SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 27, 1997 Commission File number 1-9273
PILGRIM'S PRIDE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-1285071
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 SOUTH TEXAS, PITTSBURG, TX 75686-0093
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (903) 855-1000
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, Par Value $0.01 New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
<PAGE>
The aggregate market value of the Registrant's Common Stock, $0.01 par
value, held by non- affiliates of the Registrant as of December 12, 1997,
was $155,424,806. For purposes of the foregoing calculation only, all
directors, executive officers, and 5% beneficial owners have been deemed
affiliates.
27,589,250 shares of the Registrant's common stock, $.01 par value, were
outstanding as of December 12, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for the annual meeting of
stockholders to be held February 4, 1998 are incorporated by reference into
Part III.
<PAGE>
PILGRIM'S PRIDE CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business 4
Item 2. Properties 18
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders. 21
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters 22
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition 24
Item 8. Financial Statements and Supplementary Data (see Index to Financial
Statements and Schedules below). 30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. 30
PART III
Item 10. Directors and Executive Officers of Registrant 30
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners and Management 30
Item 13. Certain Relationships and Related Transactions 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 30
Signatures 36
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Ernst & Young LLP--Independent Auditors 38
Consolidated Balance Sheets as of September 27, 1997 and September 28, 1996 39
Consolidated Statements of Income (Loss) for the years ended
September 27, 1997, September 28, 1996 and September 30, 1995 40
Consolidated Statements of Stockholders' Equity for the years ended
September 27, 1997, September 28, 1996 and September 30, 1995 41
Consolidated Statements of Cash Flows for the years ended
September 27, 1997, September 28, 1996 and September 30,1995 42
Notes to Consolidated Financial Statements 43
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Pilgrim's Pride Corporation (the "Company"), which was incorporated in
Texas in 1968 and reincorporated in Delaware in 1986, is the successor to a
partnership founded in 1946 as a retail feed store. Over the years, the
Company grew through both internal growth and various acquisitions of
farming operations and chicken processors. In addition to domestic growth,
the Company initially expanded into Mexico through the acquisition of
several smaller chicken producers in 1988.
Pilgrim's Pride Corporation is one of the largest producers of
prepared and fresh chicken products in North America and has one of the
best known brand names in the chicken industry. The Company is the fourth
largest producer of chicken in the United States and one of the two largest
in Mexico. Through vertical integration, the Company controls the
breeding, hatching and growing of chickens and the processing, preparation,
packaging and sale of its product lines. In fiscal 1997, approximately 78%
of the Company's net sales were from its U.S. operations, including U.S.
produced chicken products sold for export to Canada, Eastern Europe, the
Far East and other world markets, with the remaining approximately 22%
arising from the Company's Mexico operations.
The Company's objectives are to increase sales, profit margins and
earnings and outpace the growth of the chicken industry: (i) by focusing on
growth in the prepared food products market, (ii) by focusing on growth in
the Mexico market, and (iii) through greater utilization of the Company's
existing assets. Key elements of the Company's strategy to achieve these
objectives are to:
FOCUS U.S. GROWTH ON PREPARED FOODS. In recent years the Company has
focused its sales of prepared foods to the foodservice market,
particularly to chain restaurants and frozen entree producers. The
market for prepared foods has experienced greater growth and higher
margins than fresh chicken products, and the Company's sales of
prepared foods products to the foodservice market have grown from
$183.2 million in fiscal 1993 to $347.8 million in fiscal 1997, a
compounded annual growth rate of 17.4%. Additionally, the production
and sale of prepared foods reduces the impact of feed grain costs on
the Company's profitability. As further processing is performed, feed
grain costs become a decreasing percentage of a product's total
production cost. The Company is now the largest supplier of chicken to
Wendy's and Jack-in-the-Box chain restaurants and to Stouffer's frozen
entree operation. Other major prepared foods customers include KFC
and Taco Bell. Prepared foods constituted 45.4% of the Company's U.S.
chicken sales in fiscal 1997.
FOCUS ON CUSTOMER DRIVEN RESEARCH AND TECHNOLOGY. Much of the
Company's growth in prepared foods has been the result of customer-
driven research & development focused on designing new products to
meet customer's changing needs. The Company's research & development
personnel often work directly with institutional customers in
developing proprietary products. Approximately $118 million of the
Company's sales to foodservice customers in fiscal 1997 consisted of
new products, which were not sold by the Company in fiscal 1993. The
Company is also a leader in utilizing advanced processing technology,
which enables the Company to better meet its customers' needs for
product innovation, consistent quality and cost efficiency.
ENHANCE THE U.S. FRESH CHICKEN PRODUCT MIX THROUGH VALUE-ADDED,
BRANDED PRODUCTS. The Company's fresh chicken business is an important
component of its sales and has grown from sales of $249.3 million in
fiscal 1993 to $326.5 million in fiscal 1997. In addition to
maintaining its sales of mature, traditional fresh chicken products,
the Company's strategy is to shift the mix of its U.S. fresh chicken
products by continuing to increase sales of higher margin, faster
growing products, such as marinated chicken and chicken parts. As a
result of this strategy, the Company's compounded annual growth rate
of fresh chicken sales from fiscal 1993 to fiscal 1997 exceeded 6.9%
while total U.S. industry sales of fresh chicken increased
approximately 1%.
MAINTAIN OPERATING EFFICIENCIES AND INCREASE CAPACITY ON A COST-
EFFECTIVE BASIS. As production and sales have grown, the Company has
maintained operating efficiencies by investing in state of-the-art
technology, processes and training and by making cost-effective
acquisitions both in the U.S. and Mexico. As a result, according to
industry data, since 1993 the Company has consistently been one of the
lowest cost producers of chicken. Continuing this strategy, the
Company acquired additional chicken producing assets in the U.S. in
April 1997, to replace chicken purchased from third parties, at a cost
that management believes is significantly less than the cost required
to construct a new chicken production complex with similar capacity.
CAPITALIZE ON INTERNATIONAL DEMAND FOR U.S. CHICKEN. Due to U.S.
consumers' preference for chicken breast meat, the Company has
targeted international markets to generate sales of leg quarters. The
Company has also begun selling prepared food products for export, to
the international divisions of its U.S. chain restaurant customers.
