</TABLE>
- -------------------------
(1) The following table shows shares of Class A Common Stock, included in the
number of shares beneficially owned, which may be acquired upon the
conversion of Class B Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Darla T. Darnall.................. 440,871
John D. Haltom.................... 4,000
Mason A. Leonard.................. 500
Kelle T. Northern................. 440,871
James I. Tankersley(4)............ 2,553,415
Daniel B. Tankersley.............. 312,783
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
James W. Tankersley............... 440,871
John S. Wilder.................... 1,000
All Directors and Executive
Officers of the Company as a
Group (14 persons).............. 2,871,698
</TABLE>
- -------------------------
(2) Total Class A shares used to calculate percent of class includes the shares
of Class A Common Stock which may be acquired by the beneficial owner upon
the conversion of Class B Common Stock. See Note (1).
(3) (*) Indicates less than one percent of class.
(4) Includes shares beneficially owned by other members of the Jim Tankersley
Family.
75
<PAGE> 82
(5) The following table sets forth information with respect to shares of Common
Stock beneficially owned by the members of the Jim Tankersley Family:
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF OF
NAME CLASS A(1) CLASS(2)(3) CLASS B CLASS(3)
---- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Darla T. Darnall................................. 440,871 14.4% 440,871 10.5%
Kelle T. Northern................................ 440,871 14.4% 440,871 10.5%
Edna W. Tankersley............................... 9,474 * 9,474 *
James I. Tankersley.............................. 1,221,328 31.8% 1,221,328 29.1%
James W. Tankersley.............................. 440,871 14.4% 440,871 10.5%
</TABLE>
James I. Tankersley has no power to vote or dispose of and disclaims
beneficial ownership of the 9,474 shares of Class B Common Stock owned by
his spouse, Edna W. Tankersley.
(6) Based on a Schedule 13D filed by Mr. Whitaker dated July 15, 1999, which
lists Mr. Whitaker's address as 23 Beechwood, Irvine, California 92604.
Each of the persons listed above, other than Mr. Whitaker, may be reached
at Ten Pictsweet Drive, Bells, Tennessee 38006.
Certain directors and executive officers of the Company are also members of
Pictsweet LLC or directors or executive officers of UF Acquisition Corp. With
the exception of the ownership of shares of Common Stock by certain of such
persons set forth in "Security Ownership of Management and Certain Beneficial
Owners," no director or named executive officer of the Company, members or
Pictsweet LLC or directors or executive officers of UF Acquisition Corp. owns
any shares of Common Stock.
MARKET PRICE AND DIVIDEND INFORMATION
The Class A Common Stock and Class B Common Stock are listed on the
American Stock Exchange and the Pacific Exchange, respectively, under the
symbols "UFDA" and "UFDB." On September 15, 1998, the last trading day before
the public announcement of the Jim Tankersley Family's proposal to acquire all
the shares of Common Stock held by the public stockholders, the reported closing
price per share of the Class A Common Stock was $2.375 and the reported closing
price per share of the Class B Common Stock was $2.50. On May 14, 1999, the last
trading day before the public announcement of the execution of the merger
agreement, the reported closing sale price per share of the Class A Common Stock
was $2.50 and the reported closing price per share of the Class B Common Stock
was $2.50. On July , 1999, the last full trading day prior to the date of this
Proxy Statement, the reported closing sale price per share of the Class A Common
Stock was $ and the reported closing price per share of the Class B
Common Stock was $ . STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT PRICE
QUOTATION FOR THE COMMON STOCK.
The Company has not declared or paid any cash dividends to the stockholders
of the Company in recent years. The declaration and payment of dividends by the
Company are subject to the discretion of the board of directors. The board of
directors determines payment of dividends in light of conditions then existing,
including the Company's earnings, financial condition and requirements,
restrictions in financing agreements, business conditions and other factors.
Restrictive covenants in the credit facility limit retained earnings available
for payment of dividends.
76
<PAGE> 83
As of February 28, 1999, there were approximately 2,000 and 1,500 holders
of record of the Class A Common Stock and the Class B Common Stock,
respectively.
The following table sets forth, for each period shown, the high and low
sales prices of the Common Stock as reported by the American Stock Exchange, the
Common Stock's principal trading market.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON COMMON
STOCK STOCK
PRICE RANGE PRICE RANGE
------------- -------------
PERIOD HIGH LOW HIGH LOW
------ ---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal 1997
Quarter ended May 31, 1996................. $2 1/8 $1 3/4 $2 1/8 $1 3/4
Quarter ended August 31, 1996.............. 2 1/4 1 5/8 2 1/4 1 3/4
Quarter ended November 30, 1996............ 1 15/16 1 5/8 2 1 5/8
Quarter ended February 28, 1997............ 1 7/8 1 1/2 1 7/8 1 1/2
Fiscal 1998
Quarter ended May 31, 1997................. $2 1/8 $1 7/16 $2 3/16 $1 9/16
Quarter ended August 31, 1997.............. 2 15/16 2 2 15/16 2 1/8
Quarter ended November 30, 1997............ 2 3/4 2 1/4 2 3/4 2 1/8
Quarter ended February 28, 1998............ 4 2 3/8 3 13/16 2 3/8
Fiscal 1999
Quarter ended May 31, 1998................. $3 15/16 $2 1/2 $3 11/16 $2 15/16
Quarter ended August 31, 1998.............. 3 1/2 2 1/2 3 5/8 2 3/4
Quarter ended November 30, 1998............ 2 15/16 2 3/8 3 2 7/16
Quarter ended February 28, 1999............ 2 13/16 2 3/8 2 15/16 2 3/8
</TABLE>
The average daily trading volumes for the Class A Common Stock were 1,922,
2,250 and 3,249 shares for fiscal 1999, 1998 and 1997, respectively. The average
daily trading volumes for the Class B Common Stock were 890, 1,475 and 1,957
shares for fiscal 1999, 1998 and 1997.
CERTAIN TRANSACTIONS IN THE COMMON STOCK
There were no transactions in the Common Stock of the Company that were
effected during the past 60 days by (i) the Company, (ii) any director or
executive officer of the Company, (iii) any person controlling the Company or
(iv) any director or executive officer of the person ultimately in control of
the Company, Pictsweet LLC or UF Acquisition Corp.
On May 19, 1997, the Company initiated a cash tender offer for up to one
million shares of its Class A Common Stock and Class B Common Stock at a price
of $2.50 per share. On June 17, 1997 (the original expiration date of the
Offer), the Company amended the offer by extending the expiration date to July
3, 1997 and by increasing the number of shares it offered to purchase from
1,000,000 shares of its Class A Common Stock and Class B Common Stock to up to
2,500,000 shares of its Class A Common Stock and up to 1,500,000 shares of its
Class B Common Stock, each at $2.50 per share. A total of approximately
2,641,299 shares of Class A Common Stock and 1,720,932 shares of Class B Common
Stock were validly tendered and not withdrawn in response to the offer, as
amended. The purchase of shares was prorated in accordance with the terms of the
offer, as amended, for each class of Common Stock. The purchase, which totaled
77
<PAGE> 84
approximately $10,168,000, including expenses, was funded with borrowings from
the Company's revolving credit facilities and cash.
During August 1998, Dr. Geary, a director of the Company, purchased 250
shares of Class A Common Stock in the open market at a price of $3.25 per share.
INDEPENDENT PUBLIC ACCOUNTANTS
BDO Seidman, LLP serves as the Company's independent certified public
accountants. A representative of BDO Seidman will be at the special meeting to
answer any appropriate question by stockholders and will have the opportunity to
make a statement, if so desired.
STOCKHOLDER PROPOSALS
Stockholders may present proper proposals for inclusion in the Company's
proxy statement and for consideration at the next annual meeting of stockholders
by submitting their proposals to the Company in a timely manner and otherwise
complying with applicable law. As of the date hereof, the Company has not set
the date for the annual meeting of stockholders for 1999. In order to be timely,
proposals must be received a reasonable time before the Company begins to print
and mail its proxy materials for such annual meeting.
ADDITIONAL INFORMATION
Pursuant to the requirements of Section 13(e) of the Exchange Act and Rule
13e-3 promulgated thereunder, the Company, as issuer of the class of equity
securities that are the subject of the Rule 13e-3 transaction, together with
James I. Tankersley, Pictsweet LLC and UF Acquisition Corp. have filed with the
Commission a Transaction Statement on Schedule 13E-3 relating to the
transactions contemplated by the merger agreement. As permitted by the rules and
regulations of the Commission, this Proxy Statement omits certain information,
exhibits and undertakings contained in the Schedule 13E-3. Such additional
information can be inspected at and obtained from the Commission in the manner
set forth below under "Available Information."
For further information concerning any documents discussed in this Proxy
Statement, you should read carefully the entire document, a copy of which has
been filed as an exhibit to the Schedule 13E-3.
78
<PAGE> 85
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and the rules and regulations thereunder, and in accordance therewith files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549, and at
the Commission's regional offices located at 1401 Brickell Avenue, Suite 200,
Miami, Florida 33131, and 3475 Lenox Road, N.E., Suite 1000, Atlanta, Georgia
30326-1232. Copies of such materials can be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, DC 20549. Certain reports, proxy statements and other information
concerning the Company also can be inspected on the Commission's site on the
Internet at http://www.sec.gov. Because the merger is a "going private"
transaction, the Company, Pictsweet LLC, UF Acquisition Corp. and the members of
the Jim Tankersley Family have filed with the Commission a Rule 13E-3
Transaction Statement on Schedule 13E-3 under the Exchange Act regarding the
merger. This Proxy Statement does not contain all of the information set forth
in the Schedule 13E-3 and exhibits thereto.
THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY, PICTSWEET LLC, UF ACQUISITION CORP. OR THE
JIM TANKERSLEY FAMILY SINCE THE DATE HEREOF OR THAT THE INFORMATION IN THIS
PROXY STATEMENT IS CURRENT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
79
<PAGE> 86
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of February 28, 1999 and 1998............. F-3
Statements of Income for the years ended February 28, 1999,
1998 and 1997............................................. F-4
Statements of Stockholders' Equity for the years ended
February 28, 1999, 1998 and 1997.......................... F-5
Statements of Cash Flows for the years ended February 28,
1999, 1998 and 1997....................................... F-6
Notes to Financial Statements............................... F-10
Balance Sheets as of May 31, 1999 and 1998 (unaudited)...... F-20
Statements of Income for the three months ended May 31, 1999
and 1998 (unaudited)...................................... F-21
Statements of Cash Flows for the three months ended May 31,
1999 and 1998 (unaudited)................................. F-22
Notes to Financial Statements (unaudited)................... F-23
</TABLE>
F-1
<PAGE> 87
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
United Foods, Inc.
We have audited the accompanying balance sheets of United Foods, Inc. as of
February 28, 1999 and 1998, and the related statements of income, stockholders'
equity and cash flows for each of the three years in the period ended February
28, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, the financial statements referred to above present fairly,
in all material respects, the financial position of United Foods, Inc. at
February 28, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended February 28, 1999, in conformity
with generally accepted accounting principles.
/s/BDO Seidman, LLP
Memphis, TN
April 1, 1999
F-2
<PAGE> 88
UNITED FOODS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents................................. $ 2,027,000 $ 646,000
Trade accounts receivable, less allowance of $500,000 and
$285,000 for possible losses (Notes 1 and 3)............ 19,154,000 19,263,000
Inventories (Notes 2 and 3)............................... 37,785,000 37,344,000
Prepaid expenses and miscellaneous........................ 3,296,000 3,935,000
Deferred income taxes (Note 5)............................ 1,641,000 1,249,000
------------ ------------
TOTAL CURRENT ASSETS............................... 63,903,000 62,437,000
------------ ------------
PROPERTY AND EQUIPMENT (Note 3):
Land and land improvements................................ 13,814,000 9,968,000
Buildings................................................. 22,227,000 21,399,000
Machinery and equipment................................... 103,388,000 94,870,000
------------ ------------
139,429,000 126,237,000
Less accumulated depreciation and amortization............ (80,876,000) (74,151,000)
------------ ------------
NET PROPERTY AND EQUIPMENT............................ 58,553,000 52,086,000
------------ ------------
OTHER ASSETS................................................ 944,000 1,361,000
------------ ------------
$123,400,000 $115,884,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 13,638,000 $ 12,191,000
Accruals:
Compensation and related taxes.......................... 2,994,000 2,889,000
Pension contributions (Note 8).......................... 1,020,000 965,000
Income taxes (Note 5)................................... 514,000 46,000
Workers' compensation claims (Note 9)................... 1,209,000 993,000
Interest................................................ 311,000 448,000
Promotional allowances.................................. 1,566,000 905,000
Miscellaneous........................................... 570,000 394,000
Current maturities of long-term debt (Notes 3 and 8)...... 2,496,000 4,427,000
------------ ------------
TOTAL CURRENT LIABILITIES.......................... 24,318,000 23,258,000
LONG-TERM DEBT, less current maturities (Notes 3 and 8)..... 48,302,000 42,168,000
DEFERRED INCOME TAXES (Note 5).............................. 4,512,000 4,710,000
------------ ------------
TOTAL LIABILITIES.................................. 77,132,000 70,136,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 7, 8, and 9)
STOCKHOLDERS' EQUITY (Note 4):
Preferred stock, $1 par, shares authorized 10,000,000..... -- --
Common stock, Class A, $1 par, shares authorized
12,000,000; outstanding 2,617,243 and 2,616,139......... 2,617,000 2,616,000
Common stock, Class B, $1 par, shares authorized
6,000,000; outstanding 4,192,686 and 4,193,790.......... 4,193,000 4,194,000
Additional paid-in capital................................ 3,993,000 3,993,000
Retained earnings (Note 3)................................ 35,465,000 34,945,000
------------ ------------
TOTAL STOCKHOLDERS' EQUITY......................... 46,268,000 45,748,000
------------ ------------
$123,400,000 $115,884,000
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-3
<PAGE> 89
UNITED FOODS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES AND SERVICE REVENUES (Note
9)................................... $206,760,000 $195,087,000 $195,820,000
COST OF SALES AND SERVICES............. 167,408,000 158,635,000 159,120,000
------------ ------------ ------------
Gross profit...................... 39,352,000 36,452,000 36,700,000
SELLING, ADMINISTRATIVE AND GENERAL
EXPENSES............................. 34,133,000 31,610,000 32,028,000
------------ ------------ ------------
Operating income.................. 5,219,000 4,842,000 4,672,000
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense..................... (4,138,000) (4,141,000) (3,871,000)
Miscellaneous income (expense),
net............................... (155,000) 53,000 707,000
------------ ------------ ------------
Total other income (expense),
net....................... (4,293,000) (4,088,000) (3,164,000)
------------ ------------ ------------
Income before taxes on income..... 926,000 754,000 1,508,000
TAXES ON INCOME (Note 5)............... 406,000 294,000 586,000
------------ ------------ ------------
NET INCOME............................. $ 520,000 $ 460,000 $ 922,000
============ ============ ============
BASIC AND DILUTED EARNINGS PER COMMON
SHARE (Note 6)....................... $ .08 $ .06 $ .08
============ ============ ============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-4
<PAGE> 90
UNITED FOODS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK - COMMON STOCK -
CLASS A CLASS B ADDITIONAL
----------------------- ------------------------ PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 29, 1996..... 7,649,457 $7,650,000 7,096,180 $7,096,000 $ 8,644,000 $41,261,000
Net income for the year........ -- -- -- -- -- 922,000
Exchange of Class B common
stock for Class A common
stock......................... 6,000 6,000 (6,000) (6,000) -- --
Retirement of treasury stock
(Note 4)...................... (2,539,382) (2,540,000) (1,396,326) (1,396,000) (6,181,000) --
---------- ---------- ---------- ----------- ----------- -----------
Balance, February 28, 1997..... 5,116,075 5,116,000 5,693,854 5,694,000 2,463,000 42,183,000
Net income for the year........ -- -- -- -- -- 460,000
Exchange of Class B common
stock for Class A common
stock......................... 64 -- (64) -- -- --
Purchase of treasury stock
(Note 4)...................... -- -- -- -- -- --
Retirement of, and adjustment
in connection with, treasury
stock (Note 4)................ (2,500,000) (2,500,000) (1,500,000) (1,500,000) 1,530,000 (7,698,000)
---------- ---------- ---------- ----------- ----------- -----------
Balance, February 28, 1998..... 2,616,139 2,616,000 4,193,790 4,194,000 3,993,000 34,945,000
Net income for the year........ -- -- -- -- -- 520,000
Exchange of Class B common
stock for Class A common
stock......................... 1,104 1,000 (1,104) (1,000) -- --
---------- ---------- ---------- ----------- ----------- -----------
Balance, February 28, 1999..... 2,617,243 $2,617,000 4,192,686 $4,193,000 $ 3,993,000 $35,465,000
========== ========== ========== =========== =========== ===========
<CAPTION>
TREASURY STOCK
--------------------------
SHARES AMOUNT TOTAL
----------- ------------ -----------
<S> <C> <C> <C>
Balance, February 29, 1996..... 3,935,708 $(10,117,000) $54,534,000
Net income for the year........ -- -- 922,000
Exchange of Class B common
stock for Class A common
stock......................... -- -- --
Retirement of treasury stock
(Note 4)...................... (3,935,708) 10,117,000 --
----------- ------------ -----------
Balance, February 28, 1997..... -- -- 55,456,000
Net income for the year........ -- -- 460,000
Exchange of Class B common
stock for Class A common
stock......................... -- -- --
Purchase of treasury stock
(Note 4)...................... 4,000,000 (10,168,000) (10,168,000)
Retirement of, and adjustment
in connection with, treasury
stock (Note 4)................ (4,000,000) 10,168,000 --
----------- ------------ -----------
Balance, February 28, 1998..... -- -- 45,748,000
Net income for the year........ -- -- 520,000
Exchange of Class B common
stock for Class A common
stock......................... -- -- --
----------- ------------ -----------
Balance, February 28, 1999..... -- $ -- $46,268,000
=========== ============ ===========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-5
<PAGE> 91
UNITED FOODS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 520,000 $ 460,000 $ 922,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 7,119,000 7,285,000 7,859,000
Provision for losses on accounts receivable......... 210,000 81,000 60,000
Net loss (gain) on disposal of property and
equipment......................................... 145,000 (51,000) (314,000)
Recovery of writedown on property held for
disposal.......................................... -- -- (212,000)
Deferred income taxes............................... (590,000) (305,000) (626,000)
Change in operating assets and liabilities:
Accounts receivable............................... (101,000) (1,811,000) (3,091,000)
Inventories....................................... (441,000) (650,000) 6,405,000
Prepaid expenses and miscellaneous................ 639,000 (64,000) 721,000
Other assets...................................... (387,000) (16,000) 508,000
Income taxes payable.............................. 468,000 (282,000) 122,000
Accounts payable and accruals..................... 2,117,000 1,270,000 485,000
------------ ------------ ------------
Net cash provided by operating activities...... 9,699,000 5,917,000 12,839,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................... (12,538,000) (4,546,000) (693,000)
Proceeds from sale of property and equipment........... 17,000 92,000 898,000
------------ ------------ ------------
Net cash provided (used) by investing
activities................................... $(12,521,000) $ (4,454,000) $ 205,000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings under line of credit
agreements.......................................... $ (9,448,000) $ 9,448,000 $(20,095,000)
Proceeds from long-term borrowings..................... 26,728,000 922,000 14,884,000
Purchase of treasury stock............................. -- (10,168,000) --
Reduction of long-term debt............................ (13,077,000) (4,791,000) (5,090,000)
------------ ------------ ------------
Net cash provided (used) by financing
activities..................................... 4,203,000 (4,589,000) (10,301,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH FOR THE YEAR............. 1,381,000 (3,126,000) 2,743,000
CASH AND CASH EQUIVALENTS, beginning of year............. 646,000 3,772,000 1,029,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year................... $ 2,027,000 $ 646,000 $ 3,772,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................... $ 3,672,000 $ 3,618,000 $ 3,690,000
Income taxes........................................... $ 487,000 $ 854,000 $ 1,084,000
Non-cash investing and financing activities:
Capital expenditures of $643,000 and $228,000 are included in accounts payable at February 28, 1999
and 1998, respectively.
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-6
<PAGE> 92
UNITED FOODS, INC.
SUMMARY OF ACCOUNTING POLICIES
LINES OF BUSINESS
The Company is principally engaged in the growing, processing, marketing
and distribution of food products, primarily frozen vegetables and fresh
mushrooms.
Food products are distributed for resale in the retail market directly to
large national grocery chains and through food brokers to numerous independent
food stores located throughout the United States, both under the Company's brand
name and under buyers' labels, and to military commissaries in the United States
and overseas under the Company's brand name.
The Company also sells certain of its food products, directly and through
food brokers, to institutions located throughout the United States, such as
restaurants, schools, hospitals, hotels, and federal and state government
agencies. In addition, the Company purchases and sells certain products under
reciprocal supply agreements with other food processors.
The Company currently operates six owned facilities in California, Oregon,
Tennessee and Utah. Although production varies with the seasons at three frozen
vegetable plants, all the facilities operate during a substantial part of the
year.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company classifies cash
on hand, savings and checking accounts and short-term investments with initial
maturities of less than 90 days as cash equivalents.
INVENTORY VALUATION
Substantially all of the Company's inventories are valued at the lower of
cost (first-in, first-out) or market. Market for finished goods is based on net
realizable value; and for raw materials and growing crops, market is based on
replacement cost.
F-7
<PAGE> 93
UNITED FOODS, INC.
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
PROPERTY, EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation and amortization on
property and equipment are computed principally on the straight-line method for
financial reporting purposes over the following estimated useful lives:
<TABLE>
<CAPTION>
DESCRIPTION YEARS
----------- -----
<S> <C>
Land improvements........................................... 10-40
Buildings................................................... 5-60
Machinery and equipment..................................... 3-13
</TABLE>
For income tax purposes, depreciation on property and equipment is computed
primarily on accelerated methods.
The Company continually reviews property and equipment to determine that
the carrying values have not been impaired.
REVENUE RECOGNITION
Sales and related cost of sales are recognized primarily upon shipment of
products.
PRODUCT INTRODUCTION AND MARKETING COSTS
In connection with the introduction of new product lines or the expansion
of its market position in the United States, the Company historically deferred
and amortized product introduction and related costs over a twelve-month period.
In February 1997, the Company began expensing such costs in the period incurred
due to the increasingly competitive nature of the industry which has resulted in
the inability to reasonably estimate the period benefited by these costs. The
effect of this change was to decrease after-tax net income for the year ended
February 28, 1997, by $551,000.
TAXES ON INCOME
The Company provides for estimated income taxes payable or refundable on
current year income tax returns and for the estimated future tax effects
attributable to temporary differences and carryforwards. Measurement of deferred
income taxes is based on enacted tax laws and tax rates, with the measurement of
deferred income tax assets being reduced by estimated amounts of tax benefits
not likely to be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 establishes standards for the way that public
companies report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
F-8
<PAGE> 94
UNITED FOODS, INC.
SUMMARY OF ACCOUNTING POLICIES (CONCLUDED)
geographic areas and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. In addition, SFAS 131 permits
the aggregation of two or more operating segments if it is consistent with the
objectives and principles of the statement, if they have similar economic
characteristics, and if the segments meet the aggregation criteria set forth in
the statement. The Company has determined that its operating segments meet these
criteria and, accordingly, no disaggregated information regarding the Company's
operating segments has been included in these financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS 133 amends the guidance in
SFAS No. 52, "Foreign Currency Translation," to permit special accounting for a
hedge of a foreign currency forecasted transaction with a derivative. It also
supersedes SFAS No. 80, "Accounting for Futures Contracts," SFAS No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk," and SFAS No.
119, "Disclosure about Derivative Financial Instruments." In addition, it amends
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," to
include in SFAS No. 107 the disclosure provisions about concentrations of credit
risk from SFAS No. 105.
SFAS 133 is effective for financial statements for periods beginning after
June 15, 1999. Historically, the Company has not entered into derivatives
contracts either to hedge existing risk or for speculative purposes.
Accordingly, the Company does not expect adoption of the new standard to affect
its financial statements.
RECLASSIFICATIONS
Certain prior year amounts in the financial statements have been
reclassified to conform to the current year presentation.
F-9
<PAGE> 95
UNITED FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. RECEIVABLES
Activity in the allowance for possible losses is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------------
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Balance at beginning of year................. $285,000 $ 308,000 $260,000
Charged to expense........................... 210,000 81,000 60,000
Balances written off, net of recoveries...... 5,000 (104,000) (12,000)
-------- --------- --------
Balance at end of year....................... $500,000 $ 285,000 $308,000
======== ========= ========
</TABLE>
NOTE 2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Finished products................................... $32,675,000 $31,607,000
Raw materials....................................... 2,223,000 2,303,000
Growing crops....................................... 2,342,000 2,644,000
Merchandise and supplies............................ 545,000 790,000
----------- -----------
$37,785,000 $37,344,000
=========== ===========
</TABLE>
F-10
<PAGE> 96
UNITED FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
6.8% term notes, payable in monthly installments of
$241,000, including interest, through January
2009, collateralized by certain real estate and
equipment located in California, Oregon and Utah
(approximate carrying value of $17,800,000)....... $24,900,000 $ --
9.10% term note, payable in monthly installments of
$194,000 through March 1998, and $148,000
thereafter, including interest, through March
2007, collateralized by certain real estate and
equipment located in Bells, Tennessee (approximate
carrying value of $27,100,000).................... 13,535,000 14,096,000
8.98% term note, payable in monthly installments of
$61,000, including interest, through January 2007,
collateralized by certain real estate and
equipment located in Ogden, Utah (approximate
carrying value of $1,900,000)..................... 5,578,000 5,799,000
7.08% to 7.35% notes payable through April 2005,
collateralized by certain equipment located in
California, Tennessee and Utah (approximate
carrying value of $822,000)....................... 760,000 --
9.25% term notes payable (repaid December 1998)..... -- 7,357,000
$18 million revolving credit note payable to bank,
collateralized by certain trade receivables and
inventories (approximate carrying value of
$49,100,000), due June 2001, with interest at the
bank's prime rate less fifty basis points (7.25%
at February 28, 1999)............................. -- 6,448,000
6.97% term note payable (repaid December 1998)...... -- 3,857,000
$3 million revolving credit note payable to bank
(repaid December 1998)............................ -- 3,000,000
6.48% term note payable (repaid January 1999)....... -- 689,000
Deferred compensation agreements, with interest
credited at a rate equal to that which the Company
pays on its revolving credit borrowings (7.25% at
February 28, 1999) (Note 8)....................... 6,025,000 5,349,000
----------- -----------
Totals.................................... 50,798,000 46,595,000
Less current maturities............................. (2,496,000) (4,427,000)
----------- -----------
Long-term debt, less current maturities............. $48,302,000 $42,168,000
=========== ===========
</TABLE>
F-11
<PAGE> 97
UNITED FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During fiscal year 1999, borrowings under the revolving credit note
averaged $4,890,000, with a maximum amount borrowed of $11,548,000, as compared
to fiscal year 1998 when borrowings averaged $6,017,000, with a maximum amount
borrowed of $12,508,000.
Principal payments required to be made for each of the next five fiscal
years and thereafter are summarized as follows:
<TABLE>
<S> <C>
2000........................................................ $ 2,496,000
2001........................................................ 2,677,000
2002........................................................ 2,719,000
2003........................................................ 2,851,000
2004........................................................ 3,064,000
After 2004.................................................. 36,991,000
-----------
Total............................................. $50,798,000
===========
</TABLE>
The terms of various notes include certain negative covenants which provide
for, among other things, restrictions relating to maximum leverage and the
maintenance of minimum levels of working capital and equity, and the payment of
dividends. Under the most restrictive of these provisions, retained earnings of
$31,730,000 is restricted at February 28, 1999.
NOTE 4. COMMON STOCK
Each Class B common share is convertible into one share of Class A common
stock at the holders' election. Holders of the Class A common stock are entitled
to a preference dividend of $.025 per share for any quarter and each preceding
quarter of the Company's fiscal year before the holders of the Class B common
stock are entitled to any regular cash dividend. With respect to election of
directors, holders of Class A common stock are entitled to elect 25% of the
directors, and holders of Class B common stock are entitled to elect the
remaining directors. On matters requiring the classes to vote together, the
Class A holders are entitled to 1/10 vote per share and holders of Class B
common stock are entitled to one vote per share.
On May 19, 1997, the Company initiated a cash tender offer for up to one
million shares of its Class A and Class B common stock at a price of $2.50 per
share. On June 17, 1997, the Company amended the cash tender offer by extending
the expiration date to July 3, 1997, and by increasing the number of shares it
offered to purchase from one million shares of its Class A and Class B common
stock to up to 2,500,000 shares of its Class A common stock and up to 1,500,000
shares of its Class B common stock, each at a price of $2.50 per share. A total
of 2,641,299 shares of Class A common stock and 1,720,932 shares of Class B
common stock were validly tendered and not withdrawn in response to the offer,
as amended. The purchase of shares was prorated in accordance with the terms of
the offer, as amended, for each class of common stock. The purchase, which
totaled approximately $10,168,000, including expenses, was funded with
borrowings from the Company's revolving credit facilities and available cash.
F-12
<PAGE> 98
UNITED FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company had an incentive stock option plan for granting key employees
options to purchase shares of the Company's Class A common stock which was
terminated, effective with the expiration of all the options outstanding, in
December 1997.
James I. Tankersley (the Company's chairman and chief executive officer),
Edna W. Tankersley, Kelle T. Northern (a director), Darla T. Darnall (a
director) and James W. Tankersley (a director) (collectively the "Jim Tankersley
Family") have offered to acquire the remaining shares of the Company's common
stock that are not already owned by them in a merger in which the other
stockholders would receive $3 per share. The Board of Directors of the Company
appointed two outside directors to a special transaction committee. The Board
designated the committee for the purpose of evaluating and making
recommendations with respect to the proposal. If consummated, the proposal would
result in the direct or indirect ownership of the entire equity interest of the
Company by the Jim Tankersley Family (Note 9.c.).
NOTE 5. TAXES ON INCOME
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
----------------------------------
1999 1998 1997
-------- -------- ----------
<S> <C> <C> <C>
Current:
Federal................................... $719,000 $475,000 $1,006,000
State..................................... 277,000 124,000 206,000
-------- -------- ----------
996,000 599,000 1,212,000
-------- -------- ----------
Deferred:
Federal................................... (497,000) (273,000) (502,000)
State..................................... (93,000) (32,000) (124,000)
-------- -------- ----------
(590,000) (305,000) (626,000)
-------- -------- ----------
Income tax expense.......................... $406,000 $294,000 $ 586,000
======== ======== ==========
</TABLE>
The components of the net deferred income tax assets and liabilities
consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Jobs and other tax credit carryforwards............. $1,743,000 $2,804,000
Inventory overhead adjustment....................... 379,000 380,000
Accrued vacation.................................... 472,000 472,000
Deferred compensation............................... 2,318,000 2,029,000
Accrued workers' compensation claims................ 366,000 271,000
Package design costs................................ 283,000 163,000
Other............................................... 460,000 242,000
---------- ----------
Total deferred income tax assets............ $6,021,000 $6,361,000
========== ==========
</TABLE>
F-13
<PAGE> 99
UNITED FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred income tax liabilities:
Fixed asset carrying value difference............. $(8,854,000) $(9,707,000)
Other............................................. (38,000) (115,000)
----------- -----------
Total deferred income tax liabilities..... (8,892,000) (9,822,000)
----------- -----------
Net deferred income tax liabilities................. (2,871,000) (3,461,000)
Current deferred income tax asset................... 1,641,000 1,249,000
----------- -----------
Net long-term deferred income tax liability......... $(4,512,000) $(4,710,000)
=========== ===========
</TABLE>
The effective tax rate on income before taxes on income is different from
the federal statutory tax rate. The following summary reconciles taxes at the
federal statutory tax rate with the effective rate:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------------
1999 1998 1997
PERCENT PERCENT PERCENT
------- ------- -------
<S> <C> <C> <C>
Taxes on income at statutory rate............... 34.0 34.0 34.0
Increase (reduction) resulting from:
State income taxes, net of federal tax
benefit.................................... 5.6 8.1 2.2
Fuels and jobs tax credits.................... (5.8) (5.8) (3.3)
Other items................................... 10.0 2.7 5.9
---- ---- ----
Taxes on income at effective rate............... 43.8 39.0 38.8
==== ==== ====
</TABLE>
NOTE 6. EARNINGS PER SHARE AND CAPITAL STOCK
Earnings per share of common stock and common stock equivalents have been
computed using 6,809,929 shares in 1999, 8,256,504 shares in 1998, and
11,077,372 shares in 1997, which represent the weighted average number of shares
of Class A and Class B common stock required to be recognized during the
respective periods. As of February 28, 1997, holders of substantially all of the
Company's common stock options had agreed not to exercise their options in
exchange for an agreed-upon amount of deferred compensation and, therefore, the
assumed exercise of the common stock options is not included in the computation
of common stock equivalents for 1998, but were included in computing the
weighted average number of shares for 1997 due to the fact that the agreements
to allow options to expire were not signed until late February 1997.
F-14
<PAGE> 100
UNITED FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Earnings per share has been calculated using the following weighed average
number of shares:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ----------
<S> <C> <C> <C>
Weighted average number of common shares
used for Basic EPS....................... 6,809,929 8,256,504 10,809,929
Effect of dilutive stock options........... -- -- 267,443
--------- --------- ----------
Weighted average number of common shares
and dilutive potential common stock used
in diluted EPS........................... 6,809,929 8,256,504 11,077,372
========= ========= ==========
</TABLE>
NOTE 7. LEASES
The Company leases certain property, including land used in farming
operations, and equipment under noncancellable leases which expire at various
dates to 2013. In most cases, management expects that in the normal course of
business, leases that expire will be renewed or replaced by other leases.
The future minimum lease payments required under operating leases that have
initial or remaining noncancellable terms in excess of one year were as follows:
<TABLE>
<CAPTION>
YEAR ENDING FEBRUARY 28 OR 29,
------------------------------
<S> <C>
2000........................................................ $ 2,315,000
2001........................................................ 2,274,000
2002........................................................ 1,587,000
2003........................................................ 1,242,000
2004........................................................ 811,000
After 2004.................................................. 3,883,000
-----------
Total minimum lease payments...................... $12,112,000
===========
</TABLE>
Rent expense under operating leases amounted to $3,808,000, $3,588,000 and
$3,552,000 for the years ended February 28, 1999, 1998 and 1997, respectively.
Certain leases contain renewal options and some have purchase options, and
generally provide that the Company shall pay for insurance, taxes and
maintenance.
NOTE 8. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company had a defined contribution pension plan for hourly non-clerical
employees. Contributions to the plan were based upon hours worked during the
plan year and participants could make voluntary contributions to the plan of up
to 10% of their compensation (as defined). The Company paid all administrative
expenses related to the plan. Cost of the plan charged to operations for fiscal
1998 and 1997 amounted to approximately $499,000 and $463,000, respectively.
This plan was terminated on February 28, 1998.
F-15
<PAGE> 101
UNITED FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company also provided a defined contribution pension plan for certain
salaried employees. Company contributions to the plan were discretionary but
could not exceed 15% of participants' compensation. Participants could make
voluntary contributions up to 10% of their compensation (as defined) to the
plan. Cost of the plan charged to operations for fiscal 1998 and 1997 amounted
to approximately $74,000 and $94,000, respectively. This plan was terminated on
February 28, 1998.
On March 1, 1998, the Company established a defined contribution plan for
certain salaried and hourly employees. The plan provides for a dollar for dollar
match by the Company of participant contributions up to 3% of compensation (as
defined) and for participants to make additional voluntary contributions to the
plan of up to 22% of their compensation (as defined). Cost of the plan charged
to operations for fiscal 1999 amounted to approximately $514,000.
INCENTIVE PLANS
During 1997, the Company had an incentive compensation plan, now
terminated, which computed benefits in accordance with a formula which
incorporated net after tax profits, return on average assets and return on
equity. Costs of the plan charged to operations for fiscal 1997 was
approximately $241,000.
The Company adopted incentive compensation plans in fiscal 1998 which cover
certain key employees. Company benefits under the plans are discretionary. Costs
of the plans charged to operations for fiscal 1999 and 1998 were approximately
$350,000 and $277,000, respectively. The Company has also adopted an incentive
compensation plan for the Chairman of the Board which computes benefits in
accordance with a formula which incorporates earnings before interest, taxes,
depreciation and amortization. Cost of the plan charged to operations for fiscal
1999 and 1998 were approximately $438,000 and $280,000, respectively.
A portion of the benefits provided under these plans were credited to
deferred compensation accounts which earn an interest rate equal to that which
the Company pays on its revolving credit borrowings. Interest expense during
fiscal 1999, 1998 and 1997 includes approximately $41,000, $41,000 and $36,000,
respectively, related to these accounts.
OTHER BENEFIT PLANS
The Company also has a deferred compensation plan which permits directors
and certain management employees to defer portions of their compensation and
earn a guaranteed interest rate on the deferred amounts. The salaries, which
have been deferred since the inception of the plans, have been accrued and the
primary expense, other than salaries, related to this plan is interest on the
deferred amounts. Interest is credited to participant accounts at a rate equal
to that which the Company pays on its revolving credit borrowings. Interest
expense during fiscal 1999, 1998 and 1997 includes $182,000, $178,000 and
$139,500, respectively, related to these plans.
F-16
<PAGE> 102
UNITED FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In February 1997, the Company adopted a non-contributory, unqualified
supplemental retirement plan for management employees, whereby an amount
specified by the board of directors is held in a deferred compensation account
for each covered employee to be paid either in a lump sum or in approximate
equal installments over ten years at the date of such employee's retirement from
the Company. The board of directors specified that each management employee
currently holding the Company's incentive stock options be offered the
alternative of receiving deferred compensation under the plan in an amount equal
to $1 for each unexercised stock option currently held. Any employee electing to
so participate was required to agree not to exercise the related options through
the option expiration date in December 1997. Employees holding 829,384 options
elected to participate in this deferred compensation plan, resulting in a charge
to operations of $829,384 in 1997. Interest is credited to participant accounts
at a rate equal to that which the Company pays on its revolving credit
borrowings. Interest expense during fiscal 1999 and 1998 includes $72,000 and
$74,000, respectively, related to this plan.
The Company also has a non-contributory, unqualified supplemental
retirement plan for eight officers whereby a calculated amount is held in a
deferred salary account for each covered officer. The calculation provides an
amount sufficient to adjust the officers' annual United Foods, Inc.-sourced
after income tax earnings for 1993 and each year thereafter to the level it
would have been using 1992 federal tax rates, assuming standard deductions and
no other income. The deferred salary will be paid in approximate equal
installments over ten years upon the latter of such officer's date of disability
as defined, termination from the Company, or 65th birthday. The compensation
expense for this plan in fiscal 1999, 1998 and 1997 was $221,000, $264,000 and
$242,000, respectively. Interest is credited to participant accounts at a rate
equal to that which the Company pays on its revolving credit borrowings.
Interest expense during fiscal 1999, 1998 and 1997 includes $136,000, $121,000
and $88,000, respectively, related to this plan.
The Company has included $6,025,000 and $5,349,000 in long-term debt at
February 28, 1999 and 1998, respectively, to reflect its liability under these
unfunded plans.
NOTE 9. COMMITMENTS AND CONTINGENCIES
A. SALES AND MAJOR CUSTOMER
A large part of the Company's sales are made in the retail market and a
significant proportion of the retail grocery trade in the United States is
concentrated in the hands of national grocery chains. As such, a large part of
the Company's revenue is derived from sales to these chains. Sales to one of the
Company's customers totaled $27,036,000, $26,374,000 and $22,328,000,
representing 13.1%, 13.5% and 11.4% of total Company revenues in 1999, 1998 and
1997, respectively. Competition results in changes in the Company's customer
base over time and it is, therefore, possible that the Company may lose one or
more of its largest customers over time and, as a result, operations could be
materially impacted.
F-17
<PAGE> 103
UNITED FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
B. PRODUCT PROCUREMENT AND AVAILABILITY
Crops have seasonal features and availability is subject to unpredictable
changes in growing conditions that are inherent in the agriculture industry. The
Company bears part of the growing risks and all of the processing and marketing
risks associated with its agricultural products. Weather abnormalities and other
adverse growing conditions sometimes result in substantial reductions in the
annual volumes processed in the Company's plants. When this occurs, the Company
may have to procure raw and processed vegetables from alternative sources at
higher than expected costs and the reduced volume of vegetables processed in the
Company's plants results in increased unit costs. When growing conditions result
in yields that exceed expectations, the Company will generally pack only volumes
required by anticipated demand through the next pack season. Additionally,
selling prices are impacted by industry-wide production and inventory levels.
Bumper crops and resulting increased inventory levels tend to decrease average
selling prices, while crop shortages typically do not result in increased
selling prices.
C. LEGAL PROCEEDINGS
There are several lawsuits against the Company on a variety of matters.
While it is not feasible to predict the ultimate outcome of these matters with
certainty, based on evaluations of the facts and on advice of counsel handling
the defense of these matters, the Company does not believe their outcome will,
in the aggregate, have a material adverse effect on its financial position or
its results of operations.
During March 1999, a complaint was filed against the Company and its
directors by a stockholder of the Company in a Delaware Chancery Court. The
complaint seeks class action status and requests injunctive and other relief
with respect to a pending proposal by the Jim Tankersley Family to acquire the
remaining shares of the Company's common stock that are not owned by them for
$3.00 per share in cash. The Company believes the complaint to be without merit
(Note 4).
D. SUPPLY AGREEMENTS
The Company has entered into multi-year reciprocal supply agreements with
other food processing companies. Through these agreements the Company procures
food products to meet its production and inventory requirements. Also, the
Company sells food products processed at the Company's Tennessee and California
facilities to the other food processing companies.
E. WORKERS' COMPENSATION
The Company is self-insured for workers' compensation claims up to $300,000
each. Provisions for expected future payments are accrued based on the Company's
estimate of its aggregate liability for all open claims. The Company has secured
its liability for potential workers' compensation claims in the states where
they are self-insured by obtaining bonds totaling approximately $2,700,000.
F-18
<PAGE> 104
UNITED FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 10. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
For financial instruments bearing a variable interest rate, it is presumed
that recorded book values are reasonable estimates of fair value. For all other
financial instruments, the following methods and assumptions are used to
estimate fair values:
Cash and cash equivalents, receivables, accounts payable and
accruals -- Recorded book values are a reasonable estimate of fair value.
Long-term debt -- Current market values for debt instruments with fixed
interest rates are estimated based on borrowing rates currently available to the
Company for loans with similar terms. At February 28, 1999, the estimated fair
value of debt instruments with fixed interest rates was approximately
$45,757,000 as compared with the carrying value of such instruments of
$44,773,000.
The remaining assets and liabilities of the Company are not considered
financial instruments and have not been valued differently than is customary
under historical cost accounting.
NOTE 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, 1999: 1ST 2ND 3RD 4TH
----------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.......................... $49,934,000 $45,888,000 $55,525,000 $55,413,000
Gross profit...................... 9,389,000 7,940,000 10,845,000 11,178,000
Income (loss) from operations
before taxes on income
(benefit)....................... 401,000 (775,000) 1,074,000 226,000
Net income (loss)................. 247,000 (477,000) 661,000 89,000
Basic and diluted earnings (loss)
per common share................ .04 (.07) .10 .01
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, 1998:
-----------------------------
<S> <C> <C> <C> <C>
Revenues.......................... $46,963,000 $42,579,000 $51,407,000 $54,138,000
Gross profit...................... 8,878,000 6,873,000 9,429,000 11,272,000
Income (loss) before taxes on
income (benefit)................ 650,000 (1,542,000) 176,000 1,470,000
Net income (loss)................. 400,000 (949,000) 108,000 901,000
Basic and diluted earnings (loss)
per common share................ .04 (.11) .02 .13
</TABLE>
F-19
<PAGE> 105
UNITED FOODS, INC.
BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 6,764 $ 3,172
Accounts Receivable....................................... 15,349 15,359
Inventories (Note 3)...................................... 41,705 35,271
Prepaid Expenses and Miscellaneous........................ 2,892 3,490
Deferred Income Taxes (Note 4)............................ 1,641 1,249
-------- --------
Total Current Assets.............................. 68,351 58,541
-------- --------
Property and Equipment:
Land and Land Improvements................................ 13,814 9,968
Buildings and Leasehold Improvements...................... 22,270 21,910
Machinery, Equipment and Improvements..................... 108,678 96,337
-------- --------
144,762 128,215
Less Accumulated Depreciation............................. (82,885) (76,059)
-------- --------
Net Property and Equipment........................ 61,877 52,156
-------- --------
Other Assets................................................ 1,001 1,199
-------- --------
Total Assets...................................... $131,229 $111,896
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable.......................................... $ 13,874 $ 15,017
Accruals.................................................. 7,559 6,243
Income Taxes Payable (Note 4)............................. -- 61
Current Maturities of Long-term Debt...................... 3,519 4,366
-------- --------
Total Current Liabilities......................... 24,952 25,687
Long-term Debt, Less Current Maturities..................... 55,271 35,504
Deferred Income Taxes (Note 4).............................. 4,512 4,710
-------- --------
Total Liabilities................................. 84,735 65,901
-------- --------
Stockholders' Equity:
Common Stock, Class A (Notes 5 and 6)..................... 2,617 2,616
Common Stock, Class B, Convertible (Notes 5 and 6)........ 4,193 4,194
Additional Paid-in Capital................................ 3,993 3,993
Retained Earnings......................................... 35,691 35,192
-------- --------
Total Stockholders' Equity........................ 46,494 45,995
-------- --------
Total Liabilities and Stockholders' Equity........ $131,229 $111,896
======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
F-20
<PAGE> 106
UNITED FOODS, INC.
STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MAY 31,
-----------------------
1999 1998
-------- ----------
<S> <C> <C>
Net Sales and Service Revenues............................. $ 47,520 $ 49,934
Costs of Sales and Services (Note 3)....................... 38,360 40,545
-------- ----------
Gross Profit............................................. 9,160 9,389
Selling, Administrative and General Expenses............... 7,741 8,101
-------- ----------
Operating Income......................................... 1,419 1,288
-------- ----------
Interest Income (Expense)-- Net............................ (1,052) (887)
Miscellaneous Income (Expense) -- Net...................... 1 --
-------- ----------
Total Other Income and (Expense)................. (1,051) (887)
-------- ----------
Income Before Taxes on Income............................ 368 401
Taxes on Income (Note 4)................................... 142 154
-------- ----------
Net Income............................................... $ 226 $ 247
======== ==========
Weighted Average Common Shares............................. 6,809,929 6,809,929
======== ==========
Basic and Diluted Earnings Per Common Share (Note 6)....... $ .03 $ .04
======== ==========
Cash Dividends Per Common Share:
Class A.................................................. $ -0- $ -0-
Class B.................................................. $ -0- $ -0-
</TABLE>
See accompanying notes to unaudited financial statements.
F-21
<PAGE> 107
UNITED FOODS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MAY 31,
-----------------------
1999 1998
-------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 226 $ 247
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization......................... 2,008 1,908
Provision for losses on accounts receivable........... 43 47
Change in assets and liabilities:
Accounts and notes receivable....................... 3,762 3,857
Inventories......................................... (3,920) 2,073
Prepaid expenses and miscellaneous.................. 404 445
Other assets........................................ (57) 162
Accounts payable and accruals....................... 92 2,607
Income taxes........................................ (514) 15
-------- ----------
Net cash provided by operations....................... 2,044 11,361
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................... (2,243) (2,110)
-------- ----------
Net cash used by investing activities................. (2,243) (2,110)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings....................... 6,254 871
Payments of long-term debt............................... (1,318) (7,596)
-------- ----------
Net cash provided (used) by financing activities...... 4,936 (6,725)
-------- ----------
NET INCREASE IN CASH FOR THE PERIOD........................ 4,737 2,526
CASH AND CASH EQUIVALENTS, beginning of period............. 2,027 646
-------- ----------
CASH AND CASH EQUIVALENTS, end of period................... $ 6,764 $ 3,172
======== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the three months for:
Interest.............................................. $ 876 $ 888
Income taxes.......................................... $ 591 $ 13
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital expenditures of $676, $643, $96 and $228 are
included in accounts payable at May 31, 1999, February
28, 1999, May 31, 1998 and February 28, 1998,
respectively.
During April 1999, the Company purchased equipment for
approximately $3,056,000 that it had previously
leased. Funds for the purchase were disbursed directly
to the seller upon the closing of a $5,400,000 term
loan and the balance of the loan proceeds was
disbursed to the Company.
</TABLE>
See accompanying notes to unaudited financial statements.
F-22
<PAGE> 108
UNITED FOODS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. The interim financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended February 28, 1999.
Significant accounting policies and other disclosures normally provided have
been omitted since such items are disclosed therein.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly its financial position as of May 31, 1999
and May 31, 1998 and its results of operations and cash flows for the three
months ended May 31, 1999 and 1998.
2. The results of operations for the three months ended May 31, 1999 and
1998 are not necessarily indicative of the results to be expected for the fiscal
year.
3. Inventories are summarized as follows:
<TABLE>
<CAPTION>
MAY 31, MAY 31,
1999 1998
----------- ------------
<S> <C> <C>
Finished products.............................. $35,830,000 $28,630,000
Raw materials.................................. 1,945,000 2,143,000
Growing crops.................................. 3,091,000 3,438,000
Merchandise and supplies....................... 839,000 1,060,000
----------- -----------
$41,705,000 $35,271,000
=========== ===========
</TABLE>
Substantially all of the Company's inventories are valued at the lower of
cost (first-in, first-out) or market at each fiscal year end. However, due to
the seasonality of vegetable processing, the gross profit method, at the
estimated annual rate, is used to determine frozen vegetable cost of goods sold
in interim financial statements.
4. Taxes on income consist of the current and deferred taxes required to be
recognized for the periods presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
5. Each share of Class B Common Stock is convertible into one share of
Class A Common Stock at the holder's election. Holders of the Class A Common
Stock are entitled to a preference dividend of $.025 per share for any quarter
and each preceding quarter of the Company's fiscal year before the holders of
the Class B Common Stock are entitled to any regular cash dividend. Holders of
Class A Common Stock have the right to elect a number of directors that equal at
least 25% of the members of the board of directors. In addition, on matters
requiring the classes to vote together, holders of the Class A Common Stock are
entitled to 1/10 vote per share and holders of Class B Common Stock are entitled
to one vote per share.
On September 16, 1998, the Company received an offer from its chairman and
chief executive officer, James I. Tankersley, and his family to acquire the
remaining shares of the Company's Common Stock that are not already owned by Mr.
Tankersley, his wife or their children (the "Jim Tankersley Family"), in a
merger in which the other stockholders would receive $3.00 per share. On
receiving the proposal, the Board of Directors of the Company appointed two
outside directors to a special committee. The Board designated
F-23
<PAGE> 109
UNITED FOODS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
the committee for the purpose of evaluating and making recommendations with
respect to the proposal. After receiving the recommendation of the special
committee, on May 14, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Pictsweet LLC, a Delaware limited liability
company and UF Acquisition Corp., a wholly-owned subsidiary of Pictsweet LLC,
pursuant to which UF Acquisition Corp. will be merged with and into the Company
with the Company being the surviving corporation and becoming a wholly-owned
subsidiary of the Pictsweet LLC, subject to the conditions set forth in the
Merger Agreement. Pursuant to the Merger Agreement, outstanding shares of the
Company's Common Stock, except for Common Stock held by the Jim Tankersley
Family and Common Stock owned by stockholders who perfect their appraisal rights
in accordance with Delaware law, will be converted into the right to receive
$3.50 per share in cash. If consummated, the Jim Tankersley Family will directly
or indirectly own the entire equity interest of the Company.
A complaint was filed by a stockholder of the Company on March 8, 1999,
against the Company and its directors in a Delaware Court of Chancery. The
complaint seeks class action status and alleges (among other things) that the
defendants breached their fiduciary duties to the Company's stockholders with
respect to the proposal by the Jim Tankersley Family to acquire the remaining
shares of the Company's Common Stock that are not owned by them. The complaint
requests an injunction prohibiting the consummation of the transaction, damages
and other relief. A second complaint was filed by a stockholder of the Company
on May 3, 1999, against the Company and its directors in a Delaware Court of
Chancery. This complaint also seeks class action status, makes similar
allegations with respect to the transaction and requests similar relief.
6. Basic and diluted earnings per share of common stock have been computed
based upon the weighted average number of shares outstanding during the three
months ended May 31, 1999 and May 31, 1998.
F-24
<PAGE> 110
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
MAY 14, 1999
AMONG
UNITED FOODS, INC.,
PICTSWEET LLC,
AND
UF ACQUISITION CORP.
A-1
<PAGE> 111
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 The Merger....................................... A-5
Section 1.1 Company Actions............................... A-5
Section 1.2 The Merger.................................... A-5
Section 1.3 Effective Time................................ A-5
Section 1.4 Closing....................................... A-6
Section 1.5 Directors and Officers of Surviving
Corporation............................................ A-6
Section 1.6 Certificate of Incorporation.................. A-6
Section 1.7 Bylaws........................................ A-6
ARTICLE 2 Conversion of Securities......................... A-6
Section 2.1 Conversion of Capital Stock................... A-6
(a) Purchaser Common Stock............................. A-6
(b) No Effect on Parent-Owned Stock.................... A-6
(c) Cancellation of Treasury Stock..................... A-6
(d) Conversion of Shares and Dissenting Shares......... A-6
Section 2.2 Surrender of Certificates..................... A-7
(a) Paying Agent....................................... A-7
(b) Surrender Procedures............................... A-7
(c) Transfer Books; No Further Ownership Rights in the
Shares................................................ A-8
(d) Termination of Fund; No Liability.................. A-8
(e) Lost, Stolen or Destroyed Certificates............. A-8
Section 2.3 Dissenting Shares............................. A-8
Section 2.4. Withholding Taxes............................ A-9
ARTICLE 3 Representations and Warranties of Company........ A-9
Section 3.1 Corporate Existence and Power................. A-9
Section 3.2 Corporate Authorization....................... A-9
Section 3.3 Governmental Authorization.................... A-10
Section 3.4 Non-Contravention............................. A-10
Section 3.5 Capitalization................................ A-10
Section 3.6 Company Subsidiaries and Other Equity
Interests.............................................. A-11
Section 3.7 Disclosure Documents.......................... A-11
ARTICLE 4 Representations and Warranties of Parent and
Purchaser................................................. A-11
Section 4.1 Corporate Existence and Power................. A-11
Section 4.2 Capitalization................................ A-11
Section 4.3 Corporate Authorization....................... A-12
Section 4.4 Governmental Authorization.................... A-12
Section 4.5 Non-Contravention............................. A-12
Section 4.6 Disclosure Documents.......................... A-12
Section 4.7 Finders' and Bankers' Fees.................... A-12
Section 4.8 Solvency Matters.............................. A-12
Section 4.9 Litigation.................................... A-13
Section 4.10 Other Agreements............................. A-13
Section 4.11 No Resale.................................... A-13
ARTICLE 5 Covenants........................................ A-13
Section 5.1 Interim Operations of Company................. A-13
Section 5.2 Access to Information......................... A-15
Section 5.3 Other Potential Bidders....................... A-15
Section 5.4 Notices of Certain Events..................... A-15
Section 5.5 Voting of Shares.............................. A-16
</TABLE>
A-2
<PAGE> 112
<TABLE>
<S> <C>
Section 5.6 Director and Officer Liability................ A-16
Section 5.7 Best Efforts.................................. A-16
Section 5.8 Certain Filings............................... A-16
Section 5.9 Public Announcements.......................... A-16
Section 5.10 Financing.................................... A-16
Section 5.11 Stockholders' Meeting........................ A-17
Section 5.12 Further Assurances........................... A-18
Section 5.13 Resignations of Directors.................... A-18
ARTICLE 6 Conditions to the Merger......................... A-18
Section 6.1 Conditions to the Obligations of Each Party... A-18
Section 6.2 Additional Conditions to the Obligations of
Parent and Purchaser................................... A-19
Section 6.3 Additional Conditions to the Obligations of
Company................................................ A-20
ARTICLE 7 Termination...................................... A-21
Section 7.1 Termination................................... A-21
Section 7.2 Effect of Termination......................... A-21
ARTICLE 8 Miscellaneous.................................... A-21
Section 8.1 Definitions................................... A-21
"Affiliate"............................................ A-21
"Agreement"............................................ A-22
"Business Combinations Act"............................ A-22
"Certificate of Merger"................................ A-22
"Class A Common Stock"................................. A-22
"Class B Common Stock"................................. A-22
"Code"................................................. A-22
"Company Common Stock"................................. A-22
"DGCL"................................................. A-22
"Exchange Act"......................................... A-22
"Expenses"............................................. A-22
"GAAP"................................................. A-22
"Governmental Authority"............................... A-22
"Law".................................................. A-22
"Lien"................................................. A-22
"Material Adverse Effect".............................. A-22
"Order"................................................ A-22
"Permitted Financing Terms"............................ A-23
"Person"............................................... A-23
"Preferred Stock"...................................... A-23
"Purchaser Common Stock"............................... A-23
"SEC".................................................. A-23
"Special Committee".................................... A-23
"Surviving Corporation"................................ A-23
"Jim Tankersley Family"................................ A-23
"Tankersley Group"..................................... A-23
Section 8.2 Notices....................................... A-24
Section 8.3 Survival of Representations and Warranties.... A-25
Section 8.4 Enforcement of Agreement...................... A-25
Section 8.5 Amendments; Written Waivers................... A-25
Section 8.6 Expenses...................................... A-25
Section 8.7 Successors and Assigns........................ A-26
Section 8.8 Governing Law................................. A-26
</TABLE>
A-3
<PAGE> 113
<TABLE>
<S> <C>
Section 8.9 Severability.................................. A-26
Section 8.10 Captions..................................... A-26
Section 8.11 Interpretations.............................. A-26
Section 8.12 Counterparts; Effectiveness.................. A-26
Section 8.13 Gender and Number............................ A-26
</TABLE>
A-4
<PAGE> 114
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of May 14,
1999, by and among UNITED FOODS, INC., a Delaware corporation ("Company"),
PICTSWEET LLC, a Delaware limited liability company ("Parent"), and UF
ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of
Parent ("Purchaser").
RECITALS:
A. The Board of Directors of the Company has approved and deemed it fair,
advisable and in the best interests of the Company's Stockholders other than the
Jim Tankersley Family, Parent, Purchaser or any of their affiliates (the "Public
Stockholders") to adopt and approve this Agreement and the transactions
contemplated hereby, including the Merger (collectively, the "Transactions").
B. The Board of Directors of the Company has determined to recommend the
Agreement and the Transactions for approval and adoption by Company's
stockholders ("Stockholders") at a duly called meeting of the Stockholders.
C. The Board of Directors of Purchaser, and the Board of Directors of
Parent, have approved, and deem it fair, advisable and in the best interests of
their respective stockholders and members, to consummate the acquisition of
Company by Parent upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, the parties hereto agree as
follows:
ARTICLE 1
THE MERGER
Section 1.1 COMPANY ACTIONS. The recommendation referred to in Recital B
may be withdrawn, modified or amended by the Board of Directors of Company if
the Board deems such withdrawal, modification or amendment necessary in light of
its fiduciary duties to Stockholders after consultation with counsel and the
Special Committee and its counsel.
Section 1.2 THE MERGER. Subject to the terms and conditions of this
Agreement, and in accordance with the DGCL, at the Effective Time, (a) Purchaser
shall be merged with and into Company (the "Merger") and the separate corporate
existence of Purchaser shall thereupon cease; and (b) Company shall be the
surviving corporation in the Merger (the "Surviving Corporation") and shall
continue to be governed by the laws of the State of Delaware. The Merger shall
have the effects specified in the DGCL and as provided herein. Without limiting
the foregoing, and subject thereto, at the Effective Time, all of the property,
rights, privileges, powers and franchises of Company and Purchaser shall vest in
Surviving Corporation, and all debts, liabilities, and duties of Company and
Purchaser shall become debts, liabilities and duties of Surviving Corporation.
Section 1.3 EFFECTIVE TIME. Subject to the terms and conditions of this
Agreement, as soon as practicable after satisfaction or waiver of the conditions
set forth in Article 6, Parent, Purchaser and Company will cause a Certificate
of Merger to be executed and
A-5
<PAGE> 115
filed on the Closing Date (or on such other date as Parent and Company may
agree) with the Secretary of State of Delaware as provided in the DGCL. The
Merger shall become effective at the time when the Certificate of Merger is duly
filed with the Secretary of State of Delaware, or such later time as is agreed
upon by the parties and specified in the Certificate of Merger (such time, the
"Effective Time").
Section 1.4 CLOSING. The closing of the Merger (the "Closing") shall take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the fifth business day after satisfaction or waiver of all of the
conditions set forth in Article 6 hereof (the "Closing Date"), at the corporate
offices of Company, unless another date or place is agreed to in writing by the
parties hereto.
Section 1.5 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The
directors and the officers of Company at the Effective Time shall, from and
after the Effective Time, be the directors and officers, respectively, of
Surviving Corporation, until their successors shall have been duly elected or
appointed or qualified or until their earlier death, resignation (including that
provided herein), or removal in accordance with applicable law, the Certificate
of Incorporation and the Bylaws of Company.
Section 1.6 CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of Company in effect at the Effective Time shall be the
Certificate of Incorporation of Surviving Corporation, until amended, in
accordance with applicable law.
Section 1.7 BYLAWS. The Bylaws of Company in effect at the Effective Time
shall be the Bylaws of Surviving Corporation, until amended, in accordance with
applicable law.
ARTICLE 2
CONVERSION OF SECURITIES
Section 2.1 CONVERSION OF CAPITAL STOCK. At and as of the Effective Time,
by virtue of the Merger and without any action on the part of the holders of any
shares of Company Common Stock (including shares of Class A Common Stock and
Class B Common Stock, and shares of the Company's Class A Common Stock issuable
as a result of any conversion of Class B Common Stock into Class A Common Stock,
the "Shares") or holders of any shares of Purchaser Common Stock:
(a) Purchaser Common Stock. Each issued and outstanding share of
Purchaser Common Stock (including all Shares that are owned by Parent
("Parent-Owned Shares")) shall be converted into and become one fully paid
and non-assessable share of Class B Common Stock of Surviving Corporation.
(b) No Effect on Parent-Owned Stock. All Parent-Owned Shares shall
continue to remain issued and outstanding and shall not be converted into
the right to receive the Merger Consideration.
(c) Cancellation of Treasury Stock. All Shares that are owned by the
Company as treasury stock immediately prior to the Effective Time
("Treasury Shares") shall be canceled and retired and shall cease to exist
and no consideration shall be delivered in exchange therefor.
(d) Conversion of Shares and Dissenting Shares. Each issued and
outstanding Share (other than Parent-Owned Shares, the Treasury Shares, and
the Dissenting
A-6
<PAGE> 116
Shares) shall be converted into the right to receive $3.50 in cash, payable
by Surviving Corporation to the holder thereof, without interest (the
"Merger Consideration"), upon surrender of the Certificate formerly
representing such Share in the manner provided in Section 2.2. Subject to
and in accordance with Section 2.3, each issued and outstanding Dissenting
Share shall be converted into the right to receive payment of the fair
value of such Dissenting Share as determined in accordance with the DGCL,
from Surviving Corporation to the holder thereof. From and after the
Effective Time, all of such Shares and Dissenting Shares shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist in all respects, and each holder of a Certificate formerly
representing any such Share or Dissenting Share shall cease to have any
rights with respect thereto, except for the rights to receive the foregoing
payments.
Section 2.2 SURRENDER OF CERTIFICATES.
(a) Paying Agent. At or prior to the Effective Time, Parent shall
designate a bank reasonably acceptable to Company to act as agent for the
holders of the Shares in connection with the Merger (the "Paying Agent"),
and Parent shall, or Parent shall cause Surviving Corporation to, make
available to the Paying Agent funds sufficient in the aggregate for the
Paying Agent to make full payment of the Merger Consideration to the
holders of the Shares entitled to payment of the Merger Consideration
pursuant to Section 2.1(d). Such funds shall be invested by the Paying
Agent as directed by Parent or Surviving Corporation, and interest thereon
shall be paid to Surviving Corporation.
(b) Surrender Procedures. As used herein, the term "Certificate"
means a stock certificate which immediately prior to the Effective Time
represented outstanding Shares. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
Certificate formerly representing Shares that were converted pursuant to
Section 2.1(d) into the right to receive the Merger Consideration: (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall be in such form
and have such other provisions as Parent and Company may reasonably
specify), and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment of the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent, together
with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration for each Share formerly represented by such Certificate and
the Certificate so surrendered shall forthwith be canceled. No interest
will be paid or accrued to the holder of the Certificate with respect to
the cash payable upon the surrender of the Certificate. If payment of the
Merger Consideration is to be made to a Person other than the Person in
whose name the surrendered Certificate is registered, it shall be a
condition of payment that the Certificate so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that the
Person requesting such payment shall have paid any transfer and other taxes
required by reason of the payment of the Merger Consideration to a Person
other than the registered holder of the Certificate surrendered or shall
have established to the satisfaction of Surviving Corporation that such tax
either has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to
A-7
<PAGE> 117
receive the Merger Consideration in cash as contemplated by this Section
2.2. The right of any Stockholder to receive the Merger Consideration shall
be subject to Section 2.4.
(c) Transfer Books; No Further Ownership Rights in the Shares. At the
Effective Time, the stock transfer books of Company shall be closed and
thereafter there shall be no further registration of transfers of the
Shares on the records of Company (except for those owned by Parent or
Purchaser). From and after the Effective Time, the holders of Certificates
evidencing ownership of the Shares (other than Parent-Owned Shares)
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares, except as otherwise provided for herein
or by applicable Law.
(d) Termination of Fund; No Liability. At any time following twelve
months after the Effective Time, Surviving Corporation shall be entitled to
require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying
Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to Surviving Corporation
(subject to abandoned property, escheat or other similar Laws) only as
general creditors thereof, with respect to the Merger Consideration payable
upon due surrender of their Certificates, without any interest thereon.
Notwithstanding the foregoing, neither Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law. Subject to such Laws (i.e., the
Surviving Corporation shall be obligated to pay the Merger consideration
for particular Shares only once), even after the delivery by the Paying
Agent to the Surviving Corporation of any funds not previously disbursed to
Stockholders, the Surviving Corporation shall continue to be obligated to
pay the Merger Consideration to any Stockholder surrendering a Share
certificate, and the certificate shall then be canceled.
(e) Lost, Stolen or Destroyed Certificates. In the event any
Certificate for Shares (other than Dissenting Shares and Parent-Owned
Shares) shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed (in form and substance satisfactory to Parent) and, if
required by Parent, the posting by such Person of a bond (in form,
substance and amount satisfactory to Parent) as indemnity against any claim
that may be made against it with respect to such Certificate, the Paying
Agent will issue in exchange for such lost, stolen or destroyed Certificate
the Merger Consideration pursuant to Section 2.2(b).
Section 2.3 DISSENTING SHARES. Notwithstanding any other provision of
this Agreement to the contrary, Shares held by a holder who has not voted such
Shares in favor of the Merger and with respect to which appraisal rights shall
have been exercised and perfected in accordance with Section 262 of the DGCL and
as of the Effective Time not withdrawn ("Dissenting Shares"), shall be converted
at and as of the Effective Time into the right to receive payment from Surviving
Corporation of the fair value of such Shares as determined in accordance with
Section 262 of the DGCL, unless and until the holder of such Shares withdraws
his demand for such appraisal or becomes ineligible for such appraisal (through
failure to perfect or otherwise), in which case, such right to receive payment
shall then be converted, as of the Effective Time, into the right to receive
payment from Surviving Corporation of the Merger Consideration for such Shares,
without
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interest. Any Dissenting Stockholder who has withdrawn his demand for appraisal
shall be treated in the same manner as a non-dissenting Stockholder and have the
same rights under Section 2.2 of this Agreement. Company shall give Parent (i)
prompt notice of any demands for appraisal of Shares received by Company and
(ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands. Company shall not, without the
prior written consent of Parent, voluntarily make any payment with respect to,
settle or offer to settle, any such demands.
Section 2.4. WITHHOLDING TAXES. Surviving Corporation shall be entitled
to deduct and withhold from the consideration otherwise payable to a holder of
Shares pursuant to the Merger, such amounts as are required to be withheld under
the Code, or any applicable Laws or Orders. To the extent that amounts are so
withheld by Surviving Corporation, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the Shares
in respect of which such deduction and withholding was made by Surviving
Corporation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Purchaser that:
Section 3.1 CORPORATE EXISTENCE AND POWER. Company is a corporation
duly incorporated, validly existing and in good standing under the Laws of
the state of its incorporation, and has the requisite corporate power and
authority necessary to own, operate and lease its properties and assets,
and to carry on its business as now being conducted. Company is duly
qualified as a foreign entity to do business, and is in good standing, in
each jurisdiction where the character of its properties owned, operated or
leased, or the nature of its activities, makes such qualification necessary
except for any such failure which, taken together with any other such
failures, would not reasonably be expected to have a Material Adverse
Effect. A correct and complete copy of the Certificate of Incorporation and
the Bylaws of Company, each as amended through the date hereof, have been
made available by Company to Parent.
Section 3.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Company of this Agreement and the consummation by Company of
the Transactions: (i) are within Company's corporate powers, and (ii)
except for the Required Stockholder Approval, have been deemed advisable
and have been duly authorized by all necessary corporate action on behalf
of Company. This Agreement and the Transactions have been duly approved by
the Board of Directors of Company, and at least three-quarters of such
Board consisted of continuing directors (as defined in the Certificate of
Incorporation of Company), and accordingly the provisions of Article
FOURTEENTH, Section A of the Certificate of Incorporation of the Company
are not applicable to this Agreement or the Transactions. Company is not
governed by, and this Agreement and the Transactions are not subject to,
the restrictions on business combinations set forth in the Business
Combinations Act. This Agreement constitutes a legal, valid and binding
obligation of Company, enforceable against it in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization and other
similar laws relating to creditors' rights generally and to general
principles of equity.
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Section 3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Company of this Agreement and the consummation of the
Transactions by Company require no action by or in respect of, or filing
with, any Governmental Authority other than (i) the filing of Certificate
of Merger in accordance with the DGCL, and (ii) compliance with applicable
requirements of the Exchange Act and of applicable state securities laws.
Section 3.4 NON-CONTRAVENTION. The execution, delivery and
performance by Company of this Agreement and the consummation by Company of
the Transactions do not and will not (i) contravene or conflict with the
Certificate of Incorporation or Bylaws of Company, and (ii) assuming
compliance with the matters referred to in Section 3.3 and procurement of
the Required Stockholder Approval, contravene or conflict with or
constitute a violation of any provision of any Law or Order binding upon or
applicable to Company or its respective properties or assets, and (iii)
except as set forth in EXHIBIT 3.4, do not constitute a breach, violation
or default of or under, or give rise to a right to terminate or accelerate,
or require a consent under, or create any lien, encumbrance or restriction
upon any assets or properties of Company pursuant to, any document,
instrument, certificate, agreement, or other arrangement, to which Company
is a party, or by which any of its respective properties or assets are
bound, which would reasonably be expected to have a Material Adverse
Effect.
Section 3.5 CAPITALIZATION. The authorized capital stock of Company
consists of 18,000,000 authorized Shares of Company Common Stock (of which
12,000,000 are Class A Common Stock and 6,000,000 are Class B Common
Stock), and 10,000,000 authorized shares of Preferred Stock. With respect
to Company, (a) 2,617,243 Shares of Class A Common Stock were issued and
outstanding as of May 4, 1999, (b) 4,192,686 Shares of Class B Common Stock
were issued and outstanding as of May 4, 1999, (c) no Shares of Company
Common Stock are held in the treasury of Company, (d) no Shares of Company
Common Stock are reserved for future issuance pursuant to any stock
options, stock incentive, or other stock arrangements or plans , (e) no
shares of Preferred Stock are issued and outstanding, (f) no shares of
Preferred Stock are held in the treasury of Company, and (g) no shares of
Preferred Stock are reserved for future issuance pursuant to any stock
options, stock incentive, or other stock arrangements or plans. All
outstanding Shares of Company Common Stock are duly authorized, validly
issued, fully paid and nonassessable. There are no bonds, debentures, notes
or other indebtedness having general voting rights (or convertible into
securities having such rights) ("Voting Debt") of Company outstanding.
Except as set forth above in this Section (and except for any Shares of
Class B Common Stock which may have been converted since May 4, 1999 into
to an equal number of Shares of Class A Common Stock in accordance with the
Certificate of Incorporation of the Company), there are (i) no shares of
capital stock or other voting securities of Company authorized, issued or
outstanding, (ii) no existing options, warrants, calls, preemptive rights,
subscriptions or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of Company,
or obligating Company to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock or Voting Debt of, or other
equity interest in, Company or securities convertible into or exchangeable
for such shares or equity interests, or obligating Company to grant, extend
or enter into any such option, warrant, call, subscription or other right,
agreement, arrangement or commitment, and (iii) no outstanding contractual
obligations of Company to repurchase, redeem or otherwise acquire any
Shares, or the
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capital stock of Company, or to provide funds to make any investment (in
the form of a loan, capital contribution or otherwise) in any other Person.
Section 3.6 COMPANY SUBSIDIARIES AND OTHER EQUITY INTERESTS. Company
does not own any material equity interest in any corporation or other
Person.
Section 3.7 DISCLOSURE DOCUMENTS.
(a) Each document required to be filed by Company with the SEC in
connection with the Transactions contemplated by this Agreement (the
"Company Disclosure Documents"), including, without limitation the Proxy
Statement, will, when filed, comply as to form in all material respects
with the applicable requirements of the Exchange Act.
(b) At the time the Proxy Statement or any amendment or supplement
thereto is first mailed to Stockholders, at the time such Stockholders
vote on adoption of this Agreement, and at the Effective Time, the Proxy
Statement, as supplemented or amended, if applicable, will not contain
any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
At the time of the filing of any Company Disclosure Document other than
the Proxy Statement and at the time of any distribution thereof, such
Company Disclosure Document will not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
(c) The representations and warranties contained in this Section
3.7 will not apply to statements or omissions included in any Company
Disclosure Documents (including, without limitation, the Proxy
Statement) based upon information furnished to Company by Parent or
Purchaser specifically for use therein.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser, jointly and severally, represent and warrant to
Company that:
Section 4.1 CORPORATE EXISTENCE AND POWER. Parent is a limited
liability company, and Purchaser is a corporation, and each is duly
organized, validly existing and in good standing under the laws of the
State of Delaware, and each has all limited liability company or corporate
powers and all governmental licenses, authorizations, consents and
approvals required to consummate the transactions contemplated by this
Agreement. Since the date of its formation or incorporation, neither Parent
nor Purchaser has engaged in any activities other than in connection with
or as contemplated by this Agreement.
Section 4.2 CAPITALIZATION. The authorized capital stock of
Purchaser consists of 10,000 shares of common stock, par value $1.00 per
share, of which one hundred (100) shares are outstanding as of the
Effective Time and are owned, beneficially and of record, by Parent. All of
the issued and outstanding shares of capital stock of Purchaser are validly
issued, fully paid, non-assessable and free of preemptive rights
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and all liens. All of the members' interests in Parent are owned by the Jim
Tankersley Family.
Section 4.3 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Parent and Purchaser of this Agreement and the consummation
by Parent and Purchaser of the Transactions contemplated hereby are within
the respective corporate (or limited liability company) powers of Parent
and Purchaser, and have been duly authorized respectively by all necessary
corporate (or limited liability company) action. This Agreement constitutes
a legal, valid and binding agreement of Parent and Purchaser, enforceable
against each of them in accordance with its terms.
Section 4.4 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Parent and Purchaser of this Agreement and the consummation
by Parent and Purchaser of the Transactions contemplated by this Agreement
require no action by or in respect of, or filing with, any Governmental
Authority other than (i) the filing of Certificate of Merger in accordance
with the DGCL, and (ii) compliance with any applicable requirements of the
Exchange Act.
Section 4.5 NON-CONTRAVENTION. The execution, delivery and
performance by Parent and Purchaser of this Agreement and the consummation
by Parent and Purchaser of the Transactions contemplated hereby do not and
will not (i) contravene or conflict with the respective certificates of
formation, certificates of incorporation, bylaws, operating agreements, or
other organizational documents of Parent or Purchaser, (ii) assuming
compliance with the matters referred to in Section 4.3, contravene or
conflict with or constitute a violation of any provision of any Law or
Order binding upon or applicable to Parent or Purchaser or any of their
respective properties or assets, and (iii) do not constitute a breach,
violation or default of or under, or give rise to a right to terminate or
accelerate, or require a consent under, or create any lien, encumbrance or
restriction upon any of the respective assets or properties of Parent or
Purchaser pursuant to, any document, instrument, certificate, agreement, or
other arrangement, to which Parent or Purchaser is a party, or by which any
of their respective properties or assets are bound.
Section 4.6 DISCLOSURE DOCUMENTS. The information with respect to
Parent, Purchaser and their Affiliates that is filed with the SEC or is
furnished to Company for use in any Company Disclosure Document will not
contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading
(i) in the case of the Proxy Statement at the time the Proxy Statement or
any amendment or supplement thereto is first mailed to Stockholders, at the
time Stockholders vote on adoption of this Agreement and at the Effective
Time, and (ii) in the case of any Company Disclosure Document other than
the Proxy Statement, at the time of the filing thereof and at the time of
any distribution thereof.
Section 4.7 FINDERS' AND BANKERS' FEES. There is no investment
banker, broker, finder or other intermediary which has been retained by or
is authorized to act on behalf of Parent or Purchaser or their affiliates
who might be entitled to any fee or commission from Parent and/or Purchaser
or their affiliates in connection with the Transactions or the financing
thereof.
Section 4.8 SOLVENCY MATTERS. Upon consummation of the Transactions,
(i) the fair value of Surviving Corporation's assets will exceed Surviving
Corporation's
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stated liabilities and identified contingent liabilities, (ii) Surviving
Corporation will be able to pay its debts as they become absolute and
become due in the usual course of business, and (iii) the capital remaining
in Surviving Corporation after consummation of the Transactions will not be
unreasonably small for the business in which Surviving Corporation is
engaged and is proposed to be engaged following consummation of the
Transactions.
Section 4.9 LITIGATION. Except as set forth on EXHIBIT 4.9, there
are no claims, actions, suits, proceedings or investigations pending or
threatened, against Parent or Purchaser or their affiliates, before any
Governmental Authority, that seek to prevent or delay the performance of
this Agreement or the Transaction.
Section 4.10 OTHER AGREEMENTS. Neither Parent nor Purchaser nor any
of their affiliates has any agreement or understanding with any other
Stockholder of Company regarding the payment of any consideration of any
kind to or for the benefit of any Stockholder in connection with the
Transactions, except pursuant to the terms of this Agreement.
Section 4.11 NO RESALE. Parent, Purchaser and their Affiliates are
acquiring the Shares without any intent to resell the Shares or to sell all
or substantially all of the assets of Surviving Corporation, and neither
Parent, Purchaser nor any Affiliate of Parent or Purchaser, has received an
offer to purchase any or all of the Shares or all or substantially all of
the assets of Surviving Corporation. The members of the Jim Tankersley
Family will not sell their Shares to a third party prior to, or tender
their Shares in, the Transactions; rather, all of the Shares held by the
Jim Tankersley Family will be transferred to and held by Parent as of the
Effective Date.
ARTICLE 5
COVENANTS
Section 5.1 INTERIM OPERATIONS OF COMPANY. From the date hereof until the
Effective Time, except as agreed to in writing by Parent, Company shall conduct
its business in the ordinary course consistent with past practice and shall use
all commercially reasonable efforts to preserve intact its business
organizations and relationships with third parties and to keep available the
services of its present officers and employees. Without limiting the generality
of the foregoing, from the date hereof until the Effective Time, without the
prior written consent of Parent:
(a) Company shall not, directly or indirectly: (i) issue, sell,
transfer or pledge or agree to sell, transfer or pledge any treasury stock
of Company or any capital stock or equity interests in any Person owned by
it; (ii) amend its Certificate of Incorporation or Bylaws or similar
organizational documents; or (iii) split, combine or reclassify (except for
the issuance of Class A Shares upon conversion of Class B Shares in
accordance with the Certificate of Incorporation) the outstanding Shares or
Preferred Stock;
(b) Company shall not: (i) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect to its
capital stock; (ii) issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire
any shares of, capital stock of any class of Company (except
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for issuance of Class A Shares resulting from conversions of Class B Shares
into Class A Shares in accordance with the Certificate of Incorporation);
(iii) transfer, lease, license, sell, mortgage, pledge, dispose of, or
encumber any assets other than in the ordinary and usual course of business
and consistent with past practice; (iv) except for the Financing pursuant
to the Permitted Financing Terms, incur or modify any indebtedness or other
liability, other than in the ordinary and usual course of business and
consistent with past practice; or (v) redeem, purchase or otherwise acquire
directly or indirectly any of its capital stock;
(c) Company shall not, other than in the ordinary course of
business: (i) grant any increase in the compensation payable or to become
payable by Company to any of its executive officers; or (ii) adopt any new,
or amend or otherwise increase, or accelerate the payment or vesting of the
amounts payable or to become payable under, any existing bonus, incentive
compensation, deferred compensation, severance, profit sharing, stock
option, stock purchase, insurance, pension, retirement or other employee
benefit plan, agreement or arrangement; or (iii) enter into any employment
or severance agreement with or, except in accordance with the existing
written policies of Company, grant any severance or termination pay to any
officer, director or employee of Company;
(d) Company shall not permit any insurance policy naming it as a
beneficiary or a loss payable payee to be canceled or terminated without
notice to Parent, except in the ordinary course of business and consistent
with past practice;
(e) Company shall not enter into any contract or transaction relating
to the purchase of assets other than in the ordinary course of business and
consistent with prior practice;
(f) Company shall not, other than in the ordinary course of business:
(i) change any of the accounting methods used by it unless required by
GAAP; (ii) make any material tax election; (iii) change any material tax
election already made; (iv) adopt any material tax accounting method; (v)
change any material tax accounting method unless required by GAAP; or (vi)
enter into any closing agreement, settle any tax claim or assessment or
consent to any tax claim or assessment or any waiver of the statute of
limitations for any such claim or assessment;
(g) except for the Financing pursuant to the Permitted Financing Terms
and other than in the ordinary course of business, Company shall not: (i)
incur or assume any long-term debt; (ii) except in the ordinary course of
business and consistent with past practice, incur or assume any short-term
indebtedness; (iii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person; (iv) make any loans, advances or capital
contributions to, or investment in, any other Person (other than customary
loans or advances to employees in accordance with past practice); or (v)
enter into any material commitment or transaction (including, but not
limited to, any borrowing, capital expenditure or purchase, sale or lease
of assets);
(h) Company shall not: (i) settle or compromise any material claim,
lawsuit, liability or obligation; or (ii) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of any such claims, liabilities or obligation, (x) to the
extent reflected or reserved against in, or contemplated by, the
consolidated
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financial statements (or the notes thereto) of Company on a consolidated
basis, (y) incurred in the ordinary course of business and consistent with
past practice or (z) which are legally required to be paid, discharged or
satisfied;
(i) Company shall not take, or agree to commit to take, any action
that would make any representation or warranty of Company contained herein
inaccurate in any respect at, or as of any time prior to, the Effective
Time; and
(j) Company shall not enter into an agreement, contract, commitment or
arrangement to do any of the foregoing, or to authorize, recommend, propose
or announce an intention to do any of the foregoing.
Section 5.2 ACCESS TO INFORMATION. From the date hereof until the
Effective Time, Company will give Parent and Purchaser, and their respective
counsel, financial advisors, prospective lenders, auditors and other authorized
representatives (pursuant to appropriate confidentiality agreements) full access
to the offices, properties, books and records of Company, will furnish to Parent
and Purchaser and their respective counsel, financial advisors, prospective
lenders, auditors and other authorized representatives such financial and
operating data and other information as such Persons may reasonably request and
will instruct Company's employees, counsel, financial advisors and auditors to
cooperate with Parent and Purchaser in their investigation of the business of
Company.
Section 5.3 OTHER POTENTIAL BIDDERS. Company shall, directly or
indirectly, furnish information and access, in each case in response to
unsolicited requests therefor, received prior to or after the date of this
Agreement, to the same extent permitted by Section 5.2 hereof, to any Person
pursuant to appropriate confidentiality agreements, and may participate in
discussions and negotiate with any such Person concerning any merger, sale of
assets, sale of shares of capital stock or similar transaction involving Company
or any division of Company (any such transaction being referred to herein as a
"Competing Transaction"), only if the Special Committee determines, after
consultation with counsel and its independent financial advisor, that such
action is necessary in light of the fiduciary duties of the Board of Directors
to the Public Stockholders. In the event a potential Competing Transaction
exists, Company shall direct its officers and other appropriate personnel to
cooperate with and be reasonably available to consult with any such Person.
Except as set forth above, Company shall not solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any Person
(other than Parent or Purchaser) concerning any merger, sale of assets, sale of
shares of capital stock or similar transaction involving Company.
Section 5.4 NOTICES OF CERTAIN EVENTS. Each party shall promptly notify
the other parties of:
(a) any notice or other communication received by such party from any
Person alleging that the consent of such Person is or may be required in
connection with the Transactions;
(b) any occurrence or non-occurrence of any event that would cause any
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate in any material respect at or prior to the Effective
Time;
(c) any material failure of such party to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; and
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(d) any notice or other communication from any Governmental Authority
in connection with the Transactions; provided, however, that the delivery
of any notice pursuant to this Section 5.4 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 5.5 VOTING OF SHARES. In any vote of Stockholders with respect to
this Agreement and the Transactions, Parent and Purchaser shall vote or cause to
be voted all of the shares of Company Common Stock beneficially owned by each
such party in favor of the approval and adoption of this Agreement and the
Transactions.
Section 5.6 DIRECTOR AND OFFICER LIABILITY. For six (6) years, or for the
period provided for in the applicable statute of limitations, whichever is
longer, from and after the Effective Time, Parent will or will cause Surviving
Corporation to indemnify and hold harmless the present and former officers and
directors of Company ("Indemnified Persons") in respect of acts or omissions
occurring at or prior to the Effective Time to the fullest extent provided under
the DGCL or under Company's Certificate of Incorporation and Bylaws in effect on
the date hereof. Notwithstanding any provision herein to the contrary, the
covenants contained in this Section 5.6 shall survive the Effective Time and the
consummation of the Transactions, are intended to benefit the Indemnified
Persons, and shall be binding on all successors and assigns of Parent and
Surviving Corporation.
Section 5.7 BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each party will 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 under applicable Laws to consummate the Transactions
contemplated by this Agreement.
Section 5.8 CERTAIN FILINGS. Company, Parent and Purchaser shall
cooperate with each other (a) in connection with the preparation of Company
Disclosure Documents, (b) in determining whether any action by or in respect of,
or filing with, any Governmental Authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement, and (c) in seeking any such actions, consents,
approvals or waivers or making any such filings, furnishing information required
in connection therewith or with Company Disclosure Documents and seeking timely
to obtain any such actions, consents, approvals or waivers.
Section 5.9 PUBLIC ANNOUNCEMENTS. Parent and Company will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement or the Transactions and, except as may be required by
applicable Law or any listing agreement with any national securities exchange,
will not issue any such press release or make any such public statement prior to
such consultation.
Section 5.10 FINANCING
(a) Parent shall use its best efforts to obtain all financing that is
necessary or desirable both to consummate the Transactions and to fund the
working capital needs of Surviving Corporation after the Closing (the
"Financing"), on terms and conditions substantially in accordance with the
Permitted Financing Terms.
(b) Company shall use its reasonable best efforts to provide
assistance to Parent and Purchaser in obtaining the Financing in accordance
with the Permitted Financing Terms.
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(c) Parent and Purchaser shall deliver to the Special Committee and
Company within fifteen (15) days of the date of this Agreement copies of a
written commitment for the Financing on terms substantially in accordance
with the Permitted Financing Terms.
(d) The funds provided by the written commitment(s) delivered by
Parent and Purchaser pursuant to subparagraph (c) above will be sufficient
to complete the Transactions contemplated hereby. Parent and Purchaser
shall use their best efforts to close the financing reflected in any such
written commitment(s). Any material change in the commitment(s) so
delivered or any new commitment(s) delivered must be approved by the
Special Committee, Company and Parent, which approval will not be
unreasonably withheld by any party.
Section 5.11 STOCKHOLDERS' MEETING. In accordance with applicable Law:
(a) Company shall duly call, give notice of, convene and hold a
special meeting of Stockholders (the "Special Meeting") as soon as
reasonably practicable for the purpose of considering and voting upon the
approval and adoption of this Agreement and the Transactions, and comply
with all legal requirements applicable to such meeting, in order to procure
the Required Stockholder Approval;
(b) Company shall in connection with such meeting, promptly prepare
and file (in consultation with Parent) with the SEC a preliminary proxy or
information statement, and a Schedule 13E-3 Transaction Statement required
pursuant to Section 13(e) of the Exchange Act (a "Schedule 13E-3"),
relating to the Transactions and this Agreement and use its reasonable best
efforts (x) to obtain and furnish the information required to be included
by the SEC in such preliminary proxy statement and Schedule 13E-3 and,
after consultation with Parent, the Special Committee, and their respective
counsel, to respond promptly to any comments made by the SEC with respect
to the preliminary proxy or Schedule 13E-3 and cause a definitive proxy or
information statement, including any amendment or supplement thereto (the
"Proxy Statement") to be mailed to Stockholders, provided that no material
amendment or supplement to either the Proxy Statement or Schedule 13E-3
will be made by Company without consultation with Parent, the Special
Committee, and their respective counsel, and (y) to obtain the necessary
approvals of the Transactions and this Agreement by Stockholders;
(c) Company shall include in the Proxy Statement the recommendation of
the Board of Directors of Company that Stockholders vote in favor of the
approval and the adoption of this Agreement and the transactions; and
(d) Parent, Purchaser and the members of the Jim Tankersley Family
shall, in connection with such meeting, promptly prepare and file (in
consultation with Company) with the SEC a Schedule 13E-3 relating to the
Transactions and this Agreement and use its reasonable best efforts (x) to
obtain and furnish the information required to be included by the SEC in
such Schedule 13E-3 and, after consultation with Company, the Special
Committee, and their respective counsel, to respond promptly to any
comments made by the SEC with respect to the Schedule 13E-3, provided that
no material amendment or supplement to the Schedule 13E-3 will be made by
Parent or Purchaser without consultation with Company, the Special
Committee, and their respective counsel, and (y) to obtain the
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necessary approvals of the Transactions and this Agreement by the Jim
Tankersley Family.
Section 5.12 FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of Surviving Corporation will be authorized to execute
and deliver, in the name and on behalf of Company or Purchaser, any deeds, bills
of sale, assignments or assurances and to take and do, in the name and on behalf
of Company or Purchaser, any other actions and things they may deem desirable to
vest, perfect or confirm of record or otherwise in Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of Company acquired or to be acquired by Surviving Corporation as a
result of, or in connection with, the Merger.
Section 5.13 RESIGNATIONS OF DIRECTORS. Each director of Company
personally agrees to promptly execute and deliver to Parent, at Parent's
request, his resignation as a director of Surviving Corporation as provided
herein.
ARTICLE 6
CONDITIONS TO THE MERGER
Section 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations
of Company, Parent and Purchaser to consummate the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions, any
or all of which may be waived, in whole or in part, by each of the parties
intended to benefit therefrom, to the extent permitted by applicable Law:
(a) this Agreement and the Transactions shall have been approved and
adopted at the Special Meeting by (i) a majority of all votes of the
outstanding Shares of Company Common Stock entitled to vote thereon, such
votes determined in accordance with Article FOURTH, Section C(2) of the
Certificate of Incorporation of Company and Section 251(c) of the DGCL, and
(ii) a majority of all Shares of Company Common Stock entitled to vote
thereon which are actually voted either "for" or "against" such approval
and adoption (in item (ii), (x) excluding from such computation all Shares
held by any of the Jim Tankersley Family or Parent and (y) counting each
Share actually voted as one full vote, regardless of class) (the foregoing
two approvals being collectively referred to herein as the "Required
Stockholder Approval");
(b) there are no claims, actions, suits, proceedings or investigations
pending or threatened, against Company, Parent or Purchaser, before any
Governmental Authority, that seek to prevent or delay the performance of
this Agreement or the Transactions, or that would result in a Material
Adverse Effect, and no Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Transactions illegal or otherwise prohibiting consummation of
the Transactions;
(c) all actions by or in respect of, or filings with, any Governmental
Authority required to permit the consummation of the Transactions shall
have been made or obtained;
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(d) at the time of mailing of the Proxy Statement, J.C. Bradford & Co.
(i) shall have delivered and reaffirmed in writing (to the Special
Committee and the Board of Directors of Company, with a copy to Parent) its
opinion, originally dated as of January 20, 1999, to the effect that the
consideration to be received by the Public Stockholders pursuant to the
Merger is fair to such Stockholders from a financial point of view, and
(ii) shall not have withdrawn such opinion;
(e) Parent or Purchaser shall have received and caused the Financing
to be closed in accordance with the Permitted Financing Terms, and the
proceeds of the Financing shall have been made available for the
consummation of the Transactions;
(f) Parent shall have received all documents it may reasonably request
relating to the existence of Company and the authority of Company to enter
into this Agreement, all in form and substance reasonably satisfactory to
Parent; and
(g) Parent and Company shall have received or be satisfied that each
of them will receive all consents, amendments and approvals contemplated by
Sections 3.3 and 3.4, and any other consents of third parties necessary in
connection with the consummation of the Merger, if failure to obtain any
such consent would have a Material Adverse Effect or violate any Law or
Order).
Section 6.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND
PURCHASER. The obligations of Parent and Purchaser to consummate the Merger are
also subject to the satisfaction, at or prior to the time of obtaining the
Required Stockholder Approval (after which time the following conditions shall
not be conditions to the obligations of Parent and Purchaser), of the following
further conditions, any or all of which may be waived, in whole or in part, by
each of the parties intended to benefit therefrom, to the extent permitted by
applicable Law:
(a) the number of Shares as to which Company has received demand for
appraisal pursuant to Section 262(d)(1) of the DGCL shall not equal or
exceed 250,000 Shares;
(b) Company shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to such
time, the representations and warranties of Company contained in this
Agreement and in any certificate delivered by Company pursuant hereto shall
be true and correct in all material respects, at and as of such time as if
made at and as of such time, except that those representations and
warranties which address matters only as of a particular date shall remain
true and correct as of such date, and Parent shall have received a
certificate signed by an executive officer of Company (who may be the
principal financial officer) to the effect of all of the foregoing matters
in this subsection (b) and by the principal financial officer of Company to
the effect of the matters in the exception clause of this subsection (b);
(c) no Material Adverse Effect shall have occurred or shall be
pending;
(d) no reasonable basis (including, but not limited to, information
from a customer(s) or information available from public or reliable
industry sources) exists for Company, Purchaser or Parent to believe that
any significant customer(s) for products sold by either division of
Company, representing individually ten percent (10%) or more (or
representing one of the top three customers [measured by gross sales of
that division during the fiscal year ending February 28, 1999 ("fiscal
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1999")]), or in the aggregate representing twenty-five percent (25%) or
more, of the gross sales of that division during fiscal 1999, will reduce
its annual purchases from Company after consummation of the Transactions to
a level less than eighty percent (80%) of the amount it purchased from
Company during fiscal 1999 (provided, however, that such reasonable basis
must be materially different from the state of facts known to Parent and
Purchaser at the date of execution of this Agreement;
(e) Parent shall have received a certificate signed by an executive
officer of Company, certifying the foregoing items (a) and (c);
(f) all of the directors of Company shall have delivered to Parent in
writing their resignations as directors of Surviving Corporation, in form
attached hereto as EXHIBIT 6.2(F), with such resignations to become
effective immediately at 12:01 A.M. of the day next after the Closing Date
of the Merger;
(g) all actions to be taken by Company in connection with consummation
of the Transactions, and all certificates, instruments, and other documents
required to effectuate the Transactions, shall be reasonably satisfactory
in form and substance to Parent and Purchaser; and
(h) The fees to be paid J.C. Bradford & Co. by Company shall not
exceed $185,000.00 plus (i) out-of-pocket expenses and (ii) legal fees not
to exceed $10,000.00, for its services rendered to the Special Committee.
Section 6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF COMPANY. The
obligations of Company to consummate the Merger are also subject to the
satisfaction at or prior to the Effective Time of the following further
conditions, any or all of which may be waived, in whole or in part, by Company
to the extent permitted by applicable Law:
(a) Parent and Purchaser shall have performed in all material respects
all of their respective obligations hereunder required to be performed by
them at or prior to the Effective Time, the representations and warranties
of Parent and Purchaser contained in this Agreement and in any certificate
delivered by Parent or Purchaser pursuant hereto shall be true and correct
in all material respects at and as of the Effective Time as if made at and
as of such time, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct
as of such date, and Company shall have received a certificate signed by
the President or any Vice President of each of Parent and Purchaser to the
foregoing effect;
(b) Company shall have received all documents it may reasonably
request relating to the existence of Parent or Purchaser and the authority
of Parent or Purchaser to enter into this Agreement, all in form and
substance reasonably satisfactory to Company; and
(c) all actions to be taken by Parent or Purchaser in connection with
consummation of the Transactions, and all certificates, instruments, and
other documents required to effectuate the Transactions, shall be
satisfactory in form and substance to Company.
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ARTICLE 7
TERMINATION
Section 7.1 TERMINATION. This Agreement may be terminated and the
Transactions may be abandoned at any time prior to the Effective Time
(notwithstanding any adoption and approval of this Agreement by Stockholders):
(a) by mutual written consent of Company and Parent;
(b) by either Parent or Company, if the Merger has not been
consummated by September 30, 1999; provided, however, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date;
(c) by either Parent or Company, if there shall be any Law that makes
consummation of the Transactions illegal or otherwise prohibited or if any
Order enjoining Parent or Company from consummating the Transactions is
entered and such Order shall become final and nonappealable;
(d) by either Parent or Company if this Agreement and the Transactions
shall fail to be approved and adopted by the Required Stockholder Approval
at the Special Meeting called for such purpose, as set forth in Section
6.1(a) above;
(e) by either Parent or Company, if, consistent with the terms of this
Agreement, the Board of Directors of Company withdraws, modifies or changes
its recommendation of this Agreement or the Transactions in a manner
adverse to Parent or Purchaser or shall have resolved to do any of the
foregoing or the Board of Directors of Company shall have recommended to
Stockholders of Company any Competing Transaction or resolved to do so; or
(f) by Company, if Parent and Purchaser have not delivered to Company
within fifteen (15) days of the date of this Agreement copies of a written
commitment(s) from a lending institution(s) (which institution the Company
determines to be acceptable to it), pursuant to which Financing will be
received on terms substantially in accordance with the Permitted Financing
Terms.
Section 7.2 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 7.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that the agreements
contained in Section 8.6 shall survive the termination hereof; provided,
however, that, except as specifically provided herein, nothing herein shall
relieve any party hereto of liability for any breach of this Agreement.
ARTICLE 8
MISCELLANEOUS
Section 8.1 DEFINITIONS. As used herein, the following terms have the
following respective meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
"Affiliate" means, with respect to a Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such given Person.
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"Agreement" means this Agreement and Plan of Merger, as the same may
be supplemented, modified or amended from time to time.
"Business Combinations Act" means Section 203 of the DGCL, as amended.
"Certificate of Merger" means a certificate of merger with respect to
the Merger, in compliance with the DGCL.
"Class A Common Stock" means the Class A common stock, $1.00 par value
per share, of Company.
"Class B Common Stock" means the Class B common stock, $1.00 par value
per share, of Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Common Stock" means the common stock, $1.00 par value per
share, of Company, including both Class A Common Stock and Class B Common
Stock.
"DGCL" means the Delaware General Corporation Law, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Expenses" means all reasonable out-of-pocket expenses (including,
without limitation, all fees and expenses of counsel, accountants,
investment bankers, experts and consultants and commitment fees and other
financing fees and expenses) incurred by Parent, Purchaser or Company or on
behalf of any such party in connection with or related to the
authorization, preparation, negotiation, execution and performance of this
Agreement, the preparation, printing, filing and mailing of the Proxy
Statement and Schedule 13E-3, the solicitation of the shareholder approvals
and all other matters related to the consummation of the transactions
contemplated hereby.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Governmental Authority" means any federal, state, county, local,
foreign or other governmental or public agency, instrumentality,
commission, authority, board or body, and any court, arbitrator, mediator
or tribunal.
"Law" means any code, law, ordinance, regulation, rule or statute of
any Governmental Authority.
"Lien" means any security interest, lien, mortgage, deed to secure
debt, deed of trust, pledge, charge, conditional sale or other title
retention agreement, or other encumbrance of any kind.
"Material Adverse Effect" means any matter that would reasonably be
expected to affect materially and adversely the business, condition
(financial or otherwise), prospects, or results of operations of Company
considered as a whole (excluding, however, any matter that is the result of
any action of any member of the Jim Tankersley Family which could
reasonably be construed as intended to provide a basis for termination of
the Transactions or of this Agreement).
"Order" means any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state,
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local or foreign or other court, arbitrator, mediator, tribunal,
administrative agency or other Governmental Authority.
"Permitted Financing Terms" means the obtaining of Financing by
Company upon the general terms and conditions set forth in EXHIBIT 8.1
hereto.
"Person" means an individual, a corporation, a partnership, an
association, a trust, a limited liability company or any other entity or
organization, including a government or political subdivision or any agency
or instrumentality thereof.
"Preferred Stock" means the preferred stock, $1.00 par value per
share, of Company.
"Purchaser Common Stock" means the common stock, $1.00 par value per
share, of Purchaser.
"SEC" means the Securities and Exchange Commission.
"Special Committee" means the committee of the Board of Directors
appointed on September 16, 1998 and comprised entirely of directors who are
neither members of management of Company nor affiliated with the Tankersley
Group, Parent or Purchaser or any Affiliate thereof.
"Surviving Corporation" means Company as surviving corporation
resulting from the Merger.
"Jim Tankersley Family" means James I. Tankersley, Edna W. Tankersley,
Darla T. Darnall, Kelle T. Northern and James W. Tankersley.
"Tankersley Group" means James I. Tankersley, Edna W. Tankersley,
Darla T. Darnall, Kelle T. Northern, James W. Tankersley, Julia T. Wells
and Daniel B. Tankersley.
The following terms are defined in the following Sections of this
Agreement:
<TABLE>
<CAPTION>
TERM SECTION
- ---- -----------------
<S> <C>
"Certificate"............................................... 2.2(b)
"Closing"................................................... 1.4
"Closing Date".............................................. 1.4
"Company"................................................... Opening Paragraph
"Company Disclosure Documents".............................. 3.7
"Competing Transaction"..................................... 5.3
"Dissenting Shares"......................................... 2.3
"Effective Time"............................................ 1.3
"Financing"................................................. 5.10(a)
"Merger".................................................... 1.2
"Merger Consideration"...................................... 2.1(d)
"Parent".................................................... Opening Paragraph
"Parent-Owned Shares"....................................... 2.1(a)
"Paying Agent".............................................. 2.2(a)
"Proxy Statement"........................................... 5.11(b)
"Purchaser"................................................. Opening Paragraph
"Public Stockholders"....................................... Recitals
"Required Stockholder Approval"............................. 6.1(a)
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION
- ---- -----------------
<S> <C>
"Schedule 13E-3"............................................ 5.11(b)
"Shares".................................................... 2.1
"Stockholders".............................................. Recitals
"Special Meeting"........................................... 5.11(a)
"Surviving Corporation"..................................... 1.2
"Transactions".............................................. Recitals
"Voting Debt"............................................... 3.5
</TABLE>
Section 8.2 NOTICES. Unless otherwise specifically provided herein, all
notices, demands or other communications to be given or delivered under or by
reason of the provisions of this Agreement shall be in writing and shall be
deemed to have been given (a) when delivered personally to the recipient, (b)
when sent to the recipient by telecopy (receipt electronically confirmed by
sender's telecopy machine) if during normal business hours of the recipient,
otherwise on the next business day, (c) one business day after the date when
sent to the recipient by reputable express courier service (charges prepaid), or
(d) seven business days after the date when mailed to the recipient by certified
or registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications shall be sent to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
If to Company:
United Foods, Inc.
Ten Pictsweet Drive
Bells, Tennessee 38006-0119
Attn: B.M. Ennis, President
Telephone: (901) 422-7600
Telecopy: (800) 561-8810
With a copy (which shall not constitute notice) to:
Bass, Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238-2700
Attn: James H. Cheek, III
Telephone: (615) 742-6200
Telecopy: (615) 742-6293
If to Parent or Purchaser:
Pictsweet LLC
Ten Pictsweet Drive
Bells, Tennessee 38006-0119
Attn: James I. Tankersley
Telephone: (901) 422-7600
Telecopy: (800) 561-8810
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<PAGE> 134
With a copy (which shall not constitute notice) to:
Sam D. Chafetz
Waring Cox, PLC
50 North Front Street
Suite 1300
Memphis, Tennessee 38103-1190
Telephone: (901) 543-8000
Telecopy: (901) 543-8036
Section 8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained herein and in any certificate delivered
pursuant hereto shall not survive the Effective Time or the termination of this
Agreement; provided, however, (i) that nothing in this Section 8.3 shall relieve
any party from any liability for any breach of any representation, warranty or
agreement in this Agreement occurring prior to termination, (ii) the agreements
contained in Article 2, in Section 5.6, and in this Section 8.3 hereof shall
survive the Effective Time indefinitely, and (iii) the agreements set forth in
Section 8.6 hereof shall survive termination indefinitely.
Section 8.4 ENFORCEMENT OF AGREEMENT. Until the Effective Time, the
Special Committee shall continue in existence and shall have the right to cause
Company to take any action necessary or appropriate to enforce the rights of
Company and the obligations of Parent and Purchaser under this Agreement.
Section 8.5 AMENDMENTS; WRITTEN WAIVERS.
(a) Any provision of this Agreement may be amended or waived prior to
the Effective Time if, and only if, such amendment or waiver is in writing
and signed by all parties hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective; provided that any such
amendment and any such waiver by Company shall have been approved by the
Board of Directors of Company, acting on the recommendation of the Special
Committee; and provided, further, that after obtaining the adoption and
approval of this Agreement by the Required Stockholder Approval, no such
amendment or waiver shall, without further approval in the form of the
Required Stockholder Approval, alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital stock of
Company or (ii) any of the terms or conditions of this Agreement if such
alteration or change would adversely affect the Public Stockholders.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
Section 8.6 EXPENSES. All reasonable Expenses incurred by all parties in
connection with this Agreement and the consummation of the Transactions shall be
paid by Company if the Merger is consummated. If the Merger is not consummated,
Company shall likewise pay all reasonable Expenses incurred by all parties in
connection with this Agreement or the Transactions; provided, however, that
Company may refuse to pay any expenses incurred by Parent or Purchaser if the
failure to consummate the Merger arose from (i) a breach of the terms hereof by
either Parent or Purchaser, (ii) a failure to obtain the
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Required Stockholder Approval or (iii) the number of Dissenting Shares equals or
exceeds 250,000 Shares.
Section 8.7 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto except that Parent may transfer
or assign, in whole or from time to time in part, to one or more of its
Affiliates, its rights under this Agreement, but any such transfer or assignment
will not relieve Parent of its obligations under this Agreement or prejudice the
rights of Stockholders to receive the Merger Consideration for Shares properly
surrendered in accordance with Section 2.2. This Agreement shall not be
construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement, and their respective successors and assigns.
Section 8.8 GOVERNING LAW. Regardless of the place or places where this
Agreement may be executed, delivered or consummated, this Agreement shall be
governed by and construed in accordance with the Laws of the State of Delaware,
without regard to any applicable conflicts of Laws.
Section 8.9 SEVERABILITY. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
Section 8.10 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 8.11 INTERPRETATIONS. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against any party, whether
under any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated and accepted by all parties and their attorneys,
as well as the Special Committee and its counsel, and shall be construed and
interpreted according to the ordinary meaning of the words used so as fairly to
accomplish the purposes and intentions of all parties hereto. References to
Sections herein shall mean Sections of this Agreement unless otherwise
indicated.
Section 8.12 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received counterparts hereof
signed by all of the other parties hereto.
Section 8.13 GENDER AND NUMBER. As herein, words of any gender shall
include all other genders, and words in the singular shall include the plural,
and vice versa, unless the context otherwise requires.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf as of the day and year first above written.
UNITED FOODS, INC.
By: /s/ B.M. ENNIS
-----------------------------------
Name: B.M. Ennis
Title: President
PICTSWEET LLC
By: /s/ JAMES I. TANKERSLEY
-----------------------------------
Name: James I. Tankersley
Title: President
UF ACQUISITION CORP.
By: /s/ JAMES I. TANKERSLEY
-----------------------------------
Name: James I. Tankersley
Title: President
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<PAGE> 137
EXHIBIT 3.4
CONFLICTS
1. Loan Agreement dated April 7, 1993, as amended, with First American
National Bank.
2. Loan Agreement dated January 7, 1997 with Metropolitan Life Insurance
Company.
3. Consolidation, Renewal and Restatement of Deed of Trust and Security
Agreement dated January 30, 1997 with Northwestern National Life Insurance
Company.
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<PAGE> 138
EXHIBIT 4.9
LITIGATION PENDING OR THREATENED
None, except the following:
1. Rolfe Glover vs. United Foods, Inc., James W. Tankersley, Thomas A.
Hopper, Jr., Kelle T. Northern, Julia T. Wells, Darla T. Darnall, James I.
Tankersley, Carl W. Gruenwald, II, John W. Wilder, B.M. Ennis and Dr.
Joseph A. Geary. Chancery Court of the State of Delaware (Newcastle County)
(C.A. 17006 NC) filed March 8, 1999 as a Class Action Complaint.
2. Robert I. Strougo vs. James I. Tankersley, Daniel B. Tankersley,
B.M. Ennis, James W. Tankersley, Carl W. Gruenwald, II, Julia T. Wells,
Darla T. Darnall, Kelle T. Northern, Joseph A. Geary, Thomas A. Hopper,
Jr., John S. Wilder, and United Foods, Inc. Chancery Court of the State of
Delaware (Newcastle County) (C.A. 17137 NC) filed May 3, 1999 as a Class
Action Complaint.
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EXHIBIT 6.2(F)
RESIGNATION OF DIRECTORS
, 1999
United Foods, Inc.
Ten Pictsweet Drive
Bells, Tennessee 39006-0119
Attn: James I. Tankersley
Re: Agreement and Plan of Merger, made as of May 14, 1999 (together with
any amendments or supplements thereto, the "Merger Agreement"), by and
among UNITED FOODS, INC., a Delaware corporation ("Company"), PICTSWEET
LLC, a Delaware limited liability company ("Parent"), and UF ACQUISITION
CORP., a Delaware corporation and a wholly owned subsidiary of Parent
("Purchaser").
Dear Sirs:
Pursuant to the Merger Agreement, the undersigned persons (the "Directors")
do each hereby irrevocably resign their positions as directors of the Company,
effective immediately at 12:01 A.M. of the day next after the Closing Date (as
defined in the Merger Agreement).
This instrument may be executed in one or more counterparts, each of which
shall be deemed an original, and all of which shall be deemed to be one and the
same instrument. It shall not be necessary that any single counterpart bear the
signature of all parties hereto. This instrument shall be separately enforceable
against each Director when he signs this instrument, and it shall not be
necessary for such enforcement that all Directors shall have signed it.
Facsimile signatures hereon shall be deemed to be as fully enforceable as
original signatures hereon.
Sincerely,
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
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EXHIBIT 8.1
PERMITTED FINANCING TERMS
BORROWER: United Foods, Inc. ("United Foods" or
"Borrower")
LENDER: Unknown ("Lender(s)")
FACILITY: $35,000,000 Revolving Line of Credit
(Outstanding tied to a borrowing base: 85% of
eligible accounts receivable, 60% of eligible
inventory.)
MATURITY: 3 years with the ability to extend the maturity
by one year beginning one year from closing.
COLLATERAL: Facility is secured by a perfected first
priority interest in all of Borrower's accounts
receivable and inventory (excluding the accounts
receivable and inventory associated with
Pictsweet Mushroom Farms.)
INTEREST RATES: Lender's Index Rate minus .5%.
Libor + 1.50%.
FEES:
Commitment Fee: Payable quarterly in arrears, 0.125% per annum
charged on the average unused portion of the
Revolving Line of Credit. Standby Letters of
Credit will count as "usage".
STANDBY LETTERS OF CREDIT:
Terms and Fees: All new Standby Letters of Credit (i) will be
issued by the Lender as the Issuing Bank, (ii)
will have Maturities equal to the lesser of
either 364 days or the minimum maturity required
by the beneficiary, provided that all new
Standby Letter of Credits mature prior to the
Maturity of the Revolving Credit Facility, and
(iii) will bear a fee equal to 1.25%.
CONDITIONS PRECEDENT: As customary for facilities of this nature,
including but not limited to:
- No material adverse change in Borrower's
prospects or financial condition at any time
prior to closing.
- Receipt of documentation listing all material
assets belonging to Borrower, and describing
all liens and all material litigation.
- Receipt of satisfactory opinion from
Borrower's counsel.
- Receipt of documents certifying that Borrower
has the appropriate insurance coverage and
appropriate govern-
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ment authorizations (permits, licenses, etc.),
and is in compliance with all government laws
and regulations, including those specifically
relating to environmental issues and to ERISA.
- Receipt of corporate resolutions and
incumbency certificates for Borrowers, and
certifications as to the accuracy of all
representations and warranties and absence of
any event of default or situation which, with
the passage of time, could constitute an event
of default.
- Completion of satisfactory loan documentation
and approval by the Lender's credit approval
authorities as to the final structure of the
transaction which has been approved by United
Food, Inc.'s Board of Directors.
REPRESENTATIONS AND
WARRANTIES: As customary for facilities of this nature,
including but not limited to affirmations
concerning corporate existence, corporate and
governmental authorization, financial
information, compliance with laws, including
environmental, compliance with ERISA, no
material litigation, payment of taxes, full
disclosure, ownership and maintenance of assets,
including permits, licenses, patents and
trademarks, validity of loan documents, and no
liens except as acceptable to the Lenders and
except those required in the ordinary course of
business.
COVENANTS: As customary for facilities of this nature,
including but not limited to requirements
concerning:
Affirmative Covenants: - Maintenance of corporate existence, government
authorization (licenses, permits, etc.),
business conduct, property and insurance.
- Payment of taxes and compliance with laws.
- Maintenance of warehouse agreements and
collateral, right of inspection.
- Notice of defaults, adverse changes.
- Notice of covenant compliance immediately
preceding and immediately following any
acquisition.
Financial Reporting: - Annual audited consolidated and reconciled
consolidating balance sheets and income statements and statements of cash flows
for Borrower due within 90 days of fiscal
year-end complete with confirming letter from
accountant and officer's compliance
certificate.
- Monthly consolidated financial statements for
Borrower due within 20 days of each month end.
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- Borrowing Base Certificate due within 15 days
of month end.
- Quarterly Certificate of Compliance with all
financial covenants, due within 45 days of
quarter end.
- Annual forecast to include balance sheet,
income statement and statement of cash flows,
due within 90 days of fiscal year-end.
Negative Covenants: - Prohibitions on any change in business.
- Prohibitions against any change in the charter
documents or in fiscal year-end.
- Limitations on mergers, investments,
consolidations, transactions with affiliates,
and the sale of assets or collateral.
Financial Covenants: - Working Capital Floor: Minimum $25,000,000
Calculation:
Calculated annually, Current Assets minus
Current Liabilities
- Tangible Net Worth: Minimum $27,500,000
Calculation:
Calculated quarterly, Tangible Net Worth at
Closing plus 50% of Net Income or 50% of a Net
Loss. Under no circumstances should TNW fall
below $27,500,000.
- Debt to Equity Ratio: Maximum 3.5:1.0.
Calculation:
Calculated annually, Total Liabilities divided
by Tangible Net Worth.
EVENTS OF DEFAULT: As customary for facilities of this nature,
including but not limited to requirements
concerning:
- Nonpayment of any principal or interest when
due.
- Nonpayment of any other obligations owed to
the Lenders within 10 days of the due date.
- Default by Borrower under any other agreements
for funded debt with a principal amount in
excess of $500,000.
- Misleading, false or incomplete
representations or warranties.
- Breach or failure to observe or perform any
covenant or undertaking contained in the
credit agreement, subject to 30 day cure
period.
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- Any judgment in excess of $500,000 against
Borrower not cured, waived or dismissed within
30 days.
- Any bankruptcy filing or other insolvency
proceeding of Borrower.
- Occurrence of any liability, or reasonable
threat of such liability, under any employee
benefit plan which may have a material adverse
effect on Borrower.
EXPENSES: Borrower will pay all reasonable fees and
expenses of the Lender and its counsel
associated with the negotiation and
documentation.
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OPINION OF J.C. BRADFORD & CO., LLC APPENDIX B
J.C. BRADFORD & CO. LOGO
July , 1999
Board of Directors
United Foods, Inc.
Ten Pictsweet Drive
Bells, TN 39006
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of United Foods, Inc. (the "Company") other than
James I. Tankersley, the Chief Executive Officer of the Company, and his wife
and children (the "Jim Tankersley Family") of $3.50 in cash, which is the
consideration to be received by such stockholders in the proposed merger (the
"Merger") in accordance with that certain Agreement and Plan of Merger dated as
of May 14, 1999 by and among the Company and two affiliates of the Jim
Tankersley Family (the "Merger Agreement"). No opinion is rendered hereby, nor
should one be implied, with regard to the fairness to any member of the Jim
Tankersley Family of the consideration, if any, to be received by them in the
Merger.
J.C. Bradford & Co., LLC, as part of its investment banking business,
engages in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements, and valuations for estate,
corporate, and other purposes. We have been engaged by the Special Transaction
Committee of the Board of Directors of the Company to render this opinion in
connection with the Merger pursuant to an engagement letter dated September 29,
1998 and received a fee from the Company for our services as set forth in the
engagement letter.
In conducting our analysis and arriving at our opinion, we have considered
such financial and other information as we deemed appropriate including, among
other things, the following: (i) the Merger Agreement; (ii) the historical and
current financial position and results of operations of the Company, as set
forth in its periodic reports and proxy materials filed with the Securities and
Exchange Commission; (iii) certain internal operating data and financial
analyses and forecasts for the fiscal year beginning March 1, 1999 and ending
February 28, 2000, prepared by the Company's senior management; (iv) certain
internal operating data of the Company for the fiscal years beginning March 1,
1980 and ending April 30, 1999; (v) reported securities trading data of the
Company; (vi) certain financial and securities trading data of certain other
companies, the securities of which are publicly traded, that we believed to be
comparable to the Company or relevant to the Merger; (vii) the financial terms
of certain other transactions that we believed to be comparable to the Merger or
otherwise relevant; (viii) the results of certain stock repurchase programs
carried out by the Company in the recent past; and (ix) such other financial
studies, analyses, and investigations as we deemed appropriate for purposes of
our opinion. We also have held discussions with members of the senior management
of the Company regarding the Company's past and current business operations,
financial condition, and its future prospects.
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We have taken into account our assessment of general economic, market, and
financial and other conditions and our experience in other transactions, as well
as our experience in securities valuation and our knowledge of the industry in
which the Company operates. Our opinion is necessarily based upon the
information made available to us and conditions as they exist and can be
evaluated as of the date hereof.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us for purposes of our opinion and have not
assumed any responsibility for, nor undertaken an independent verification of,
such information. Without limiting the generality of the foregoing, we have
assumed, without independent investigation, that (i) the reserves reflected in
the Company's balance sheets with respect to environmental liabilities, taxes,
and litigation are not overstated and are adequate and that no additional
reserves with respect to such matters have been or should be recorded since the
latest balance sheet date except in the ordinary course of business consistent
with past practice; (ii) the Company is not contemplating a material acquisition
or disposition of its assets; (iii) the Company has not repurchased any of its
common stock in the open market except as disclosed to us; and (iv) no
disclosure by the Company or the Jim Tankersley Family to us misstates a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances in which such disclosure is made, not
misleading. We have also assumed that the funds necessary to pay the Merger
consideration to the stockholders of the Company (other than the Jim Tankersley
Family) will be available at the closing of the Merger and that the definitive
merger agreement will not differ from the Merger Agreement in any material
respect. With respect to the internal operating data and financial analyses and
forecasts supplied to us by the Company's senior management (including
participants in the Jim Tankersley Family), we have assumed that such data,
analyses, and forecasts (including projected capital expenditures) were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the Company's senior management as to the recent and likely
future performance of the Company. Accordingly, we express no opinion with
respect to such analyses or forecasts or the assumptions on which they are
based.
We were not asked to consider and our opinion does not address the relative
merits of the Merger as compared to any alternative business strategies that
might exist for the Company or the effect of any other transactions in which the
Company might engage. Furthermore, we have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or its affiliates and
have not been furnished with any such evaluation or appraisal.
We were engaged by the Special Transaction Committee of the Board of
Directors of the Company to render this opinion in connection with the Special
Transaction Committee's discharge of its fiduciary obligations. It is understood
this letter is for the use of the Special Transaction Committee and the Board of
Directors of the Company only and is not to be used for any other purpose
without prior written consent; provided, however, this letter may be reproduced
in a proxy statement relating to the Merger. This opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
Merger.
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<PAGE> 146
Based upon and subject to the foregoing, and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof and based
on conditions as they currently exist, $3.50 in cash, which is the consideration
to be received in the Merger by the stockholders of the Company (other than the
Jim Tankersley Family), is fair to such stockholders from a financial point of
view.
Very truly yours,
J.C. BRADFORD & CO., LLC
By:
-------------------------------------------
N. B. Forrest Shoaf
Senior Vice President
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<PAGE> 147
APPENDIX C
DELAWARE GENERAL CORPORATION LAW
Section 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to sec.228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of the stockholder's shares of
stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what
is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation; and the words "depository
receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation
to be effected pursuant to sec.251 (other than a merger effected pursuant
to sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263
or sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of merger
or consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 holders; and
further provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger if the
merger did not require for its approval the vote of the stockholders of
the surviving corporation as provided in subsection (f) of sec.251 of
this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the
effective date of the merger or
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consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under sec.253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares
of any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such
on the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking
of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228
or sec.253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that
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appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in
such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to
all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may, and,
if given on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of the merger
or consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective date
of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20
days following the sending of the first notice, such second notice need
only be sent to each stockholder who is entitled to appraisal rights and
who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or
of the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of the merger
or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal
and to accept the terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor
of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is
received by the surviving or resulting
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corporation or within 10 days after expiration of the period for delivery
of demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
submitted such stockholder's certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and
the case of holders of shares represented by certificates upon the
surrender to the corporation of the certificates representing such
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stock. The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation
be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees, and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholder's demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the
Court deems just.
(1) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
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PROXY UNITED FOODS, INC.
TEN PICTSWEET DRIVE
BELLS, TENNESSEE 38006-0119
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints and , or either of them, as
Proxies, each with full power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all the shares of Class A
Common Stock and Class B Common Stock of United Foods, Inc., held of record by
the undersigned on July , 1999, at the special meeting of stockholders to be
held on August , 1999, or any adjournments or postponements thereof. This
proxy revokes all prior proxies given by the undersigned. Receipt of the Notice
of Special Meeting and Proxy Statement is hereby acknowledged.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL.
1. TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED AS OF MAY 14,
1999, BY AND AMONG PICTSWEET LLC, A DELAWARE LIMITED LIABILITY COMPANY, UF
ACQUISITION CORP., A DELAWARE CORPORATION, AND UNITED FOODS, INC., A DELAWARE
CORPORATION, AND THE MERGER OF UF ACQUISITION CORP. WITH AND INTO UNITED
FOODS, INC. AS CONTEMPLATED THEREBY.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
2. AUTHORIZATION FOR PROXIES TO VOTE IN THEIR DISCRETION UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING:
<TABLE>
<S> <C>
[ ] GRANT AUTHORITY [ ] WITHHOLD AUTHORITY
</TABLE>
(Continued and to be signed on the other side)
(Continued from other side)
SHARES OF THE COMPANY'S CLASS A COMMON STOCK ARE DESIGNATED ABOVE AS "COMA"
AND SHARES OF THE COMPANY'S CLASS B COMMON STOCK ARE DESIGNATED ABOVE AS "COMB".
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted "FOR" Proposal 1 and to "GRANT AUTHORITY" for Proposal 2.
Dated: , 1999
-------------------------
--------------------------------
Signature
--------------------------------
Signature if held jointly
(PLEASE SIGN EXACTLY AS NAME
APPEARS HEREON. WHEN SHARES ARE
HELD BY JOINT TENANTS, BOTH
SHOULD SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE
AS SUCH. IF A CORPORATION,
PLEASE SIGN IN FULL CORPORATE
NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED
PERSON.)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
<PAGE> 1
EXHIBIT 17(g)
================================================================================
UNITED FOODS, INC.
---------------
LOAN AGREEMENT
Dated as of July 8, 1999
---------------
Secured Promissory Note Due June 1, 2009
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1.LOAN; ISSUE OF NOTE; SECURITY; INTEREST.........................................................................1
1.1.Authorization................................................................................................1
1.2.Loan; Closing................................................................................................1
1.3.Security.....................................................................................................1
1.4.Interest Rate................................................................................................2
SECTION 2.REPRESENTATIONS AND WARRANTIES..................................................................................2
2.1.Financial Statements.........................................................................................2
2.2.No Material Changes..........................................................................................2
2.3.Liens........................................................................................................2
2.4.Organization, Authority and Good Standing; Subsidiaries......................................................2
2.5.Title to Properties..........................................................................................3
2.6.Leases and Liens.............................................................................................3
2.7.Licenses.....................................................................................................3
2.8.Litigation...................................................................................................3
2.9.No Burdensome Provisions.....................................................................................3
2.10.Compliance with Other Instruments...........................................................................4
2.11.Disclosure..................................................................................................4
2.12.ERISA.......................................................................................................4
2.13.Regulation G; Use of Proceeds...............................................................................5
2.14.Tax Liability...............................................................................................5
2.15.Governmental Action.........................................................................................5
2.16.Offering of Note............................................................................................5
2.17.Hazardous Waste.............................................................................................6
2.18.Separate Property; No Flood Zone............................................................................6
2.19.No Affiliation..............................................................................................6
2.20.No Foreign Person...........................................................................................6
2.21.Title to Property and Collateral............................................................................6
2.22.Additional Representations and Warranties...................................................................6
SECTION 3.CONDITIONS OF THE LOAN..........................................................................................6
3.1.Opinion of Company Counsel...................................................................................6
3.2.Legality.....................................................................................................7
3.3.Proceedings..................................................................................................7
3.4.Representations True; No Default.............................................................................7
3.5.Collateral Documents.........................................................................................7
3.6.Opinion of Lender's Counsel..................................................................................7
3.7.Environmental Audit Results..................................................................................7
SECTION 4.REPRESENTATION OF LENDER........................................................................................8
4.1.Acquisition for Investment...................................................................................8
SECTION 5.FINANCIAL STATEMENTS; COMPLIANCE CERTIFICATES; ADDITIONAL INFORMATION; AND INSPECTION...........................8
5.1.Financial Statements and Reports.............................................................................8
5.2.Inspection..................................................................................................10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 6.PRINCIPAL PAYMENT OF NOTE......................................................................................10
6.1.Principal Payments - Mandatory and Optional Prepayment......................................................10
6.2.Prepayment of Note Upon Change of Control...................................................................11
6.3.Interest After Date Fixed for Principal Payment or Prepayment...............................................12
SECTION 7.AFFIRMATIVE COVENANTS..........................................................................................12
7.1.To Pay Note.................................................................................................12
7.2.Maintenance of Company Office...............................................................................12
7.3.To Keep Books...............................................................................................12
7.4.Payment of Taxes; Corporate Existence; Maintenance of Properties............................................12
7.5.To Insure...................................................................................................13
SECTION 8.RESTRICTIVE COVENANTS..........................................................................................13
8.1.Indebtedness................................................................................................13
8.2.Working Capital; Lease Obligations..........................................................................13
8.3.Tangible Net Worth..........................................................................................14
8.4.Restricted Payments; Pledge of Stock........................................................................14
8.5.Merger, Consolidation, Sale or Lease........................................................................14
8.6.Transactions with Affiliates................................................................................15
8.7.Encumbrances On and Transfers of the Collateral.............................................................15
8.8.Treasury Repurchase.........................................................................................15
SECTION 9.DEFINITIONS....................................................................................................16
SECTION 10.DEFAULTS AND REMEDIES.........................................................................................19
10.1.Events of Default; Acceleration............................................................................19
10.2.Suits for Enforcement......................................................................................21
10.3.Remedies Not Waived........................................................................................21
10.4.Remedies Cumulative........................................................................................21
10.5.Costs and Expenses.........................................................................................21
SECTION 11.MISCELLANEOUS.................................................................................................22
11.1.Loss, Theft, Destruction or Mutilation of Note.............................................................22
11.2.Expenses...................................................................................................22
11.3.Stamp Taxes, Recording Fees, etc...........................................................................22
11.4.Successors and Assigns.....................................................................................22
11.5.Payment....................................................................................................22
11.6.Notices....................................................................................................22
11.7.Severability...............................................................................................23
11.8.Law Governing; Modification................................................................................23
11.9.Headings...................................................................................................23
11.10.Counterparts..............................................................................................23
11.11.FINAL CREDIT AGREEMENT....................................................................................23
EXHIBIT A - FORM OF NOTE
EXHIBIT B - LIENS
EXHIBIT C - OWNERSHIP OF COMPANY AND SUBSIDIARIES
</TABLE>
ii
<PAGE> 4
UNITED FOODS, INC.
LOAN AGREEMENT
July 8, 1999
Metropolitan Life Insurance Company
Agricultural Investments
8717 West 110th Street
Suite 700
Overland Park, Kansas 66210
Attention: Vice-President
United Foods, Inc., a Delaware corporation (herein called the
"Company"), agrees with you as follows:
SECTION 1. LOAN; ISSUE OF NOTE; SECURITY; INTEREST.
1.1. Authorization. The Company has duly authorized the issuance of a
Secured Promissory Note due June 1, 2009 in the principal amount of
$4,000,000.00 (herein called the "Note"), such Note to be in the form and have
terms and provisions substantially as set forth in Exhibit "A" hereto.
1.2. Loan; Closing. The Company hereby agrees to borrow from you, and
you, subject to the terms and conditions herein set forth, hereby agree to lend
to the Company, $4,000,000.00 on July 8, 1999 (the "Closing Date").
The loan will be evidenced by, and subject to all other conditions
precedent having been met, be made against delivery to you at 10 o'clock A.M.
Jackson, Tennessee time, on the Closing Date, at the offices of First American
Title Company, Jackson, Tennessee, or at such other time and place as the
parties may agree, of a single Note payable to you or assigns, dated the Closing
Date, duly executed by the Company and in the aggregate principal amount of such
loan. Delivery of the Note hereunder shall be made against payment to the
Company or the holders of liens on the Facility (as hereafter defined) in
Federal Reserve or other funds in the aggregate principal amount of such loan.
1.3. Security. Payment of the Note shall be secured by (i) a first deed
of trust, security agreement and financing statement (the "Deed of Trust") to be
entered into by the Company with respect to, inter alia, the Company's property,
plant and equipment at its Pictsweet Agri-Center located adjacent to Bells,
Tennessee, and various farms owned by Company as described in said Deed of Trust
(the "Facility"), (ii) a separate security agreement between the Company, as
debtor, and you, as secured party (the "Security Agreement") granting a first
priority security interest in, inter alia, all equipment, fixtures and other
personal property utilized in connection with, or located at, the Facility as
described in said Security Agreement, which security interest will be perfected
by one or more financing statements, and (iii) an assignment of rents and leases
(the "Assignment") with respect to the Company's rights under all leases to
which the Company is or may at any time become a party as lessor pertaining to,
inter alia, the Facility or any interest therein. The Deed of Trust, the
Security Agreement and the Assignment shall each be dated and delivered on the
Closing Date and are collectively referred to herein, along with such other
documents and instruments evidencing, securing or relating to said Note, as the
"Collateral Documents".
<PAGE> 5
1.4. Interest Rate.
A. The interest rate on the Note shall be 7.56% per annum so long as
the Note is not in default.
B. In the event the interest provisions hereof or any exaction provided
for herein or in the Collateral Documents shall result for any reason and at any
time during the term of this loan in an effective rate of interest which
transcends the limit of the usury or any other law applicable to this loan, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice between or by any party
hereto, be applied on principal immediately upon receipt and effect as though
the payor had specifically designated such extra sums to be so applied to
principal, and the holder of the Note shall accept such extra payment or
payments as a premium-free prepayment. If any such amounts are in excess of the
principal then outstanding, such excess shall be paid to the Company. In no
event shall any agreed-to or actual exaction as consideration for the Loan
transcend the limits imposed or provided by the law applicable to this
transaction or the Company in the jurisdictions in which the Facility or any
other security for payment of the Note is located for the use or detention of
money or for forbearance in seeking its collection.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants that:
2.1. Financial Statements. You have been furnished with copies of
consolidated balance sheets of the Company and its Subsidiaries as of February
28 or 29 in each of the years 1990 to 1999, inclusive, and the related
consolidated statements of operations, statements of stockholders' equity and
statements of cash flows of the Company and its Subsidiaries for the fiscal
years ended on said dates, accompanied in each case by the opinion of its
independent certified public accountants.
Said financial statements, including the related schedules and notes,
are complete and correct and fairly present (a) the financial condition of the
Company and its Subsidiaries as at the respective dates of said balance sheets
and (b) the results of the operations and changes in financial position of the
Company and its Subsidiaries for the fiscal years ended on said dates, all in
conformity with generally accepted accounting principles applied on a consistent
basis (except as otherwise stated therein or in the notes thereto) throughout
the periods involved.
2.2. No Material Changes. There has been no material or adverse change
in the business, operations, properties, assets, prospects or condition,
financial or other, of the Company and its Subsidiaries subsequent to January
31, 1999.
2.3. Liens. Exhibit "B" hereto correctly sets forth all Liens securing
Indebtedness for money borrowed of the Company and its Subsidiaries existing on
the date hereof.
2.4. Organization, Authority and Good Standing; Subsidiaries. Exhibit
"C" hereto correctly sets forth a listing of the members of the Tankersley
Family (as defined in Section 6.2 below). Such aggregate Tankersley Family
members' interest represent voting control of the Company. The shares of stock
owned by the Tankersley Family have been duly issued and are fully paid and
non-assessable. Exhibit C also correctly sets forth (a) the name and
jurisdiction of incorporation of each Subsidiary of the Company, if any
Subsidiary shall exist (as of the date hereof, no such Subsidiary exists), and
(b) a statement of the capitalization of each such Subsidiary and the ownership
of its stock. The shares of stock listed in Exhibit C as owned by the Company
are so owned as of the date of this Agreement, free and clear of all Liens, and
all such shares of stock have been duly issued and are fully paid and
non-assessable. No person has any right, contingent or otherwise, to purchase
any such shares of stock. The Company and each of its Subsidiaries are duly
organized and validly existing corporations in good standing under the laws of
Delaware and have
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<PAGE> 6
full power and authority to own the properties and assets and to carry on the
business which they now own and carry on. The Company and each of its
Subsidiaries are duly qualified and in good standing as a foreign corporation in
each jurisdiction wherein the nature of the property owned or leased by them or
the nature of the business transacted by them makes such qualification
necessary.