As a result of these efforts, sales for these markets have grown from
less than 1% of the Company's total U.S. chicken sales in fiscal 1993
to more than 5% in fiscal 1997. Management believes that: (i) U.S.
chicken exports will continue to grow as worldwide demand for high
grade, low costs protein sources increases, and (ii) worldwide demand
for higher margin prepared food products will increase over the next
five years; and accordingly, the Company is well positioned to
capitalize on such growth.
CAPITALIZE ON INVESTMENTS AND EXPERTISE IN MEXICO. The Company's
strategy in Mexico is focused on: (i) being one of the most cost-
efficient producers and processors of chicken in Mexico by applying
technology and expertise utilized in the U.S. and (ii) increasing
distribution of its higher margin, value added products to national
retail stores and restaurants. This strategy has resulted in the
Company obtaining a market leadership position, with its estimated
market share in Mexico increasing from 10.9% in 1993 to 17.7% in 1997.
The Company's chicken products consist primarily of: (i) prepared
foods, which include portion-controlled breast fillets, tenderloins and
strips, formed nuggets and patties and bone-in chicken parts, which are
sold frozen and may be either fully cooked or raw, (ii) fresh chicken,
which includes refrigerated (non-frozen), whole or cut-up chicken sold to
the foodservice industry either pre-marinated or non-marinated and
prepackaged chicken, which includes various combinations of freshly
refrigerated, whole chickens and chicken parts in trays, bags or other
consumer packs labeled and priced ready for the retail grocers' fresh meat
counter, and (iii) export and other, which includes parts and whole
chicken, either refrigerated or frozen for U.S. export or domestic use.
The Company's Mexican products consist of live, uneviscerated and
eviscerated chicken.
The following table sets forth, for the periods since fiscal 1993, net
sales attributable to each of the Company's primary product lines and
markets served with such products. The table is based on the Company's
internal sales reports and its classification of product types and
customers.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
<S> <C> <C> <C> <C> <C>
Sept. Sept. Sept. Oct. Oct.
27, 1997 28, 1996 30, 1995 1, 1994 2, 1993
(52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks)
(In thousands)
U.S. Chicken Sales:
Prepared Foods
Food Service $347,831 $303,939 $240,456 $205,224 $183,165
Retail 41,804 42,946 38,683 61,068 89,822
Total Prepared Foods 389,635 346,885 279,139 266,292 272,987
Fresh Chicken:
Food Service 173,743 145,052 140,201 155,294 149,197
Retail 152,738 141,135 138,368 125,133 100,063
Total Fresh Chicken 326,481 286,187 278,569 280,427 249,260
Export and Other 142,030 140,614 113,414 88,437 77,709
Total U.S. Chicken 858,146 773,686 671,122 635,156 599,956
Mexico 274,997 228,129 159,491 188,744 188,754
Total Chicken Sales 1,133,143 1,001,815 830,613 823,900 788,710
Sales of Other
U.S. Products 144,506 137,495 101,193 98,709 99,133
Total Net Sales $1,277,649 $1,139,310 $931,806 $922,609 $887,843
</TABLE>
UNITED STATES
The following table sets forth, since fiscal 1993, the percentage of net
U.S. chicken sales attributable to each of the Company's primary product lines
and markets serviced with such products. The table and related discussion
are based on the Company's internal sales reports and its classification of
product types and customers.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
<S> <C> <C> <C> <C> <C>
Sept.27, Sept. 28, Sept. 30, Oct. 1, Oct. 2,
1997 1996 1995 1994 1993
(52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks)
U.S. Chicken Sales:
Prepared Foods:
Foodservice 40.5 % 39.3% 35.8% 32.3% 30.5%
Retail 4.9 5.6 5.8 9.6 15.0
Total Prepared Foods 45.4 44.9 41.6 41.9 45.5
Fresh Chicken:
Foodservice 20.2 18.7 20.9 24.5 24.9
Retail 17.8 18.2 20.6 19.7 16.7
Total Fresh 38.0 36.9 41.5 44.2 41.6
Chicken
Export and Other 16.6 18.2 16.9 13.9 12.9
TOTAL U.S. CHICKEN
Sales Mix 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
PRODUCT TYPES
U.S. PREPARED FOODS OVERVIEW. During fiscal 1997, $389.6 million of
the Company's net U.S. chicken sales were in prepared foods products to
foodservice and retail, as compared to $273.0 million in fiscal 1993,
which reflects the strategic focus for growth of the Company. The market
for prepared food products has experienced, and management believes that
this market will continue to experience, greater growth and higher margins
than fresh chicken products. Additionally, the production and sale of prepared
foods reduces the impact of feed grain costs on the Company's profitability.
As further processing is performed, feed grain costs becomes a decreasing
percentage of a product's total production costs.
The Company establishes prices for its prepared food products based
primarily upon perceived value to the customer, production costs and prices
of competing products. The majority of these products are sold pursuant
to agreements with varying terms that either set a fixed price for the
products or set a price according to formulas based on an underlying
commodity market, subject in many cases to minimum and maximum prices.
U.S. Fresh Chicken Overview. The Company's fresh chicken business is
an important component of its sales and has grown from sales of $249.3
million in fiscal 1993 to $326.5 million in fiscal 1997. In addition to
maintaining its sales of mature, traditional fresh chicken products,
the Company's strategy is to shift the mix of its U.S. fresh chicken products
by continuing to increase sales of higher margin, faster growing
products, such as marinated chicken and chicken parts. As a result of this
strategy, the Company's compounded annual growth rate of fresh chicken sales
from fiscal 1993 to fiscal 1997 exceeded 6.9% while total U.S. industry
sales of fresh chicken increased approximately 1%.
Most fresh chicken products are sold to established customers based upon
certain weekly or monthly market prices reported by the USDA and other
public price reporting services, plus a markup, which is dependent upon
the customer's location, volume, product specifications and other
factors. The Company believes its practices with respect to sales of its fresh
chicken are generally consistent with those of its competitors. Prices of
these products are negotiated daily or weekly and are generally related to
market prices quoted by the USDA or other public reporting services.