2.5. Title to Properties. The Company and its Subsidiaries have good
and marketable fee title to all the real properties (other than leaseholds) and
good and marketable title to all other material property reflected on the
balance sheet of the Company and its Subsidiaries as of February 28, 1999
referred to in Section 2.1, or purported to have been acquired by the Company or
any of its Subsidiaries after said date, excepting, however, property sold or
otherwise disposed of subsequent to said date in the ordinary course of
business.
2.6. Leases and Liens. None of the properties or assets reflected in
the consolidated balance sheet of the Company and its Subsidiaries as of
February 28, 1999 referred to in Section 2.1, or acquired by the Company or its
Subsidiaries after said date, is held by the Company or any of its Subsidiaries
subject to any Lien which would not be permitted by Section 7.4A or which is not
disclosed in Exhibit B hereto. The Company and its Subsidiaries enjoy peaceful
and undisturbed possession under all of the leases under which they are
operating as lessees, and all such leases are valid, including, without
limitation, in each instance, good title being vested, to the best knowledge of
the Company, in the lessor thereunder, and subsisting and in full force and
effect.
2.7. Licenses. The Company and its Subsidiaries possess and shall
continue to possess all trademarks, trade names, copyrights, patents,
governmental licenses, bonds, franchises, certificates, consents, permits and
approvals necessary to enable them to carry on their business in all material
respects as now conducted and to own and operate the properties material to
their business as now owned and operated, without known conflict with the rights
of others. All such trademarks, trade names, copyrights, patents, licenses,
bonds, franchises, certificates, consents, permits and approvals which are
material to the operations of the Company and its Subsidiaries, taken as a
whole, are valid and subsisting.
2.8. Litigation. Except as previously disclosed to you in writing,
there are no actions, suits or proceedings (whether or not purportedly on behalf
of the Company or any of its Subsidiaries) pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
at law or in equity or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind, which involve any of
the transactions herein contemplated or the possibility of any material and
adverse change in the business, operations, properties, assets, prospects or
condition, financial or other, of the Company and its Subsidiaries; and neither
the Company nor any of its Subsidiaries is in default or violation of any law or
any rule, regulation, judgment, order, writ, injunction, decree or award of any
court, arbitrator or federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
default or violation might have a material adverse effect on the business,
operations, properties, prospects or condition, financial or other, of the
Company and its Subsidiaries.
2.9. No Burdensome Provisions. Neither the Company nor any of its
Subsidiaries is a party to any agreement or instrument or subject to any charter
or other corporate or legislative restriction or any judgment, order, writ,
injunction, decree, award, rule or regulation which materially and adversely
affects or in the future may (so far as the Company can now reasonably foresee)
materially and adversely affect the business, operations, properties, assets,
prospects or condition, financial or other, of the Company and its Subsidiaries,
taken as a whole.
2.10. Compliance with Other Instruments. Neither the Company nor any of
its Subsidiaries is in default in the performance, observance or fulfillment of
any of the obligations, covenants or conditions
3
<PAGE> 7
contained in any bond, debenture, note or other evidence of Indebtedness of the
Company or such Subsidiary or contained in any instrument under or pursuant to
which any thereof has been issued or made and delivered. Neither the execution
and delivery of this Agreement and the Collateral Documents by the Company, the
consummation by the Company of the transactions herein and therein contemplated,
nor compliance by the Company with the terms, conditions and provisions hereof
and thereof and of the Note will violate any provision of law or rule or
regulation thereunder or any order, injunction or decree of any court or other
governmental body to which the Company or any of its Subsidiaries is a party or
by which any term thereof is bound or conflict with or result in a breach of any
of the terms, conditions or provisions of the corporate charter or by-laws of
the Company or any of its Subsidiaries or of any agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the Company
or such Subsidiary is bound, or constitute a default thereunder, or result in
the creation or imposition of any Lien of any nature whatsoever upon any of the
properties or assets of the Company or any of its Subsidiaries (other than the
Liens created by the Collateral Documents). No consent of the stockholders of
the Company is required for the execution, delivery and performance of this
Agreement, the Collateral Documents or the Note by the Company other than those
delivered to you prior to the Closing, if any.
2.11. Disclosure. Neither this Agreement, the Collateral Documents nor
any of the Exhibits hereto, nor any certificate or other data furnished to you
in writing by or on behalf of the Company in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact
or omits a material fact necessary to make the statements contained herein or
therein not misleading. To the best knowledge of the Company, there is no fact
which materially and adversely affects or in the future may (so far as the
Company can now reasonably foresee) materially and adversely affect the
business, operations, properties, assets, prospects or condition, financial or
other, of the Company and its Subsidiaries, taken as a whole, which has not been
disclosed to you in writing.
2.12. ERISA.
(i) As of the date hereof, and during the term of this loan, neither
the Company nor any of its Subsidiaries will be an employee benefit
plan as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), which is subject to Title I
of ERISA, nor a plan as defined in Section 4975(e)(1) of the Internal
Revenue Code of 1986, as amended (each of the foregoing hereinafter
referred to collectively as "Plan") and (2) as of the date hereof, and
during the term of the loan, the assets of neither the Company nor any
of its Subsidiaries will constitute "plan assets" of one or more such
Plans within the meaning of Department of Labor ("DOL") Regulation
Section 2510.3-101.
(ii) As of the date hereof, and during the term of the loan, if either
the Company or any of its Subsidiaries is a "governmental plan" within
the meaning of Section 3(32) of ERISA, the loan will not violate state
statutes regulating investments of, and fiduciary obligations with
respect to, governmental plans.
(iii) As of the date hereof, the Company and its Subsidiaries will be
acting on its own behalf and not on account of or for the benefit of
any Plan.
(iv) Neither the Company nor any of its Subsidiaries shall assign its
interest under this loan to any entity, person or Plan, nor use the
proceeds of such Loan to cause a violation of ERISA.
(v) Neither the Company nor any of its Subsidiaries will, during the
term of this loan, lease, sublease or otherwise convey any interest in
or portion of the Property to a Plan, or to an entity whose assets
constitute Plan assets within the meaning of DOL Regulation Section
2510.3-101.
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<PAGE> 8
(vi) Neither the Company nor any of its Subsidiaries have incurred any
liability (including any contingent liability) to the Pension Benefit
Guaranty Corporation or to any pension plan and all amounts required to
be paid under any plan have been paid.
2.13. Regulation G; Use of Proceeds. Neither the Company nor any of its
Subsidiaries owns or has any present intention of acquiring any "margin stock"
as defined in Regulation G (12 C.F.R., Chapter II, Part 207) of the Board of
Governors of the Federal Reserve System (herein called "margin stock"). The
proceeds from the issuance of the Note will be used by the Company to refinance
existing long term indebtedness and to partially replace an existing revolving
line of credit facility of the Company. None of such proceeds will be used,
directly or indirectly, for the purpose of purchasing or carrying any margin
stock or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry margin stock or for any other purpose
which might constitute this transaction a "purpose credit" within the meaning of
said Regulation G. Neither the Company nor any agent acting on its behalf has
taken or will take any action which might cause the transaction contemplated
herein to violate said Regulation G, Regulation T (12 C.F.R., Chapter II, Part
220) or Regulation X (12 C.F.R., Chapter II, Part 224) or any other regulation
of the Board of Governors of the Federal Reserve System or to violate the
Securities Exchange Act of 1934, in each case as now in effect or as the same
may hereafter be in effect.
2.14. Tax Liability. The Company and its Subsidiaries have filed all
tax returns which are required to be filed and have paid all taxes which have
become due pursuant to such returns and all other taxes, assessments, fees and
other governmental charges upon the Company and its Subsidiaries and upon their
properties, assets, income and franchises which have become due and payable by
the Company or any of its Subsidiaries except those wherein the amount,
applicability or validity are being contested by the Company or any such
Subsidiary by appropriate proceedings in good faith and in respect of which
adequate reserves have been established. In the opinion of the Company, all tax
liabilities of the Company and its Subsidiaries were adequately provided for as
of February 28, 1999 and are now so provided for on the books of the Company and
its Subsidiaries.
2.15. Governmental Action. No action of, or filing with, any
governmental or public body or authority is required to authorize, or is
otherwise required in connection with, the execution, delivery and performance
by the Company of this Agreement, the Collateral Documents or the Note (other
than recordation of the Deed of Trust and the Assignment in the Office of the
Register of Obion, Dyer and Crockett Counties, Tennessee, the filing of
financing statements with respect to the Collateral (as defined in the Security
Agreement) in the Office of the Secretary of State of Tennessee and in the
Office of the Register of Obion, Dyer, and Crockett Counties in Tennessee, all
of which will have been duly recorded or filed on or prior to the Closing Date).
2.16. Offering of Note. Neither the Company nor any agent acting on its
behalf has, either directly or indirectly, sold or offered for sale or disposed
of, or attempted or offered to dispose of, the Note or any part thereof, or any
similar obligation of the Company, to, or has solicited any offers to buy any
thereof from, or has otherwise approached or negotiated in respect thereof with,
any Person or Persons other than you and no more than six other institutional
investors; and the Company agrees that neither it nor any agent acting on its
behalf will sell or offer for sale or dispose of, or attempt or offer to dispose
of, any thereof to, or solicit any offers to buy any thereof from, or otherwise
approach or negotiate in respect thereof with, any Person or Persons so as
thereby to bring the issuance or delivery of the Note within the provisions of
Section 5 of the Securities Act of 1933, as amended.
2.17. Hazardous Waste. Neither the Facility nor any portion thereof nor
any other property owned or controlled at any time by the Company or any
Subsidiary has been or will be used by the Company, any Subsidiary of the
Company, or any tenant of the Facility or any portion thereof for the
production, release, storage, handling or disposal of hazardous or toxic wastes
or materials other than those agricultural and
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<PAGE> 9
commercial chemicals customarily used in operations of the type currently
conducted by the Company in the Facility all of which have been and will be used
in accordance with all applicable laws and regulations.
2.18. Separate Property; No Flood Zone. The Facility is taxed and
billed separately from real property not subject to the Deed of Trust, and no
part of the Facility is located within a flood zone, except that certain
portions of the Tarrant Farm are located in a flood zone.
2.19. No Affiliation. To the best knowledge of the Company, no director
or officer of the Company or of any Subsidiary of the Company, or any member of
the Tankersley Family shown on Exhibit "C", is an officer or director of yours
or is a relative of an officer or director of yours within the following
categories: a son, daughter or descendant of either; a stepson, stepdaughter,
stepfather, stepmother; father, mother or ancestor of either, or a spouse. It is
expressly understood that for the purpose of determining any of the foregoing
relationships, a legally adopted child of a person is considered a child of such
person by blood.
2.20. No Foreign Person. No member of the Tankersley Family shown on
Exhibit "C" is or will be held, directly or indirectly, by, a "foreign person"
under the International Foreign Investment Survey Act of 1976, the Agricultural
Foreign Investment Disclosure Act of 1978, the Foreign Investments in Real
Property Tax Act of 1980, the amendments of such Acts or regulations promulgated
pursuant to such Acts.
2.21. Title to Property and Collateral. The Company has good and
marketable title in fee simple to such of the Property (as defined in the Deed
of Trust) as constitutes real property and good and merchantable title to the
Collateral (as defined in the Security Agreement) subject in each case to no
Liens other than the Liens of the Collateral Documents and Permitted
Encumbrances.
2.22. Additional Representations and Warranties. As of the date hereof,
the representations and warranties contained in the Borrower's Affidavit of even
date herewith are true and correct.
SECTION 3. CONDITIONS OF THE LOAN.
Your obligation to make the loan, as provided in Section 1.2, on the
Closing Date shall be subject to the conditions precedent that you have received
on or before the Closing Date in form and substance of satisfaction to your
counsel, such assurances and evidence as you may require of the performance by
the Company of all its agreements theretofore to be performed hereunder, to the
accuracy of its representations and warranties herein contained and to the
satisfaction, prior thereto or concurrently therewith, of the following further
conditions:
3.1. Opinion of Company Counsel. You shall have received on the Closing
Date from Donald Dresser, counsel for the Company in connection with the loan, a
favorable opinion as to such matters incident to the transactions contemplated
by this Agreement in form and substance acceptable to you.
3.2. Legality. You shall have satisfied yourself that the Note being
purchased by you on the Closing Date shall qualify on the Closing Date as a
legal investment for mutual life insurance companies under the New York
Insurance Law (without resort to any provision of such law, such as Section
1405(a)(8) thereof, permitting limited investments by you without restriction as
to the character of the particular investment) and such purchase shall not
subject you to any penalty or other onerous condition under or pursuant to any
applicable law or governmental regulation; and you shall have received such
certificates or other evidence as you may reasonably request to establish
compliance with this condition.
3.3. Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and the Collateral Documents, and
all documents incidental thereto, shall be satisfactory in form and substance to
you; and you shall have received copies of all documents which you may
reasonably
6
<PAGE> 10
request in connection with said transactions and copies of the records of all
corporate proceedings in connection therewith in form and substance satisfactory
to you.
3.4. Representations True; No Default. The representations and
warranties of the Company in this Agreement and in the Collateral Documents
shall be true on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date; on
the Closing Date no event which is, or with notice or lapse of time or both
would be, an Event of Default shall have occurred and be continuing; and you
shall have received an affidavit, dated the Closing Date, of the Senior Vice
President - Financial of the Company to each such effect.
3.5. Collateral Documents. You shall have received on the Closing Date
fully executed original counterparts of each of the Collateral Documents.
3.6. Opinion of Lender's Counsel. You shall have received on the
Closing Date from Womble Carlyle Sandridge & Rice, PLLC, counsel for you, a
favorable opinion as to such matters incident to the transactions contemplated
by this Agreement in form and substance acceptable to you.
3.7. Environmental Audit Results. The results of the Phase I
Environmental Audit of the Tarrant Farm, the answers on the Environmental
Questionnaires on the remainder of the Facility, and any remedial action
required to be taken by the Company as a result of such audit, are complete and
satisfactory to you.
3.8 Survey. An ALTA as-built survey of the Facility shall have been
provided to you prior to the Closing Date. The survey shall show as of its date
the: (a) courses and measured distances of exterior property lines of the
Facility, (b) the total number of acres constituting the Facility, (c) the
location of adjoining roads, and (d) the location of setback lines and
easements, identified by the book and page of recording of the instrument of
record, if any, creating same. The Company represents that no other more recent
survey is available and that the matters thereon are in fact as represented on
the date of the survey. The Company further represents that there have been no
material changes in the foregoing items since the date of the survey.
3.9. Title Requirements. You shall be furnished on the Closing Date
with an ALTA Revised 1970 Lender's Policy Form B (Amend. 10/17/70) of mortgagee
title insurance policy issued by a title insurance company acceptable to you
insuring that the Deed of Trust is a first lien and that title to the Facility
is not subject to other liens or assessments except for the Deed of Trust and
the other recorded documents securing the Loan, and such encumbrances as agreed
to in writing by you and the Company and insuring the Deed of Trust for
$4,000,000.00. The title insurance policy shall contain no exceptions other than
those which are approved and accepted by you. The title insurance is to contain
such endorsements as may be required by you and shall be paid for by the
Company. You shall also be furnished with such UCC searches as you may
reasonably request and the Company agrees to cause the termination or amendment
of those reasonably objectionable to you.
SECTION 4. REPRESENTATION OF LENDER.
4.1. Acquisition for Investment. This Agreement is made with you in
reliance upon your representation to the Company (which, by your acceptance
hereof, you confirm) that you are acquiring the Note for your own account for
the purpose of investment and not with a view to, or for sale in connection
with, the distribution thereto; provided, however, that the disposition of your
property shall at all times be within your control.
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<PAGE> 11
SECTION 5. FINANCIAL STATEMENTS; COMPLIANCE CERTIFICATES; ADDITIONAL
INFORMATION; AND INSPECTION.
5.1. Financial Statements and Reports. From and after the date hereof
and so long as you (or a nominee designated by you) shall hold the Note, the
Company will deliver to you in duplicate:
(a) as soon as practicable after the end of each quarter in
each fiscal year of the Company, and in any event within sixty (60)
days after the end of each quarter in each fiscal year of the Company,
the interim consolidated statements of earnings, stockholders' equity
and cash flows of the Company and its Subsidiaries for such period and
for that part of the fiscal year ended with such period and the
consolidated balance sheet of the Company and its Subsidiaries as at
the end of such period, all in reasonable detail, prepared in
conformity with generally accepted accounting principles applied on a
basis consistent with that of previous years (except as otherwise
stated therein or in the notes thereto) and certified by the Senior
Vice President - Financial or such other senior officer of the Company
as presenting fairly the financial condition and results of operations
of the Company and its Subsidiaries as at the end of and for the fiscal
periods to which they relate, subject to the Company's year-end
adjustments;
(b) as soon as practicable after the end of each fiscal year,
and in any event within one hundred twenty (120) days after the end of
each fiscal year, the consolidated balance sheet and related
consolidated statements of earnings, stockholders' equity and cash
flows of the Company and its Subsidiaries as of the end of and for such
year, setting forth in each case in comparative form the corresponding
figures of the previous fiscal year, all in reasonable detail, prepared
in conformity with generally accepted accounting principles applied on
a basis consistent with that of previous years (except as otherwise
stated therein or in the notes thereto) and accompanied by a report or
opinion of independent certified public accountants, selected by the
Company and reasonably acceptable to you, stating that such financial
statements present fairly the consolidated financial condition and
results of operations and cash flows of the Company and its
Subsidiaries in accordance with generally accepted accounting
principles consistently applied (except for changes with which such
accountants concur) and that the examination of such accountants in
connection with such financial statements has been made in accordance
with generally accepted auditing standards;
(c) concurrently with the financial statements delivered
pursuant to Section 5.1(b), the written statement of said accountants
that in the ordinary course of making their normal examination
necessary for their report or opinion on said financial statements they
have obtained no knowledge of any Event of Default or event which, with
notice or lapse of time or both, would become an Event of Default or,
if such accountants shall have obtained knowledge of any such Event of
Default or event, they shall disclose in such statement the Event or
Events of Default and/or such event or events and the nature and status
thereof, but such accountants shall not be liable, directly or
indirectly, to anyone for any failure to obtain knowledge of any such
Event of Default or event;
(d) concurrently with the financial statements delivered
pursuant to Section 5.1(b) a certificate of the Senior Vice President -
Financial or such other senior officer of the Company (1) setting
forth, as of the end of the preceding fiscal year, the extent to which
the Company and its Subsidiaries have complied with the requirements of
Sections 8.1 through 8.7, inclusive, including in each case a brief
description, together with all necessary computations, of the manner in
which such compliance was determined and the respective amounts as of
the end of or for such fiscal year of Consolidated Total Liabilities,
Consolidated Current Assets, Consolidated Current Liabilities,
Consolidated Net Tangible Assets, Consolidated Tangible Net Worth,
Consolidated Net Income, lease obligations and the amount available for
dividends pursuant to Section 8.4, (2) stating that a
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review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under his supervision to determine
whether the Company has fulfilled all of its obligations under this
Agreement, the Collateral Documents and the Note, (3) stating that, to
the best of his or her knowledge, the Company is not and has not been
in default in the fulfillment of any of the terms, covenants,
provisions or conditions hereof and thereof and no Event of Default or
event which, with notice or lapse of time or both, would become an
Event of Default exists or existed or, if any such default or Event of
Default or event exists or existed, specifying such default, Event of
Default or event and the nature and status thereof, (4) stating that a
Change of Control Date has not occurred or event which, with notice or
lapse of time or both, would become a Change of Control Date, and (5)
giving, in the event of the formation or acquisition of a Subsidiary
during the preceding fiscal year, the name of such Subsidiary, its
jurisdiction of incorporation and a brief description of its business;
(e) as soon as practicable, copies of all financial
statements, proxy statements and reports as the Company or any of its
Subsidiaries shall send or make available generally to its stockholders
or any governmental agency or agencies and regular periodic reports, if
any, which it or any of its Subsidiaries, may file with any
governmental agency or agencies;
(f) immediately upon a responsible officer of the Company's
becoming aware of the existence of a condition, event or act which
constitutes an Event of Default or an event of default under any other
evidence of Indebtedness of the Company or any Subsidiary, or an event
which, with notice or lapse of time or both, would constitute such an
Event of Default or event of default, a written notice specifying the
nature and period of existence thereof and what action the Company or
such Subsidiary, as the case may be, is taking or proposes to take with
respect thereto;
(g) immediately upon a responsible officer of the Company's
becoming aware of the occurrence of any (1) "reportable event," as
defined in Section 4043(b) of ERISA, or (2) non-exempted "prohibited
transaction," as defined in Sections 406 and 408 of ERISA and Section
4975 of the Internal Revenue Code of 1986, as amended in connection
with any "employee pension benefit plan," as defined in Section 3 of
ERISA, or any trust created thereunder, a written notice specifying the
nature thereof, what action the Company is taking or proposes to take
with respect thereto and, when known, any action taken by the Internal
Revenue Service or the Pension Benefit Guaranty Corporation with
respect thereto;
(h) promptly upon a responsible officer or manager of the
Company's becoming aware of the occurrence of (1) any surrender of
assets of the Company or any Subsidiary in satisfaction of any
Indebtedness, (2) the dissolution of any operating partnership or real
estate ownership partnership of the Company or any Subsidiary, (3) the
termination or expiration of any lease of real property to which the
Company or any Subsidiary is lessee, excluding, however, the
termination or expiration of operating leases in the ordinary course of
business of the Company, or (4) the commencement of any litigation,
including any arbitration or mediation, and of any proceedings before
any governmental agency which could materially and adversely affect the
business, properties, prospects or financial condition of the Company
and its Subsidiaries taken as a whole (including any such action
commenced by counterclaim), written notice specifying the nature
thereof and what action the Company or such Subsidiary, as the case may
be, is taking with respect thereto; and
(i) such other information as to the business and properties
of the Company and of its Subsidiaries, including consolidating
financial statements of the Company and its Subsidiaries, and financial
statements and other reports filed with any governmental department,
bureau, commission or agency, as you may from time to time reasonably
request.
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5.2. Inspection. From and after the date hereof and so long as you (or
a nominee designated by you) shall hold the Note, you shall have the right, upon
reasonable notice to the Company (i) to visit and inspect, at your expense, any
of the properties, all at such reasonable times and as often as you may
reasonably request, of the Company or of any of its Subsidiaries (including any
property not owned by the Company or any Subsidiary but upon which any security
for the Loan may be located), to examine its books of account and those of its
Subsidiaries and to discuss the affairs, finances and accounts of the Company
and its Subsidiaries with its and their officers and managers and independent
public accountants, and (ii) to contact such third parties doing business with
the Company, and to engage in other auditing procedures as you deem reasonable
to ensure the validity of your security interests or the accuracy of the
Company's representations, warranties and certifications. In connection with
such inspections, you and your engineers, contractors and other representatives
shall have the right to perform such environmental audits and other
environmental examinations of the Facility as you deem necessary or advisable
from time to time.
SECTION 6. PRINCIPAL PAYMENT OF NOTE.
6.1. Principal Payments - Mandatory and Optional Prepayment.
A. The Company covenants and agrees that it will monthly pay combined
principal and interest in the amount of $ 37,500.00 (amortized over 15 years) on
the unpaid Note on the first day of each month, commencing on the first day of
the second full month subsequent to the Closing Date to and including May 1,
2009. All principal remaining thereafter shall be paid June 1, 2009. All
mandatory principal payments pursuant to this Section 6.1A shall be made
together with interest as set forth above with prepayment premium.
B. The Company may, at its option, prepay the Note in whole or in part
(in integral multiples of $10,000) on the due date of a payment due after the
first day of the second full month subsequent to the Closing Date at a price
equal to the Prepayment Price, as hereafter defined, with accrued interest to
the date of prepayment. The Company shall give notice of any such prepayment to
the holder of the Note not less than 30 nor more than 60 days prior to the date
fixed in such notice for prepayment ("Prepayment Date"). Principal shall be
applied to the outstanding principal balance in the inverse order of maturity.
C. Payments shall be applied to the following, as applicable:
prepayment premiums; any accrued interest; the outstanding principal balance of
the Note; and any other unpaid portion of the Loan, including, without
limitation, for the reimbursement of such costs and expenses provided for in the
Collateral Documents.
6.2. Prepayment of Note Upon Change of Control. In the event that a
Change of Control Date (as hereinafter defined) shall occur, the Company will,
within 10 days after such Change of Control Date, give you written notice
thereof and shall describe in reasonable detail the facts and circumstances
giving rise thereto. Upon the occurrence of a Change of Control Date, the
Company will prepay, if you shall so request, all of the Note which you then
hold at the Prepayment Price (as hereinafter defined) plus interest accrued to
the date of prepayment. Said request (the "Prepayment Notice") shall be made by
you in writing not later than the later of (a) 60 days after the Change of
Control Date and (b) 50 days after you receive notice of the Change of Control
Date, and said request shall specify the date (also referred to as the
"Prepayment Date") upon which the Company shall prepay the Note held by you,
which date shall be not less than 30 days nor more than 60 days from the date of
the Prepayment Notice.
The Prepayment Price shall be determined by you in good faith, as of
5:00 p.m., New York time, on the fifth Business Day (as hereinafter defined)
prior to the Prepayment Date. Such Prepayment Price, as calculated by you, will
be binding upon the Company, absent manifest error. Promptly upon such
determination you shall notify the Company in writing of the amount of such
Prepayment Price, setting forth in reasonable detail the computation thereof.
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On the Prepayment Date, the Company shall prepay the Note held by you
at the Prepayment Price plus interest accrued thereon to the Prepayment Date.
Payment of the Prepayment Price shall be made as provided in Section 11.5.
The term "Change of Control Date" shall mean the first day on which any
Person, or group of related Persons, (i) shall acquire beneficial ownership
directly or indirectly, or control of the Voting Power (as hereinafter defined)
of the Company; (ii) shall acquire directly or indirectly, or control all or
substantially all of the assets of the Company; or (iii) acquire beneficial
ownership directly or indirectly, or control of the Voting Power of an entity
with or into which the Company has merged or consolidated, whether pursuant to a
statutory merger or consolidation or otherwise. For purposes of this Section 6.2
only, the term "Person" shall not include any of the Tankersley family members
set forth on Exhibit "C" (collectively, the "Tankersley Family"). It is
expressly understood that for the purpose of determining any of the foregoing
relationships, a legally adopted child of a person is considered a child of such
person by blood.
The term "Prepayment Price" shall mean the greater of (x) par, and (y)
the sum of the values of (1) each remaining mandatory principal payment prior to
the next interest rate adjustment date, if any, or maturity, as the case may be,
and (2) the principal payment at maturity (if there is an interest rate
adjustment date, the entire outstanding principal balance as of such date shall
be deemed due and payable solely for purposes of determining the Prepayment
Price) (each such mandatory payment and such payment at maturity being herein
referred to as a "Payment") plus the value of all related scheduled interest
payments on the Note to be prepaid during the period from the Prepayment Date to
the date of each Payment. The value of each Payment and such related scheduled
interest payments shall be determined by discounting, at the applicable Treasury
Rate plus fifty (50) basis points such Payment, and such related scheduled
interest payments from the respective scheduled payment dates of such Payment
and such related scheduled interest payments to the Prepayment Date. The
Treasury Rate with respect to each Payment and such related scheduled interest
payments is the yield which shall be imputed, by linear interpolation, from the
current weekly yield of those United States Treasury Notes having maturities as
close as practicable to the scheduled payment date of the Payment, as published
in the most recent Federal Reserve Statistical Release H.15 (519) or any
successor publication thereto.
6.3. Interest After Date Fixed for Principal Payment or Prepayment. In
the event the Company shall fail to pay such Note or any payment owing in
respect of the Note according to the terms thereof and hereof (inclusive of any
other permitted payments of which the Company has notified you) on the date
fixed for such principal payment or prepayment, in which event such Note or such
portion, as the case may be, shall bear interest at the Overdue Interest Rate
from and after such date until paid and, so far as may be lawful, any overdue
installment of interest shall bear interest at said rate.
SECTION 7. AFFIRMATIVE COVENANTS.
The Company covenants and agrees that so long as the Note shall be
outstanding:
7.1. To Pay Note. The Company will punctually pay or cause to be paid
the principal and interest (and prepayment premium, if any) to become due in
respect of the Note according to the terms thereof and hereof (inclusive of any
other permitted payments of which the Company has notified you).
7.2. Maintenance of Company Office. The Company will maintain an office
at Ten Pictsweet Drive, Bells, Tennessee 38006-0119 (or such other place in the
United States of America as the Company may designate in writing to the holder
of the Note).
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7.3. To Keep Books. The Company will, and will cause each of its
Subsidiaries to, keep proper books of record and account in accordance with
generally accepted accounting principles.
7.4. Payment of Taxes; Corporate Existence; Maintenance of Properties.
The Company will, and will cause each of its Subsidiaries to,
(a) pay and discharge promptly all taxes, assessments and
governmental charges or levies imposed upon it, its income or profits
or its property before the same shall become in default, as well as all
lawful claims and liabilities of any kind (including claims and
liabilities for labor, materials and supplies) which, if unpaid, might
by law become a Lien upon its property; provided, however, that neither
the Company nor any Subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company or any such Subsidiary shall
have set aside on its books reserves in respect thereof (segregated to
the extent required by generally accepted accounting principles) deemed
adequate in the opinion of the Board of Directors;
(b) subject to Section 8.5A, do all things necessary to
preserve and keep in full force and effect its corporate existence,
rights (charter and statutory) and franchises; provided, however, that
neither the Company nor any Subsidiary shall be required to preserve
any right or franchise if the Board of Directors shall reasonably
determine that the preservation thereof is no longer desirable in its
conduct of business; and
(c) maintain and keep all its properties used or useful in the
conduct of its business in good condition, repair and working order and
supplied with all necessary equipment and make all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as
may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section 7.4(c) shall prevent
the Company or any of its Subsidiaries from discontinuing the operation
and maintenance of any of its properties (other than the Collateral),
if such discontinuance is, in the judgment of the Company, desirable in
the conduct of its business.
7.5. To Insure. The Company will, and will cause each of its
Subsidiaries to (in addition to the insurance required to be maintained pursuant
to Paragraph 1.05 of the Deed of Trust and Section 2(e) of the Security
Agreement):
(a) keep all of its insurable properties owned by it insured
against all risks usually insured against by persons operating like
properties in the same geographical areas where the properties are
located, all in amounts sufficient to prevent the Company or such
Subsidiary, as the case may be, from becoming a coinsurer within the
terms of the policies in question, but in any event in amounts not less
than 80% of the then full replacement value thereof;
(b) maintain public liability insurance against claims for
personal injury, death or property damage suffered by others upon or in
or about any premises occupied by it or occurring as a result of its
maintenance or operation of any airplanes, automobiles, trucks or other
vehicles or other facilities (including, but not limited to, any
machinery used therein or thereon) or as the result of the use of
products sold by it or services rendered by it;
(c) maintain such other types of insurance with respect to its
business as is usually carried by persons of comparable size engaged in
the same or similar business and similarly situated; and
(d) maintain all such worker's compensation or similar
insurance as may be required under the laws of any State or
jurisdiction in which it may be engaged in business.
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All insurance for which provision has been made in Section 7.5(b) and
Section 7.5(c) shall be maintained in at least such amounts as such insurance is
usually carried by persons of comparable size engaged in the same or a similar
business and similarly situated; and all insurance herein provided for shall be
effected under a valid and enforceable policy or policies issued by insurers of
recognized responsibility, except that the Company or any such Subsidiary may
effect worker's compensation or other similar insurance in respect of operations
in any State or other jurisdiction either through an insurance fund operated by
such State or other jurisdiction or by causing to be maintained a system or
systems of self-insurance which are in accord with applicable laws.
SECTION 8. RESTRICTIVE COVENANTS.
The Company covenants and agrees that so long as the Note shall be
outstanding:
8.1. Indebtedness.
Neither the Company nor any Subsidiary will create, assume or incur, or in any
manner be or become liable, contingently or otherwise, in respect of, any
Indebtedness if immediately after giving effect thereto, the ratio of
Consolidated Total Indebtedness to Consolidated Tangible Net Worth would exceed
2.0 to 1.0 at the end of any fiscal year period.
8.2. Working Capital; Lease Obligations.
A. The Company will not at any time permit Consolidated Working Capital
to be less than $10,000,000.00.
B. The Company and its Subsidiaries shall not at any time enter into
any lease or leases of real or personal property with terms in excess of one
year (exclusive of Capital Leases) in which the rentals due in any fiscal year
exceed an aggregate amount equal to twenty percent (20%) of the immediately
preceding fiscal year's Consolidated Tangible Net Worth.
8.3. Tangible Net Worth.
Subject to the following sentence, the Company and its Subsidiaries will not
permit, at the end of any fiscal quarter or fiscal year period, Consolidated
Tangible Net Worth to be less than $40,000,000.00. During each fiscal year
beginning subsequent to the Closing Date, the Company and its Subsidiaries will
not at any time permit Consolidated Tangible Net Worth to be less than the
greater of, (i) the minimum required Consolidated Tangible Net Worth for the
immediately preceding year, and (ii) the minimum required Consolidated Tangible
Net Worth for the immediately preceding fiscal year plus an amount equal to
twenty five percent (25%) of such immediately preceding fiscal year's
Consolidated Net Income.
8.4. Restricted Payments; Pledge of Stock.
A. The Company and its Subsidiaries will not, directly or indirectly,
make any Restricted Payments or incur any liability to make any Restricted
Payments unless, immediately after giving effect to such action, there shall not
exist any Event of Default or event which, with notice or lapse of time or both,
would become an Event of Default.
All dividends, distributions, purchases, redemptions, retirements,
acquisitions and payments made pursuant to this Section 8.4 in property other
than cash shall be included for purposes of calculations pursuant to this
Section 8.4 at the fair market value thereof (as determined in good faith by the
Board of
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Directors) at the time of declaration of such dividend or at the time of making
such distribution, purchase, redemption, retirement, acquisition or payment.
8.5. Merger, Consolidation, Sale or Lease.
A. The Company will not consolidate with or merge into any Person, or
permit any Person to merge into it, or sell, transfer or otherwise dispose of
all or substantially all of its properties and assets, unless:
(1) the successor formed by or resulting from such
consolidation or merger (if other than the Company) or the transferee
to which such sale, transfer or other disposition shall be made shall
be a solvent corporation duly organized and existing under the laws of
the United States of America or any State thereof;
(2) the due and punctual performance and observance of all the
obligations, terms, covenants, agreements and conditions of this
Agreement, the Collateral Documents and the Note to be performed or
observed by the Company shall, by written instrument furnished to the
holder of the Note, be expressly assumed by such successor (if other
than the Company) or transferee; and
(3) at the time of such transaction and assumption, and
immediately after giving effect thereto, no Event of Default or event
which, with notice or lapse of time or both, would constitute an Event
of Default shall have occurred and be continuing.
B. Except as permitted in Section 8.5A above, the Company will not, and
will not permit any Subsidiary to, sell, assign, transfer or otherwise dispose
of (other than in the ordinary course of business) any of its properties and
assets to any Person.
8.6. Transactions with Affiliates. The Company will not, and will not
permit any Subsidiary to, engage in any transaction with an Affiliate on terms
more favorable to the Affiliate than would have been obtainable in arm's length
dealing in the ordinary course of business with a Person not an Affiliate. The
Company hereby agrees that, to the extent there are any inter-company loans
involving the Company and/or any Subsidiary on a date on which an Event of
Default exists, no payment of any amounts owing in connection therewith may be
made until the earlier of your waiver of such Event of Default or the repayment
in full of all amounts owing to you in connection with the Loan. To the extent
any amounts are received in any manner whatsoever in connection with such
inter-company loans by an obligee thereof during the period described in the
immediately preceding sentence, such amounts shall be held in trust for and paid
over to you until you are in receipt of all amounts owing to you in connection
with the Loan.
8.7. Encumbrances On and Transfers of the Collateral.
A. Except for Permitted Encumbrances, the Company and its Subsidiaries
will not create, incur, assume or suffer to exist any Lien on any of the
Collateral or any interest therein. Notwithstanding anything contained in the
foregoing sentence to the contrary, the Company may create, incur, assume or
suffer to exist Liens in respect of purchase money financing or leasehold
interests, on furniture, furnishings, equipment, tools, appliances or machinery
located at the Facility, provided, however, that the property so acquired shall
constitute in each case an addition to the Facility and shall not have been
acquired to replace existing portions of the Facility which have become worn
out, undesirable, obsolete, disused or unnecessary for use, operation and
maintenance thereof, not exceeding in value at the time of acquisition thereof
Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) for any single
transaction, or a total of Five Hundred Thousand and No/100 Dollars
($500,000.00) in any one fiscal year, which shall forthwith become, without
further action, subject to the lien and security interest of the Collateral
Documents.
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B. Except as permitted by Sections 8.5A hereof, the Company and its
Subsidiaries will not sell, convey, lease, assign or otherwise transfer all or
any of the Collateral or any interest therein whether voluntarily or by
operation of law. Notwithstanding anything contained in the foregoing sentence
to the contrary, the Company may sell or otherwise dispose of, free from the
lien of the Collateral Documents, furniture, furnishings, equipment, tools,
appliances, machinery, fixtures, or appurtenances subject to the lien thereof,
which may become worn out, undesirable, obsolete, disused or unnecessary for use
in the operation of the Facility, not exceeding in value at the time of
disposition thereof Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00)
for any single transaction, or a total of Five Hundred Thousand and No/100
Dollars ($500,000.00) in any one fiscal year, upon replacing the same by, or
substituting for the same, other furniture, furnishings, equipment, tools,
appliances, machinery, fixtures, or appurtenances not necessarily of the same
character, but of at least equal value to the Company and costing not less than
the amount realized from the property sold or otherwise disposed of, which shall
forthwith become, without further action, subject to the lien and security
interest of the Collateral Documents.
8.8. Treasury Repurchase. The occurrence of the following:
A. The repurchase and retirement by Company of substantially all shares
of all classes of Company's stock not owned by the Tankersley Family as of
April, 1, 1999, and
B. Your receipt of satisfactory evidence of the transaction referred to
in (A);
shall be collectively referred to as the "Treasury Repurchase."
The following provisions of this Section 8 shall change immediately
after the Treasury Repurchase:
(i) Section 8.1 - The ratios of Consolidated Total Indebtedness to
Consolidated Tangible Net Worth shall become 3.50:1.00 instead of 2.00:1.00.
(ii) Section 8.2 The twenty percent (20%) lease rental maximum shall
be raised to twenty-nine percent (29%).
(iii) Section 8.3. The Consolidated Tangible Net worth minimum shall
be reduced from $40,000,000 to $27,500,000.
(iv) You shall modify Sections 8.1, 8.2 and 8.3 of that certain Loan
Agreement with Company dated January 7, 1997 to correspond to the amendments
outlined in items (i), (ii), and (iii) and above.
SECTION 9. DEFINITIONS.
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
"Affiliate" means any Person which, directly or indirectly, controls or
is controlled by or is under common control with the Company or a Subsidiary or
which beneficially owns or holds or has the power to direct the voting power of
5% or more of any class of voting stock of the Company or a Subsidiary or which
has 5% or more of its voting stock (or in the case of a Person which is not a
corporation, 5% or more of its equity interest) beneficially owned or held,
directly or indirectly, by the Company or a Subsidiary. For purposes of this
definition, "control" means the power to direct the management and policies of a
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.
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"Board of Directors" means either the board of directors of the Company
(or, when so specified or the context so indicates, a Subsidiary) or, if duly
authorized to exercise the power of the Board of Directors, any duly authorized
committee thereof.
"Business Day" shall mean any day on which banks are required to be
open to carry on their normal business in the State of New York.
"Capital Lease" means and includes at any time any lease of property,
real or personal, which in accordance with GAAP would at such time be required
to be capitalized on a balance sheet of the lessee.
"Capital Lease Obligation" means at any time the capitalized amount of
the rental commitment under a Capital Lease which in accordance with GAAP would
at such time be required to be shown on a balance sheet.
"Collateral" means all property and assets, and proceeds thereof,
subjected, or intended to be subjected, at any time to the Liens of any of the
Collateral Documents.
"Company" means United Foods, Inc., a Delaware corporation, and,
subject to Section 8.5A hereof, its successors and assigns.
"Consolidated Assets" means, as of the date of determination thereof,
the aggregate of all assets which in accordance with GAAP would be so classified
and appear as assets on the consolidated balance sheet of the Company and its
Subsidiaries.
"Consolidated Current Assets" means, as of the date of determination
thereof, the aggregate of all assets which in accordance with GAAP would be so
classified and appear as current assets on the consolidated balance sheet of the
Company and its Subsidiaries.
"Consolidated Current Liabilities" means, as of the date of
determination thereof, the aggregate of all liabilities which in accordance with
GAAP would be so classified and appear as current liabilities on the
consolidated balance sheet of the Company and its Subsidiaries.
"Consolidated Liabilities" means, as of the date of determination
thereof, the aggregate of all liabilities which in accordance with GAAP would be
so classified and appear as liabilities on the consolidated balance sheet of the
Company and the Subsidiaries.
"Consolidated Net Income" means the net income of the Company and its
Subsidiaries, after eliminating inter-company items, all as consolidated and
determined in accordance with GAAP.
"Consolidated Net Worth (Stockholders' Equity)" means, as of the date
of determination thereof, the aggregate amount of the Consolidated Assets less
the Consolidated Liabilities of the Company and its Subsidiaries, in each case
after eliminating inter-company items and as determined in accordance with GAAP.
"Consolidated Tangible Net Worth" means the aggregate amount of total
shareholders' equity as determined from the consolidated balance sheet of the
Company and its Subsidiaries, prepared in accordance with GAAP, less the net
book value of all assets of the Company and its Subsidiaries which would be
treated as intangibles under GAAP, including, without limitation, deferred
charges, franchise rights, non-compete agreements, goodwill, unamortized debt
discount, patents, patent applications, trademarks, tradenames, copyrights,
licenses and premiums on purchased assets.
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"Consolidated Total Indebtedness" shall mean the sum of:
(i) any obligation of the Company and its Subsidiaries for borrowed
money, which under generally accepted accounting principles is shown on the
balance sheet as a liability (including, without limitation, Capitalized Lease
Obligations but excluding reserves for deferred income taxes, operating leases,
deferred pension liability and other deferred expenses and reserves);
(ii) Indebtedness of the Company and its Subsidiaries secured by any
Lien existing on property owned subject to such Lien, whether or not the
Indebtedness secured thereby shall have been assumed; and
(iii) guarantees, endorsements (other than guarantees related to grower
and packaging contracts provided in the ordinary course of business and
endorsements of negotiable instruments for collection in the ordinary course of
business) and other contractual commitments of the Company and its Subsidiaries
(whether direct or indirect in connection with obligations, stock or dividends
of any person),
in each case after eliminating inter-company items and as determined in
accordance with GAAP.
"Consolidated Working Capital" means, as of the date of determination
thereof, the excess of Consolidated Current Assets over Consolidated Current
Liabilities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Events of Default" has the meaning specified in Section 10.1.
"GAAP" means, as to a particular corporation and at a particular time
of determination, such accounting principles as, in the opinion of the
independent public accountants regularly employed by such corporation, conform
at such time of determination to generally accepted accounting principles.
"Indebtedness" means and includes (i) all indebtedness or obligations
for money borrowed or for the purchase price of property (exclusive of orders or
commitments made in the ordinary course of business for future delivery of goods
or services prior to the time the obligation to pay becomes firm) and any notes
payable and drafts accepted representing extensions of credit, whether or not
representing indebtedness or obligations for money borrowed or for the purchase
price of property, (ii) indebtedness or obligations secured by or constituting
any Lien existing on property owned by the Person whose Indebtedness is being
determined, whether or not the indebtedness or obligations secured thereby shall
have been assumed, (iii) Capital Lease Obligations, (iv) guarantees and
endorsements of (other than guarantees related to grower and packaging contracts
provided in the ordinary course of business and endorsements for purposes of
collection in the ordinary course of business), and obligations to purchase
goods or services for the purpose of supplying funds for the purchase or payment
of, or measured by, indebtedness, liabilities or obligations of others (whether
or not representing money borrowed) and other contingent obligations in respect
of, or to purchase or otherwise acquire or service, indebtedness, liabilities or
obligations of others (whether or not representing money borrowed) and (v) all
indebtedness, liabilities or obligations (whether or not representing money
borrowed) in effect guaranteed by an agreement, contingent or otherwise, to make
a loan, advance or capital contribution to or other investment in the debtor for
the purpose of assuring or maintaining a minimum equity, asset base, working
capital or other balance sheet condition for any date, or to provide funds for
the payment of any liability, dividend or stock liquidation payment, or
otherwise to supply funds to or in any manner invest in the debtor for such
purpose. A renewal or extension of any Indebtedness without increase in the
principal amount thereof shall not be deemed to be the incurrence of the
Indebtedness so renewed or extended. In case any corporation shall become a
Subsidiary, such corporation shall be deemed to have incurred at the time it
becomes a Subsidiary all Indebtedness of such corporation outstanding
immediately thereafter.