EXPORT AND OTHER OVERVIEW. The Company's export and other products
consist of whole chickens and chicken parts sold primarily in bulk, non-
branded form either refrigerated to distributors in the U.S. or frozen for
distribution to export markets. Sales growth in the "Export and Other"
category between fiscal 1993 and fiscal 1997 primarily reflects
increased exports of chicken products. In fiscal 1997, approximately $44
million of the Company's sales were attributable to exports of U.S.
chicken. These exports and other products have historically been
characterized by lower prices and greater price volatility than the Company's
more value-added product lines.
MARKETS
U.S. FOODSERVICE. The majority of the Company's U.S. chicken sales are
derived from products sold to the foodservice market which principally consists
of chain restaurants, frozen entree producers, institutions and distributors,
located throughout the continental United States. The Company supplies
chicken products ranging from portion-controlled refrigerated chicken parts
to fully cooked and frozen, breaded or non-breaded chicken parts or formed
products.
As the second largest full-line supplier of chicken to the foodservice
market, the Company believes it is well-positioned to be the primary or
secondary supplier to many national and international chain restaurants who
require multiple suppliers of chicken products. Additionally, the
Company is well suited to be the sole supplier for many regional chain
restaurants that offer better margin opportunities and a growing base of
business. Due to its comparatively large size in this market, management
believes the Company has significant competitive advantages in terms of
product capability, production capacity, research and development expertise,
and distribution and marketing experience relative to smaller and to non-
vertically integrated producers. As a result of these competitive advantages,
the Company's sales to the foodservice market from fiscal 1993 through fiscal
1997 grew at a compound annual growth rate of approximately 11.9%. Based
on industry data, the Company estimates that total industry dollar sales
to the foodservice market during this same period grew at a compounded annual
growth rate of approximately 7.9%. The Company markets both prepared food
and fresh chicken products to the foodservice industry.
FOODSERVICE - PREPARED FOODS: The majority of the Company's sales to
the foodservice market consists of prepared food products. Prepared food
sales to the foodservice market were $347.8 million in fiscal 1997 compared
to $183.2 million in fiscal 1993, a compounded growth rate of approximately
17.4%. The Company's prepared food products include portion-controlled breast
fillets, tenderloins and strips, formed nuggets and patties and bone-in
chicken parts, which are sold frozen and in various states of preparation,
including blanched, battered, breaded and either partially or fully-cooked.
The Company attributes this growth in sales of prepared foods to the
foodservice market to a number of factors:
FIRST, there has been significant growth in the number of foodservice
operators offering chicken on their menus and the number of chicken items
offered.
SECOND, foodservice operators are increasingly purchasing prepared
chicken products, which allow them to reduce labor cost while providing
greater product consistency, quality and variety across all restaurant
locations.
THIRD, there is a strong need among larger foodservice companies
for an alternative or additional supplier to the Company's principal
competitor in the prepared foods market. A viable alternative supplier must
be able to ensure supply, demonstrate innovation and new product development,
and provide competitive pricing. The Company has been successful in
its objective of becoming the alternative supplier of choice by being the
primary or secondary prepared chicken supplier to many large foodservice
companies because:(i) it is vertically integrated, giving the Company
control over its supply of chicken and chicken parts, (ii) its further
processing facilities are particularly well suited to the high volume
production runs necessary to meet the capacity and quality requirements of
the U.S. foodservice market, and (iii) it has established a reputation for
dependable quality, highly responsive service and excellent technical support.
FOURTH, as a result of the experience and reputation developed
with larger customers, the Company has increasingly become the principal
supplier to mid-sized foodservice organizations.
FIFTH, the Company's in-house product development group follows a
customer-driven research & development focus designed to develop new
products to meet customers' changing needs. The Company's research &
development personnel often work directly with institutional
customers in developing proprietary products. Approximately $118.4 million of
the Company's sales to foodservice customers in fiscal 1997 consisted of new
products, which were not sold by the Company in fiscal 1993.
SIXTH, the Company is a leader in utilizing advanced processing
technology, which enables the Company to better meet its customers' needs
for product innovation, consistent quality and cost efficiency.
FOODSERVICE - FRESH CHICKEN: The Company produces and markets fresh,
refrigerated chicken for sale to U.S. quick-service restaurant chains,
delicatessens and other customers. These chickens have the giblets removed,
are usually of specific weight ranges, are usually pre-cut to customer
specifications and are often marinated to enhance value and product
differentiation. By growing and processing to customers' specifications, the
Company is able to assist quick-service restaurant chains in controlling
costs and maintaining quality and size consistency of chicken pieces sold
to the consumer.
U.S. RETAIL. The U.S. retail market consists primarily of grocery
store chains and retail distributors. The Company concentrates its
efforts in this market on sales of branded, prepackaged cut-up and whole
chicken to grocery chains and retail distributors in the mid-western,
southwestern and western regions ofthe United States. This regional
marketing focus enables the Company to develop consumer brand franchises and
capitalize on proximity to the trade customer in terms of lower
transportation costs; more timely, responsive service; and enhanced product
freshness. For a number of years, the Company has invested in both trade
and retail marketing designed to establish high levels of brand name awareness
and consumer preferences within these markets.
The Company utilizes numerous marketing techniques, including advertising,
to develop and strengthen trade and consumer awareness and increase brand
loyalty for consumer products marketed under the "Pilgrim's Pride" brand.
The Company's founder, Lonnie "Bo" Pilgrim, is the featured spokesman in
the Company's television, radio and print advertising, and a trademark cameo
of a person in a Pilgrim's hat serves as the logo on all of the Company's
primary branded products. As a result of this marketing strategy, the
Company has established a well-known brand name in certain southwestern markets,
including the Dallas/Fort Worth area. Management believes its efforts
to achieve and maintain brand awareness and loyalty help to provide
more secure distribution for its products and generate greater price premiums
that would otherwise be the case in certain southwestern markets. The
Company also maintains an active program to identify consumer
preferences primarily by testing new product ideas, packaging designs
and methods through taste panels and focus groups located in key geographic
markets.
RETAIL - PREPARED FOODS. The Company sells retail oriented prepared
foods primarily to grocery store chains located in the mid-western,
southwestern and western region of the U.S. where it also markets
prepackaged fresh chicken. Being a major, national competitor in retail,
branded frozen foods is not a part of the Company's current business strategy.
The Company no longer serves the wholesale club industry, which is now
dominated by two large national operators, and has redirected this prepared
foods capacity to a more diversified customer base.
RETAIL - FRESH CHICKEN. The Company's prepackaged retail products include
various combinations of freshly refrigerated whole chickens and chicken parts
in trays, bags or other consumer packs, labeled and priced ready for the
grocer's fresh meat counter. Management believes the retail, prepackaged
fresh chicken business will continue to be a large and relatively stable
market, providing opportunities for product differentiation and regional brand
loyalty.
The Company concentrates its sales and marketing efforts for the above
product types to grocery chains and retail distributors in the mid-western,
southwestern and western regions of the United States. This regional marketing
focus enables the Company to develop consumer brand franchises and capitalize
on proximity to the trade customer, in terms of lower transportation costs;
more timely, responsive service; and enhanced product freshness.
EXPORT AND OTHER CHICKEN. The Company's export and other products consist
of whole chickens and chicken parts sold primarily in bulk, non-branded form
either refrigerated to distributors in the U.S. or frozen for distribution to
export markets. In recent years, the Company has de-emphasized its marketing
of bulk-packaged chicken in the U.S. in favor of more value-added
products and export opportunities. In the U.S., prices of these products are
negotiated daily or weekly and are generally related to market prices quoted by
the USDA or other public price reporting services. The Company also sells U.S.
produced chicken products for export to Canada, Eastern Europe, the Far
East and other world markets. Due to U.S. consumers' preference for chicken
breast meat, the Company has targeted international markets to generate
sales of leg quarters. The Company has also begun selling prepared food
products for export to the international divisions of its U.S. chain
restaurant customers. As a result of these efforts, the Company's sales for
export have grown from less than 1% of its total U.S. chicken sales in fiscal
1993 to more than 5% in fiscal 1997. Management believes that: (i) U.S.
chicken exports will continue to grow as worldwide demand for high grade
low cost protein sources increases, (ii) worldwide demand for higher
margin prepared food products will increase over the next five years, and
accordingly, (iii) the Company is well positioned to capitalize on such
growth.
OTHER U.S. PRODUCTS. The Company markets fresh eggs under the Pilgrim's
Pride brand name as well as private labels in various sizes of cartons and
flats to U.S. retail grocery and institutional foodservice customers
located primarily in Texas. The Company has a housing capacity for
approximately 2.3 million commercial egg laying hens which can
produce approximately 41 million dozen eggs annually. U.S. egg prices are
determined weekly based upon reported market prices. The U.S. egg industry
has been consolidating over the last few years with the 20 largest producers
accounting for more than 68% of the total number of egg laying hens in
service during 1997. The Company competes with other U.S. egg producers
primarily on the basis of product quality, reliability, price and
customer service. According to an industry publication, the Company is the
twenty-fifth largest producer of eggs in the United States.
The Company also converts chicken by-products into protein products
primarily for sale to manufacturers of pet foods. In addition, the Company
produces and sells livestock feeds at its feed mills in Pittsburg and Mt.
Pleasant, Texas and at its farm supply store in Pittsburg, Texas,
to dairy farmers and livestock producers in northeastern Texas.
MEXICO
BACKGROUND. The Mexican market represented approximately 21.5%
of the Company's net sales in fiscal 1997. The Company entered the Mexican
market in 1979 when it began seasonally selling eggs to the Mexican
government. Recognizing favorable long-term demographic trends and improving
economic conditions in Mexico, the Company began exploring opportunities
to produce and market chicken in Mexico. In fiscal 1988, the Company
acquired four vertically integrated chicken production operations in Mexico
for approximately $15.1 million. From fiscal 1988 through fiscal 1997, the
Company made acquisitions and capital expenditures in Mexico totaling $158.9
million to expand and improve such operations, including a fiscal 1995
investment of $35.3 million for the acquisition of Union de Queretaro, et al,
a group of five chicken companies located near Queretaro, Mexico. As a result
of these expenditures, the Company has increased weekly production in its
Mexico operations by over 350% since its original investment in fiscal 1988.
The Company is now one of the two largest producers of chicken in Mexico.
The Company believes its facilities are among the most technologically
advanced in Mexico and that it is one of the lowest cost producers of
chicken in Mexico.
PRODUCT TYPES. While the market for chicken products in Mexico is
less developed than in the United States, with sales attributed to fewer,
more basic products, the market for value added products is increasing.
The Company's strategy is to lead this trend. The products currently sold
by the Company in Mexico consist primarily of basic products such as New York
dressed (whole chickens with only feathers and blood removed), live birds and
value added products such as eviscerated chicken and chicken parts. The
Company has increased its sales of value added products, particularly
through national retail chains and restaurants, and plans to continue
to do so. The Company remains opportunistic, however, utilizing its low
cost production to enter markets where profitable opportunities exist. For
example, the Company has significantly increased its sales of live birds
since 1994 as many smaller producers exited this segment of the business as a
result of the recession in Mexico.
MARKETS. The Company sells its Mexican chicken products primarily to
large wholesalers and retailers. The Company's customer base in Mexico
covers a broad geographic area from Mexico City, the capital of Mexico with
a population estimated to be over 20 million, to Saltillo, the capital of
the State of Coahuila, about 500 miles north of Mexico City, and from Tampico
on the Gulf of Mexico to Acapulco on the Pacific, which region includes the
cities of San Luis Potosi and Queretaro, capitals of the states of the same
name.
COMPETITION
The chicken industry is highly competitive and certain of the
Company's competitors have greater financial and marketing resources than
the Company. In the United States and Mexico, the Company competes
principally with other vertically integrated chicken companies.
In general, the competitive factors in the U.S. chicken industry
include price, product quality, brand identification, breadth of product line
and customer service. Competitive factors vary by major market. In the
foodservice market, competition is based on consistent quality, product
development, service and price. In the U.S. retail market, management
believes that product quality, brand awareness and customer service are
the primary bases of competition. There is some competition with non-vertically
integrated further processors in the U.S. prepared food business. The
Company believes it has significant, long term cost and quality advantages
over non-vertically integrated further processors.
In Mexico, where product differentiation is limited, product quality and
price are the most critical competitive factors. NAFTA, which went into
effect on January 1, 1994, requires annual reductions in tariffs for chicken
and chicken products in order to eliminate such tariffs by January 1, 2003.