17
<PAGE> 21
"Lien" means any mortgage, lien, pledge, security interest, encumbrance
or charge of any kind, whether or not consensual, any conditional sale or other
title retention agreement or any Capital Lease.
"Overdue Interest Rate" means the lesser of (a) five[tab]percent (5%)
per annum over the interest rate in effect immediately prior to the time the
Overdue Interest Rate is applicable, and (b) the maximum interest rate provided
by law.
"Permitted Encumbrances" means those Liens described on Exhibit "C" to
the Deed of Trust.
"Person" includes an individual, a corporation, a partnership, a joint
venture, a trust, an unincorporated organization or a government or any agency
or political subdivision thereof.
"Restricted Investment" means any investment (other than by
guaranteeing or otherwise becoming liable, contingently or otherwise, in respect
of the Indebtedness of another Person) by the Company or any Subsidiary in any
other Person, whether by acquisition of stock or Indebtedness, or by loan,
advance, transfer of property out of the ordinary course of business, capital
contribution, extension of credit on terms other than those normal in the
business of the Company or such Subsidiary, or otherwise (the foregoing items
being herein collectively called "Investments", and individually, an
"Investment"); provided, however, that the term "Restricted Investment" shall
not include:
(i) marketable obligations issued or guaranteed by the United States of
America or by any agency of the United States of America, and maturing not later
than twelve months from the date of acquisition thereof,
(ii) commercial paper, issued by a corporation duly organized and
existing under the laws of the United States of America or any State thereof and
having a net worth of not less than $100,000,000, which has one of the two
highest credit ratings by a responsible independent credit agency of recognized
standing,
(iii) Investments, up to an amount insured by the Federal Deposit
Insurance Corporation, in negotiable certificates of deposit or bankers'
acceptances issued by, or drawn on, a United States bank or trust company that
is a member of the Federal Reserve Bank and maturing not later than twelve
months from the date of acquisition thereof, and
(iv) Investments in any Subsidiary or in any corporation which by
reason thereof will immediately after such Investment become a Subsidiary.
"Restricted Payments" means dividends paid on capital stock (in either
cash or property), Restricted Investments, and purchases or redemptions of
capital stock.
"Subsidiary" means any corporation at least a majority of whose
outstanding stock having ordinary voting power for the election of a majority of
the members of the board of directors (or other governing body) of such
corporation (other than stock having such power only by reason of the happening
of a contingency) shall at the time be owned directly or indirectly by the
Company and/or one or more Subsidiaries of the Company.
"Voting Power", as applied to the stock of any corporation, shall refer
to such sufficient stock of any class or classes (however designated), which in
the aggregate, has ordinary voting power for the election of a majority of the
directors of such corporation (other than stock having such power only by reason
of the happening of a contingency).
18
<PAGE> 22
All accounting terms used herein and not expressly defined in this
Agreement shall have the meanings respectively given to them in accordance with
GAAP as it exists at the date of applicability thereof.
SECTION 10. DEFAULTS AND REMEDIES.
10.1. Events of Default; Acceleration. If one or more of the following
events (herein called "Events of Default") shall occur for any reason whatsoever
(and whether such occurrence 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):
A. default in the payment of any interest upon the Note when such
interest becomes due and payable, and such default shall have continued for a
period of ten days; or
B. default in the payment of principal of (or prepayment premium, if
any, on) the Note when and as the same shall become due and payable, whether at
maturity or at a date fixed for principal payment or prepayment (including,
without limitation, a principal payment or prepayment as provided in Section 6.1
or Section 6.2), or by acceleration or otherwise, and such default shall have
continued for a period of ten days; or
C. default in the performance or observance of any other covenant,
agreement or condition contained herein, in the Note, the Deed of Trust, the
Assignment or the Security Agreement or any Event of Default under the Deed of
Trust or Assignment or Default under the Security Agreement shall occur, and
such default shall have continued for a period of thirty days after notice from
you; or
D. the Company or a Subsidiary shall not pay when due, whether by
acceleration or otherwise, any evidence of indebtedness of the Company or such
Subsidiary (other than the Note), or any condition or default shall exist under
any such evidence of indebtedness or under any agreement under which the same
may have been issued permitting such evidence of indebtedness to become or be
declared due prior to the stated maturity thereof; or
E. the Company or any Subsidiary shall file a petition seeking relief
for itself under Title 11 of the United States Code, as now constituted or
hereafter amended, or an answer consenting to, admitting the material
allegations of or otherwise not controverting, or shall fail to timely
controvert, a petition filed against the Company or such Subsidiary seeking
relief under Title 11 of the United States Code, as now constituted or hereafter
amended; or the Company or any Subsidiary shall file such a petition or answer
with respect to relief under the provisions of any other now existing or future
bankruptcy, insolvency or other similar law of the United States of America or
any State thereof or of any other country or jurisdiction providing for the
reorganization, winding-up or liquidation of corporations or an arrangement,
composition, extension or adjustment with creditors; or
F. a court of competent jurisdiction shall enter an order for relief
which is not stayed within 60 days from the date of entry thereof against the
Company or any Subsidiary under Title 11 of the United States Code, as now
constituted or hereafter amended; or there shall be entered an order, judgment
or decree by operation of law or by a court having jurisdiction in the premises
which is not stayed within 60 days from the date of entry thereof adjudging the
Company or any Subsidiary a bankrupt or insolvent, or ordering relief against
the Company or any Subsidiary, or approving as properly filed a petition seeking
relief against the Company or any Subsidiary, under the provisions of any other
now existing or future bankruptcy, insolvency or other similar law of the United
States of America or any State thereof or of any other country or jurisdiction
providing for the reorganization, winding-up or liquidation of corporations or
an arrangement, composition, extension or adjustment with creditors, or
appointing a receiver, liquidator, assignee, sequestrator, trustee, custodian or
similar official of the Company or any Subsidiary or of any
19
<PAGE> 23
substantial part of its property, or ordering the reorganization, winding-up or
liquidation of its affairs; or any involuntary petition against the Company or
any Subsidiary seeking any of the relief specified in this clause shall not be
dismissed within 60 days of its filing; or
G. the Company or any Subsidiary shall make a general assignment for
the benefit of its creditors; or the Company or any Subsidiary shall consent to
the appointment of or taking possession by a receiver, liquidator, assignee,
sequestrator, trustee, custodian or similar official of the Company or such
Subsidiary or of all or any substantial part of its property; or the Company or
any Subsidiary shall have admitted to its insolvency or inability to pay, or
shall have failed to pay, its debts generally as such debts become due; or the
Company or any Subsidiary or its directors or majority members shall take any
action to dissolve or liquidate the Company or such Subsidiary (other than as
contemplated by Section 8.5A); or
H. the rendering against the Company or a Subsidiary of a final
non-appealable judgment, decree or order for the payment of money in excess of
$10,000 and the continuance of such judgment, decree or order unsatisfied and in
effect for any period of 60 consecutive days without a stay of execution; or
I. the Company or any Subsidiary shall (1) engage in any non-exempted
"prohibited transaction," as defined in Sections 406 and 408 of ERISA and
Section 4975 of the Internal Revenue Code of 1986, as amended, (2) incur any
"accumulated funding deficiency," as defined in Section 302 of ERISA, in an
amount in excess of $10,000, whether or not waived, or (3) terminate or permit
the termination of an "employee pension benefit plan," as defined in Section 3
of ERISA, in a manner which could result in the imposition of a Lien on any
property of the Company or such Subsidiary pursuant to Section 4068 of ERISA
securing an amount in excess of $10,000; or
J. any representation or warranty made by the Company in Section 2
hereof or in any Collateral Document or in any certificate or instrument
furnished in connection therewith shall prove to have been false or misleading
in any respect as of the date made; or
K. the dissolution of the Company, whether by operation of law or
otherwise;
then an amount equal to the Prepayment Price, computed as provided in Section
6.2 (except that, for purposes of such computation, the Prepayment Date shall be
deemed to be the date upon which the holder of the Note shall have declared the
Note to be due and payable), shall immediately become due and payable without
notice or demand, together with accrued interest thereon at the Overdue Interest
Rate, provided, however, that upon the occurrence of an Event of Default
described in clauses (E), (F) or (G) of this Section 10.1, the entire
outstanding principal amount of the Note, together with accrued interest thereon
at the Overdue Interest Rate, shall immediately become due and payable without
notice or demand.
The Company hereby expressly acknowledges and agrees (i) that the
prepayment premium provided for herein is reasonable, (ii) that legal counsel of
the Company's own choosing has advised the Company with respect to such
prepayment premium, (iii) that any prepayment made at a time when it is
otherwise restricted under the Note will result in material loss and damage to
the holder of the Note, requiring such holder to secure reinvestments at
additional costs which might not produce the same economic benefit to such
holder as the economic benefits under the Note, (iv) that the foregoing
prepayment premium is a reasonable estimate of such loss and damage, and (v) the
Company shall be estopped hereafter from claiming differently as to any of the
foregoing. The foregoing prepayment premium is not intended to be a penalty, but
instead shall serve as liquidated damages to provide you with the benefit of
your bargain.
10.2. Suits for Enforcement. In case an Event of Default shall occur
and be continuing, the holder of the Note may proceed to protect and enforce its
rights by suit in equity, action at law or other appropriate proceeding, whether
for the specific performance of any covenant contained in the Note or in this
20
<PAGE> 24
Agreement or in any Collateral Document or in aid of the exercise of any power
granted in the Note or in this Agreement or in any Collateral Document or may
proceed to enforce the payment of the Note or to enforce any other legal or
equitable right of the holder of the Note. The Company agrees that its
obligations under Section 6 are of the essence of this Agreement, and upon
application to any court of equity having jurisdiction in the premises, the
original holder of the Note shall be entitled to a decree against the Company
requiring specific performance of such obligations.
10.3. Remedies Not Waived. No course of dealing between the holder of
the Note and the Company or any delay or failure on the part of the holder in
exercising any rights under the Note or under any Collateral Document or
hereunder shall operate as a waiver of any rights of such holder.
10.4. Remedies Cumulative. No remedy herein or in the Note or in any
Collateral Document conferred upon the holder of the Note is intended to be
exclusive of any other remedy and each and every remedy shall be in addition to
every other remedy given hereunder or under the Note or under any Collateral
Document or now or hereafter existing at law or in equity or by statute or
otherwise.
10.5. Costs and Expenses. The Company shall pay to the holder of the
Note, to the extent permitted under applicable law, all reasonable out-of-pocket
expenses incurred by such holder as shall be sufficient to cover the cost and
expense of enforcing such holder's rights under the Note and any Collateral
Document or the collecting and foreclosing upon, or otherwise dealing with, the
Collateral, or participating in any litigation or bankruptcy proceeding for the
protection or enforcement of the holder's collateral or claim against the
Company or any guarantors of the Note or otherwise incurred in connection with
the occurrence of an Event of Default, said expenses to include reasonable
compensation to the attorneys and counsel of such holder for any services
rendered in that connection, upon the Note held by such holder.
SECTION 11. MISCELLANEOUS.
11.1. Loss, Theft, Destruction or Mutilation of Note. Upon notice to
the Company of the loss, theft, destruction or mutilation of the Note, the
Company will make and deliver, in lieu thereof, a replacement note, identical in
form and substance to the Note and dated as of the date of the Note and upon
such execution and delivery all references in any of the Collateral Documents to
the Note shall be deemed to refer to such replacement note.
11.2. Expenses. Whether or not the loan herein contemplated shall be
consummated, the Company shall pay you the total amount of $20,000.00 as a
non-refundable processing fee, all of which has been previously paid to you and
the Company shall pay all costs of executing and closing this Agreement and the
Collateral Documents, including, without limitation, attorneys' fees, survey
costs, appraisal fees, title insurance and related expenses, and environmental
audit reviews and related expenses. The Company's obligations under this Section
11.2 shall survive the payment or prepayment of the Note.
11.3. Stamp Taxes, Recording Fees, etc. The Company will pay, and save
you and any subsequent holder of the Note harmless against, any and all
liability (including any interest or penalty for non-payment or delay in
payment) with respect to stamp and other taxes (other than any such stamp or
other taxes incurred upon a transfer of the Note by you), if any, and all
recording and filing fees which may be payable or determined to be payable in
connection with the transactions contemplated by this Agreement and the
Collateral Documents, including, without limitation, the issuance and delivery
of the Note, the execution, delivery, filing and recording of the Collateral
Documents and financing statements related thereto, or any modification,
amendment or alteration thereof. The obligations of the Company under this
Section 11.3 shall survive the payment or prepayment of the Note.
11.4. Successors and Assigns. All covenants, agreements,
representations and warranties made herein, in the Collateral Documents and in
the Note or in certificates delivered in connection herewith by or
21
<PAGE> 25
on behalf of the Company shall survive the issuance and delivery of the Note to
you, the making of the loan by you as provided in Section 1.2, and shall bind
the successors and assigns of the Company, whether so expressed or not, and all
such covenants, agreements, representations and warranties shall inure to the
benefit of your successors and assigns, including any subsequent holder of any
of the Note.
11.5. Payment. Notwithstanding any provision to the contrary in the
Note contained, the Company will promptly and punctually pay to you by wire
transfer of immediately available funds pursuant to wiring instructions from
you, or at your request, by check mailed (not later than three days prior to the
date any payment is due) to Metropolitan Life Insurance Company, Agricultural
Investments, Box 27-131, Kansas City, Missouri 64180-0131 or by such other
method or to such other address as may be designated in writing by you, all
amounts payable in respect of the principal of, prepayment premium, if any, and
interest on, the Note, without any presentment thereof and without any notation
of such payment being made thereon.
11.6. Notices. All communications provided for hereunder, under the
Collateral Documents or under the Note (other than payments in respect thereof
which shall be made in accordance with Section 11.5) shall be in writing, and if
to you, mailed (by registered or certified mail, with return receipt requested,
postage prepaid, or by United States Express Mail or other comparable overnight
courier service) or served in person addressed as this Agreement is addressed
with a copy to: Metropolitan Life Insurance Company, Agricultural Investments,
2203 E. Empire Street, Bloomington, Illinois 61704, Attention: Regional Manager
or if to the Company, mailed (by registered or certified mail, with return
receipt requested, postage prepaid, or by United States Express Mail or other
comparable overnight courier service) or served in person to United Foods, Inc.,
Ten Pictsweet Drive, Bells, Tennessee 38006-0119, Attention: President, or
addressed to either party at any other address in the United States of America
that such party may hereafter designate by written notice to the other party.
Communications mailed as aforesaid shall be deemed sufficiently made upon
receipt or refusal to accept delivery as indicated in the return receipt or in
the receipt of such United States Express Mail or courier service.
11.7. Severability. If any provision of this Agreement or the Note or
the application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the Note and
the application of such provision to other persons or circumstances shall not be
affected thereby and shall be enforced to the maximum extent permitted by law.
11.8. Law Governing; Modification. This Agreement shall be construed in
accordance with and governed by laws of the State of Georgia. No provision of
this Agreement may be waived, changed or modified, or the discharge thereof
acknowledged, orally, but only by an agreement in writing signed by the party
against whom the enforcement of any waiver, change, modification or discharge is
sought.
11.9. Headings. The headings of the sections and subsections of this
Agreement are inserted for convenience only and do not constitute part of this
Agreement.
11.10. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
11.11. FINAL CREDIT AGREEMENT. THIS WRITTEN AGREEMENT, THE NOTE AND THE
COLLATERAL DOCUMENTS ARE THE FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN
THE COMPANY AND YOU AND MAY NOT BE CONTRADICTED AS EVIDENCE OF ANY PRIOR OR
CONTEMPORANEOUS ORAL AGREEMENT BETWEEN THE COMPANY AND YOU. THE COMPANY AND YOU
HEREBY AFFIRM THAT THERE IS NO UNWRITTEN ORAL CREDIT AGREEMENT BETWEEN THE
COMPANY AND YOU WITH RESPECT TO THE SUBJECT MATTER OF THIS WRITTEN CREDIT
AGREEMENT, THE NOTE, THE COLLATERAL DOCUMENTS, AND ANY RELATED LOAN DOCUMENTS.
22
<PAGE> 26
If the foregoing is satisfactory to you, please sign the form of
acceptance on the enclosed counterpart of this letter agreement and forward the
same to the Company, whereupon this letter agreement will become a binding
agreement between you and the Company as of the date first above written.
Yours very truly,
UNITED FOODS, INC.
By: /s/ Carl W. Gruenewald, II
-------------------------------------
Carl W. Gruenewald
Its Senior Vice President - Finance
ATTEST:
By: /s/ Bradley J. Strange
------------------------------
Bradley J. Strange
Its Assistant Secretary
The foregoing agreement is hereby accepted
as of the date first above written.
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ Daniel A. O'Neill
-------------------------------
Its: Assistant Vice President
------------------------------
23
<PAGE> 27
EXHIBIT "A"
UNITED FOODS, INC.,
a Delaware corporation
Secured Promissory Note
Due June 1, 2009
Bells, Tennessee
, 1999
United Foods, Inc., a corporation duly organized and existing under
the laws of the State of Delaware (herein called the "Company"), for value
received, hereby promises to pay to Metropolitan Life Insurance Company
("Metropolitan"), or assigns, on June 1, 2009 the principal amount of Four
Million and No/100 Dollars ($4,000,000.00) or so much thereof as shall not have
been theretofore paid by mandatory principal payments and optional prepayments
as required in the Agreement (as hereinafter defined) in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for public and private debts, at the address provided in Section 11.6 of the
Agreement, and to pay interest only (computed on the basis of a 360-day year) at
said address, in like coin or currency, on the unpaid portion of said principal
amount from the date hereof, on the first day of the first full month subsequent
to the Closing Date, and thereafter, as combined with monthly principal
payments, as provided in the Agreement, on the first day of each month,
commencing on the first day of the second full month following the Closing Date,
in each event at the rate of 7.56% per annum, until such unpaid portion of such
principal amount shall have become due and payable and at the Overdue Interest
Rate (as defined in the Agreement) thereafter and, so far as may be lawful, on
any overdue installment of interest at such Overdue Interest Rate.
This Note (herein called the "Note") is issued pursuant to and entitled
to the benefits of the Loan Agreement, dated of even date herewith, between the
Company and Metropolitan (herein called the "Agreement"), the terms and
provisions of which are hereby incorporated by reference and made a part of the
terms of this Note. The Note is secured by and entitled to the benefits of (i) a
first Deed of Trust and Security Agreement, dated of even date herewith, made by
the Company, as grantor, (ii) a separate Security Agreement, dated of even date
herewith, between the Company, as debtor, and Metropolitan, as secured party,
and (iii) an Assignment of Rents and Leases, dated of even date herewith, made
by the Company, as assignor, to each of which reference is hereby made for a
description of the collateral or obligations covered thereby and the rights and
benefits afforded thereby to the holder of the Note.
This Note is subject to mandatory principal payments and optional
prepayment as provided in the Agreement. The unpaid principal balance and all
other amounts owing under this Note may be declared to be due and payable upon
the happening of an Event of Default or Change of Control Date as defined in the
Agreement.
In the event this Note or any of the instruments referred to herein are
placed in the hands of an attorney or attorneys for collection or enforcement or
if the holder of the Note is required to obtain attorneys and incur expenses and
attorney fees by reason of litigation or participation in bankruptcy proceedings
for the protection or enforcement of its collateral and claim against the
Company or any guarantors of this Note, then in all such cases, the holder of
the Note shall be entitled to reasonable attorney fees and expenses from the
Company.
The Company waives diligence, demand, presentment, notice of nonpayment
and protest, and consents to extensions of the time of payment, surrender or
substitution of security, or forbearance, or other indulgence, without notice.
This Note shall be construed in accordance with and governed by the
laws of the State of Georgia.
<PAGE> 28
IN WITNESS WHEREOF, UNITED FOODS, INC. has caused this Note to be
signed in its corporate name by one or more of its officers thereunto duly
authorized, and to be dated as of the day and year first above written.
UNITED FOODS, INC.
By:
-------------------------------------
Carl W. Gruenewald
Its: Senior Vice President - Finance
ATTEST:
By:
------------------------------
Bradley J. Strange
Its: Assistant Secretary
Page 2 of 2
<PAGE> 29
EXHIBIT B
Liens
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
MAY 31, 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Northwestern Mutual Life Insurance Company mortgage on the Bells, TN plant and equipment 13,393,876
- --------------------------------------------------------------------------------------------------------------------
2. Monumental Life Insurance Company mortgage on all Mushrooms Farms Division assets located
in Fillmore, UT, Salem, OR, and Ventura, CA 14,721,715
- --------------------------------------------------------------------------------------------------------------------
3. Monumental Life Insurance Company mortgage on the Santa Maria, CA plant and equipment 9,867,971
- --------------------------------------------------------------------------------------------------------------------
4. Metropolitan Life Insurance Company mortgage on the Ogden, UT plant and equipment 5,518,247
- --------------------------------------------------------------------------------------------------------------------
5. First American National Bank security interest in all inventory and receivables of the
Frozen Foods Division --
- --------------------------------------------------------------------------------------------------------------------
6. General Electric Capital Corporation security interest in aircraft 5,400,000
- --------------------------------------------------------------------------------------------------------------------
7. General Electric Capital Corporation security interest in certain rolling and similar equipment 3,567,879
- --------------------------------------------------------------------------------------------------------------------
8. Estate of C.T. Chambers - lien on property purchased in Crockett County, TN (house and lot) 8,532
- --------------------------------------------------------------------------------------------------------------------
9. Payables subject to warehouseman's liens 183,752
- --------------------------------------------------------------------------------------------------------------------
10. Grower payables 1,576,230
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
EXHIBIT C
Tankersley Family; Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Last Name First Name Address City State Zip
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tankersley James I. 241 North High Street Bells TN 38006
- --------------------------------------------------------------------------------------------------------------------
Tankersley Edna W. 241 North High Street Bells TN 38006
- --------------------------------------------------------------------------------------------------------------------
Darnall Darla T. 88 North Weddle Street Bells TN 38006
- --------------------------------------------------------------------------------------------------------------------
Northern Kelle T. 219 Jaycee Drive, Ext. Bells TN 38006
- --------------------------------------------------------------------------------------------------------------------
Tankersley James W. 59 Jaycee Cove Bells TN 38006
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 31
SECURITY AGREEMENT
THIS AGREEMENT, made and entered into this 8th day of July, 1999, by
and between UNITED FOODS, INC., a Delaware corporation, ("Debtor"), and
METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation ("Secured Party");
W I T N E S S E T H:
WHEREAS, Debtor owns, in fee simple, certain real property in the
Counties of Crockett, Dyer, and Obion, Tennessee, more particularly described in
Exhibit "A" attached hereto and by this reference made a part hereof (the
"Land"), and Debtor owns all buildings, structures and other improvements and
property constructed or located thereon (the Land and said buildings, structures
and other improvements are hereinafter collectively referred to as the
"Facility"); and
WHEREAS, Secured Party has agreed to make a loan (the "Loan") to Debtor
in the amount of Four Million and No/100 Dollars ($4,000,000.00); and
WHEREAS, the Loan is evidenced by a Secured Promissory Note of even
date herewith in the principal amount of Four Million and No/100 Dollars
($4,000,000.00) made by Debtor and payable to Secured Party (said instrument,
and any instrument issued in substitution or exchange therefor, as any of the
foregoing may be amended, modified or supplemented from time to time hereafter,
is hereinafter called the "Note") as further evidenced by a Loan Agreement of
even date herewith (the "Loan Agreement") and as secured by a first Deed of
Trust and Security Agreement of even date herewith (said document, as the same
may be amended, modified or supplemented from time to time hereafter, is
hereinafter called the "Deed of Trust"), and as secured by an Assignment of
Rents and Leases of even date herewith (said document, as the same may be
amended, modified or supplemented from time to time hereafter, is hereinafter
collectively called the "Assignment"); and certain other related documents
evidencing or securing said indebtedness called the "Deed of Trust"); and
WHEREAS, Secured Party requires, as a condition precedent to its making
the Loan, that Debtor enter into this Agreement to provide further security for
the Note;
NOW, THEREFORE, in consideration of the foregoing and as an inducement
to Secured Party to make the Loan, Debtor hereby agrees as follows:
1. Debtor hereby grants to Secured Party, its successors and assigns, a
continuing security interest in the following described property of Debtor, now
owned or hereafter acquired (hereinafter collectively called the "Collateral"):
all apparatus, furnishings, furniture, fixtures, machinery, equipment,
appliances, systems and building materials and articles of tangible
property now owned or hereafter acquired by Debtor, including, without
limitation,
(a) any and all machinery, motors, elevators, boilers,
equipment (including, without limitation, all equipment for the
generation or distribution of air, water, heat, electricity, light,
fuel or refrigeration or for ventilating or air conditioning purposes
or for sanitary or drainage purposes or for the removal of dust, refuse
or garbage), partitions, appliances, furniture, furnishings, building
service equipment, building materials, awnings, window shades, venetian
blinds, drapes and drapery rods and brackets, screens, carpeting and
other floor coverings, lobby furnishings, incinerators;
<PAGE> 32
(b) decorations, video and sound equipment, signs, furnaces,
radiators, heaters, steam boilers, hot water boilers, oil burners,
pipes, heating and electrical equipment and appliances, fans,
thermostats, disposals, refrigerators, ice boxes, carpeting, rugs,
floor coverings, draperies, shades, awnings, mirrors, gas and
electrical light fixtures, screens, screen doors, blinds, basins,
faucets, pipes, water heaters, wiring, sprinkler systems, elevators,
motors, dynamos, cabinets, incinerators, lawn plants and shrubbery,
canopies, signs, speaker boxes, cash registers, machinery, appliances,
tools, gas and electric fixtures, transformers and related transmission
and safety facilities, water softening equipment, plumbing and heating
fixtures and systems, air-conditioning and ventilation apparatus and
systems, fire protection systems;
(c) all apparatus, fixtures, equipment, machinery, furniture,
furnishings, appliances, systems, building materials, and articles of
tangible personal property related to or used in the operation of a
crop storage facility and/or farming operations on the Land, including,
without limitation, storage bins, auger machines, ventilation fans,
conveyors, towers, elevators, distribution boxes, platforms, ladders,
receivers, tanks, cleaning equipment, cleaning screens, aspirators,
trash bins, loaders, unloaders, metal buildings, scales, truck scales,
office equipment and furnishings, electrical power and lighting
systems, water supply facilities, septic tanks and disposal facilities;
(d) all gas and electric fixtures and systems, plumbing and
heating fixtures and systems, heating, cooling and refrigeration
fixtures and systems, air conditioning apparatus and systems, fire
safety equipment and systems, environmental protection systems and
equipment, signs, carpeting and other floor coverings, ranges,
refrigerators, washers, dryers, water heaters, radiators, heaters,
engines, machinery, boilers, electrical transformers and related
transmission and safety facilities, meters, elevators, conveyors,
motors, cooling tanks, water systems, well systems, sump pumps, septic
tank and waste disposal systems, hoists, heaters and meters;
(e) seed and grain drying, storage and handling systems and
facilities, silos, bins, scales, blowers, dryers, fans, quonsets,
dumps, scale houses, receiving pits, grain legs, doors, catwalks, down
spouting, ramps, receiving houses, manlifts, ladders, hoppers, pit
screws, electrical panels, reclaim drags, towers, hammer mills,
crackers, hullers, vaporizers, mash and pellet legs, pellet mills, poly
tanks, separators, temperature and humidity monitors, bind sweeps, hot
spot detectors, tunnels, platforms, cleaners, blenders, valves, piping,
heaters, pumps, tanks, silos, binds, scales, elevators, conveyors,
motors;
(f) fertilizer and chemical handling, blending and storage
systems and facilities, storage tanks, liquid storage units, anhydrous
ammonia tanks, bulk chemical tanks, liquid mix plants, blenders, tanks,
meters, augers, docks;
(g) petroleum storage and handling systems, bulk petroleum
tanks, fuel tanks, fuel pumping and metering equipment;
(h) feed plant, including milling, storage, grading and
blending equipment;
(i) irrigation systems and equipment, pumps, pipes,
connections, electrical boxes, meters, engines, fuel tanks, dynamos,
gearheads;
(j) railroad track and related equipment and fixtures,
switches, ties, signs, fences;
(k) unloading barges, cranes, scoops, conveyors, unloaders and
related systems and equipment; and
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<PAGE> 33
(l) office furniture consisting of desks, chairs, file
cabinets, tables, sofas, credenzas and similar items;
(m) all irrigation pumps, electric motors, engines, pipes,
sprinklers, control panels, accessories and accessions, and all other
irrigation equipment connected therewith now or hereafter placed or
installed, together with all water and watering rights of every kind
and description, on the Land described herein; and that Debtor
covenants and agrees that all irrigation pumps, electric motors,
engines, pipes, sprinklers, control panels, accessories and accessions,
and all other irrigation equipment together with all water and watering
rights of every kind and description, and all improvements, fixtures
and appurtenances connected therewith now or hereafter placed or
installed on said Land shall be construed as affixed to and a part of
the Land described herein and subject to all of the provisions of this
Security Agreement;
which are or shall be attached to said buildings, structures or improvements, or
which are or shall be located in, on or about the Land, or which, wherever
located (including, without limitation, in warehouse or other storage facilities
or in the possession of or on the premises of vendors or manufacturers thereof),
are used or intended to be used in or in connection with the construction,
fixturing, equipping, furnishing, use, transportation of personal property to or
from, operation or enjoyment of the Land or the improvements thereon, and all
permits, licenses, franchises, contract rights, warehouse agreements and
leasehold interests, now or hereafter owned by Debtor and relating to the
ownership, use, operation or enjoyment of the Land, the improvements thereon,
and the fixtures, equipment and personal property described above, provided,
however, the Collateral shall not be construed to include growing crops, stored
product, raw product, inventories of food, food components or packaging
materials, equipment which is used solely for farming operations such as
tractors, cultivators and similar equipment (provided, however, that such
exclusion shall not cover irrigation equipment, it being the intent hereof that
irrigation equipment shall be part of the Collateral), rolling stock, forklifts,
forklift trucks and batteries and battery chargers used therewith, pallets,
office equipment consisting of fax machines, copiers, telephone systems,
typewriters, office computer hardware and software, licensed vehicles and
accounts receivables arising in the ordinary course of business from the sale of
inventories of food or food products or from the provision of any services
related thereto nor from royalties arising from the sale or use of brands or
trademarks relating to such inventories of food or food products; and also
including all extensions, additions, improvements, betterments, renewals,
replacements, proceeds, accessions, products and substitutions of any of the
foregoing, together with the benefit of any deposits or payments now or
hereafter made by Debtor or on its behalf in connection with any of the
foregoing, including without limitation, the items described on Exhibit "B"
attached hereto and incorporated herein by this reference, to secure the
following obligations (hereinafter collectively called the "Obligations"):
(i) The payment of the principal of, interest and premiums on,
and the performance of all covenants, agreements, liabilities and obligations of
Debtor, under the Note, the Deed of Trust, the Loan Agreement, the Assignment,
and all other obligations of Debtor, under any other instrument given to secure
the Note and any and all extensions and renewals thereof; and
(ii) Any and all covenants, agreements, liabilities and
obligations of Debtor, to Secured Party, its successors and assigns, provided
for or arising under this Agreement; and
(iii) All costs and expenses of collection, legal expenses and
attorneys' fees incurred by Secured Party, its successors and assigns, in the
enforcement of the rights of Secured Party hereunder or in any litigation or
bankruptcy proceeding for the protection of Secured Party's collateral and claim
against Debtor.
2. Debtor hereby covenants and warrants to Secured Party, its
successors and assigns, as follows:
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<PAGE> 34
(a) Upon notice given by Secured Party from time to time,
Debtor shall prepare and deliver to Secured Party a full inventory listing, as
of the date such notice is given, all items then constituting the Collateral and
such other information as Secured Party may request with respect to purchases or
sales or other acquisitions or dispositions of the Collateral. Each such
inventory shall be certified as being true, complete and correct by a duly
authorized representative of Debtor. Unless Secured Party agrees otherwise, in
writing, all Collateral will be kept at the Facility.
(b) Except for the security interest granted hereunder, Debtor
is and will be at all times the sole owner of the Collateral free (except to the
extent permitted under Paragraph 1.03 of the Deed of Trust and Section 8.7A of
the Loan Agreement) from any lien, security interest, pledge or encumbrance, and
no person other than Secured Party has or (except to the extent permitted under
Paragraph 1.03 of the Deed of Trust and Section 8.7A of the Loan Agreement) will
have any security interest or lien upon any of the Collateral, and that other
than for such exceptions permitted under Paragraph 1.03 of the Deed of Trust and
Section 8.7A of the Loan Agreement, Debtor will defend the Collateral against
all claims and demands of all persons at any time claiming the same or any
interest therein.
(c) Except for the financing statement to be filed pursuant to
this Agreement or any other financing statements running for the benefit of
Secured Party, no financing statement or other acknowledgment of lien covering
any Collateral or any proceeds thereof is on file in any public office. Debtor
shall immediately give Secured Party notice in writing of any change in its
address from that shown in this Agreement, shall also upon demand execute and
deliver to Secured Party such financing statements, assignments, and other
documents in form satisfactory to Secured Party, and do all such further acts
and things as Secured Party may at any time and from time to time reasonably
request or as may be necessary or appropriate to establish and maintain a valid
perfected security interest in the Collateral as security for the Obligations,
free of any liens, claims or encumbrances except as may be permitted under
Section 8.7A of the Loan Agreement, and Debtor will pay the cost of filing or
recording the same or filing or recording this Agreement in all public offices
wherever filing or recording is deemed by Secured Party to be necessary or
desirable. Without limitation of the foregoing, Debtor will execute and endorse
such documents, certificates or forms as may be necessary or appropriate in
order that the security interest of Secured Party hereunder may be noted by the
proper authorities upon any certificate to title thereto, if any, and will
deliver or cause to be delivered to Secured Party any and all such documents or
certificates of title relating to such Collateral.
(d) Except to the extent specifically permitted under Section
8.7B of the Loan Agreement, Debtor will not sell or offer to sell, assign,
pledge, lease or otherwise transfer or encumber the Collateral, or any interest
therein, without the prior written consent of Secured Party.
(e) Debtor will maintain or cause to be maintained insurance
at all times with respect to the Collateral, in such form, with such companies,
in such amounts and against such risks as Secured Party may request, such
insurance to be payable to Secured Party and Debtor as their interests may
appear. All such policies of insurance shall contain in favor of Secured Party,
the New York Standard Non-Contributory Mortgagee Clause, or its equivalent, and
provide for a minimum of thirty (30) days' prior written notice of cancellation
or amendment to Secured Party. Debtor shall furnish Secured Party with
certificates or other evidence satisfactory to Secured Party showing compliance
with the foregoing provisions and, if required by Secured Party, shall deposit
the policies with Secured Party.
(f) Except for the security interest granted hereunder and
under the Deed of Trust or any other security interest of Secured Party in the
Collateral, Debtor will keep all Collateral free (except to the extent permitted
under Paragraph 1.03 of the Deed of Trust and Section 8.7A of the Loan
Agreement) from any lien, security interest or encumbrance and in good order and
repair (ordinary wear
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<PAGE> 35
and tear excepted) and will not waste or destroy (or suffer or permit the waste
or destruction of) the Collateral or any part thereof; Debtor will not knowingly
use (or suffer or permit the use of) the Collateral in violation of any statute,
ordinance or policy of insurance thereon; and Secured Party may examine and
inspect the Collateral at any reasonable time or times, wherever located.
(g) Debtor will pay or cause to be paid promptly when due all
taxes, assessments and other impositions levied upon the Collateral or for its
use or operation or upon this Agreement.
(h) Debtor shall pay all costs and expenses of collection,
legal expenses and reasonable attorneys' fees incurred by Secured Party, its
successors and assigns, to establish, perfect, secure and enforce the security
interest purported to be created hereby and the costs and expenses of appearing
in or defending any action or proceeding arising under, growing out of or in any
manner connected with this Security Agreement or the obligations, duties or
liabilities of Debtor or Secured Party hereunder, including but not limited to,
bankruptcy proceedings.
3. At its option, Secured Party may discharge taxes, liens, security
interests or other encumbrances at any time affecting the Collateral and may pay
for the maintenance, repair and preservation of the Collateral. Further, Secured
Party, at its option and without notice to Debtor, may place and pay for
insurance on the Collateral upon failure by Debtor to provide insurance
satisfactory to Secured Party as provided by this Agreement. To the extent
permitted by applicable law and without limitation of any other rights and
remedies it may have, Secured Party shall be entitled to immediate reimbursement
from Debtor for any payment made or any expense incurred by Secured Party
pursuant to the foregoing authorizations, together with interest thereon at the
default rate of interest under the Note from the date paid or incurred, as the
case may be, until reimbursement by Debtor. Until Default (as hereinafter
defined), Debtor may have the possession of the Collateral and may use same in
the operation of the Facility in any lawful manner not inconsistent with this
Agreement and not inconsistent with any policy of insurance thereon.
4. The occurrence of any of the following events or conditions shall
constitute a "Default" under this Agreement:
(a) An Event of Default under the Note, the Deed of Trust, the
Loan Agreement, the Assignment, or any default under the terms of any other
instrument evidencing or securing the indebtedness secured by the Deed of Trust,
which default shall continue after any period for curing such default applicable
thereto contained in such document or instrument.
(b) Default in the performance by Debtor of any of the other
Obligations or of any other covenants, agreements, or obligations contained or
referred to herein or in any of such other Obligations to be performed by
Debtor, and such default shall continue for a period of thirty days after notice
from Secured Party.
(c) Sale, transfer or encumbrance of any of the Collateral,
except as provided in Paragraph 1.03 of the Deed of Trust or Sections 8.7A or
8.7B of the Loan Agreement or in accordance with the terms of this Agreement, or
the making of any levy, seizure or attachment thereof or thereon.
5. If a Default shall occur hereunder and be continuing at any time
thereafter (such Default not having been previously cured), Secured Party shall
have all the remedies of a secured party under the Uniform Commercial Code and
all other rights and remedies now or hereafter provided or permitted by law,
including, without limitation, the right to take immediate and exclusive
possession of the Collateral, or any part thereof, and for that purpose Secured
Party may, as far as Debtor can give authority therefor, with or without
judicial process, enter (if this can be done without breach of the peace) upon
the Land or any other premises on which the Collateral or any part thereof may
be situated. Without limitation of the
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<PAGE> 36
foregoing, Secured Party shall be entitled to hold, maintain, preserve and
prepare all of the Collateral for sale and to dispose of said Collateral, if
Secured Party so chooses, from the Facility provided that Secured Party may
require Debtor to assemble such Collateral and make it available to Secured
Party for disposition at a place to be designated by Secured Party (which may be
other than the Facility) from which the Collateral would be sold or disposed of,
and provided further that for a reasonable period of time prior to the
disposition of such Collateral Secured Party shall have the right to use same in
the operation of the Facility. Debtor will execute and deliver to Secured Party
any and all forms, documents, certificates and registrations as may be necessary
or appropriate to enable Secured Party to sell and deliver good and clear title
to the Collateral to the buyer at the sale as herein provided. Unless the
Collateral is of the type customarily sold on a recognized market, Secured Party
will give Debtor at least ten (10) days' notice of the time and place of any
public sale of such Collateral or of the time after which any private sale or
any other intended disposition thereof is to be made. The requirements of
reasonable notice shall be met if such notice is given to Debtor at least ten
(10) days before the time of the sale or disposition. Secured Party may buy at
any public sale and, if the Collateral is of a type customarily sold in a
recognized market or is a type which is the subject of widely distributed
standard price quotations, it may buy at private sale. Unless Secured Party
shall otherwise elect, any sale of the Collateral shall be solely as a unit and
not in separate lots or parcels, it being expressly agreed, however, that
Secured Party shall have the absolute right to dispose of such Collateral in
separate lots or parcels. Secured Party shall further have the absolute right to
elect to sell the Collateral as a unit with, and not separately from, the Land
and the Facility. The net proceeds realized upon any disposition of the
Collateral, after deduction for the expenses of retaking, holding, preparing for
sale, selling and the like and the attorneys' fees and legal expenses incurred
by Secured Party shall be applied towards satisfaction of such of the
Obligations secured hereby, and in such order of application, as Secured Party
may elect. If all of the Obligations are satisfied, Secured Party will account
to Debtor for any surplus realized on such disposition.
6. No waiver by Secured Party of any Default hereunder shall operate as
a waiver of any other Default or of the same Default on a future occasion. The
remedies of Secured Party hereunder are cumulative and the exercise of any one
or more of the remedies provided for herein, under the Uniform Commercial Code
or otherwise, shall not be construed as a waiver of any of the other remedies of
Secured Party so long as any part of the Obligations remains unsatisfied.
7. All rights of Secured Party hereunder shall inure to the benefit of
its successors and assigns; and all obligations of Debtor shall bind its
respective successors and assigns. All rights of Secured Party in, to and under
this Agreement and in and to the Collateral shall pass to and may be exercised
by any assignee thereof. Debtor agrees that if Debtor has knowledge of an
assignment of said rights, the liability of Debtor to the Assignee shall be
immediate and absolute. Debtor will not set up any claim against Secured Party
as a defense, counterclaim or set-off to any action brought by any such assignee
for any amounts due hereunder or for possession of the Collateral.
8. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
9. The terms and provisions contained herein shall, unless the context
otherwise requires, have the meanings and be construed as provided in the
Uniform Commercial Code of the State of Tennessee.
10. Without limitation of the foregoing, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Tennessee.
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<PAGE> 37
11. All notices, demands and requests given or required to be given
hereunder shall be in writing. All such notices, demands and requests by Secured
Party to Debtor shall be deemed to have been properly given if served in person
or if sent by United States registered or certified mail, with return receipt
requested, postage prepaid, or by United State Express Mail or other comparable
overnight courier service, addressed to Debtor at:
United Foods, Inc.
Ten Pictsweet Drive
Bells, Tennessee 38006-0119
Attention: President
or to such other address as the party to be addressed may from time to time
designate by written notice to Secured Party given as herein required. All
notices, demands and requests by Debtor to Secured Party shall be deemed to have
been properly given if served in person or if sent by United States registered
or certified mail, return receipt requested, postage prepaid, or by United
States Express Mail or other comparable overnight courier service, addressed to
Secured Party at:
Metropolitan Life Insurance Company
Agricultural Investments
8717 West 110th Street, Suite 700
Overland Park, Kansas 66210
Attention: Senior Vice-President
with a copy to:
Metropolitan Life Insurance Company
Agricultural Investments
2203 E. Empire Street
Bloomington, Illinois 61704
Attention: Regional Manager
or to such other address as Secured Party may from time to time designate by
written notice to Debtor given as herein required. Notices, demands and requests
given by mail in the manner aforesaid shall be deemed sufficiently served or
given for all purposes hereunder upon receipt or refusal to accept delivery as
indicated on the return receipt or on the receipt of such United States Express
Mail or courier service.
12. Debtor hereby further agrees for itself and for its heirs,
executors, personal representatives, successors and assigns that (a) this
Agreement does not constitute a waiver or partial waiver by Secured Party of any
of its rights under the Deed of Trust and (b) this Agreement does not in any way
release Debtor, as Grantor, from its obligations to comply with every term,
provision, condition, covenant, agreement, representation, warranty and
obligation of the Deed of Trust, and that each of the same remain in full force
and effect and must be complied with by said Mortgagor thereunder.
13. If Debtor consists of more than one person or entity, the liability
of each hereunder shall be joint and several.
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<PAGE> 38
IN WITNESS WHEREOF, this Security Agreement has been executed as of the
day and year first above written.
DEBTOR:
UNITED FOODS, INC.
By: /s/ Carl W. Gruenewald, II
-------------------------------------
Carl W. Gruenewald
Its Senior Vice President - Finance
SECURED PARTY:
METROPOLITAN LIFE INSURANCE COMPANY,
a New York corporation
By: /s/ Daniel A. O'Neill
---------------------------------------
Printed: Daniel A. O'Neill
-----------------------------------
Title: Assistant Vice President
-----------------------------------
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<PAGE> 39
EXHIBIT A
<PAGE> 40
EXHIBIT A TO SECURITY AGREEMENT
CROCKETT COUNTY PROPERTY
Agri-center - Skelton property:
Lying and being in the Fifth Civil District of Crockett County, Tennessee,
to-wit:
BEGINNING at an iron pin in the east margin of Highway 88 (30 feet from the
centerline) and being Stephen's northwest corner as described in Deed Book 90,
page 135 in the Register's Office of Crockett County, Tennessee, runs thence
with the east margin of Highway 88, North 2 degrees 23 minutes 01 seconds West
162.34 feet to a spindle set; thence with the east margin of an entrance ramp
connecting to State Route 20 (U.S. Highway 412), North 29 degrees 10 minutes 12
seconds East 58.31 feet to a mark made in a curb line; thence North 12 degrees
08 minutes 44 seconds East 166.42 feet to an iron pin set; thence North 52
degrees 45 minutes 52 seconds East 160.25 feet to a right of way marker found;
thence North 84 degrees 57 minutes 21 seconds East 60.25 feet to United Foods,
Inc.'s southwest corner as described in Deed Book 101, page 257; runs thence
with the south line of said United Foods, Inc.'s property, South 84 degrees 28
minutes 59 seconds East 455.18 feet to an iron pin set; thence South 88 degrees
13 minutes 35 seconds East 245.53 feet to an iron pin at Gaines' southwest
corner (Deed reference Deed Book 35, page 520); runs thence with Gaines' south
line, South 87 degrees 12 minutes 01 second East 585.91 feet to an iron pin
found in the southern margin of State Route 20 (U.S. Highway 412); runs thence
with the south margin of said highway, South 62 degrees 36 minutes 09 seconds
East 115.80 feet to an iron pin found at Edwards' northwest corner as described
in Deed Book 73, page 322; runs thence with Edwards' west line, South 3 degrees
46 minutes 101 seconds West 440.36 feet to an iron pin found; thence with
Edwards' north line and then with the north line of Rolling Hills Estates as
recorded in Plat Book 2, page 28, and then with Stephen's north line, North 86
degrees 37 minutes 13 seconds West 1604.63 feet to the point of beginning
containing 17.4880 acres as surveyed by Surveying Services, Inc. on June 28,
1999.