As such tariffs are reduced, there can be no assurance that increased
competition from chicken imported into Mexico from the U.S. will not have
a material adverse effect on the Mexican chicken industry in general, or
the Company's Mexican operations in particular.
OTHER ACTIVITIES
The Company has regional distribution centers located in Arlington,
El Paso, Mt. Pleasant and San Antonio, Texas; Phoenix and Tucson, Arizona;
and Oklahoma City, Oklahoma that distribute the Company's own poultry products
along with certain poultry and non-poultry products purchased from third
parties to independent grocers and quick service restaurants. The Company's
non-poultry distribution business is conducted as an accommodation to their
customers and to achieve greater economies of scale in distribution logistics.
The store-door delivery capabilities for the Company's own poultry products
provide a strategic service advantage in selling to quick service,
national chain restaurants.
REGULATION
The chicken industry is subject to government regulation, particularly in
the health and environmental areas. The Company's chicken processing facilities
in the U.S. are subject to on-site examination, inspection and regulation by
the USDA. The FDA inspects the production of the Company's feed mills in
the U.S. The Company's Mexican food processing facilities and feed mills
are subject to on-site examination, inspection and regulation by a Mexican
governmental agency, which performs functions similar to those performed
by the USDA and FDA. Since commencement of operations by the Company's
predecessor in 1946, compliance with applicable regulations has not
had a material adverse effect upon the Company's earnings or competitive
position and such compliance is not anticipated to have a materially adverse
effect in the future. Management believes that the Company is in substantial
compliance with all applicable laws and regulations relating to the operations
of its facilities.
The Company anticipates increased regulation by the USDA concerning food
safety, by the FDA concerning the use of medications in feed and by the TNRCC,
the ASVO and the EPA concerning the disposal of chicken by-products and
wastewater discharges. Although the Company does not anticipate any such
regulation having a material adverse effect upon the Company, no assurances
can be given to that effect.
EMPLOYEES AND LABOR RELATIONS
As of Decmber 14, 1997 the Company employed approximately 9,700
persons in the U.S. and 3,300 persons in Mexico. Approximately 2,000
employees at the Company's Lufkin and Nacogdoches, Texas facility are
members of collective bargaining units represented by the United Food and
Commercial Workers Union (the "UFCW"). None of the Company's other U.S.
employees have union representation. The Company's collective bargaining
agreements with the UFCW expire on August 10, 1998 with respect to the Company's
Lufkin employees and on October 5, 1998 with respect to the Company's
Nacogdoches employees. The Company believes that the terms of each of these
agreements are no more favorable than those provided to its non-union U.S.
employees. In Mexico, most of the Company's hourly employees are covered
by collective bargaining agreements as most employees are in Mexico. The
Company has not experienced any work stoppage since a two day work stoppage
at the Lufkin facility in May 1993, and management believes that relations
with the Company's employees are satisfactory.
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information relating to the Current directors
and executive officers of the Company:
EXECUTIVE OFFICERS OF THE COMPANY AGE POSITIONS
Lonnie "Bo" Pilgrim (1) 69 Chairman of the Board and
Chief Executive Officer
Clifford E. Butler 55 Vice Chairman of the Board and
Executive President
Lindy M. "Buddy" Pilgrim 42 President and Chief Operating
Officer and Director
David Van Hoose 55 President, Mexican Operations
Richard A. Cogdill 37 Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
Robert L. Hendrix 61 Executive Vice President
Operations and Director
Terry Berkenbile 47 Senior Vice President
Sales & Marketing,
Retail and Fresh Products
Ray Gameson 48 Senior Vice President
Human Resources
O.B. Goolsby, Jr. 50 Senior Vice President
Prepared Foods Operations
Michael D. Martin 43 Senior Vice President
DeQueen, Arkansas Complex
James J. Miner, Ph.D. 69 Senior Vice President
Technical Services and
Director
Michael J. Murray 39 Senior Vice President
Sales & Marketing,
Prepared Foods
Robert N. Palm 54 Senior Vice President,
Lufkin, Texas Complex
Lonnie Ken Pilgrim (1) 39 Senior Vice President,
Director of Transportation and
Director
Charles L. Black (1) 67 Director
Robert E. Hilgenfeld (1) (2) 72 Director
Vance C. Miller, Sr. (1) (2) 63 Director
James G. Vetter, Jr. (1) (2) 63 Director
Donald L. Wass, Ph.D. (1) 65 Director
_________
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
LONNIE "BO" PILGRIM has served as Chairman of the Board and Chief
Executive Officer since the organization of the Company in 1968. Prior to
the incorporation of the Company, Mr. Pilgrim was a partner in the Company's
predecessor partnership business founded in 1946.
CLIFFORD E. BUTLER serves as Vice Chairman of the Board and Executive
President. He joined the Company as Controller and Director in 1969, was
named Senior Vice President of Finance in 1973, became Chief Financial
Officer and Vice Chairman of the board in July 1983 and effective January 1,
1997 he became Executive President and continues to serve as Vice Chairman
of the Board.
LINDY M. "BUDDY" PILGRIM serves as President and Chief Operating
Officer of the Company. He was elected as Director in March 1993 and began
employment in April 1993 under the title of President of U.S. Operations and
Sales & Marketing. From April 1993 to March 1994, the President and Chief
Operating Officer reported to him.After that time, the Chief Operating
Officer title and responsibilities were incorporated into his own. Up to
October 1990, Mr. Pilgrim was employed by the Company for 12 years in
marketing and 9 years in operations. From October 1990 to April 1993, he
was President of Integrity Management Services, Inc., a consulting firm to
the food industry. He is a nephew of Lonnie "Bo" Pilgrim.
DAVID VAN HOOSE has been President of Mexican Operations since April
1993. He was previously Senior Vice President, Director General, Mexican
Operations since August 1990 to April 1993. Mr. Van Hoose was employed by
the Company in September 1988 as Senior Vice President, Texas Processing.
Prior to that, Mr. Van Hoose was employed by Cargill, Inc., as General Manager
of one of its chicken operations.
RICHARD A. COGDILL has served as Executive Vice President, Chief
Financial Officer, Secretary and Treasurer since January 1, 1997.