Map 75 Parcel 42.00
Being the same property conveyed to United Foods, Inc., a Delaware corporation,
by deed appearing of record in Deed Book 108, page 679, in the Register's Office
of Crockett County, Tennessee.
Webb Farm;
Lying and being in the First Civil District of Crockett County, Tennessee,
to-wit:
BEGINNING at a set PK nail in the centerline of the Lower Bells-Jackson Road at
a northeast corner of the Mrs. Lavelle Ellington property as recorded in Dead
Book 30, page 543, ROCCT, proceed eastwardly along the centerline of Lower
Bells-Jackson Road following an irregular curve to the right having a chord
course of North 84 degrees 31 minutes 10 seconds East for a distance of
1,410.00 feet and a length of 1,428.70 feet as measured along the centerline of
Lower Bells-Jackson
<PAGE> 41
Road to a set PK nail at the northwest corner of the Jimmy E. Webb property as
recorded in Deed Book 91, page 420 & 422, ROCCT, thence South 1 degree 35
minutes 00 seconds East along the west line of said Jimmy E. Webb for a distance
of 498.00 feet to a set iron pin at the southwest corner of said Jimmy E. Webb,
thence South 88 degrees 25 minutes 00 seconds East along the south line of said
Jimmy E. Webb for a distance of 631.28 feet to a set iron pin in the centerline
of Lower Bells-Jackson Road, thence South 1 degree 35 minutes 00 seconds East
along the centerline of Lower Bells-Jackson Road and along a west line of the
James E. Wilkerson property as recorded in Deed Book 75, page 153, ROCCT, for a
distance of 757.34 feet to a set iron pin at a southwest corner of the Wilkerson
property, thence North 88 degrees 25 minutes 00 seconds East along a south line
of said Wilkerson property for a distance of 33.00 feet to the centerline of a
drainage ditch, said ditch being a west line of the Wilkerson property, thence
generally southwardly along the centerline of said ditch for the following
calls: South 2 degrees 28 minutes 00 seconds East for a distance of 1,094.25
feet; South 8 degrees 40 minutes 45 seconds East for a distance of 976.75 feet,
South 5 degrees 09 minutes 50 seconds West for a distance of 1,112.40 feet,
South 5 degrees 09 minutes 20 seconds East for a distance of 1,350.00 feet, and
South 23 degrees 46 minutes 30 seconds West for a distance of 151.10 feet to the
intersection of the centerline of the drainage ditch and the north top bank of
the Forked Deer River, thence North 70 degrees 12 minutes 40 seconds West along
the north top bank of the Forked Deer River for a distance of 1,569.54 feet to a
12 inch Birch at a southeast corner of the aforementioned Ellington property,
thence North 3 degrees 07 minutes 20 seconds East along an east line of said
Ellington property for a distance of 1,523.50 feet to a fence corner at a 18
inch Locust, said fence corner being an interior corner of the Ellington
property, thence North 86 degrees 34 minutes 10 seconds East along a south line
of said Ellington property for a distance of 542.45 feet to a fence corner at a
southeast corner of the Ellington property thence North 4 degrees West for a
distance of 3,032.50 feet to a fence corner at a northeast corner of the
Ellington property, thence South 85 degrees 50 minutes 40 seconds West along a
north line of said Ellington property for a distance of 1,145.10 feet to a set
iron pin at an interior corner of the Ellington property, thence North 4 degrees
09 minutes 20 seconds West along an east line of the Ellington property for a
distance of 726.28 feet to the point of beginning, containing 149.90 acres, more
or less, including but excluding any right-of-way for Lower Bells-Jackson Road.
Map 88 Parcel 100
Being the same property conveyed to United Foods, Inc., by deed appearing of
record in Deed Book 91, page 425, in the Register's Office of Crockett County,
Tennessee.
Gaines Property:
Lying and being in the Fifth Civil District of Crockett County, Tennessee,
to-wit:
BEGINNING at a concrete monument as set in the southeast right-of-way of the L &
N Railroad; the northernmost corner of the tract herein described and being a
corner of Roger Cobb, et al (Deed Book 83, page 534); said concrete monument
being located 50 feet from the centerline of the main tracks of said railroad
and also being located 94 feet southwest of Milepost 307 and runs South 23
2
<PAGE> 42
degrees 33 minutes 26 seconds East 687.37 feet, with the west boundary line of
Cobb and generally with an old fence to a 1-inch iron pipe as found at a wooden
fence corner; thence South 87 degrees 34 minutes 48 seconds East 172.48 feet
with the south boundary line of Cobb and generally with an old fence to an iron
rod as set at a wooden fence corner on the west side of a levee, corner with
Billy N. Webb (Deed Book 84, page 405); thence South 00 degrees 57 minutes 43
seconds East 2310.36 feet with the west boundary line of Webb to an iron rod as
found at a 14-inch elm with old fence on the north bank of the Forked Deer
River; thence with the meanders of said river the following twenty-six courses:
South 77 degrees 16 minutes 45 seconds West, 249.82 feet; thence North 82
degrees 07 minutes 00 seconds West, 354.20 feet; thence South 43 degrees 09
minutes 30 seconds West, 146.55 feet; thence South 26 degrees 53 minutes 09
seconds West, 152.56 feet; thence South 09 degrees 47 minutes 06 seconds West,
124.92 feet; thence South 18 degrees 31 minutes 36 seconds West, 150.34 feet;
thence South 76 degrees 54 minutes 23 seconds West, 114.41 feet; thence North 21
degrees 18 minutes 09 seconds West, 146.08 feet; thence North 09 degrees 03
minutes 01 second East, 236.17 feet; thence North 01 degree 36 minutes 56
seconds East, 187.97 feet; thence North 19 degrees 42 minutes 37 seconds West,
110.12 feet; thence North 86 degrees 19 minutes 24 seconds West, 101.05 feet;
thence South 39 degrees 19 minutes 05 seconds West, 125.63 feet; thence South 34
degrees 50 minutes 44 seconds West, 157.90 feet; thence South 42 degrees 39
minutes 29 seconds West, 211.46 feet; thence South 79 degrees 37 minutes 35
seconds West, 107.90 feet; thence North 71 degrees 16 minutes 07 seconds West,
100.86 feet; thence North 43 degrees 43 minutes 55 seconds West, 373.56 feet;
thence north 78 degrees 34 minutes 49 seconds West, 207.58 feet; thence North 79
degrees 37 minutes 35 seconds West, 215.81 feet; thence South 69 degrees 18
minutes 09 seconds West, 239.25 feet; thence North 89 degrees 35 minutes 30
seconds West 130.47 feet; thence North 43 degrees 12 minutes 22 seconds West,
141.41 feet; thence North 10 degrees 42 minutes 11 seconds West, 171.44 feet;
thence North 31 degrees 06 minutes 43 seconds West, 143.79 feet; thence North 65
degrees 05 minutes 15 seconds West, 132.86 feet to a point in the southeast
right-of-way of the L & N Railroad, said point being located 50 feet from the
centerline of the main tracks; thence North 45 degrees 00 minutes 00 seconds
East 3,498.00 feet with said southeast right-of-way, the point of beginning.
Description from survey of Professional Land Services dated April 13, 1990.
Map 89 Parcel 11.00
Being the same property conveyed to United Foods, Inc., by deed dated April 21,
1990 appearing of record in Deed Book 91, page 519, in the Register's Office of
Crockett County, Tennessee.
3
<PAGE> 43
EXHIBIT A TO SECURITY AGREEMENT
DYER COUNTY PROPERTY
Boals property:
Lying and being in the Tenth Civil District of Dyer County, Tennessee, to-wit:
BEGINNING at the northwest corner of Tract 1 of the United Foods, Inc. property
and the southwest corner of Tract 2 as described in Deed Book 318 Page 208 in
the Register's Office of Dyer County, Tennessee of which is included in the
property being described, said corner also being SIWA's southeast corner (no
reference found) and being in Crockett Creek Drainage Canal; said corner being,
as measured along SIWA's south line, North 86 degrees 19 minutes 09 seconds East
857.64 feet from the intersection of Dummy Line Road; runs thence with SIWA's
east line and Crockett Creek Drainage Canal, North 7 degrees 08 minutes 41
seconds West 1441.74 feet to Boals' southwest corner as described in Will Book
F, Page 402; runs thence with Boals' south line (a metal stake being found on
line at the top bank of said Canal), North 89 degrees 54 minutes 04 seconds East
1499.21 feet to an iron pin, set in Henley's west line as described in Deed Book
328, page 49; runs thence with Henley's west line, South 2 degrees 52 minutes 03
seconds West 1411.31 feet to an iron post, found in United Foods, Inc.'s north
line as described in Deed Book 318 Page 206 of which is also included in the
property being described; runs thence with the north lines of the United Foods,
Inc.'s property as described in Deed Book 318 Page 206 and Deed Book 318 Page
210, North 88 degrees 55 minutes 07 seconds East 805.88 feet to an iron pin, set
in Calcutt's west line as described in Deed Book 263 Page 653; runs thence with
Calcutt's west line and then with Permenter's west line (Deed Book 345 Page
125), South 2 degrees 37 minutes 27 seconds West 3426.80 feet to an iron pin,
set at Permenter's northeast corner as described in Deed Book 95 Page 461; runs
thence with Permenter's north line, South 89 degrees 10 minutes 24 seconds West
920.32 feet to an iron pin, set; thence South 87 degrees 21 minutes 28 seconds
West 462.42 feet to Crockett Creek Drainage Canal and being in Permenter's east
line; runs thence with Permenter's east line and Crockett Creek Drainage Canal,
North 8 degrees 34 minutes 55 seconds West 2197.20 feet to the southwest corner
of the United Foods, Inc.'s property as described in Deed Book 318 Page 208
(Tract 1); thence continuing with Crockett Creek Drainage Canal, North 8 degrees
34 minutes 56 seconds West 1260.51 feet to the point of beginning containing
179.7869 acres as surveyed by Surveying Services, Inc., 41 Heritage Square,
Jackson, Tennessee 38305 (901-664-0807)
Being all of the United Foods, Inc.'s property as described in Deed Book 318
Page 206, Deed Book 318 Page 208 and Deed Book 318 Page 210 in the Register's
Office of Dyer County, Tennessee.
Being all of Map 101, Parcel 21.00, Map 101, Parcel 21.01, Map 101, Parcel 5.01,
and Map 101, Parcel 21.02
1
<PAGE> 44
Tarrant property:
Lying and being in the Twentieth Civil District of Dyer County, and the Ninth
Civil District of Obion County, Tennessee, to-wit;
BEGINNING at an iron pin set in the south margin of Dew Drop Road (30 feet from
the centerline) and being MaGee and Taylor's northeast corner as described in
Deed Book 308, page 799, in the Register's Office of Dyer County, Tennessee,
also being the northwest corner of the Tarrant property as described in Deed
Book 117, page 457, in the Register's Office for Dyer County, Tennessee, of
which this property being described more particularly describes, said corner
also being the southwest corner of the right-of-way property obtained by the
Tennessee Department of Highways (Obion County) as described in Deed Book 14-E,
page 109-113; runs thence with the south margin of Dew Drop Road (the south
margin of said right-of-way property as described above) South 80 degrees 04
minutes 43 seconds East 289.30 feet; thence South 09 degrees 28 minutes 17
seconds West 5.00 feet; thence South 80 degrees 31 minutes 43 seconds East
692.90 feet; thence north 09 degrees 31 minutes 43 seconds East 692.90 feet;
thence North 09 degrees 28 minutes 17 seconds East 5.00 feet; thence South 80
degrees 31 minutes 43 seconds East 611.80 feet; thence South 09 degrees 28
minutes 17 seconds West 10.00 feet; thence South 80 degrees 31 minutes 43
seconds East 100.00 feet; thence North 09 degrees 28 minutes 17 seconds East
10.00 feet; thence South 80 degrees 31 minutes 43 seconds East 300.00 feet;
thence South 09 degrees 28 minutes 17 seconds West 15.00 feet; thence South 80
degrees 31 minutes 43 seconds East 779.00 feet; thence South 36 degrees 55
minutes 17 seconds West 115.00 feet; thence South 46 degrees 04 minutes 43
seconds East 50.00 feet; thence North 43 degrees 55 minutes 17 seconds East
150.00 feet; thence South 80 degrees 31 minutes 43 seconds East intersecting the
centerline of Lane Road at 562.06 feet, and continuing for a total distance of
650.00 feet; thence North 04 degrees 22 minutes 17 seconds East 15.00 feet;
thence South 80 degrees 31 minutes 43 seconds East 550.00 feet; thence South 84
degrees 08 minutes 03 seconds East 450.00 feet to the center of Dew Drop Road;
runs thence with the center of Dew Drop Road South 80 degrees 38 minutes 46
seconds East 2312.01 feet at Lambert's northwest corner as described in Will
Book D, page 401; runs thence with the west line (partial fence line) of
Lambert, an iron pin being set on line at 27 feet, then with Arnold and
continuing with Klyce's west line (Deed Book 150, page 285) South 03 degrees 37
minutes 05 seconds West 3348.71 feet to an iron pin found at Hopper's northeast
corner as described in Deed Book 290, page 54; runs thence with Hopper's north
line (partial fence line) North 87 degrees 33 minutes 28 seconds West 438.46
feet to an iron pipe, found at Lambert's northeast corner as described in Will
Book E, page 486; runs thence with Lambert's north line North 86 degrees 10
minutes 47 seconds West 272.34 feet to a railroad iron found at Hancock's
northeast corner as described in Deed Book 276, page 558; runs thence with
Hancock's north line (partial fence line) North 87 degrees 14 minutes 18 seconds
West 593.58 feet to an iron pin set in the north margin of Lane Road; runs
thence with Hancock's west line (partial fence line) South 02 degrees 53 minutes
50 seconds West 1509.11 feet to a metal stake found; runs thence with Hancock's
north line (partial fence line) and then with Morgan's north line (Will Book e,
page 401) North 87 degrees 04 minutes 37 seconds West 1671.80 feet to a metal
pipe found; runs thence with Morgan's west line South 02 degrees 46 minutes 07
seconds West 850.97 feet to an iron pin set and is believed to be Alford's
northeast corner as described in Deed Book 296,
2
<PAGE> 45
page 257; runs thence with Alford's north line (this line is being based upon
current possession line or the break between crop lines) North 86 degrees 21
minutes 45 seconds West 2881.14 feet to a metal post found; runs thence North 88
degrees 52 minutes 55 seconds West 1452.79 feet to an iron pin set (an existing
PVC pipe being found) in Magee and Taylor's east line; runs thence with said
East line North 07 degrees 47 minutes 03 seconds East 4055.34 feet to an iron
pin set; runs thence (partial fence line) North 08 degrees 31 minutes 44 seconds
East 2442.66 feet to the point of beginning, and containing 879.1361 acres as
surveyed by Surveying Services, Inc., 41 Heritage Square, Jackson, TN 38305, as
shown by plat of survey dated December 21, 1998, made in the name of United
Foods, Inc. (R. Bruce Richardson, Surveyor, with Tennessee License No. 1420).
Map 8, Parcels 3.00 and 3.01, Dyer County, Tennessee
Map 153, Parcels 1.00 and 1.01, Obion County, Tennessee
This property being subject to a roadway easement for Lane Road (easement being
taken as 20 feet on each side of said centerline) and being more particularly
described as follows: BEGINNING at the intersection of the centerline of Lane
Road and being in the south margin of Dew Drop Road as described above; runs
thence with the center of Lane Road as follows, South 33 degrees 43 minutes 05
seconds West 78.85 feet; thence South 40 degrees 38 minutes 51 seconds West
479.09 feet; thence following a curve to the left having a radius of 200.00 feet
for a distance of 120.02 feet; thence South 06 degrees 15 minutes 52 seconds
West 371.63 feet; thence South 07 degrees 44 minutes 52 seconds West 2704.15
feet; thence following a curve to the left having a radius of 75.00 feet for a
distance of 124.95 feet; thence South 87 degrees 42 minutes 31 seconds East
648.90 feet; thence South 86 degrees 52 minutes 57 seconds East passing the
centerline of field entrance at 223.79 feet for a total distance of 1188.87
feet; thence south 86 degrees 35 minutes 08 seconds East 502.16 feet; thence
South 87 degrees 18 minutes 23 seconds East 237.27 feet to the intersection of
the west line of the Hancock property as described above.
This property has a field road leading to the Alford property as described above
and being an ingress and egress easement as recorded in Deed Book 298, page 723;
the centerline of said field road being described as follows: Being a twenty
foot wide easement and the centerline BEGINNING at the intersection of Lane Road
and the center of this field road as described in the Lane Road easement above,
runs thence South 01 degree 38 minutes 56 seconds West 1500.12 feet to a metal
pipe as found at Morgan's northwest corner and being an interior corner of the
property as described above; thence from the said interior corner the easement
is reduced to a width of tan feet parallel to the west line of said Morgan
property and runs thence South 02 degrees 46 minutes 07 seconds West 850.97 feet
to the northeast corner of the Alford tract as described in Deed Book 296, page
257, and being a southeast corner of this 879.1361 acre tract as described
above.
Being the same property conveyed to United Foods, Inc.,.a Delaware corporation,
by deed appearing of record in Deed Book 24R, page 89, in the Register's Office
of Obion County, Tennessee and in Record Book 365, page 39 in the Register's
Office of Dyer County, Tennessee.
3
<PAGE> 46
EXHIBIT B
List of Equipment
<TABLE>
<CAPTION>
Item No. No. Description
- -------- --- -----------
<S> <C> <C>
1 6 Grain systems, Inc. (GSI) "NCL" Series Storage Bin, 42' Diameter x 30' +/- High
2 6 David Manufacturing Company Model 176 "Red Giant" Stirring Auger Machine
3 12 Airstream Division of GSI Model CF-20-4C 20-HP Ventilation Fans
4 2 Schlagel, Inc. Model 1210 Overhead Distribution Conveyor w/ Custom Designed Supporting
Towers
5 2 Schlagel, Inc. Model 1210 Underfloor Return Conveyor
6 1 Schlagel, Inc. Model 1210 Return Collection Conveyor
7 2 Schlagel, Inc. Model 30137 100' High Dual-Leg Elevator w/ Distribution Box, Platforms,
Ladders, etc.
8 1 Schlagel, Inc. 6' Wide x 12' Long Dump Pit Receiver
9 1 Schlagel, Inc. Model 1210 Product Receiving Conveyor
10 1 GSI "BFT" Series Surge Tank, 12' Diameter x 23' +/- High
11 1 Schlagel, Inc. Model 1210 Infeed Conveyor to Product Cleaning Equipment
12 1 Rotex Model 52DASSSS Triple-Level Product Cleaning Screen, Serial No. R197190A
13 1 Forsberg Model 668 Aspirator w/ Model 16-HA Fan Unit, Serial No. 14832 S S
14 1 Schlagel, Inc. Model 1210 Cleaned Product Take-Away Conveyor
15 1 Schlagel, Inc. Model 1210 Cleaned Product Collection Conveyor
16 1 Schlagel, Inc. Model 1213 Trash Disposal Conveyor
17 1 GSI "BFT" Series Trash Bin, 12' Diameter x 7' +/- High w/ Flying Dutchman Model 2004
Unloader Device Beneath
18 1 Pinnacle Structures, Inc. Metal Building, 54'-0" Wide x 74'-6" Long, Including Cleaning
Area & Shop Portions (20' Eave Height), Office, Chemical Storage, Closet, Restroom and
Parts Storage Areas (12' Eave Height), and Center Drive-Through Loading/Unloading Area
(34' Eave Height)
19 1 Office Area Containing Desk, Base Cabinets, Wall Cabinets and Trane Model PTHC1201GAA
Through-The-Wall HVAC Unit (Serial No. A97D01902)
20 1 Fairbanks Model 14-3446-15A, Type "S" 60-Ton Truck Scale, 10' Wide x 70' Long
21 1 Electrical Power & Interior/Exterior Lighting System to Serve Facility Operations
</TABLE>
<PAGE> 47
UNITED FOODS, INC.,
a Delaware corporation
Secured Promissory Note
Due June 1, 2009
Bells, Tennessee
July 8, 1999
-------------
United Foods, Inc., a corporation duly organized and existing under
the laws of the State of Delaware (herein called the "Company"), for value
received, hereby promises to pay to Metropolitan Life Insurance Company
("Metropolitan"), or assigns, on June 1, 2009 the principal amount of Four
Million and No/100 Dollars ($4,000,000.00) or so much thereof as shall not have
been theretofore paid by mandatory principal payments and optional prepayments
as required in the Agreement (as hereinafter defined) in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for public and private debts, at the address provided in Section 11.6 of the
Agreement, and to pay interest only (computed on the basis of a 360-day year) at
said address, in like coin or currency, on the unpaid portion of said principal
amount from the date hereof, on the first day of the first full month subsequent
to the Closing Date, and thereafter, as combined with monthly principal
payments, as provided in the Agreement, on the first day of each month,
commencing on the first day of the second full month following the Closing Date,
in each event at the rate of 7.56% per annum, until such unpaid portion of such
principal amount shall have become due and payable and at the Overdue Interest
Rate (as defined in the Agreement) thereafter and, so far as may be lawful, on
any overdue installment of interest at such Overdue Interest Rate.
This Note (herein called the "Note") is issued pursuant to and entitled
to the benefits of the Loan Agreement, dated of even date herewith, between the
Company and Metropolitan (herein called the "Agreement"), the terms and
provisions of which are hereby incorporated by reference and made a part of the
terms of this Note. The Note is secured by and entitled to the benefits of (i) a
first Deed of Trust and Security Agreement, dated of even date herewith, made by
the Company, as grantor, (ii) a separate Security Agreement, dated of even date
herewith, between the Company, as debtor, and Metropolitan, as secured party,
and (iii) an Assignment of Rents and Leases, dated of even date herewith, made
by the Company, as assignor, to each of which reference is hereby made for a
description of the collateral or obligations covered thereby and the rights and
benefits afforded thereby to the holder of the Note.
This Note is subject to mandatory principal payments and optional
prepayment as provided in the Agreement. The unpaid principal balance and all
other amounts owing under this Note may be declared to be due and payable upon
the happening of an Event of Default or Change of Control Date as defined in the
Agreement.
In the event this Note or any of the instruments referred to herein are
placed in the hands of an attorney or attorneys for collection or enforcement or
if the holder of the Note is required to obtain attorneys and incur expenses and
attorney fees by reason of litigation or participation in bankruptcy proceedings
for the protection or enforcement of its collateral and claim against the
Company or any guarantors of this Note, then in all such cases, the holder of
the Note shall be entitled to reasonable attorney fees and expenses from the
Company.
The Company waives diligence, demand, presentment, notice of nonpayment
and protest, and consents to extensions of the time of payment, surrender or
substitution of security, or forbearance, or other indulgence, without notice.
This Note shall be construed in accordance with and governed by the
laws of the State of Georgia.
<PAGE> 48
IN WITNESS WHEREOF, UNITED FOODS, INC. has caused this Note to be
signed in its corporate name by one or more of its officers thereunto duly
authorized, and to be dated as of the day and year first above written.
UNITED FOODS, INC.
By: /s/ Carl W. Gruenewald, II
------------------------------------
Carl W. Gruenewald
Its: Senior Vice President - Finance
ATTEST:
By: /s/ Bradley J. Strange
---------------------------------
Bradley J. Strange
Its: Assistant Secretary
-2-
<PAGE> 49
MAXIMUM PRINCIPAL INDEBTEDNESS Tennessee
FOR TENNESSEE RECORDING TAX
PURPOSES: $4,000,000.00
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FINANCING STATEMENT
(Collateral Includes Fixtures)
BY
UNITED FOODS, INC., a Delaware corporation,
as Grantor
TO
LEEANNE MARSHALL COX, as Trustee
for the benefit of
METROPOLITAN LIFE INSURANCE COMPANY,
a New York corporation, as Beneficiary
July 8, 1999
------------
This Instrument Prepared by and Record and Return To:
Womble Carlyle Sandridge & Rice, PLLC
P.O. Drawer 84
Winston-Salem, NC 27102
Attention: Hardin G. Halsey, Esq.
SOURCE OF GRANTOR'S INTEREST: GAINES FARM: DEED DATED April 21, 1990 AND
RECORDED IN OFFICIAL RECORD VOLUME DB 91, PAGE 519, IN THE REGISTER'S OFFICE OF
CROCKETT COUNTY, TENNESSEE; WEBB FARM: DEED DATED March 30, 1990 AND RECORDED IN
OFFICIAL RECORD VOLUME DB 91, PAGE 425, IN THE REGISTER'S OFFICE OF CROCKETT
COUNTY, TENNESSEE; BOALS FARM: DEED DATED May 16, 1997 AND RECORDED IN OFFICIAL
RECORD VOLUME 318, PAGE 206, IN THE REGISTER'S OFFICE OF DYER COUNTY, TENNESSEE;
DEED DATED May 16, 1997 AND RECORDED IN OFFICIAL RECORD VOLUME 318, PAGE 208, IN
THE REGISTER'S OFFICE OF DYER COUNTY, TENNESSEE; DEED DATED May 16, 1997 AND
RECORDED IN OFFICIAL RECORD VOLUME 318, PAGE 210, IN THE REGISTER'S OFFICE OF
DYER COUNTY, TENNESSEE; TARRANT FARM: DEED DATED Dec. 28, 1998 AND RECORDED IN
OFFICIAL RECORD VOLUME 24R, PAGE 89, IN THE REGISTER'S OFFICE OF OBION COUNTY,
TENNESSEE; DEED DATED Dec. 28, 1998 AND RECORDED IN OFFICIAL RECORD VOLUME 365,
PAGE 39, IN THE REGISTER'S OFFICE OF DYER COUNTY, TENNESSEE; AGRI-CENTER: DEED
DATED April 28, 1997 AND RECORDED IN OFFICIAL RECORD VOLUME DB 108, PAGE 679, IN
THE REGISTER'S OFFICE OF CROCKETT COUNTY, TENNESSEE.
Pursuant to Tennessee Code Annotated Section 47-28-104, notice is hereby given
that this Deed of Trust secures future advances, all or some of which shall be
obligatory, and all advances hereunder will be for commercial purposes.
It is understood that some of the property described herein includes goods that
are or are to become fixtures related to the real estate described herein, and
it is intended that, as to those goods, this deed of trust shall be effective as
a financing statement filed as a fixture filing from the date of its filing for
record in the Register's Office of the County in which the real property is
located
The Beneficiary, as holder of the debt secured hereby, provides that it does not
and will not give its consent to any mechanics' and/or materialmen's liens
having priority over the lien created by this instrument.
<PAGE> 50
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FINANCING STATEMENT
COLLATERAL INCLUDES FIXTURES
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND
FINANCING STATEMENT (the "Deed of Trust") is made as of this 8th day of July,
1999, by UNITED FOODS, INC., a Delaware corporation, having its principal place
of business at Ten Pictsweet Drive, Bells, Tennessee 38006-0119 (hereinafter
called the "Grantor") in favor of LEEANNE MARSHALL COX, Trustee, having a
principal place of business at c/o Burch, Porter & Johnson, Morgan Keegan Tower,
50 North Front Street, Suite 800, Memphis, Tennessee 38103 ("Trustee") for the
benefit of METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation, having
its principal place of business at One Madison Avenue, New York, New York 10010
("Beneficiary").
W I T N E S S E T H:
WHEREAS, this Deed of Trust secures: (1) the full and punctual payment
of the indebtedness evidenced by that certain Secured Promissory Note (the
"Note") of even date with this Deed of Trust, the final payment of which is due
no later than the first day of June, 2009 (the "Maturity Date"), made by Grantor
to the order of Beneficiary in the principal face amount of Four Million and
No/100 Dollars ($4,000,000.00), with interest thereon at the rates therein
provided in the Note, together with any and all renewals, modifications,
consolidations and extensions of the indebtedness evidenced by the Note, any and
all additional advances made by Beneficiary to protect or preserve the Property
(as hereinafter defined), any and all future advances as may be made by
Beneficiary and any other amounts required to be paid by Grantor under any of
the Loan Documents (as hereinafter defined), such indebtedness, advances and
amounts being hereinafter collectively referred to as the "Secured
Indebtedness," and (2) the full performance by Grantor of all of the provisions,
agreements, covenants and obligations contained herein or in any of the other
Loan Documents. The Note, this Deed of Trust, the Loan Agreement, an Assignment
of Rents and Leases recorded contemporaneously herewith, a separate Security
Agreement and any and all other documents evidencing, securing or relating to
the indebtedness secured by this Deed of Trust and all renewals, modifications,
consolidations, and extensions of such documents are herein collectively
referred to as the "Loan Documents."
NOW, THEREFORE, IN CONSIDERATION of the sum of FOUR MILLION AND NO/100
DOLLARS ($4,000,000,00), in hand paid, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in order to secure the Secured Indebtedness and other obligations of Grantor set
forth in this Deed of Trust and the other Loan Documents, Grantor does hereby
irrevocably bargain, sell, transfer, grant, convey, assign and warrant to:
(A) Trustee, its heirs, successors and assigns, in trust, with power of
sale and right of entry and possession, all of Grantor's present and future
estate, right, title and interest in and to that certain real property located
in the Counties and State (as defined in Exhibit "A" attached hereto and made a
part hereof) and as more particularly described in Exhibit "B" attached hereto
and made a part hereof, together with all right, title, interest and estate of
Grantor, in and to all easements, rights-of-way, gaps, strips and gores of land,
streets, ways, alleys, sewers, sewer rights, waters, water courses, water
rights, privileges, licenses, tenements, hereditaments and appurtenances
whatsoever, in any way appertaining to said real property, whether now owned or
hereafter acquired by Grantor, and the reversion(s), remainder(s),
possession(s), claims and demands of Grantor in and to the same, and the rights
of Grantor in and to the benefits of any conditions, covenants and restrictions
now or hereafter affecting said real property (collectively, the "Land"),
together with all estate, right, title and interest that Grantor now has or may
hereafter acquire in:
<PAGE> 51
(1) all things now or hereafter affixed to the Land, including
all buildings, structures and improvements of every kind and description now or
hereafter erected or placed thereon, all apparatus, fixtures, equipment,
machinery, furniture, furnishings, appliances, systems, building materials, and
articles of tangible property now owned or hereafter acquired by Grantor,
including, without limitation,
(a) any and all machinery, motors, elevators, boilers,
equipment (including, without limitation, all equipment for the
generation or distribution of air, water, heat, electricity, light,
fuel or refrigeration or for ventilating or air conditioning purposes
or for sanitary or drainage purposes or for the removal of dust, refuse
or garbage), partitions, appliances, furniture, furnishings, building
service equipment, building materials, awnings, window shades, venetian
blinds, drapes and drapery rods and brackets, screens, carpeting and
other floor coverings, lobby furnishings, incinerators;
(b) decorations, video and sound equipment, signs, furnaces,
radiators, heaters, steam boilers, hot water boilers, oil burners,
pipes, heating and electrical equipment and appliances, fans,
thermostats, disposals, refrigerators, ice boxes, carpeting, rugs,
floor coverings, draperies, shades, awnings, mirrors, gas and
electrical light fixtures, screens, screen doors, blinds, basins,
faucets, pipes, water heaters, wiring, sprinkler systems, elevators,
motors, dynamos, cabinets, incinerators, lawn plants and shrubbery,
canopies, signs, speaker boxes, cash registers, machinery, appliances,
tools, gas and electric fixtures, transformers and related transmission
and safety facilities, water softening equipment, plumbing and heating
fixtures and systems, air-conditioning and ventilation apparatus and
systems, fire protection systems;
(c) all apparatus, fixtures, equipment, machinery, furniture,
furnishings, appliances, systems, building materials, and articles of
tangible personal property related to or used in the operation of a
crop storage facility and/or farming operations on the Land, including,
without limitation, storage bins, auger machines, ventilation fans,
conveyors, towers, elevators, distribution boxes, platforms, ladders,
receivers, tanks, cleaning equipment, cleaning screens, aspirators,
trash bins, loaders, unloaders, metal buildings, scales, truck scales,
office equipment and furnishings, electrical power and lighting
systems, water supply facilities, septic tanks and disposal facilities;
(d) all gas and electric fixtures and systems, plumbing and
heating fixtures and systems, heating, cooling and refrigeration
fixtures and systems, air conditioning apparatus and systems, fire
safety equipment and systems, environmental protection systems and
equipment, signs, carpeting and other floor coverings, ranges,
refrigerators, washers, dryers, water heaters, radiators, heaters,
engines, machinery, boilers, electrical transformers and related
transmission and safety facilities, meters, elevators, conveyors,
motors, cooling tanks, water systems, well systems, sump pumps, septic
tank and waste disposal systems, hoists, heaters and meters;
(e) seed and grain drying, storage and handling systems and
facilities, silos, bins, scales, blowers, dryers, fans, quonsets,
dumps, scale houses, receiving pits, grain legs, doors, catwalks, down
spouting, ramps, receiving houses, manlifts, ladders, hoppers, pit
screws, electrical panels, reclaim drags, towers, hammer mills,
crackers, hullers, vaporizers, mash and pellet legs, pellet mills, poly
tanks, separators, temperature and humidity monitors, bind sweeps, hot
spot detectors, tunnels, platforms, cleaners, blenders, valves, piping,
heaters, pumps, tanks, silos, binds, scales, elevators, conveyors,
motors;
(f) fertilizer and chemical handling, blending and storage
systems and facilities, storage tanks, liquid storage units, anhydrous
ammonia tanks, bulk chemical tanks, liquid mix plants, blenders, tanks,
meters, augers, docks;
-2-
<PAGE> 52
(g) petroleum storage and handling systems, bulk petroleum
tanks, fuel tanks, fuel pumping and metering equipment;
(h) feed plant, including milling, storage, grading and
blending equipment;
(i) irrigation systems and equipment, pumps, pipes,
connections, electrical boxes, meters, engines, fuel tanks, dynamos,
gearheads;
(j) railroad track and related equipment and fixtures,
switches, ties, signs, fences;
(k) unloading barges, cranes, scoops, conveyors, unloaders and
related systems and equipment;
(l) office furniture consisting of desks, chairs, file
cabinets, tables, sofas, credenzas and similar items; and
(m) all irrigation pumps, electric motors, engines, pipes,
sprinklers, control panels, accessories and accessions, and all other
irrigation equipment connected therewith now or hereafter placed or
installed, together with all water and watering rights of every kind
and description, on the Land described herein; and that Grantor
covenants and agrees that all irrigation pumps, electric motors,
engines, pipes, sprinklers, control panels, accessories and accessions,
and all other irrigation equipment together with all water and watering
rights of every kind and description, and all improvements, fixtures
and appurtenances connected therewith now or hereafter placed or
installed on said Land shall be construed as affixed to and a part of
the Land described herein and subject to all of the provisions of this
Deed of Trust;
which are or shall be attached to, or used for the operation or maintenance of,
said buildings, structures or improvements, or which are or shall be located in,
on or about the Land, or which, wherever located (including, without limitation,
in warehouse or other storage facilities or in the possession of or on the
premises of vendors or manufacturers thereof), are used or intended to be used
in or in connection with the construction, fixturing, equipping, furnishing,
use, transportation of personal property to or from, operation or enjoyment of
the Land or the improvements thereon, and all improvements, betterments,
renewals, renovations, replacements, repairs, additions, accessions or
substitutions or proceeds thereto or therefor, all of such things whether now or
hereafter placed thereon being hereby declared to be real property and
hereinafter collectively referred to as the "Improvements";
(2) all income, rents, royalties, revenue, issues, profits,
proceeds and other benefits from any and all of the Land and/or Improvements,
subject, however, to the right, power and authority hereinafter conferred upon
Beneficiary or reserved to Grantor to collect and apply such income, rents,
royalties, revenue, issues, profits, proceeds and other benefits;
(3) all deposits made with respect to the Land and/or
Improvements, including, but not limited to, any security given to utility
companies by Grantor, and all advance payments of insurance premiums made by
Grantor with respect thereto and all claims or demands relating to such
deposits, other security and/or such insurance;
(4) all damages, royalties and revenue of every kind, nature
and description whatsoever that Grantor may be entitled to receive, either
before or after any Event of Default (as hereinafter defined), from any person
or entity owning or having or hereafter acquiring a right to the oil, gas or
mineral rights and reservations of the Land, with the right in Beneficiary to
receive and apply the same to the Secured Indebtedness;
-3-
<PAGE> 53
(5) all proceeds and claims arising on account of any damage
to, or Condemnation (as hereinafter defined) of, the Land and/or Improvements or
any part thereof, and all causes of action and recoveries for any loss or
diminution in the value of the Land and/or Improvements;
(6) all licenses (including, but not limited to, any operating
licenses or similar licenses), contracts, management contracts, leases or
agreements, warehouse agreements, guaranties, warranties, franchise agreements,
permits, authorities or certificates required or relating to the ownership, use,
operation or maintenance of the Land and/or Improvements;
(7) all names under or by which the Land and/or Improvements
may at any time be operated or known, and all rights to carry on business under
any such names or any variant thereof, and all trademarks, trade names, patents
pending and goodwill relating to the Land and/or Improvements; and
(8) all of Grantor's present and future estate, right, title
and interest in and to all accretion, avulsion, riparian rights, water rights,
waters, water courses, easements, rights-of-way, gaps, strips and gores of land,
roads, all hereditaments and appurtenances whatsoever, and any other similar
rights or interests, in any way appertaining to or relating to said herein
before described Land, whether now owned or hereafter acquired by Grantor, and
the reversion(s), remainder(s), possession(s), claims and demands of Grantor in
and to the same, and the rights of Grantor in and to the benefits of any
conditions, covenants and restrictions now or hereafter affecting said Land,
together with all estate, right, title and interest, including, without
limitation, leasehold interests, that Grantor now has or may hereafter acquire,
and Grantor covenants and agrees that the foregoing shall be construed as a part
of the Land described herein and subject to all of the provisions of this Deed
of Trust.
TO HAVE AND TO HOLD the Real Property (as hereinafter defined), unto
Trustee, its heirs, successors and assigns, in trust, for the benefit of
Beneficiary, its successors and assigns, subject, however, to the terms,
covenants and conditions contained herein.
All of the property described in paragraph (A) above is hereinafter
collectively referred to as the "Real Property."
(B) Beneficiary, its successors and assigns, as a secured party, a
security interest in Grantor's interest in any portion of the Real Property
which may be construed to be personal property, and in all other personal
property of every kind and description, whether now existing or hereafter
acquired, now or at any time hereafter attached to, erected upon, situated in or
upon, forming a part of, appurtenant to, used or useful in the construction or
operation of, or in connection with, or arising from the use or enjoyment of all
or any portion of, or from any lease or agreement pertaining to, the Real
Property, including:
(1) all water rights appurtenant to the Real Property together
with all pumping plants, pipes, flumes and ditches, all rights to the use of
water, all rights in ditches for irrigation, all water stock, shares of stock or
other evidence of ownership of any part of the Real Property that is owned by
Grantor in common with others and all documents of membership in any owners' or
members' association or similar group having responsibility for managing or
operating any part of the Real Property;
(2) all plans and specifications prepared for construction of
the Improvements and all studies, data and drawings related thereto; and all
contracts and agreements of Grantor relating to the aforesaid plans and
specifications or to the aforesaid studies, data and drawings, or to the
construction of the Improvements;
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(3) all equipment, machinery, fixtures and goods to the extent
described in paragraph (A)(1) above, and accounts, general intangibles,
documents, instruments and chattel paper arising therefrom;
(4) all substitutions and replacements of, and accessions and
additions to, any of the foregoing;
(5) all sales agreements, deposit receipts, escrow agreements
and other ancillary documents and agreements entered into with respect to the
sale to any purchasers of any part of the Real Property, together with all
deposits and other proceeds of the sale thereof; and
(6) all proceeds of any of the foregoing, including, without
limitation, proceeds of any voluntary or involuntary disposition or claim
respecting any of the foregoing (pursuant to judgment, condemnation award or
otherwise) and all goods, documents, general intangibles, chattel paper and
accounts, wherever located, acquired with cash proceeds of any of the foregoing
or proceeds thereof.
All of the property described in paragraph (B) above is hereinafter
collectively referred to as the "Personal Property." All of the Real Property
and the Personal Property is herein collectively referred to as the "Property",
provided, however, the Property shall not be construed to include growing crops,
stored product, raw product, inventories of food, food products and packaging
materials, equipment which is used solely for farming operations such as
tractors, cultivators and similar equipment (provided, however, that such
exclusion shall not cover irrigation equipment, it being the intent hereof that
irrigation equipment shall be part of the Collateral), rolling stock, forklifts,
forklift trucks and batteries and battery chargers used therewith, pallets,
office equipment consisting of fax machines, copiers, telephone systems,
typewriters, office computer hardware and software, licensed vehicles, accounts
receivables arising in the ordinary course of business from the sale of
inventories of food or food products or from the provision of any services
related thereto nor from royalties arising from the sale or use of brands or
trademarks relating to such inventories of food or food products.
PROVIDED, HOWEVER, if Grantor shall pay or cause to be paid to
Beneficiary in full the Secured Indebtedness, at the times and in the manner
stipulated in the Loan Documents, and shall keep, perform and observe all and
singular the covenants and promises of Grantor in the Loan Documents, then this
Deed of Trust and all the properties, interests and rights hereby granted,
encumbered, transferred or assigned shall be released by Trustee and/or
Beneficiary in accordance with the laws of the State.
GRANTOR HEREBY COVENANTS AND AGREES FOR THE BENEFIT OF BENEFICIARY AND
TRUSTEE AS FOLLOWS:
ARTICLE I
COVENANTS
1.01 PERFORMANCE BY GRANTOR. Grantor shall pay the Secured Indebtedness
to Beneficiary and shall keep and perform each and every other obligation,
covenant and agreement of the Loan Documents.
1.02 WARRANTY OF TITLE. Grantor warrants that it is lawfully seized of
that portion of the Property which constitutes real property, that it holds
marketable and indefeasible fee simple absolute title to same, and that it has
good right and is lawfully authorized to sell, convey or encumber the Property
subject only to those matters set forth in Exhibit "C" attached hereto and made
a part hereof (the "Permitted Exceptions"). Grantor further covenants to warrant
and forever defend all and singular the Property unto Beneficiary and Trustee
forever from and against all persons whomsoever claiming the same or any part
thereof.
1.03 TAXES, LIENS AND OTHER CHARGES. Unless sums sufficient to pay the
same shall have been fully paid to Beneficiary as provided in Section 1.06
hereof, Grantor shall pay all real estate and other
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taxes, assessments, water and sewer charges, vault and other license or permit
fees, levies, fines, penalties, interest, impositions, and other similar claims,
general and special, public and private, of any kind whatsoever which may be
assessed, levied, confirmed, imposed upon or arise out of or become due and
payable out of, or become a lien on or against the Property or any part thereof
(all of the foregoing, together with utility and refuse removal charges, being
hereinafter collectively referred to as the "Imposition(s)") not later than ten
(10) days before the dates on which such Impositions would become delinquent.
Not later than the date when any Impositions would become delinquent, Grantor
shall produce to Beneficiary official receipts of the appropriate imposing
authority, or other evidence reasonably satisfactory to Beneficiary evidencing
the payment thereof in full. If Grantor shall in good faith, and by proper legal
action, contest any Impositions, and either shall have deposited cash with
Beneficiary (or as Beneficiary may direct) as a reserve for the payment thereof
plus all fines, interest, penalties and costs which may become due pending the
determination of such contest, in such amount as Beneficiary may require, then
Grantor shall not be required to pay the same during the maintenance of said
deposit and as long as such contest operates to prevent enforcement or
collection of such Impositions against, or the sale or forfeiture of, the
Property for non-payment thereof, and is prosecuted with due diligence and
continuity, and shall not have been terminated or discontinued adversely to
Grantor. Upon termination of any such proceeding or contest, Grantor shall pay
the amount of such Impositions or part thereof as finally determined in such
proceeding or contest. However, if monies have been deposited with Beneficiary
pursuant to this Section 1.03, said funds shall be applied toward such payment
and the excess, if any, shall be returned to Grantor.