Previously he served as Senior Vice President, Corporate Controller, from
August 1992 through December 1996 and as Vice President, Corporate Controller
from October 1991 through August 1992. Prior to October 1991 he was a Senior
Manager with Ernst & Young LLP. He is a Certified Public Accountant.
ROBERT L. HENDRIX has been Executive Vice President, Operations,
of the Company since March 1994 and as a Director of the Company since
March 1994. Prior to that he served as Senior Vice President, NETEX Processing
from August 1992 to March 1994 and as President and Chief of Complex
Operations from September 1988 to March 1992. He was on leave from the
Company from March 1992 to August 1992. From July 1983 to March 1992 he served
as a Director of the Company. He was President and Chief Operating Officer of
the Company from July 1983 to September 1988. He joined the Company as Senior
Vice President in September 1981 when the Company acquired Mountaire
Corporation of DeQueen, Arkansas, and, prior thereto, he was Vice President
of Mountaire Corporation.
TERRY BERKENBILE was named Senior Vice President, Sales & Marketing, for
Retail and Fresh Products in July 1994. Prior to that he was Vice President,
Sales & Marketing, for Retail and Fresh Products since May 1993 to July 1994.
From February 1991 to April 1993, Mr. Berkenbile was Director Retail Sales &
Marketing at Hudson Foods. From February 1988 to February 1991, Mr. Berkenbile
was Director Plant Sales at the Company; prior thereto, he worked in the
processed red meat industry.
RAY GAMESON has been Senior Vice President of Human Resources since October
1994. He previously served as Vice President of Human Resources since August
1993. From December 1991 to July 1993, he was employed by Townsends, Inc.
and served as Complex Human Resource, Manager. Prior to that, he was employed
by the Company as Complex Human Resource, Manager, at its Mt. Pleasant, Texas
location.
O.B. GOOLSBY, JR. has been Senior Vice President, Prepared Foods
Operations since August 1992. He was previously Vice President, Prepared
Foods Operations since April 1986 to August 1992 and was previously
employed by the Company from November 1969 to January 1981.
MICHAEL D. MARTIN has been Senior Vice President, DeQueen, Arkansas
Complex Manager, of the Company since April 1993. He previously served as
Plant Manager at the Company's Lufkin, Texas operations and Vice
President, Processing, at the Company's Mt. Pleasant, Texas, operations
up to April 1993. He has served in various other operating management
positions in the Arkansas Complex since September 1981. Prior to that, he
was employed by Mountaire Corporation of DeQueen, Arkansas, until it was
acquired by the Company in September 1981.
JAMES J. MINER, PH.D., has been Senior Vice President, Technical
Services, since April 1994. He has been employed by the Company and its
predecessor partnership since 1966 and served as Senior Vice President
responsible for live production and feed nutrition from 1968 to April
1994. He has been a Director since the incorporation of the Company in 1968.
MICHAEL J. MURRAY has been Senior Vice President, Sales & Marketing, for
Prepared Foods since October 1994. He previously served as Vice President
of Sales and Marketing, Food Service from August 1993 to October 1994. From
1990 to July 1993, he was employed by Cargill, Inc. Prior to that, from
March 1987 to 1990 he was employed by the Company as a Vice President for
sales and marketing and prior thereto, he was employed by Tyson Foods, Inc.
ROBERT N. PALM has been Senior Vice President, Lufkin, Texas,
Complex Manager of the Company, since June 1985 and was previously
employed in various operating management positions by Plus-Tex Poultry,
Inc., a Lufkin, Texas based company acquired by Pilgrim's Pride in June
1985.
LONNIE KEN PILGRIM has been employed by the Company since 1977 and has
been Senior Vice President, Transportation since August 1997. Prior to
that he served the Company as its Vice President, Director of Transportation.
He has been a member of the Board of Directors since March 1985. He is
a son of Lonnie "Bo" Pilgrim.
CHARLES L. BLACK was Senior Vice President, Branch President of
NationsBank, Mt. Pleasant, Texas, from December 1981 to his retirement in
February 1995. He previously was a Director of the Company from 1968 to
August 1992 and has served as a director since his re-election in February
1995.
ROBERT E. HILGENFELD was elected a Director in September 1986.
Mr. Hilgenfeld was a Senior Vice President-Marketing/Processing for the
Company from 1969 to 1972 and for seventeen years prior to that worked in
various sales and management positions for the Quaker Oat Company. From
1972 until April 1986, he was employed by Church's Fried Chicken Company
("Church's") as Vice President-Purchasing Group, Vice President and Senior
Vice President. He was elected a Director of Church's in 1985 and retired
from Church's in April 1986. Since retirement he has served as a consultant
to various companies including the Company.
VANCE C. MILLER, SR. was elected a Director in September 1986. Mr.
Miller has been Chairman of Vance C. Miller Interests, a real estate
development company formed in 1977 and has served as the Chairman of the
Board and Chief Executive Officer of Henry S. Miller Cos., a Dallas, Texas
real estate services firm since 1991. Mr. Miller also serves as a
director of Resurgence Properties, Inc.
JAMES G. VETTER, JR. has practiced law in Dallas, Texas since 1966.
He is a member of the Dallas law firm of Godwin & Carlton, P.C., and has
served as general counsel and a Director since 1981. Mr. Vetter is a
Board Certified-Tax Law Specialist and serves as a lecturer and author in
tax matters.
DONALD L. WASS, Ph.D. was elected a Director of the Company in May 1987.
He has been President of the William Oncken Company of Texas, a time
management consulting company, since 1970.
ITEM 2. PROPERTIES
PRODUCTION AND FACILITIES
BREEDING AND HATCHING
The Company supplies all of its chicks in the U.S. by producing its own
hatching eggs from domestic breeder flocks in the U.S. owned by the Company,
approximately 34% of which are maintained on 43 Company-operated breeder
farms. In the U.S., the Company currently owns or contracts for approximately
8.4 million square feet of breeder housing on approximately 233 breeder farms.
In Mexico, all of the Company's breeder flocks are maintained on Company-
owned farms.