1.04 FURTHER TAXES. In the event of the passage, after the date of this
Deed of Trust, of any law deducting from the value of the Property, for the
purposes of taxation, any lien thereon or security interest therein, or changing
in any way the laws now in force for the taxation of mortgages, deeds of trust
and/or security agreements or debts secured by mortgages, deeds of trust and/or
security agreements, or the manner of the collection of any such taxes, which
has the effect of imposing payment of the whole or any portion of any taxes,
assessments or other similar charges against the Property upon Beneficiary, the
Secured Indebtedness shall immediately become due and payable at the option of
Beneficiary; provided, however, that such election by Beneficiary shall be
ineffective if prior to the due date thereof: (1) Grantor is permitted by law
(including, without limitation, applicable interest rate laws) to, and actually
does, pay such tax or the increased portion thereof (in addition to continuing
to pay the Secured Indebtedness as and when due and payable); and (2) Grantor
agrees with Beneficiary in writing to pay, or reimburse Beneficiary for the
payment of any such tax or increased portion thereof when thereafter levied or
assessed against the Property or any portion thereof. Any money paid by
Beneficiary under this Section 1.04 shall be reimbursed to Beneficiary in
accordance with Section 3.10 hereof.
1.05 INSURANCE.
(a) Grantor, at its sole cost and expense, shall at all times, unless
otherwise indicated, provide, maintain and keep in force:
(1) property insurance covering the Improvements and Personal
Property against loss or damage from such causes of loss as are embraced by
insurance policies of the type now known as "All Risks" or "Open Perils"
property insurance on a replacement cost basis with an Agreed Value Endorsement
waiving co-insurance, all in an amount not less than one hundred percent (100%)
of the then full replacement cost of the Improvements (exclusive of the cost of
excavations, foundations and footings below the lowest basement floor) and
Personal Property, without deduction for physical depreciation thereof. Such
property insurance shall include a Demolition and Increased Cost of Construction
Endorsement, as well as such other insurance as Beneficiary may from time to
time designate to cover other risks and hazards affecting the Property;
(2) flood insurance in an amount equal to the lesser of 100%
of the full replacement cost of the Improvements, or the maximum amount of
insurance obtainable; provided, however, that such insurance
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shall be required only when all or any portion of the Land is located within a
100-year flood plain or area designated as subject to flood by the Federal
Emergency Management Agency or any other governmental agency, or when required
by any federal, state or local law, statute, regulation or ordinance;
(3) builder's risk insurance insuring against loss or damage
from such causes of loss as are embraced by insurance policies of the type now
known as "Builder's Risks" property insurance (written on an "all risk" or "open
perils" basis), including, without limitation, fire and extended coverage,
collapse of the improvements and earthquake coverage to agreed limits, all in
form and substance acceptable to Beneficiary and (i) as to property then subject
to Restoration (as defined in Section 1.07(b)) or any restoration accomplished
in connection with a Condemnation, in an amount not less than the full
replacement cost of such property, and (ii) as to any additional improvements
then being constructed, in an amount not less than the completed value on a non
reporting form, of the additional improvements then being constructed; provided,
however, that such insurance shall be required only during any period of
Restoration or any restoration accomplished in connection with a Condemnation,
or any period of construction of any additional improvements;
(4) general liability insurance insuring against claims for
personal injury (including, without limitation, bodily injury or death),
property damage liability and such other loss or damage from such causes of loss
as are embraced by insurance policies of the type now known as "Commercial
General Liability" insurance, all in such amounts as Beneficiary may require
from time to time. Such insurance coverage shall be issued and maintained on an
"occurrence" basis; and
(5) such other insurance and in such amounts, as may, from
time to time, be required by Beneficiary against other insurable hazards or
risks, including, but not limited to, environmental impairment liability
coverage, nuclear reaction or radioactive contamination coverage and/or
earthquake coverage, which hazards or risks at the time are commonly insured
against, and provided such insurance is generally available, for property
similarly situated, due regard being given to the type of building, its
construction, use and occupancy.
(b) Except as herein expressly provided otherwise, all policies of
insurance required under this Section 1.05 shall be issued by companies, and be
in form, amount, and content and have an expiration date, approved by
Beneficiary and as to the policies of insurance required under subparagraphs
(1), (2) and (3) of Section 1.05(a), shall contain a Standard Non-Contributory
Mortgagee Clause or Lender's Loss Payable Endorsement, or equivalents thereof,
in form, scope and substance satisfactory to Beneficiary, in favor of
Beneficiary, and any proceeds thereof ("Insurance Proceeds") shall be payable in
accordance therewith.
Beneficiary shall be furnished with the original or certified copy of
each policy required hereunder, which policy shall provide that it shall not be
modified or cancelled without thirty (30) days' prior written notice to
Beneficiary. Prior to expiration of any policy required hereunder, Grantor shall
furnish Beneficiary appropriate proof of issuance of a policy continuing in
force the insurance covered by the policy so expiring. Upon the request of
Beneficiary, Grantor shall furnish Beneficiary receipts for the payment of
premiums on such insurance policies or other evidence of such payment reasonably
satisfactory to Beneficiary in the event that such premiums have not been paid
to Beneficiary pursuant to Section 1.06 hereof. In the event that Grantor does
not deposit with Beneficiary a new policy of insurance with evidence of payment
of premiums thereon (or such other evidence of insurance in force and of the
payment of premiums therefor reasonably satisfactory to Beneficiary) prior to
the expiration of any policy, then Beneficiary may, but shall not be obligated
to, procure such insurance and pay the premiums therefor and any money paid by
Beneficiary for such premiums shall be reimbursed to Beneficiary in accordance
with Section 3.10 hereof.
(c) If an Event of Default shall exist and be continuing hereunder,
Grantor hereby (i) authorizes and empowers Beneficiary to settle, adjust or
compromise any claims for loss, damage or destruction to the
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Property, regardless of whether there are Insurance Proceeds available or
whether any such proceeds are sufficient in amount to fully compensate for such
loss or damage, but Beneficiary shall not be obligated to so settle, adjust or
compromise, and (ii) assigns to Beneficiary all Insurance Proceeds which Grantor
may be entitled to receive.
(d) During any period an Event of Default does not exist and be
continuing hereunder, Grantor shall settle, adjust or compromise any claim for
loss, damage or destruction to the Property, provided, however, that Grantor
shall obtain approval from Beneficiary prior to entering into any such
settlement, adjustment or compromise in respect of the Property aggregating in
excess of $1,000,000.00.
(d) In the event of the foreclosure of this Deed of Trust or other
transfer of the title to the Property in extinguishment, in whole or in part, of
the Secured Indebtedness, all right, title and interest of Grantor in and to any
insurance policy, or Premiums (as hereinafter defined) or payments in
satisfaction of claims or any other rights thereunder then in force, shall pass
to the purchaser or grantee. Nothing contained herein shall prevent accrual of
interest as provided in the Note on any portion of the Secured Indebtedness to
which the Insurance Proceeds are to be applied until such time as the Insurance
Proceeds are actually received by Beneficiary and applied by Beneficiary to
reduce the Secured Indebtedness.
1.06 ESCROW DEPOSITS. Without limiting the effect of Sections 1.03,
1.04 and 1.05 hereof, Grantor shall pay to Beneficiary monthly at the time when
the monthly installment of interest, principal or principal and interest is
payable, an amount equal to 1/12th of what Beneficiary estimates is necessary to
pay, on an annualized basis, all (1) Impositions and (2) such premiums for the
insurance policies required under Section 1.05(a) hereof ("Premiums") to enable
Beneficiary to pay same at least thirty (30) days before the Impositions would
become delinquent and the Premiums are due, and, on demand, from time to time
shall pay to Beneficiary additional sums necessary to pay the Premiums and
Impositions. No amounts so paid shall be deemed to be trust funds, but may be
commingled with the general funds of Beneficiary, and no interest shall be
payable thereon. In the event that Grantor does not pay such sums for Premiums
and Impositions, then Beneficiary may, but shall not be obligated to, pay such
Premiums and Impositions and any money so paid by Beneficiary shall be
reimbursed to Beneficiary in accordance with Section 3.10 hereof. If an Event of
Default occurs and is continuing, Beneficiary shall have the right, at its
election, to apply any amounts so held under this Section 1.06 against all or
any part of the Secured Indebtedness, or in payment of the Premiums or
Impositions for which the amounts were deposited. Grantor will furnish to
Beneficiary bills for Impositions and Premiums thirty (30) days before
Impositions become delinquent and such Premiums become due. The foregoing
obligations of Grantor are subject to the condition that Grantor shall not be
required to pay such items unless and until an Event of Default occurs and is
continuing.
1.07 RESTORATION.
(a) After the happening of any casualty to the Property, whether or not
required to be insured against under the insurance policies to be provided by
Grantor hereunder, Grantor shall give prompt written notice thereof to
Beneficiary generally describing the nature and cause of such casualty and the
extent of the damage to or destruction of the Property.
(b) In the event of any damage to or destruction of the Property, and
provided, within sixty (60) days after the occurrence of such damage or
destruction to the Property requiring Restoration, (1) an Event of Default does
not currently exist and be continuing, and (2) Grantor determines, in its
reasonable business judgment, that it is prudent and desirable in the conduct of
its business to repair, restore or rebuild the damaged or destroyed Property,
and (3) Grantor undertakes in writing to Beneficiary to repair, restore or
rebuild the Property to the same to the same condition, character and general
utility as nearly as possible to that existing prior to such damage or
destruction and at least equal value as that existing prior to such damage or
destruction (the "Restoration"), then Grantor shall commence and diligently
pursue to completion the Restoration.
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Insurance Proceeds in excess of $1,000,000.00, less the cost, if any, to
Beneficiary of recovering such proceeds including, without limitation,
attorneys' fees and expenses, adjusters' fees, and fees incurred in
Beneficiary's performance of its obligations hereunder (the "Net Insurance
Proceeds"), shall be disbursed through an escrow with a title company in the
manner hereinafter provided, to the Restoration. Grantor shall be permitted to
hold and disburse Insurance Proceeds not in excess of $1,000,000.00.
In the event that the above conditions for Restoration have not been
met, including, without limitation, during any period an Event of Default exists
and is continuing hereunder, Beneficiary may, at its option, apply the Net
Insurance Proceeds to the reduction of the Secured Indebtedness in such order as
Beneficiary may determine and Beneficiary may declare the entire Secured
Indebtedness immediately due and payable.
(c) In the event the Net Insurance Proceeds are to be used for the
Restoration, whether disbursed through such escrow or directly by Grantor,
Grantor shall comply with Beneficiary's Requirements For Restoration as set
forth in Exhibit "D" attached hereto and made a part hereof. Upon Beneficiary's
receipt of a final certificate of occupancy or other evidence of approval of
appropriate governmental authorities for the use and occupancy of the
Improvements and other evidence requested by Beneficiary that the Restoration
has been completed and the costs thereof have been paid in full, and
satisfactory evidence that no mechanic's or similar liens for labor or material
supplied in connection with the Restoration are outstanding against the Property
and provided that an Event of Default does not currently exist and be
continuing, any remaining Restoration Funds (as defined in Exhibit "D") shall be
paid to Grantor; provided, however, nothing contained herein shall prevent
Beneficiary from requiring at any time that the whole or any part of the
Restoration Funds be used to cure an Event of Default.
(d) In the event that all or any portion of the Restoration Funds are
used to repay the unpaid Secured Indebtedness as provided in this Section 1.07,
after payment in full of the Secured Indebtedness, any remaining Restoration
Funds shall be paid to Grantor.
1.08 CONDEMNATION. Should the Property or any part thereof be taken by
reason of any condemnation or similar eminent domain proceeding, or a grant or
conveyance in lieu thereof ("Condemnation"), Beneficiary shall be entitled to
all compensation, awards and other payments or relief therefor.
If an Event of Default shall exist and be continuing hereunder,
Beneficiary shall be entitled at its option to commence, appear in and prosecute
in its own name any action or proceeding or to make any compromise or settlement
in connection with such Condemnation. Grantor hereby irrevocably constitutes and
appoints Beneficiary as its attorney-in-fact, and such appointment is coupled
with an interest, to commence, appear in and prosecute any action or proceeding
or to make any compromise or settlement in connection with any such
Condemnation. During any period an Event of Default does not exist and be
continuing hereunder, Grantor shall be permitted to commence, appear in and
prosecute any such action or proceeding or to make any compromise or settlement
in connection with any Condemnation, provided, however, that Beneficiary shall
preapprove in writing any settlement, or compromise in respect of the Property
aggregating in excess of $1,000,000.00.
All such compensation, awards, damages, rights of action and proceeds
(collectively, the "Condemnation Proceeds") are hereby assigned to Beneficiary,
who shall, after deducting therefrom all its reasonable expenses, including
attorneys' fees ("Condemnation Expenses"), make available the remaining
Condemnation Proceeds to repair any damage to, and to restore the Improvements
remaining on the portion of, the Property not taken in the manner provided in
Section 1.07 with respect to disposition of Net Insurance Proceeds; provided,
however, that at the time of application of the remaining Condemnation Proceeds:
(1) an Event of Default shall not exist and be continuing; (2) Grantor shall
have provided evidence reasonably satisfactory to Beneficiary of its ability to
pay all sums in excess of available Condemnation Proceeds
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necessary to repair any damage to and restore the Improvements remaining on the
portion of, the Property not taken; and (3) Grantor shall have provided evidence
reasonably satisfactory to Beneficiary that its security is not impaired.
After restoration of the remaining Improvements, or in the event the
conditions precedent for such restoration are not met, including, without
limitation, at any time an Event of Default exists and is continuing hereunder,
Beneficiary shall have the right, after deducting therefrom the Condemnation
Expenses, to require that the balance of the Condemnation Proceeds be applied to
the Secured Indebtedness, in such manner and such order as Beneficiary in its
sole discretion shall determine, without adjustment in the dollar amount of the
installments due under the Note. Nothing contained herein shall prevent the
accrual of interest as provided in the Note on any portion of the Secured
Indebtedness to which the Condemnation Proceeds are to be applied until such
Condemnation Proceeds are actually received by Beneficiary and so applied to
reduce the Secured Indebtedness.
1.09 CARE AND USE OF THE PROPERTY.
(a) Grantor, at its sole cost and expense, shall keep the Property in
good order, condition, and repair, and make all necessary repairs thereto,
interior and exterior, structural and non-structural, ordinary and
extraordinary, and foreseen and unforeseen. Grantor shall abstain from, and not
permit, the commission of waste in or about the Property and, except as may be
permitted in Section 8.7B of the Loan Agreement, shall not remove or demolish,
or alter in any substantial manner, the structure or character of any
Improvements without the prior written consent of Beneficiary.
(b) Grantor shall at all times comply with all present or future
Requirements affecting or relating or pertaining in any way to the Property
and/or the use, operation and/or the maintenance thereof, and shall furnish
Beneficiary, on request, proof of such compliance. Grantor shall not use or
permit the use of the Property, or any part thereof, for any illegal purpose.
(c) Beneficiary and Beneficiary's representatives and designees shall
have the right, but not the duty, to enter the Property at reasonable times to
inspect the same. Beneficiary shall not be liable to Grantor or any person in
possession of the Property with respect to any matter arising out of such entry
to the Property.
(d) Grantor shall, from time to time, if and when required by
Beneficiary (1) perform a site investigation of the Property to determine the
existence and levels of Hazardous Substances (as defined in Exhibit "A") on the
Property, (2) issue a report certifying the results of such inspection to
Beneficiary, and (3) take such remedial action as may be required by Beneficiary
based upon such report.
(e) Grantor shall use, or cause to be used, the Property continuously
as and for first class property of its type and kind at the time of the
execution of this Deed of Trust. Grantor shall not use, or permit the use of,
the Property for any other use without the prior written consent of Beneficiary.
(f) Grantor shall not initiate or acquiesce in a change in the zoning
classification of and/or restrictive covenants affecting the Property or seek
any variance under existing zoning ordinances applicable to the Property or use
or permit the use of the Property in such a manner which would result in such
use becoming a non-conforming use under applicable zoning ordinances or other
applicable laws, ordinances, rules or regulations or subject the Property to
restrictive covenants without Beneficiary's prior written consent.
1.10 LEASES AND OTHER AGREEMENTS AFFECTING THE PROPERTY.
(a) In order to further secure payment of the Secured Indebtedness and
the observance, performance and discharge of Grantor's obligations under the
Loan Documents, Grantor hereby assigns to
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Beneficiary all of Grantor's right, title, interest and estate in, to and under
all of the leases now or hereafter affecting the Property or any part thereof
and in and to all of the Rents and Profits (as defined in Exhibit "A"). Grantor
shall have a mere license to collect the Rents and Profits (except as otherwise
provided in this Deed of Trust), which license shall terminate automatically
without notice upon the occurrence of an Event of Default, and upon the
occurrence of such an Event of Default, Beneficiary shall be entitled to the
Rents and Profits without the necessity of Beneficiary taking any action
whatsoever, and the Rents and Profits shall thereupon be deemed to be cash
collateral for all purposes, including without limitation for purposes of
Section 363 of Title 11 of the United States Code, as the same may be amended
from time to time. Beneficiary shall be liable to account only for the Rents and
Profits actually received by Beneficiary pursuant to any provision of any Loan
Document.
(b) Grantor shall duly and punctually perform all terms, covenants,
conditions and agreements binding upon it or the Property under any lease or any
other agreement or instrument of any nature whatsoever which involves or affects
the Property or any part thereof. Grantor represents that it has heretofore
furnished Beneficiary true and complete copies of all executed leases existing
on the date of this Deed of Trust. Upon request of Beneficiary, Grantor agrees
to furnish Beneficiary with executed copies of all leases hereafter entered into
with respect to all or any part of the Property. Grantor shall not, without the
express written consent of Beneficiary, enter into any new lease or modify,
extend or renew, either orally or in writing, any lease now existing or
hereafter created upon the Property, or any part thereof. Grantor shall not,
without the express written consent of Beneficiary, terminate or surrender any
lease now existing or hereafter created upon the Property, or any part thereof,
unless Grantor has entered into a new lease covering all of the leased premises
to be terminated or surrendered, which new lease shall either have been approved
by Beneficiary as provided herein. Grantor shall not permit an assignment or
sublease of any lease now existing or hereafter created upon the Property, or
any part thereof, without the express written consent of Beneficiary.
(c) Each lease of any portion of the Property shall be absolutely
subordinate to the lien of this Deed of Trust, but shall also contain a
provision, satisfactory to Beneficiary, that in the event of the exercise of the
power of sale hereunder or a sale pursuant to a judgment of foreclosure, such
lease, at the sole and exclusive option of the purchaser at such sale, shall not
be terminated and the tenant thereunder shall attorn to such purchaser and, if
requested to do so, shall enter into a new lease for the balance of the term of
such lease then remaining, upon the same terms and conditions. If Beneficiary so
requests, Grantor shall cause the tenant under each or any of such leases to
enter into subordination and attornment agreements with Beneficiary which are
satisfactory in form, scope and substance to Beneficiary.
(d) Grantor shall not accept payment of advance rents or security
deposits equal, in the aggregate, to more than one month's rent.
(e) Grantor covenants and agrees that all contracts and agreements
relating to the Property to pay leasing commissions, management fees or other
compensation shall (1) provide that the obligation to pay such commissions, fees
and other compensation will not be enforceable against any party other than the
party who entered into such agreement; (2) be subordinate and inferior to the
lien of this Deed of Trust; and (3) not be enforceable against Beneficiary.
Grantor shall promptly furnish Beneficiary with evidence of Grantor's compliance
with this paragraph upon the execution of each such contract or agreement.
1.11 BOOKS, RECORDS AND ACCOUNTS. Grantor shall keep and maintain or
shall cause to be kept and maintained on a fiscal year basis, in accordance with
generally accepted accounting principles, consistently applied, proper and
accurate books, records and accounts reflecting all of the financial affairs of
Grantor with respect to all items of income and expense in connection with the
operation of the Property, whether such income or expense be realized by Grantor
or by any other person whatsoever (excepting lessees unrelated to and
unaffiliated with Grantor who have leased from Grantor portions of the Property
for the purpose of occupying same). Beneficiary or its representatives or
designees shall have the right from time to
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time at all times during normal business hours to examine, with respect to the
Property, such books, records and accounts at the office of Grantor or other
person maintaining such books, records and accounts and to make copies or
extracts thereof as Beneficiary shall desire. Beneficiary shall also have the
right to discuss Grantor's affairs, finances and accounts with representatives
of Grantor, at such reasonable times as may be requested by Beneficiary.
1.12 SUBROGATION. As additional security hereunder, Beneficiary shall
be subrogated to the lien, although released of record, of any and all
encumbrances paid out of the proceeds of the loan evidenced by the Note and
secured by this Deed of Trust and Beneficiary, upon making such payment, shall
be subrogated to all of the rights of the person, corporation or body politic
receiving such payment.
1.13 COLLATERAL SECURITY INSTRUMENTS. Grantor covenants and agrees that
if Beneficiary at any time holds additional security for any obligations secured
hereby, it may enforce the terms thereof or otherwise realize upon the same, at
its option, either before or concurrently herewith or after a sale is made
hereunder, and may apply the proceeds to the Secured Indebtedness in such order
as Beneficiary may determine, without affecting the status of or waiving any
right to exhaust all or any other security, including the security hereunder,
and without waiving any breach or default or any right or power whether
exercised hereunder or under any of the other Loan Documents, or contained
herein or therein, or in any such other security.
1.14 SUITS AND OTHER ACTS TO PROTECT THE PROPERTY.
(a) Grantor covenants and agrees to appear in and defend any action or
proceeding purporting to affect the Property, any other security afforded by any
of the Loan Documents and/or the interest of Beneficiary thereunder. Grantor
shall immediately notify Beneficiary of the commencement, or receipt of notice,
of any such action or proceeding or other matter or claim purporting to, or
which could, affect the Property, any other security afforded by any of the Loan
Documents and/or the interest of Beneficiary thereunder.
(b) Beneficiary shall have the right, at the cost and expense of
Grantor, to institute and maintain such suits and proceedings and take such
other action, as it may deem expedient to preserve or protect the Property, any
other security afforded by any of the Loan Documents and/or Beneficiary's
interest therein. Any money paid by Beneficiary under this Section 1.14(b) shall
be reimbursed to Beneficiary in accordance with Section 3.10 hereof.
1.15 BENEFICIARY'S RIGHT TO PERFORM GRANTOR'S OBLIGATIONS. Grantor
agrees that, if Grantor fails to perform any act or to pay any money which
Grantor is required to perform or pay under the Loan Documents, Beneficiary, at
the cost and expense of Grantor and in Grantor's name or in its own name, may
(but shall not be obligated to) perform or cause to be performed such act or
take such action or pay any money. Any money paid by Beneficiary under this
Section 1.15 shall be reimbursed to Beneficiary in accordance with Section 3.10
hereof.
1.16 LIENS AND ENCUMBRANCES. Grantor shall not, without the prior
written consent of Beneficiary, create, place or suffer to be created or placed,
or through any act or failure to act, allow to remain, any deed of trust,
mortgage, security interest, or other lien, encumbrance or charge, or
conditional sale or other title retention document, against or covering the
Property, or any part thereof, other than as may be permitted pursuant to
Section 8.7A of the Loan Agreement, the Permitted Exceptions and the lien for ad
valorem taxes on the Property not yet delinquent, regardless of whether the same
are expressly or otherwise subordinate to the lien or security interest created
in this Deed of Trust, and should any of the foregoing become attached hereafter
in any manner to any part of the Property, Grantor shall cause the same to be
promptly discharged and released. Grantor shall own all parts of the Property
and, except as expressly approved in writing by Beneficiary or permitted
pursuant to Section 8.7A of the Loan Agreement, shall not acquire any fixtures,
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equipment or other property forming a part of the Property pursuant to a lease,
license, title retention document or similar agreement.
ARTICLE II
DEFAULTS AND REMEDIES
2.01 EVENTS OF DEFAULT. Any of the following shall be deemed to be a
material breach of Grantor's covenants herein and shall constitute a default
hereunder ("Event of Default"):
(a) The failure of Grantor to pay any installment of principal,
interest or principal and interest, any required escrow deposit or any other sum
required to be paid under any Loan Document, whether to Beneficiary or
otherwise, when the same shall become due and payable, and such failure shall
continue after the expiration of any grace period applicable thereto, if any,
under such Loan Document;
(b) The failure of Grantor to perform or observe any other term,
provision, covenant, condition or agreement under any Loan Document, and such
failure shall continue after the expiration of any grace period applicable
thereto, if any, under such Loan Document;
(c) The filing by Grantor of a voluntary petition or application for
relief in bankruptcy or Grantor's adjudication as a bankrupt or insolvent, or
the filing by Grantor of any petition, application for relief or answer seeking
or acquiescing in any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under any present or
future federal, state or other statute, law, code or regulation relating to
bankruptcy, insolvency or other relief for debtors, or Grantor's seeking or
consenting to or acquiescing in the appointment of any trustee, custodian,
conservator, receiver or liquidator of Grantor or of all or any substantial part
of the Property or of any or all of the Rents and Profits thereof, or the making
of any general assignment for the benefit of creditors, or the admission in
writing of its inability to pay its debts generally as they become due;
(d) If any warranty, representation, certification, financial statement
or other information made or furnished at any time pursuant to the terms of the
Loan Documents or otherwise, by Grantor, or by any person or entity otherwise
liable under any Loan Document shall be materially false or misleading or
furnished with knowledge of the false nature thereof; or
(e) If Grantor shall suffer or permit the Property, or any part
thereof, to be used in such manner as might tend to (1) impair Grantor's title
to the Property, or any part thereof; or (2) create rights of adverse use or
possession; or (3) constitute an implied dedication of the Property, or any part
thereof.
2.02 REMEDIES UPON DEFAULT. Upon the happening of any Event of Default,
the Secured Indebtedness shall, at the option of Beneficiary, become immediately
due and payable, without further notice or demand, and Beneficiary may forthwith
undertake any one or more of the following:
(a) Foreclosure. Institute an action of foreclosure in accordance with
the law of the State, or take such other action as the law may allow, at law or
in equity, for the enforcement of the Loan Documents and realization on the
Property or any other security afforded by the Loan Documents and, in the case
of a judicial proceeding, proceed to final judgment and execution thereon for
the amount of the Secured Indebtedness (as of the date of such judgment)
together with all costs of suit, attorneys' fees and interest on such judgment
at the maximum rate permitted by law from and after the date of such judgment
until actual payment is made to Beneficiary in the full amount due Beneficiary;
provided, however, if Beneficiary is the purchaser at the foreclosure sale of
the Property, the foreclosure sale price (Beneficiary's final bid less expenses)
shall be applied against the total amount due Beneficiary; and/or
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(b) Power of Sale. Beneficiary may require the Trustee, and the Trustee
is hereby authorized and empowered to do any one or more of the following: (a)
Enter upon and take possession of the Property without the appointment of a
receiver, or an application therefor, employ a managing agent of the Property
and operate or lease the same, either in its own name, or in the name of the
Grantor, and receive the Rents and Profits and apply the same, after payment of
all necessary charges and expenses, on account of the indebtedness secured
hereby; and (b) To sell all or part of the Property at public auction, to the
highest bidder for cash, free from the equity of redemption, whether statutory
or common law, the right of redemption granted by Tennessee Code Annotated
Section 66-8-101, homestead, dower, marital share, and all other rights and
exemptions of every kind, all of which are hereby expressly waived, after giving
notice of the time and place of such sale and of the Property to be sold, by
publication of such notice at least three (3) different times in some newspaper
published in any county and state where some part of the Property is situated,
the first of which publications shall be at least twenty-one (21) days previous
to said sale, and on the day and at the front door of the County Court House in
any county and state where some part of the Property is situated, being the
place fixed in said notice, between the hours of 10:00 a.m. and 2:00 p.m., which
notice may be given before or after entry by the Trustee or as otherwise
required by applicable law. The Trustee shall execute a conveyance to the
purchaser in fee simple and deliver possession to the purchaser, which the
Grantor warrants shall be given without obstruction, hindrance or delay. The
Trustee may sell all or any portion of the Property, together or in lots or
parcels, and may execute and deliver to the purchaser or purchasers of such
property a conveyance in fee simple. The Trustee making such sale shall receive
the proceeds thereof and shall apply the same as set forth in Section 2.03 of
this Deed of Trust. The sale or sales by the Trustee of less than the whole of
the Property shall be without regard to any right of Grantor or any other person
to the marshalling of assets and shall not exhaust the power of sale herein
granted, and the Trustee is specifically empowered to make successive sale or
sales under such power until the whole of the Property shall be sold; and if the
proceeds of such sale or sales of less than the whole of the Property shall be
less than the aggregate of the Secured Indebtedness secured hereby and the
expenses thereof, this Deed of Trust and the lien, security interest and
assignment hereof shall remain in full force and effect as to the unsold portion
of the Property; provided, however, that Grantor shall never have any right to
require the sale or sales of less than the whole of the Property, but the
Beneficiary shall have the right at its sole election, to require the Trustee to
sell less than the whole of the Property. The Beneficiary may bid and become the
purchaser of all or any part of the Property at any such sale, and the amount of
Beneficiary's successful bid may be credited on the Secured Indebtedness secured
hereby. Any and all such sales and deeds shall be a perpetual bar, both in law
and equity (including the statutory right of redemption), against Grantor and
its heirs, successors and assigns, and all other persons claiming the Property
or any part thereof, by, from, through or under Grantor. Immediately upon the
filing of any foreclosure proceeding under this Deed of Trust, there shall be
and become due and owing by Grantor all expenses incident to any foreclosure
proceedings under this Deed of Trust. The Beneficiary or the Trustee may proceed
by a suit or suits in equity or at law, whether for the specific performance of
any covenant or agreement herein contained or in aid of the execution of any
power herein granted, or for any foreclosure hereunder or for the sale of the
Property or any personal property under the judgment or decree of any court or
courts of competent jurisdiction.
(c) Entry. Enter into possession of the Property, lease the same,
collect all Rents and Profits therefrom, and, after deducting all costs of
collection and administration expenses, apply the remaining Rents and Profits in
such order and amounts as Beneficiary, in Beneficiary's sole discretion, may
elect to the payment of Impositions, operating costs, Premiums and other charges
(including, but not limited to, costs of leasing the Property and fees and costs
of counsel and receivers) and to the maintenance, repair, and restoration of the
Property, or on account and in reduction of the Secured Indebtedness; and/or
(d) Receivership. Have a receiver appointed to enter into possession of
the Property, collect the Rents and Profits therefrom and apply the same as the
appropriate court may direct. Beneficiary shall be entitled to the appointment
of a receiver without the necessity of proving either the inadequacy of the
security or the insolvency of Grantor or any other person who may be legally or
equitably liable to pay any portion of the Secured Indebtedness and Grantor and
each such person shall be deemed to have waived such proof and to
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have consented to the appointment of such receiver. Should Beneficiary or any
receiver collect the Rents and Profits, the moneys so collected shall not be
substituted for payment of the Secured Indebtedness nor used to cure the Event
of Default.
(e) Notice of Acceleration. ALL NOTICE OF THE EXERCISE OF THE OPTION BY
BENEFICIARY TO ACCELERATE THE SECURED INDEBTEDNESS UPON THE OCCURRENCE OF AN
EVENT OF DEFAULT IS EXPRESSLY WAIVED.
2.03 APPLICATION OF PROCEEDS OF SALE. In the event of a sale of the
Property pursuant to Section 2.02(a) or Section 2.02(b) hereof, the proceeds of
said sale, to the extent permitted by law, shall be applied to the following, in
such order as Beneficiary shall, in its sole discretion, determine: the expenses
of making, maintaining and executing this trust, the expenses of such sale and
of all proceedings in connection therewith, including the expense of any
litigation, reasonable compensation for the Trustee's services and including
reasonable attorneys' fees and expenses; the reimbursement of Beneficiary for
all sums expended or incurred by Beneficiary under the terms of this Deed of
Trust or to establish, preserve or enforce this Deed of Trust or to collect the
Secured Indebtedness (including, without limitation, reasonable attorneys' fees
as provided herein or in the Note); Impositions (except that the Trustee may
sell the Property subject to ad valorem taxes and assessments without paying
them out of the proceeds), Premiums, liens, and other charges and expenses
actually incurred; the outstanding principal balance of the Secured
Indebtedness; any accrued interest; any other unpaid portion of the Secured
Indebtedness and any unpaid balance may be the subject of immediate suit; and
the balance, if any, to the parties lawfully entitled thereto.
ARTICLE III
GENERAL COVENANTS
3.01 SECURITY AGREEMENT.
(a) THIS DEED OF TRUST CREATES A LIEN ON THE PROPERTY, AND TO THE
EXTENT THE PROPERTY IS PERSONAL PROPERTY UNDER APPLICABLE LAW, THIS DEED OF
TRUST CONSTITUTES A SECURITY AGREEMENT UNDER THE UNIFORM COMMERCIAL CODE OF THE
STATE WHERE THE PERSONAL PROPERTY IS SITUATED (THE "U.C.C.") AND ANY OTHER
APPLICABLE LAW AND IS FILED AS A FIXTURE FILING. THE NAME OF THE RECORD OWNER OF
THE REAL PROPERTY IS THAT OF THE GRANTOR HEREIN. THE NAME AND ADDRESS OF THE
GRANTOR, AS DEBTOR, AND OF THE BENEFICIARY, AS SECURED PARTY, ARE AS SET FORTH
ON PAGE 1 OF THIS DEED OF TRUST. BENEFICIARY IS NOT A SELLER OR PURCHASE MONEY
LENDER OF THE COLLATERAL COVERED BY THIS FIXTURE FILING. UPON THE OCCURRENCE OF
AN EVENT OF DEFAULT, BENEFICIARY MAY, AT ITS OPTION, PURSUE ANY AND ALL RIGHTS
AND REMEDIES AVAILABLE TO A SECURED PARTY WITH RESPECT TO ANY PORTION OF THE
PROPERTY, AND/OR BENEFICIARY MAY, AT ITS OPTION, PROCEED AS TO ALL OR ANY PART
OF THE PROPERTY IN ACCORDANCE WITH BENEFICIARY'S RIGHTS AND REMEDIES WITH
RESPECT TO THE LIEN CREATED BY THIS DEED OF TRUST.
(b) The grant of a security interest to Beneficiary in the granting
clause of this Deed of Trust shall not be construed to derogate from or impair
the lien or provisions of or the rights of Beneficiary under this Deed of Trust
with respect to any property described therein which is real property or which
the parties have agreed to treat as real property. The hereby stated intention
of Grantor and Beneficiary is that the Property is, and at all times and for all
purposes and in all proceedings, both legal and equitable, shall be regarded as
real property, irrespective of whether or not the same is physically attached to
the Land and/or Improvements.
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(c) If required by Beneficiary, at any time during the term of this
Deed of Trust, Grantor will execute and deliver to Beneficiary, in form
satisfactory to Beneficiary, additional security agreements, financing
statements and/or other instruments covering all Personal Property or fixtures
of Grantor which may at any time be furnished, placed on, or annexed or made
appurtenant to the Real Property or used, useful or held for use, in the
operation of the Improvements.
(d) Grantor hereby irrevocably constitutes and appoints Beneficiary as
its attorney-in-fact and such appointment is coupled with an interest, to
execute, deliver and file with the appropriate filing officer or office such
security agreements, financing statements and/or other instruments as
Beneficiary may request or require in order to impose and perfect the lien and
security interest created hereby more specifically on the Personal Property or
any fixtures.
(e) If Grantor enters into a separate security agreement with
Beneficiary relating to any of the Personal Property or fixtures, and in the
event of any conflict between this Section 3.01 and such separate security
agreement, the terms of such separate security agreement shall govern the rights
and remedies of Beneficiary after an Event of Default thereunder.
(f) It is understood and agreed that, in order to protect Beneficiary
from the effect of U.C.C. Section 9-313, as amended from time to time, in the
event that Grantor intends to purchase any goods, other than as permitted
pursuant to Section 8.7A of the Loan Agreement, which may become fixtures
attached to the Property, or any part thereof, and such goods will be subject to
a purchase money security interest held by a seller or any other party:
(1) Grantor shall, before executing any security agreement or
other document evidencing or perfecting such security interest, obtain the prior
written approval of Beneficiary, and all requests for such written approval
shall be in writing and contain the following information:
(i) a description of the fixtures to be
replaced, added to, installed or
substituted;
(ii) the address at which the fixtures will be
replaced, added to, installed or
substituted; and
(iii) the name and address of the proposed holder
and proposed amount of the security
interest.
Grantor's execution of any such security agreement or other document
evidencing or perfecting such security interest without Beneficiary's prior
written approval shall constitute an Event of Default. No consent by Beneficiary
pursuant to this subparagraph shall be deemed to constitute an agreement to
subordinate any right of Beneficiary in fixtures or other property covered by
this Deed of Trust.
(2) If at any time Grantor fails to make any payment on an
obligation secured by a purchase money security interest in or lease of the
Personal Property or any fixtures, Beneficiary, at its option, may at any time
pay the amount secured by or due under such security interest or lease. Any
money paid by Beneficiary under this Subparagraph, including any expenses,
costs, charges and attorney's fees incurred by Beneficiary, shall be reimbursed
to Beneficiary in accordance with Section 3.10 hereof. Beneficiary shall be
subrogated to the rights of the holder of any such purchase money security
interest in the Personal Property.
(3) Beneficiary shall have the right to acquire by assignment
from the holder of such security interest or lease any and all contract rights,
accounts receivable, negotiable or non-negotiable instruments, leases or other
evidence of Grantor's indebtedness or ownership for such Personal Property or
fixtures, and, upon acquiring such interest by assignment, shall have the right
to enforce the security interest or
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lease as assignee thereof, in accordance with the terms and provisions of the
U.C.C. and in accordance with any other provisions of law.
(4) Whether or not Beneficiary has paid the indebtedness
secured by, or taken an assignment of, such security interest or lease, Grantor
covenants to pay all sums and perform all obligations secured thereby, and if
Grantor at any time shall be in default under such security agreement or lease,
it shall constitute an Event of Default.
(5) The provisions of subparagraphs (2) and (3) of this
paragraph (f) shall not apply if the goods which may become fixtures are of at
least equivalent value and quality as any property being replaced and if the
rights of the party holding such security interest have been expressly
subordinated, at no cost to Beneficiary, to the lien and security interest of
this Deed of Trust in a manner satisfactory to Beneficiary, including without
limitation, at the option of Beneficiary, providing to Beneficiary a
satisfactory opinion of counsel to the effect that this Deed of Trust
constitutes a valid and subsisting first lien on such fixtures which is not
subordinate to the lien of such security interest under any applicable law,
including without limitation, the provisions of Section 9-313 of the U.C.C.
(g) Grantor hereby warrants, represents and covenants as follows:
(1) Grantor is and has been the sole owner of the Personal
Property for at least fifteen (15) days free from any lien, security interest,
encumbrance or adverse claim thereon of any kind whatsoever. Grantor will notify
Beneficiary of, and will protect, defend and indemnify Beneficiary against, all
claims and demands of all persons at any time claiming any rights or interest
therein.
(2) The Personal Property is not used or bought and shall not
be used or bought for personal, family, or household purposes, but shall be
bought and used solely for the purpose of carrying on Grantor's business.
(3) The Personal Property has been located on the Land and/or
Improvements for at least fifteen (15) days and will be kept on or at the Land
or the Improvements and Grantor will not remove the Personal Property therefrom
without the prior written consent of Beneficiary, except such portions or items
of Personal Property which are consumed or worn out in ordinary usage, all of
which shall be promptly replaced by Grantor with other Personal Property of
value equal to or greater than the value of the replaced Personal Property when
new in accordance with Section 8.7B of the Loan Agreement, and except such
portions or items of Personal Property temporarily stored elsewhere to
facilitate refurbishing or repair thereof or of the Improvements.
(4) Grantor maintains a place of business in the State and
Grantor will immediately notify Beneficiary in writing of any change in its
principal place of business as set forth in the beginning of this Deed of Trust.
3.02 NO WAIVER. No single or partial exercise by Beneficiary and/or
Trustee, or delay or omission in the exercise by Beneficiary and/or Trustee, of
any right or remedy under the Loan Documents shall preclude, waive or limit any
other or further exercise thereof or the exercise of any other right or remedy.
Beneficiary shall at all times have the right to proceed against any portion of,
or interest in, the Property in such manner as Beneficiary may deem fit, without
waiving any other rights or remedies with respect to any other portion of the
Property.
3.03 CONVEYANCE OF PROPERTY. Grantor shall not cause, permit or suffer
the Property, or any part thereof, or any interest therein, to be conveyed,
transferred, assigned, encumbered, sold or otherwise disposed of, except as may
be permitted pursuant to Section 8.7B of the Loan Agreement.
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3.04 GRANTOR'S ESTOPPEL. Grantor shall, within ten (10) days after a
request by Beneficiary, furnish a duly acknowledged written statement in form
satisfactory to Beneficiary setting forth the amount of the Secured
Indebtedness, stating either that no offsets or defenses exist against the
Secured Indebtedness, or if such offsets or defenses are alleged to exist, the
nature and extent thereof and such other matters as Beneficiary may reasonably
request.
3.05 FURTHER ASSURANCES. Grantor shall, at the cost of Grantor, and
without expense to Beneficiary and/or Trustee, do, execute, acknowledge and
deliver all and every such further acts, deeds, conveyances, mortgages, deeds of
trust, assignments, security agreements, financing statements, modifications,
notices of assignment, transfers and assurances as Beneficiary and/or Trustee
shall from time to time reasonably require, for the better assuring, conveying,
assigning, transferring and confirming unto Beneficiary and/or Trustee the
Property and rights hereby conveyed or assigned or intended now or hereafter so
to be, or which Grantor may be or may hereafter become bound to convey or assign
to Beneficiary and/or Trustee, or for carrying out the intention or facilitating
the performance of the terms of this Deed of Trust or any of the other Loan
Documents, or for filing, refiling, registering, re-registering, recording or
rerecording this Deed of Trust. Upon any failure by Grantor to comply with the
terms of this Section, Beneficiary may, at Grantor's expense, make, execute,
record, file, rerecord and/or refile any and all such documents for and in the
name of Grantor, and Grantor hereby irrevocably appoints Beneficiary as its
attorney-in-fact so to do and such appointment is coupled with an interest.
3.06 FEES AND EXPENSES. If Beneficiary becomes a party (by intervention
or otherwise) to any action or proceeding affecting, directly or indirectly,
Grantor, the Property or the title thereto or Beneficiary's interest under this
Deed of Trust, or employs an attorney to collect any of the Secured Indebtedness
or to enforce performance of the obligations, covenants and agreements of the
Loan Documents, Grantor shall reimburse Beneficiary for all expenses, costs,
charges and legal fees incurred by Beneficiary (including, without limitation,
the fees and expenses of experts and consultants), whether or not suit be
commenced, and the same shall be reimbursed to Beneficiary in accordance with
Section 3.10 hereof.
3.07 REPLACEMENT OF NOTE. Upon notice to Grantor of the loss, theft,
destruction or mutilation of the Note, Grantor will execute and deliver, in lieu
thereof, a replacement note, identical in form and substance to the Note and
dated as of the date of the Note and upon such execution and delivery all
references in any of the Loan Documents to the Note shall be deemed to refer to
such replacement note.
3.08 HAZARDOUS SUBSTANCES.
(a) Grantor hereby represents, warrants, covenants and agrees to and
with Beneficiary that all operations or activities upon, or any use or occupancy
of the Property, or any portion thereof, by Grantor, and any tenant, subtenant
or occupant of the Property, or any portion thereof, is presently and shall
hereafter be in all respects in compliance with all state, federal and local
laws and regulations governing or in any way relating to the generation,
handling, manufacturing, treatment, storage, use, transportation, spillage,
leakage, dumping, discharge or disposal (whether legal or illegal, accidental or
intentional) of any Hazardous Substance; and that neither Grantor nor (to the
best of Grantor's knowledge, after due inquiry) any tenant, subtenant or
occupant of all or any portion of the Property, has at any time placed, suffered
or permitted the presence of any such Hazardous Substances at, on, under, within
or about the Property, or any portion thereof in violation of applicable law.
(b) In the event any investigation or monitoring of site conditions or
any clean-up, containment, restoration, removal or other remedial work
(collectively, the "Remedial Work") is required under any applicable federal,
state or local law or regulation, by any judicial order, or by any governmental
entity, or in order to comply with any agreement entered into because of, or in
connection with, any occurrence or event
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described in this Section, Grantor shall perform or cause to be performed the
Remedial Work in compliance with such law, regulation, order or agreement. All
Remedial Work shall be performed by one or more contractors, selected by Grantor
and approved in advance in writing by Beneficiary, and under the supervision of
a consulting engineer, selected by Grantor and approved in advance in writing by
Beneficiary. All costs and expenses of such Remedial Work shall be paid by
Grantor including, without limitation, the charges of such contractor(s) and/or
the consulting engineer, and Beneficiary's reasonable attorneys', architects'
and/or consultants' fees and costs incurred in connection with monitoring or
review of such Remedial Work. In the event Grantor shall fail to timely
commence, or cause to be commenced, or fail to diligently prosecute to
completion, such Remedial Work, Beneficiary may, but shall not be required to,
cause such Remedial Work to be performed, and all costs and expenses thereof, or
incurred in connection therewith, shall be reimbursed to Beneficiary in
accordance with Section 3.10 hereof.