The Company owns seven hatcheries in the United States, located in
Nacogdoches, Center and Pittsburg, Texas, and DeQueen and Nashville, Arkansas,
where eggs are incubated and hatched in a process requiring 21 days. Once
hatched, the day-old chicks are inspected and vaccinated against common
poultry diseases and transported by Company vehicles to grow-out farms. The
Company's seven hatcheries in the U.S. have an aggregate production capacity of
approximately 8.2 million chicks per week. In Mexico, the Company owns seven
hatcheries, which have an aggregate production capacity of approximately 3.3
million chicks per week.
GROW-OUT
The Company places its U.S. grown chicks on approximately 1,100
grow-out farms located in Texas and Arkansas. These farms provide the
Company with approximately 54.9 million square feet of growing facilities.
The Company operates 33 grow-out farms in the U.S. which account for
approximately 8.1% of its total annual U.S. chicken capacity. The Company
also places chicks with farms owned by affiliates of the Company under
grow-out contracts. The remaining chicks are placed with independent farms
under grow-out contracts. Under such grow-out contracts, the farmers provide
the facilities, utilities and labor. The Company supplies the chicks, the
feed and all veterinary and technical services. Contract grow-out farmers are
paid based on live weight under an incentive arrangement. In Mexico, the
Company owns approximately 38% of its grow-out farms and contracts with
independent farmers for the balance of its production. Arrangements with
independent farmers in Mexico are similar to the Company's arrangements with
contractors in the United States.
FEED MILLS
An important factor in the production of chicken is the rate at which feed
is converted into body weight.The Company purchases feed ingredients on the
open market. The primary feed ingredients include corn, milo and soybean meal,
which historically have been the largest component of the Company's total
production cost. The quality and composition of the feed is critical
to the conversion rate, and accordingly, the Company formulates and produces
its own feed. In the U.S., the Company operates seven feed mills located in
Nacogdoches, Mt. Pleasant, Center and Pittsburg, Texas and Nashville and Hope,
Arkansas. The Company currently has annual feed requirements of approximately
2.2 million tons and the capacity to produce approximately 2.6 million tons.
The Company owns four feed mills in Mexico, which produce all of the
requirements of its Mexican operations. Mexican annual feed requirements
are approximately 0.7 million tons with a capacity to produce approximately
0.9 million tons. In fiscal 1997, approximately 14% of the grain used was
imported from the United States. However, this percentage fluctuates based
on the availability and cost of local grain supplies and in recent years
has been as high as 55%.
Feed grains are commodities subject to volatile price changes caused
by weather, size of harvest, transportation and storage costs and the
agricultural policies of the United States and foreign governments. Although
the Company can and sometimes does purchase grain in forward markets, it
cannot eliminate the potential adverse effect of grain price changes.
PROCESSING
Once the chickens reach processing weight, they are transported in the
Company's trucks to the Company's processing plants. These plants utilize
modern, highly automated equipment to process and package the chickens. The
Company periodically reviews possible application of new processing technologies
in order to enhance productivity and reduce costs. The Company's six U.S.
processing plants, two of which are located in Mt. Pleasant, Texas, and
the remainder of which are located in Dallas, Nacogdoches and Lufkin, Texas,
and DeQueen, Arkansas, have the capacity, under present U.S.D.A. inspection
procedures, to produce approximately 1.3 billion pounds of dressed chicken
annually. The Company's three processing plants located in Mexico, which
perform fewer processing functions than the Company's U.S. facilities, have the
capacity to process approximately 470 million pounds of dressed chicken
annually.
PREPARED FOODS PLANT
The Company's prepared foods plant in Mt. Pleasant, Texas, was constructed
in 1986 and has expanded significantly since that time. This facility has
deboning lines, marination systems, batter/breading systems, fryers, ovens,
both mechanical and cryogenic freezers, a variety of packaging systems
and cold storage. This plant is currently operating at the equivalent of
two shifts a day for six days a week. If necessary, the Company could add
additional shifts during the seventh day of the week. The Company is
currently completing construction of a new prepared foods facility at its
Dallas, Texas location, which is scheduled to begin production late in
fiscal first quarter 1998.
EGG PRODUCTION
The Company produces eggs at three farms near Pittsburg, Texas. One
farm is owned by the Company, while two farms are operated under contract by
an entity owned by a major stockholder of the Company. The eggs are cleaned,
sized, graded and packaged for shipment at processing facilities located on
the egg farms. The farms have a housing capacity for approximately 2.3
million producing hens and are currently housing approximately 2.0 million
hens.
OTHER FACILITIES AND INFORMATION
The Company operates a rendering plant located in Mt. Pleasant, Texas,
that currently processes by-products from approximately 8.2 million chickens
weekly into protein products, which are used in the manufacture of chicken and
livestock feed and pet foods. The Company operates a feed supply store in
Pittsburg, Texas, from which it sells various bulk and sacked livestock
feed products. The Company owns an office building in Pittsburg, Texas, which
houses its executive offices, and an office building in Mexico City, which
houses the Company's Mexican marketing offices. The Company also owns
approximately 9,618 acres of farmland previously used in the Company's
non-poultry farming operations. The Company is in the process of disposing
of the farmland and currently has contracts of sale scheduled to close in
early January, 1998 which will complete the disposal of such land and related
assets.
Substantially all of the Company's U.S. property, plant and equipment is
pledged as collateral on its secured debt.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is named as a defendant or co-defendant
in lawsuits arising in the course of its business. The Company does not
believe that such pending lawsuits will have a material adverse impact on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NOT APPLICABLE
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
<TABLE>
<CAPTION>
QUARTERLY STOCK PRICES AND DIVIDENDS
High and low sales prices and dividends were:
<S> <C> <C> <C> <C> <C> <C>
Prices Prices
1997 1996 Dividends
QUARTER HIGH LOW HIGH LOW 1997 1996
First $ 9 $7 3/4 $8 3/8 $6 5/8 $.015 $.015
Second 12 1/8 8 5/8 7 5/8 6 3/4 .015 .015
Third 12 3/4 9 1/2 9 6 3/4 .015 .015
Fourth 15 3/8 10 5/16 9 7 1/2 .015 .015
The Company's stock is traded on the New York Stock Exchange (ticker
symbol "CHX"). The Company estimates there were approximately 13,700
holders (including individual participants in security position listings)
of the Company's common stock as of December 19, 1997.