(c) Grantor shall protect, defend, indemnify and hold Beneficiary
harmless from and against all loss, cost (including attorneys' fees), liability,
damage, claim or obligation, whenever asserted or brought, known or unknown, (i)
arising in connection with or resulting from any breach of warranty,
misrepresentation or nonfulfillment of any agreement by Grantor herein, (ii)
based upon or otherwise resulting from an alleged or claimed violation of any
federal, state or local environmental law, regulation or ordinance, or common
law of any state, including but not limited to any tort claims, that pertain or
relate in any respect or manner to the Property, incurred by Grantor by reason
of any violation of any applicable statute or regulation (whether such liability
is to a private party or any government unit, state or federal), or (iii) by
reason of the imposition of any governmental lien for the recovery of
environmental cleanup costs expended by reason of such violation, without regard
to fault on the part of Grantor. This indemnity shall survive the termination of
Grantor's indebtedness to Beneficiary and shall continue thereafter so long as
Beneficiary is subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal or investigative, by a
federal, state or other governmental body or private party or parties, regarding
the health, industrial hygiene, occupational or the environmental conditions on,
under or about the Property.
3.09 WAIVER OF CONSEQUENTIAL DAMAGES. Grantor covenants and agrees that
in no event shall Beneficiary be liable for consequential damages, whatever the
nature of a failure by Beneficiary to perform its obligation(s), if any, under
the Loan Documents, and Grantor hereby expressly waives all claims that it now
or may hereafter have against Beneficiary for such consequential damages.
3.10 BENEFICIARY REIMBURSEMENT. Any payments made, or funds expended or
advanced by Beneficiary pursuant to the provisions of any Loan Document, shall
(1) become a part of the Secured Indebtedness, (2) bear interest at the Interest
Rate (as such term is defined in the Note) from the date such payments are made
or funds expended or advanced, (3) become due and payable by Grantor upon demand
therefor by Beneficiary, and (4) bear interest at the Default Rate (as such term
is defined in the Note) from the date of such demand. Failure to reimburse
Beneficiary upon such demand shall constitute an Event of Default under Section
2.01(a) hereof.
3.11 INDEMNIFICATION OF TRUSTEE. Except for gross negligence and
willful misconduct, Trustee shall not be liable for any act or omission or error
of judgment. Trustee may rely on any document believed by it in good faith to be
genuine. All money received by Trustee shall, until used or applied as herein
provided, be held in trust, but need not be segregated (except to the extent
required by law), and Trustee shall not be liable for interest thereon. Grantor
shall protect, indemnify and hold harmless Trustee against all liability and
expenses which Trustee may incur in the performance of its duties hereunder.
3.12 ACTIONS BY TRUSTEE. At any time, or from time to time, without
liability therefor and without notice, upon written request of Beneficiary and
presentation of this Deed of Trust and the Note for endorsement, and without
affecting the personal liability of any person for payment of the Secured
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Indebtedness or the effect of this Deed of Trust upon the remainder of the
Property, Trustee may take such actions as Beneficiary may request and which are
permitted by this Deed of Trust or by applicable law.
3.13 SUBSTITUTION OF TRUSTEE. Beneficiary, either in its own name or
through an attorney or attorneys in fact appointed for that purpose, shall at
any time have the irrevocable right to remove the Trustee herein named without
notice or cause and to appoint his successor by an instrument in writing, duly
acknowledged, in such form as to entitle such written instrument to record in
the State of Tennessee, and in the event of the death or resignation of the
Trustee herein named, Beneficiary shall have the right to appoint his successor
by such written instrument. Any Trustee so appointed shall be vested with the
title to the Property, and shall possess all the powers, duties and obligations
herein conferred on the Trustee in the same manner and to the same extent as
though he was named herein as Trustee. The necessity of the Trustee herein
named, or any successor in trust, making oath or giving bond, is expressly
waived. If two Trustees are named herein, all powers, rights, and duties herein
conferred and imposed upon Trustee may be exercised or discharged by either or
both of them. A prior election to act jointly or severally shall not prevent
either or both of Trustees from subsequently executing jointly or severally any
or all of the provisions hereof. Beneficiary shall have the right to substitute
a Trustee or Trustees at Beneficiary's discretion for any reason whatsoever. The
Trustee, or any one acting in its stead, shall have, in its discretion,
authority to employ all proper agents and attorneys in the execution of this
trust and/or in the conducting of any sale made pursuant to the terms hereof,
and to pay for such services rendered out of the proceeds of the sale of the
Property, should any be realized; and if no sale be made or if the proceeds of
sale be insufficient to pay the same, then Grantor hereby undertakes and agrees
to pay the cost of such service, rendered to said Trustee. All money received by
the Trustee shall, until used or applied as herein provided, be held in trust,
but need not be segregated (except to the extent required by law), and the
Trustee shall not be liable for interest thereon. If the Trustee shall be made a
party to or shall intervene in any action or proceeding affecting the Property
or the title thereto, or the interest of the Trustee or Beneficiary under this
Deed of Trust, the Trustee and Beneficiary shall be reimbursed by Grantor,
immediately and without demand, for all reasonable costs, charges and attorneys'
fees incurred by them or either of them in any such case, and the same shall be
secured hereby as a further charge and lien upon the Property.
ARTICLE IV
MISCELLANEOUS COVENANTS
4.01 REMEDIES CUMULATIVE. No right, power or remedy conferred upon or
reserved to Beneficiary and/or Trustee by any of the Loan Documents is intended
to be exclusive of any other right, power or remedy, but shall be cumulative and
concurrent and in addition to any other right, power and remedy given hereunder
or under any of the other Loan Documents or now or hereafter existing under
applicable law.
4.02 NOTICES. All notices, demands and requests given or required to be
given by, pursuant to, or relating to, this Deed of Trust shall be in writing.
All notices hereunder shall be deemed to have been duly given if mailed by
United States registered or certified mail, with return receipt requested,
postage prepaid, or by United States Express Mail or other comparable overnight
courier service to the parties at the addresses set forth on Exhibit "A" (or at
such other addresses as shall be given in writing by any party to the others)
and shall be deemed complete upon receipt or refusal to accept delivery as
indicated in the return receipt or in the receipt of such United States Express
Mail or courier service.
4.03 HEIRS AND ASSIGNS; TERMINOLOGY.
(a) This Deed of Trust applies to, inures to the benefit of, and binds
Grantor, Beneficiary and Trustee, their heirs, legatees, devisees,
administrators, executors, successors and assigns. The term "Grantor" shall
include both the original Grantor and any subsequent owner or owners of any of
the Property. The term "Beneficiary" shall include the owner and holder of the
Note, whether or not named as Beneficiary herein. The
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term "Trustee" shall include both the original Trustee and any subsequent
successor or additional trustee(s) acting hereunder.
(b) In this Deed of Trust, whenever the context so requires, the
masculine gender includes the feminine and/or neuter, and the singular number
includes the plural.
4.04 SEVERABILITY. If any provision hereof should be held unenforceable
or void, then such provision shall be deemed separable from the remaining
provisions and shall in no way affect the validity of this Deed of Trust except
that if such provision relates to the payment of any monetary sum, then,
Beneficiary may, at its option declare the Secured Indebtedness immediately due
and payable.
4.05 APPLICABLE LAW. This Deed of Trust shall be construed and enforced
in accordance with the laws of the State; provided, however, that the
substantive law of the State of Georgia shall govern the Note.
4.06 CAPTIONS. The captions 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 Deed of Trust, nor in any way affect this Deed of Trust.
4.07 TIME OF THE ESSENCE. Time shall be of the essence with respect to
all of Grantor's obligations under this Deed of Trust and the other Loan
Documents.
4.08 NO MERGER. In the event that Beneficiary should become owner of
the Property, there shall be no merger of the estate created by this Deed of
Trust with the fee estate in the Property.
4.09 NO MODIFICATIONS. This Deed of Trust may not be changed, amended
or modified, except in a writing expressly intended for such purpose and
executed by Grantor and Beneficiary.
ARTICLE V
NON-UNIFORM COVENANTS
5.01 INDEMNIFICATION. Grantor shall indemnify, defend and hold
Beneficiary harmless from and against (i) any and all claims for brokerage,
leasing, finder's or similar fees which may relate to the Property or the Note
and (ii) against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, suits, costs and expenses (including, without
limitation, attorneys' fees and disbursements at the trial and all appellate
levels) of whatever kind or nature which may be imposed on or incurred by
Beneficiary at any time pursuant either to a judgment or decree or other order
entered into by a court or administrative agency or to a settlement reasonably
approved by Grantor, which judgment, decree, order or settlement related in any
way to or arises out of the offer, sale or lease of the Property and/or the
ownership, use, occupation or operation of any portion of the Property; provided
that such indemnity shall not apply to Beneficiary's own acts or omissions or
those of its agents or employees acting in the scope of their agency or
employment.
5.02 MULTIPLE ORIGINALS. THIS DEED OF TRUST HAS BEEN EXECUTED IN
MULTIPLE ORIGINALS BY THE GRANTOR FOR THE PURPOSE OF RECORDING ORIGINAL
COUNTERPARTS WITH THE OFFICE OF THE REGISTER OF EACH OF THE COUNTIES IN WHICH
THE PROPERTY IS LOCATED.
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IN WITNESS WHEREOF, Grantor has executed this Deed of Trust, or has
caused this Deed of Trust to be executed by its duly authorized
representative(s) as of the day and year first written above.
UNITED FOODS, INC.,
a Delaware corporation
By: /s/ Carl W. Gruenewald, II
----------------------------------------
Carl W. Gruenewald
Its Senior Vice President - Finance
STATE OF TENNESSEE
COUNTY OF CROCKETT
Before me, a Notary Public of the state and county aforesaid,
personally appeared Carl W. Gruenewald, II, with whom I am personally acquainted
(or proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged himself to be Senior Vice President-Finance of UNITED FOODS, INC.,
the within named bargainor, a corporation, and that he as such Senior Vice
President-Finance, executed the foregoing instrument for the purpose therein
contained, by signing the name of the corporation by himself as Senior Vice
President-Finance.
WITNESS MY HAND AND SEAL, at office in Bells, Tennessee, this 8th day
of July, 1999.
/s/ R. Lynn Kemp
-----------------------------------
NOTARY PUBLIC
My Commission Expires:
9-28-2002
- ----------------------
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<PAGE> 72
EXHIBIT "A"
TO DEED OF TRUST AND SECURITY AGREEMENT
I. DEFINED TERMS
"County" or "Counties" shall mean Crockett County, Tennessee, Dyer County,
Tennessee, and Obion County, Tennessee.
"Hazardous Substances" shall include without limitation:
(i) Those substances included within the definitions of
"hazardous substances," "hazardous materials," "toxic substances," or "solid
waste" in the Comprehensive Environmental Response Compensation and Liability
Act of 1980 (42 U.S.C. ss.9601 et seq.) ("CERCLA"), as amended by Superfund
Amendments and Reauthorization Act of 1986 (Pub. L. 99-499 100 Stat. 1613)
("SARA"), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. ss.6901
et seq.) ("RCRA"), and the Hazardous Materials Transportation Act, 49 U.S.C.
ss.1801 et seq., and in the regulations promulgated pursuant to said laws, all
as amended;
(ii) Those substances listed in the United States Department
of Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 CFR Part 302 and amendments thereto);
(iii) Any material, waste or substance which is (A) petroleum,
(B) asbestos, (C) polychlorinated biphenyls, (D) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. 1251 et
seq. (33 U.S.C. ss.1321) or listed pursuant to Section 307 of the Clean Water
Act (33 U.S.C. ss.1317); (E) flammable explosives; or (F) radioactive materials;
(iv) Those substances regulated by the Air Conservation Act
(UCA ss. 19-2-101 et seq.) and applicable regulations; the Water Quality Act
(UCA ss. 19-5-101 et seq.) and applicable regulations, including, without
limitation permitting as specified in UCA ss. 19-5-107; the Solid and Hazardous
Waste Act (UCA ss. 19-6-101 et seq.) and applicable regulations, including,
without limitation, state hazardous and non-hazardous waste requirements (UCA
ss. 19-6-101 et seq.), the Hazardous Substance Mitigation Act (state CERCLA
requirements) (UCA ss. 19-6-301 et seq.), state underground storage tank
requirements (UCA ss. 19-6-401 et seq.), solid waste management requirements
(UCA ss. 19-6-501) and other requirements; and other state environmental laws,
if applicable, including, without limitation, the Radiation Control Act (UCA ss.
19-3-101 et seq.) and the Safe Drinking Water Act (UCA ss. 19-4-101 et seq.);
and
(v) Such other substances, materials and wastes which are or
become regulated as hazardous or toxic under applicable local, state or federal
law, or the United States government, or which are classified as hazardous or
toxic under federal, state, or local laws or regulations.
"Rents and Profits" shall mean all and any rents, royalties, issues,
proceeds and other benefits now or hereafter arising from the Property, or any
part thereof, provided, however, Rents and Profits shall not be construed to
include accounts receivables arising in the ordinary course of business from the
sale of inventories of food or food products or from the provision of any
services related thereto, nor from royalties arising from the sale or use of
brands or trademarks relating to such inventories of food or food products.
Page 1 of 2
<PAGE> 73
"Requirements" shall mean all requirements relating to land and
building construction, use and maintenance, including, without limitation,
planning, zoning, subdivision, environmental, air quality, flood hazard, fire
safety, handicapped facilities and other governmental approvals, permits,
licenses and/or certificates as may be necessary from time to time to comply
with any of the foregoing, and other applicable statutes, rules, orders,
regulations, laws, ordinances and covenants, conditions and restrictions, which
now or hereafter pertain to and/or affect the design, construction, existence,
operation or use and occupancy of the Property, or any part thereof, or any
business conducted therein or thereon.
"State" shall mean Tennessee, the state in which the Property is
located.
II. ADDRESSES
Grantor's address:
United Foods, Inc.
Ten Pictsweet Drive
Bells, Tennessee 38006-0119
Attention: President
Beneficiary's address:
Metropolitan Life Insurance Company
Agricultural Investments
8717 West 110th Street, Suite 700
Overland Park, Kansas 66210
Attention: Senior Vice-President
and:
Metropolitan Life Insurance Company
Agricultural Investments
2203 E. Empire Street
Bloomington, Illinois 61704
Attention: Regional Manager
Trustee's address:
LeeAnne Marshall Cox
c/o Burch, Porter & Johnson
Morgan Keegan Tower
50 North Front Street, Suite 800
Memphis, Tennessee 38103
Page 2 of 2
<PAGE> 74
EXHIBIT "B"
TO DEED OF TRUST AND SECURITY AGREEMENT
PROPERTY DESCRIPTION
<PAGE> 75
EXHIBIT B TO DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY
AGREEMENT AND FINANCING STATEMENT
CROCKETT COUNTY PROPERTY
Agri-center - Skelton property:
Lying and being in the Fifth Civil District of Crockett County, Tennessee,
to-wit:
BEGINNING at an iron pin in the east margin of Highway 88 (30 feet from the
centerline) and being Stephen's northwest corner as described in Deed Book 90,
page 135 in the Register's Office of Crockett County, Tennessee, runs thence
with the east margin of Highway 88, North 2 degrees 23 minutes 01 seconds West
162.34 feet to a spindle set; thence with the east margin of an entrance ramp
connecting to State Route 20 (U.S. Highway 412), North 29 degrees 10 minutes 12
seconds East 58.31 feet to a mark made in a curb line; thence North 12 degrees
08 minutes 44 seconds East 166.42 feet to an iron pin set; thence North 52
degrees 45 minutes 52 seconds East 160.25 feet to a right of way marker found;
thence North 84 degrees 57 minutes 21 seconds East 60.25 feet to United Foods,
Inc.'s southwest corner as described in Deed Book 101, page 257; runs thence
with the south line of said United Foods, Inc.'s property, South 84 degrees 28
minutes 59 seconds East 455.18 feet to an iron pin set; thence South 88 degrees
13 minutes 35 seconds East 245.53 feet to an iron pin at Gaines' southwest
corner (Deed reference Deed Book 35, page 520); runs thence with Gaines' south
line, South 87 degrees 12 minutes 01 second East 585.91 feet to an iron pin
found in the southern margin of State Route 20 (U.S. Highway 412); runs thence
with the south margin of said highway, South 62 degrees 36 minutes 09 seconds
East 115.80 feet to an iron pin found at Edwards' northwest corner as described
in Deed Book 73, page 322; runs thence with Edwards' west line, South 3 degrees
46 minutes 101 seconds West 440.36 feet to an iron pin found; thence with
Edwards' north line and then with the north line of Rolling Hills Estates as
recorded in Plat Book 2, page 28, and then with Stephen's north line, North 86
degrees 37 minutes 13 seconds West 1604.63 feet to the point of beginning
containing 17.4880 acres as surveyed by Surveying Services, Inc. on June 28,
1999.
Map 75 Parcel 42.00
Being the same property conveyed to United Foods, Inc., a Delaware corporation,
by deed appearing of record in Deed Book 108, page 679, in the Register's Office
of Crockett County, Tennessee.
Webb Farm;
Lying and being in the First Civil District of Crockett County, Tennessee,
to-wit:
BEGINNING at a set PK nail in the centerline of the Lower Bells-Jackson Road at
a northeast corner of the Mrs. Lavelle Ellington property as recorded in Dead
Book 30, page 543, ROCCT, proceed eastwardly along the centerline of Lower
Bells-Jackson Road following an irregular curve to the right having a chord
course of North 84 degrees 31 minutes 10 seconds East for a distance of
1,410.00 feet and a length of 1,428.70 feet as measured along the centerline of
Lower Bells-Jackson
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Road to a set PK nail at the northwest corner of the Jimmy E. Webb property as
recorded in Deed Book 91, page 420 & 422, ROCCT, thence South 1 degree 35
minutes 00 seconds East along the west line of said Jimmy E. Webb for a distance
of 498.00 feet to a set iron pin at the southwest corner of said Jimmy E. Webb,
thence South 88 degrees 25 minutes 00 seconds East along the south line of said
Jimmy E. Webb for a distance of 631.28 feet to a set iron pin in the centerline
of Lower Bells-Jackson Road, thence South 1 degree 35 minutes 00 seconds East
along the centerline of Lower Bells-Jackson Road and along a west line of the
James E. Wilkerson property as recorded in Deed Book 75, page 153, ROCCT, for a
distance of 757.34 feet to a set iron pin at a southwest corner of the Wilkerson
property, thence North 88 degrees 25 minutes 00 seconds East along a south line
of said Wilkerson property for a distance of 33.00 feet to the centerline of a
drainage ditch, said ditch being a west line of the Wilkerson property, thence
generally southwardly along the centerline of said ditch for the following
calls: South 2 degrees 28 minutes 00 seconds East for a distance of 1,094.25
feet; South 8 degrees 40 minutes 45 seconds East for a distance of 976.75 feet,
South 5 degrees 09 minutes 50 seconds West for a distance of 1,112.40 feet,
South 5 degrees 09 minutes 20 seconds East for a distance of 1,350.00 feet, and
South 23 degrees 46 minutes 30 seconds West for a distance of 151.10 feet to the
intersection of the centerline of the drainage ditch and the north top bank of
the Forked Deer River, thence North 70 degrees 12 minutes 40 seconds West along
the north top bank of the Forked Deer River for a distance of 1,569.54 feet to a
12 inch Birch at a southeast corner of the aforementioned Ellington property,
thence North 3 degrees 07 minutes 20 seconds East along an east line of said
Ellington property for a distance of 1,523.50 feet to a fence corner at a 18
inch Locust, said fence corner being an interior corner of the Ellington
property, thence North 86 degrees 34 minutes 10 seconds East along a south line
of said Ellington property for a distance of 542.45 feet to a fence corner at a
southeast corner of the Ellington property thence North 4 degrees West for a
distance of 3,032.50 feet to a fence corner at a northeast corner of the
Ellington property, thence South 85 degrees 50 minutes 40 seconds West along a
north line of said Ellington property for a distance of 1,145.10 feet to a set
iron pin at an interior corner of the Ellington property, thence North 4 degrees
09 minutes 20 seconds West along an east line of the Ellington property for a
distance of 726.28 feet to the point of beginning, containing 149.90 acres, more
or less, including but excluding any right-of-way for Lower Bells-Jackson Road.
Map 88 Parcel 100
Being the same property conveyed to United Foods, Inc., by deed appearing of
record in Deed Book 91, page 425, in the Register's Office of Crockett County,
Tennessee.
Gaines Property:
Lying and being in the Fifth Civil District of Crockett County, Tennessee,
to-wit:
BEGINNING at a concrete monument as set in the southeast right-of-way of the L &
N Railroad; the northernmost corner of the tract herein described and being a
corner of Roger Cobb, et al (Deed Book 83, page 534); said concrete monument
being located 50 feet from the centerline of the main tracks of said railroad
and also being located 94 feet southwest of Milepost 307 and runs South 23
2
<PAGE> 77
degrees 33 minutes 26 seconds East 687.37 feet, with the west boundary line of
Cobb and generally with an old fence to a 1-inch iron pipe as found at a wooden
fence corner; thence South 87 degrees 34 minutes 48 seconds East 172.48 feet
with the south boundary line of Cobb and generally with an old fence to an iron
rod as set at a wooden fence corner on the west side of a levee, corner with
Billy N. Webb (Deed Book 84, page 405); thence South 00 degrees 57 minutes 43
seconds East 2310.36 feet with the west boundary line of Webb to an iron rod as
found at a 14-inch elm with old fence on the north bank of the Forked Deer
River; thence with the meanders of said river the following twenty-six courses:
South 77 degrees 16 minutes 45 seconds West, 249.82 feet; thence North 82
degrees 07 minutes 00 seconds West, 354.20 feet; thence South 43 degrees 09
minutes 30 seconds West, 146.55 feet; thence South 26 degrees 53 minutes 09
seconds West, 152.56 feet; thence South 09 degrees 47 minutes 06 seconds West,
124.92 feet; thence South 18 degrees 31 minutes 36 seconds West, 150.34 feet;
thence South 76 degrees 54 minutes 23 seconds West, 114.41 feet; thence North 21
degrees 18 minutes 09 seconds West, 146.08 feet; thence North 09 degrees 03
minutes 01 second East, 236.17 feet; thence North 01 degree 36 minutes 56
seconds East, 187.97 feet; thence North 19 degrees 42 minutes 37 seconds West,
110.12 feet; thence North 86 degrees 19 minutes 24 seconds West, 101.05 feet;
thence South 39 degrees 19 minutes 05 seconds West, 125.63 feet; thence South 34
degrees 50 minutes 44 seconds West, 157.90 feet; thence South 42 degrees 39
minutes 29 seconds West, 211.46 feet; thence South 79 degrees 37 minutes 35
seconds West, 107.90 feet; thence North 71 degrees 16 minutes 07 seconds West,
100.86 feet; thence North 43 degrees 43 minutes 55 seconds West, 373.56 feet;
thence north 78 degrees 34 minutes 49 seconds West, 207.58 feet; thence North 79
degrees 37 minutes 35 seconds West, 215.81 feet; thence South 69 degrees 18
minutes 09 seconds West, 239.25 feet; thence North 89 degrees 35 minutes 30
seconds West 130.47 feet; thence North 43 degrees 12 minutes 22 seconds West,
141.41 feet; thence North 10 degrees 42 minutes 11 seconds West, 171.44 feet;
thence North 31 degrees 06 minutes 43 seconds West, 143.79 feet; thence North 65
degrees 05 minutes 15 seconds West, 132.86 feet to a point in the southeast
right-of-way of the L & N Railroad, said point being located 50 feet from the
centerline of the main tracks; thence North 45 degrees 00 minutes 00 seconds
East 3,498.00 feet with said southeast right-of-way, the point of beginning.
Description from survey of Professional Land Services dated April 13, 1990.
Map 89 Parcel 11.00
Being the same property conveyed to United Foods, Inc., by deed dated April 21,
1990 appearing of record in Deed Book 91, page 519, in the Register's Office of
Crockett County, Tennessee.
3
<PAGE> 78
DYER COUNTY PROPERTY
Boals property:
Lying and being in the Tenth Civil District of Dyer County, Tennessee, to-wit:
BEGINNING at the northwest corner of Tract 1 of the United Foods, Inc. property
and the southwest corner of Tract 2 as described in Deed Book 318 Page 208 in
the Register's Office of Dyer County, Tennessee of which is included in the
property being described, said corner also being SIWA's southeast corner (no
reference found) and being in Crockett Creek Drainage Canal; said corner being,
as measured along SIWA's south line, North 86 degrees 19 minutes 09 seconds East
857.64 feet from the intersection of Dummy Line Road; runs thence with SIWA's
east line and Crockett Creek Drainage Canal, North 7 degrees 08 minutes 41
seconds West 1441.74 feet to Boals' southwest corner as described in Will Book
F, Page 402; runs thence with Boals' south line (a metal stake being found on
line at the top bank of said Canal), North 89 degrees 54 minutes 04 seconds East
1499.21 feet to an iron pin, set in Henley's west line as described in Deed Book
328, page 49; runs thence with Henley's west line, South 2 degrees 52 minutes 03
seconds West 1411.31 feet to an iron post, found in United Foods, Inc.'s north
line as described in Deed Book 318 Page 206 of which is also included in the
property being described; runs thence with the north lines of the United Foods,
Inc.'s property as described in Deed Book 318 Page 206 and Deed Book 318 Page
210, North 88 degrees 55 minutes 07 seconds East 805.88 feet to an iron pin, set
in Calcutt's west line as described in Deed Book 263 Page 653; runs thence with
Calcutt's west line and then with Permenter's west line (Deed Book 345 Page
125), South 2 degrees 37 minutes 27 seconds West 3426.80 feet to an iron pin,
set at Permenter's northeast corner as described in Deed Book 95 Page 461; runs
thence with Permenter's north line, South 89 degrees 10 minutes 24 seconds West
920.32 feet to an iron pin, set; thence South 87 degrees 21 minutes 28 seconds
West 462.42 feet to Crockett Creek Drainage Canal and being in Permenter's east
line; runs thence with Permenter's east line and Crockett Creek Drainage Canal,
North 8 degrees 34 minutes 55 seconds West 2197.20 feet to the southwest corner
of the United Foods, Inc.'s property as described in Deed Book 318 Page 208
(Tract 1); thence continuing with Crockett Creek Drainage Canal, North 8 degrees
34 minutes 56 seconds West 1260.51 feet to the point of beginning containing
179.7869 acres as surveyed by Surveying Services, Inc., 41 Heritage Square,
Jackson, Tennessee 38305 (901-664-0807)
Being all of the United Foods, Inc.'s property as described in Deed Book 318
Page 206, Deed Book 318 Page 208 and Deed Book 318 Page 210 in the Register's
Office of Dyer County, Tennessee.
Being all of Map 101, Parcel 21.00, Map 101, Parcel 21.01, Map 101, Parcel 5.01,
and Map 101, Parcel 21.02
1
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Tarrant property:
Lying and being in the Twentieth Civil District of Dyer County, and the Ninth
Civil District of Obion County, Tennessee, to-wit;
BEGINNING at an iron pin set in the south margin of Dew Drop Road (30 feet from
the centerline) and being MaGee and Taylor's northeast corner as described in
Deed Book 308, page 799, in the Register's Office of Dyer County, Tennessee,
also being the northwest corner of the Tarrant property as described in Deed
Book 117, page 457, in the Register's Office for Dyer County, Tennessee, of
which this property being described more particularly describes, said corner
also being the southwest corner of the right-of-way property obtained by the
Tennessee Department of Highways (Obion County) as described in Deed Book 14-E,
page 109-113; runs thence with the south margin of Dew Drop Road (the south
margin of said right-of-way property as described above) South 80 degrees 04
minutes 43 seconds East 289.30 feet; thence South 09 degrees 28 minutes 17
seconds West 5.00 feet; thence South 80 degrees 31 minutes 43 seconds East
692.90 feet; thence north 09 degrees 31 minutes 43 seconds East 692.90 feet;
thence North 09 degrees 28 minutes 17 seconds East 5.00 feet; thence South 80
degrees 31 minutes 43 seconds East 611.80 feet; thence South 09 degrees 28
minutes 17 seconds West 10.00 feet; thence South 80 degrees 31 minutes 43
seconds East 100.00 feet; thence North 09 degrees 28 minutes 17 seconds East
10.00 feet; thence South 80 degrees 31 minutes 43 seconds East 300.00 feet;
thence South 09 degrees 28 minutes 17 seconds West 15.00 feet; thence South 80
degrees 31 minutes 43 seconds East 779.00 feet; thence South 36 degrees 55
minutes 17 seconds West 115.00 feet; thence South 46 degrees 04 minutes 43
seconds East 50.00 feet; thence North 43 degrees 55 minutes 17 seconds East
150.00 feet; thence South 80 degrees 31 minutes 43 seconds East intersecting the
centerline of Lane Road at 562.06 feet, and continuing for a total distance of
650.00 feet; thence North 04 degrees 22 minutes 17 seconds East 15.00 feet;
thence South 80 degrees 31 minutes 43 seconds East 550.00 feet; thence South 84
degrees 08 minutes 03 seconds East 450.00 feet to the center of Dew Drop Road;
runs thence with the center of Dew Drop Road South 80 degrees 38 minutes 46
seconds East 2312.01 feet at Lambert's northwest corner as described in Will
Book D, page 401; runs thence with the west line (partial fence line) of
Lambert, an iron pin being set on line at 27 feet, then with Arnold and
continuing with Klyce's west line (Deed Book 150, page 285) South 03 degrees 37
minutes 05 seconds West 3348.71 feet to an iron pin found at Hopper's northeast
corner as described in Deed Book 290, page 54; runs thence with Hopper's north
line (partial fence line) North 87 degrees 33 minutes 28 seconds West 438.46
feet to an iron pipe, found at Lambert's northeast corner as described in Will
Book E, page 486; runs thence with Lambert's north line North 86 degrees 10
minutes 47 seconds West 272.34 feet to a railroad iron found at Hancock's
northeast corner as described in Deed Book 276, page 558; runs thence with
Hancock's north line (partial fence line) North 87 degrees 14 minutes 18 seconds
West 593.58 feet to an iron pin set in the north margin of Lane Road; runs
thence with Hancock's west line (partial fence line) South 02 degrees 53 minutes
50 seconds West 1509.11 feet to a metal stake found; runs thence with Hancock's
north line (partial fence line) and then with Morgan's north line (Will Book e,
page 401) North 87 degrees 04 minutes 37 seconds West 1671.80 feet to a metal
pipe found; runs thence with Morgan's west line South 02 degrees 46 minutes 07
seconds West 850.97 feet to an iron pin set and is believed to be Alford's
northeast corner as described in Deed Book 296,
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<PAGE> 80
page 257; runs thence with Alford's north line (this line is being based upon
current possession line or the break between crop lines) North 86 degrees 21
minutes 45 seconds West 2881.14 feet to a metal post found; runs thence North 88
degrees 52 minutes 55 seconds West 1452.79 feet to an iron pin set (an existing
PVC pipe being found) in Magee and Taylor's east line; runs thence with said
East line North 07 degrees 47 minutes 03 seconds East 4055.34 feet to an iron
pin set; runs thence (partial fence line) North 08 degrees 31 minutes 44 seconds
East 2442.66 feet to the point of beginning, and containing 879.1361 acres as
surveyed by Surveying Services, Inc., 41 Heritage Square, Jackson, TN 38305, as
shown by plat of survey dated December 21, 1998, made in the name of United
Foods, Inc. (R. Bruce Richardson, Surveyor, with Tennessee License No. 1420).
Map 8, Parcels 3.00 and 3.01, Dyer County, Tennessee
Map 153, Parcels 1.00 and 1.01, Obion County, Tennessee
This property being subject to a roadway easement for Lane Road (easement being
taken as 20 feet on each side of said centerline) and being more particularly
described as follows: BEGINNING at the intersection of the centerline of Lane
Road and being in the south margin of Dew Drop Road as described above; runs
thence with the center of Lane Road as follows, South 33 degrees 43 minutes 05
seconds West 78.85 feet; thence South 40 degrees 38 minutes 51 seconds West
479.09 feet; thence following a curve to the left having a radius of 200.00 feet
for a distance of 120.02 feet; thence South 06 degrees 15 minutes 52 seconds
West 371.63 feet; thence South 07 degrees 44 minutes 52 seconds West 2704.15
feet; thence following a curve to the left having a radius of 75.00 feet for a
distance of 124.95 feet; thence South 87 degrees 42 minutes 31 seconds East
648.90 feet; thence South 86 degrees 52 minutes 57 seconds East passing the
centerline of field entrance at 223.79 feet for a total distance of 1188.87
feet; thence south 86 degrees 35 minutes 08 seconds East 502.16 feet; thence
South 87 degrees 18 minutes 23 seconds East 237.27 feet to the intersection of
the west line of the Hancock property as described above.
This property has a field road leading to the Alford property as described above
and being an ingress and egress easement as recorded in Deed Book 298, page 723;
the centerline of said field road being described as follows: Being a twenty
foot wide easement and the centerline BEGINNING at the intersection of Lane Road
and the center of this field road as described in the Lane Road easement above,
runs thence South 01 degree 38 minutes 56 seconds West 1500.12 feet to a metal
pipe as found at Morgan's northwest corner and being an interior corner of the
property as described above; thence from the said interior corner the easement
is reduced to a width of tan feet parallel to the west line of said Morgan
property and runs thence South 02 degrees 46 minutes 07 seconds West 850.97 feet
to the northeast corner of the Alford tract as described in Deed Book 296, page
257, and being a southeast corner of this 879.1361 acre tract as described
above.
Being the same property conveyed to United Foods, Inc.,.a Delaware corporation,
by deed appearing of record in Deed Book 24R, page 89, in the Register's Office
of Obion County, Tennessee and in Record Book 365, page 39 in the Register's
Office of Dyer County, Tennessee.
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EXHIBIT "C"
TO DEED OF TRUST AND SECURITY AGREEMENT
PERMITTED EXCEPTIONS
<PAGE> 82
EXHIBIT C
TO
DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND
FINANCING STATEMENT
Permitted Exceptions
Crockett County Property
1. Application for Approval of Land as Agricultural Land appearing of
record in Green Belt Book 5, page 3745 in the Register's office of
Crockett County, Tennessee, which provides "If land is approved as
agricultural land and the use of the land is converted to other uses,
any taxes saved because of the agricultural classification shall become
due and payable on the first tax roll following the conversion of the
use. The amount to be due will be the tax saved during the last three
years of agricultural classification."
2. Easement to Crockett Utility District for gas line dated March 19, 1992
of record in Deed Book 101, page 127 in the Register's office of
Crockett County, Tennessee.
3. Encroachment of 18 feet underground pipe across north property line, as
shown on plat of Surveying Services, Inc. dated June 28, 1999.
(Adjacent property to the north is shown on the survey plat as owned by
United Foods, Inc.)
4. All matters shown on the survey plat of Surveying Services, Inc. of
Bruce Richardson, dated June 28, 1999.
5. Right of way for Lower Bells-Jackson Road.
6. According to tax maps for Crockett County, Tennessee, the Gulf, Mobile
& Ohio Railroad ran through subject property at one time; however, the
deeds in our chain of title which began in 1958 do not mention the
railroad.
7. Channel Improvement and Maintenance Easement of record at Deed Book 58,
page 308 in the Register's Office of Crockett County, Tennessee.
8. According to the deed description as recorded in Deed Book 91, page 519
in the Register's office of Crockett County, Tennessee, and the tax
maps in the Assessor's Office of Crockett County, Tennessee, this
property, the Gaines Farm, is landlocked.
9. Subject to all rights of way of the L & N Railroad including rights to
extend its right of way to the full extent of its charter.
10. Rights of third parties in the Forked Deer River.
11. Right of Way Agreement of record at Deed Book 27, page 193, Register's
Office of Crockett County, Tennessee.
12. Taxes and assessment due in 1999 and thereafter.
Dyer County Property
1. Transmission Line Easement to the United States of America dated April
19, 1988 and recorded in Deed Book 254, page 338 in the Register's
Office of Dyer County, Tennessee.
2. Pursuant to the survey plat of Surveying Services, Inc. dated June 24,
1999, there are no public right of ways to the Boals Farm.
3. All public or other rights in the Crockett County Drainage Canal which
is shown on the Dyer County Tax Assessor's maps and on the survey plat
of Surveying Services, Inc. dated June 24, 1999.
4. Application for Approval of Land as Agricultural Land appearing of
record in Record Book 339 page 808 in the Register's Office of Dyer
County, Tennessee, which provides "If land is approved as agricultural
land and the use of the land is converted to other uses, any taxes
saved because of the agricultural classification shall become due and
payable on the first tax roll following the conversion of the use. The
amount to be due will be the tax saved during the last three years of
agricultural classification."
5. Transmission Line Easement to the United States of America dated May 5,
1988 and recorded in Deed Book 254, page 462 in the Register's Office
of Dyer County, Tennessee.
6. Application for Approval of Land as Agricultural Land appearing of
record in Record Book 339, page 811 in the Register's Office of Dyer
County, Tennessee, which provides "If land is approved as agricultural
land and the use of the land is converted to other uses, any taxes
saved because of the agricultural classification shall become due and
payable on the first tax roll following the conversion of the use. The
amount to be due will be the tax saved during the last three years of
agricultural classification."
7. Application for Approval of Land as Agricultural Land appearing of
record in Record Book 339 pages 809 and 810 in the Register's Office of
Dyer County, Tennessee, which provides "If land is approved as
agricultural land and the use of the land is converted to other uses,
any
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taxes saved because of the agricultural classification shall become due
and payable on the first tax roll following the conversion of the use.
The amount to be due will be the tax saved during the last three years
of agricultural classification."
8. Grant of Transmission Line Easement to the United States of America of
record in Deed Book 254, page 126 in the Register's Office of Dyer
County, Tennessee.
9. All matters shown on the survey plat of Surveying Services, Inc. dated
June 24, 1999.
10. Application for Approval of Land as Agricultural Land appearing of
record in Miscellaneous Book 1 page 250 and Miscellaneous Book 1, page
251 in the Register's Office of Dyer County, Tennessee, which provides
"If land is approved as agricultural land and the use of the land is
converted to other uses, any taxes saved because of the agricultural
classification shall become due and payable on the first tax roll
following the conversion of the use. The amount to be due will be the
tax saved during the last three years of agricultural classification."
11. Access Easement for the purpose of ingress and egress for agricultural
purposes, being a 20- foot wide easement beginning on the southern line
of Lane Road and extending a southerly direction along the existing old
abandoned county roadbed for a distance of 1450 feet, more or less,
thence reduced to a width of ten feet in a southerly direction for a
distance of 950 feet more or less along the old county roadbed of
record in Deed Book 298, page 723 in the Register's Office of Dyer
County, Tennessee.
12. Agreement to construct and maintain a drainage ditch across subject
property as set out in instrument of record in Deed Book 70, page 334
in the Register's Office of Dyer County, Tennessee.
13. Easement to Gibson County Electric Corporation of record in Deed Book
83, page 430 in the Register's Office of Dyer County, Tennessee.
14. Rights of third parties in the right of way of Dew Drop Road also known
as Cat Corner Road and Lane Road, also known as Cherry Road, and an
unnamed road as shown on the tax maps in the Assessor's Office of Dyer
County, Tennessee.
15. The roadway easement and field road which are contained in the deed of
record at Deed Book 24R, page 89 in the Register's Office of Obion
County, Tennessee and Record Book 365, page 39 in the Register's Office
of Dyer County, Tennessee.
16. Reservation of half an acre reserved as a graveyard as set out in the
deed to Jon E. Tarrant and Louis F. Tarrant of record in Deed Book 55,
page 570 in the Register's Office of Dyer County, Tennessee. The exact
location of the graveyard cannot be determined.
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17. All matters shown on survey plat of Surveying Services, Inc. dated June
15, 1999.
18. Any dispute regarding the southernmost boundary line of the Tarrant
property, which is shown on the survey plat dated June 15, 1999, as the
current possession line, or the break between crop lines.
19. Channel change and easement as set out in the Final Decree of record in
Deed Book 14-E, page 109 and page 111 in the Register's Office of Obion
County, Tennessee.
20. Taxes and assessments due in 1999 and thereafter.
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EXHIBIT "D"
TO DEED OF TRUST AND SECURITY AGREEMENT
REQUIREMENTS FOR RESTORATION
Unless otherwise expressly agreed in a writing signed by Beneficiary
for such purpose, the Requirements For Restoration shall be as follows:
(a) In the event the Net Insurance Proceeds are to be used for the
Restoration, Grantor shall deliver or furnish to Beneficiary, to the extent
available prior to the commencement of any work or services and thereafter as
soon as practical, in connection with the Restoration (the "Work"), (i) complete
plans and specifications for the Work which (A) have been approved by all
governmental authorities whose approval is required, (B) bear either the signed
approval of an engineer or architect satisfactory to Beneficiary (the
"Engineer") in respect of any Restoration costing in excess of $1,000,000.00, or
the signed approval of an officer of Grantor in respect of any Restoration not
in excess of $1,000,000.00, and (C) are accompanied by Engineer's signed
estimate of the total estimated cost of the Work (collectively, the "Plans and
Specifications"); (ii) evidence satisfactory to Beneficiary of its ability to
pay the amount of money which, as determined by Beneficiary, will be sufficient
when added to the Net Insurance Proceeds, if any, to pay the entire cost of the
Restoration (all such money as held by Beneficiary being herein collectively
referred to as the "Restoration Funds"); (iii) copies of all permits and
approvals required by law in connection with the commencement and conduct of the
Work; and (iv) contracts for construction executed by Grantor and one or more
contractors satisfactory to Beneficiary (the "Contractor") in form, scope and
substance satisfactory to Beneficiary (including a provision for retainage) for
performance of the Work.
(b) After commencing the Work, Grantor shall perform or cause
Contractor to perform the Work diligently and in good faith in accordance with
the Plans and Specifications. So long as there does not currently exist an Event
of Default under any of the Loan Documents, Restoration Funds in excess of
$1,000,000.00 shall be disbursed through an escrow with a title company selected
by Grantor and approved by Beneficiary in increments to Grantor, from time to
time as the Work progresses, to pay (or reimburse Grantor for) the costs of the
Work (Grantor shall be permitted to hold and disburse Restoration Funds not in
excess of $1,000,000.00), but subject to the following conditions, any of which
Beneficiary may waive in its sole discretion:
(i) Such payments shall be made only upon not less than five
(5) days' prior written notice from Grantor to Beneficiary and Grantor's
delivery to Beneficiary of (A) Grantor's written request for payment (a "Request
for Payment") accompanied by a certificate by Engineer in form, scope and
substance satisfactory to Beneficiary which states that all of the Work
completed to that date has been done in compliance with the Plans and
Specifications and in accordance with all provisions of law, that the amount
requested has been paid or is then due and payable and is properly a part of the
cost of the Work and that when added to all sums, if any, previously paid out by
Beneficiary, the requested amount does not exceed the value of the Work done to
the date of such certificate; (B) evidence satisfactory to Beneficiary that
there are no mechanic's or similar liens for labor or material supplied in
connection with the Work to date or that any such liens have been adequately
provided for to Beneficiary's satisfaction; and (C) evidence satisfactory to
Beneficiary that the balance of the Restoration Funds remaining after making the
payments, including the additional amount necessary to accomplish the
Restoration as provided in subparagraph (a) above, shall be sufficient to pay
the balance of the cost of the Work not
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<PAGE> 86
completed to date (giving in such reasonable detail as Beneficiary may require
an estimate of the cost of such completion). Each Request for Payment shall be
accompanied by (x) waivers of liens satisfactory to Beneficiary covering that
part of the Work previously paid for, if any, (y) a search prepared by a title
company or by other evidence satisfactory to Beneficiary that no mechanic's
liens or other liens or instruments for the retention of title in respect of any
part of the Work have been filed against the Property and not discharged of
record, and (z) an indorsement to Beneficiary's title policy insuring the
Beneficiary that no encumbrance exists on or affects the Property other than the
Permitted Exceptions; and
(ii) Any Request for Payment after the Restoration has been
completed shall be accompanied by a copy of any certificate or certificates
required by law to render occupancy of the Improvements legal.
(c) If during any period of Restoration, (i) Grantor fails to submit to
Beneficiary the Plans and Specifications for the Work undertaken by the Grantor
pursuant to Section 1.07(b) or fails to provide evidence satisfactory to
Beneficiary of its ability to pay the additional amount necessary to accomplish
the Restoration as provided in subparagraph (a) above, or (ii) Grantor fails to
obtain any permit or approval of any governmental authority required by law in
connection with the commencement and conduct of the Work or fails to commence
promptly or diligently continue to completion the Restoration, or (iii) subject
to Section 1.16 hereof, Grantor becomes delinquent in payment to mechanics,
materialmen or others for the costs incurred in connection with the Restoration,
then, in addition to all of the rights herein set forth and after five (5) days'
written notice of the non-fulfillment of one or more of the foregoing
conditions, Beneficiary may require that the Restoration Funds then or
thereafter available shall be applied to reduce the Secured Indebtedness in such
order as Beneficiary may determine, and at Beneficiary's option and in its sole
discretion, Beneficiary may declare the Secured Indebtedness immediately due and
payable.
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