ITEM 6. SELECTED FINANCIAL DATA
S E L E C T E D F I N A N C I A L D A T A
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993(A)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Net sales $1,277,649 $1,139,310 $931,806 $922,609 $887,843
Gross margin 114,497 70,640 74,144 110,827 106,036
Operating income
(loss) 63,894 21,504(b) 24,930(b) 59,698 56,345
Income (loss)before
income taxes and
extraordinary
charge 43,824 47 2,091 42,448 32,838
Income tax expense
(benefit) (c) 2,788 4,551 10,058 11,390 10,543
Income (loss)
before extraordinary
charge 41,036 (4,504) (7,967) 31,058 22,295
Extraordinary charge
early repayment of debt,
net of tax - (2,780) - - (1,286)
Net income (loss) 41,036 (7,284) (7,967) 31,058 21,009
PER COMMOM SHARE DATA:
Income (loss) before
extraordinary charge $1.49 $(0.16) $(0.29) $1.13 $.81
Extraordinary charge -
early repayment
of debt - (0.10) - - (0.05)
Net income (loss) 1.49 (0.26) (0.29) 1.13 (0.05)
Cash dividends 0.06 0.06 0.06 0.06 0.03
Book value (d) 6.62 5.19 5.51 5.86 4.80
BALANCE SHEET SUMMARY:
Working capital $133,542 $88,455 $88,395 $99,724 $72,688
Total assets 579,124 536,722 497,604 438,683 422,846
Notes payable and
current maturities
of long-term debt 11,596 35,850 18,187 4,493 25,643
Long-term debt, less
current maturities 224,743 198,334 182,988 152,631 159,554
Total stockholders'
equity 182,516 143,135 152,074 161,696 132,293
KEY INDICATORS
(as a percentage
ofsales):
Gross margin 9.0% 6.2% 8.0% 2.0% 11.9%
Selling, general
and administrative
expenses 4.0% 4.3% 5.3% 5.5% 5.6%
Operating income
(loss) 5.0% 1.9% 2.7% 6.5% 5.7%
Interest expense, net 1.7% 1.9% 1.9% 2.1% 2.9%
Net income (loss) 3.2% (0.6)% (0.9)% 3.4% 2.4%
</TABLE>
<TABLE>
<CAPTION>
Fiscal Years Ended
<S> <C> <C> <C> <C>
1992 1991 1990 1989
INCOME STATEMENT DATA:
Net Sales $817,361 $786,651 $720,555 $661,077
Gross Margin 32,802 75,567 74,190 83,356
Operating income (loss) (12,739) 31,039 33,379 47,014
Income (loss) before income
taxes and extraordinary charge (33,712) 12,235 20,463 31,027
Income tax expense
(benefit) (c) (4,048) (59) 4,826 10,745
Income (loss) before
extraordinary charge (29,664) 12,294 15,637 20,282
Extraordinary charge - early
repayment of debt,
net of tax - - - -
Net income (loss) (29,664) 12,294 15,637 20,282
PER COMMON SHARE DATA:
Income (loss) before
extraordinary charge $(1.24) $0.54 $0.69 $0.90
Extraordinary charge - early
repayment of debt - - - -
Net income (loss) (1.24) 0.54 0.69 0.90
Cash dividends 0.06 0.06 0.06 0.06
Book value (d) 4.06 4.97 4.49 3.86
BALANCE SHEET SUMMARY:
Working Capital $11,227 $44,882 $54,161 $60,313
Total assets 434,566 428,090 379,694 291,102
Notes payable and current
maturities of long-term debt 86,424 44,756 30,351 9,528
Long-term debt, less current
maturities 131,534 175,776 154,277 109,412
Total stockholders' equity 112,112 112,353 101,414 87,132
KEY INDICATORS
(as a percentage of sales)
Gross Margin 4.0% 9.6% 10.3% 12.6%
Selling, general and
administrative expenses 5.7% 5.7% 5.7% 5.5%
Operating income (loss) (1.6)% 3.9% 4.6% 7.1%
</TABLE>
(a) Fiscal 1993 had 53 weeks
(b) The peso decline and the related economic recession in Mexico contributed
significantly to the operating losses experienced by the Company's Mexican
operations of $8.2million and $17.0 million for fiscal years 1996 and 1995,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(c) The Company does not include income or losses from its Mexican operations
in its determination of taxable income for U.S. income tax purposes based upon
its determination that such earnings will be indefinitely reinvested in
Mexico. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note D of the Consolidated Financial Statements
of the Company.
(d) Amounts are based on end-of-period shares of common stock outstanding.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
Profitability in the chicken industry can be materially affected
by the commodity prices of feed grains and the commodity prices of chicken
and chicken parts, each of which are determined largely by supply and demand.
As a result, the chicken industry as a whole has been characterized by
cyclical earnings. Cyclical fluctuations in earnings of individual chicken
companies can be mitigated somewhat by: (i) business strategy, (ii) product
mix, (iii) sales and marketing plans, and (iv) operating efficiencies. In an
effort to reduce price volatility and to generate higher, more consistent
profit margins, the Company has concentrated on the production and marketing
of prepared food products, which generally have higher margins than the
Company's other products. Additionally, the production and sale in the U.S.
of prepared foods products reduces the impact of feed grain costs on
the Company's profitability. As further processing is performed, feed grain
costs become a decreasing percentage of a product's total production
costs.
In December 1994, the Mexican government changed its policy of defending
the peso against the U.S. dollar and allowed it to float freely on the currency
markets. These events resulted in the Mexican peso exchange rate declining from
3.39 to 1 U.S. dollar at October 3, 1994 to a low of 8.50 to 1 U.S. dollar at
October 28, 1997. The decline in the Mexican peso exchange rate affected the
Company's operations directly and indirectly as a result of the related
economic recession in Mexico in fiscal 1995. Similarly, the Company's
results of operations were adversely affected by: (i) the continuation
of the economic recession in Mexico in fiscal 1996, as well as, (ii)
significantly higher feed grain costs in fiscal 1996 (which included record
high corn prices).
In fiscal 1997, however, the Company benefited substantially from:
(i) a rebounding economy in Mexico when compared to fiscal 1996 and 1995, and,
(ii) the adjustment of supply of poultry products in Mexico to the levels of
demand existing after the economic recession.
<PAGE>
The following table presents certain information regarding the
Company's U.S. and Mexican operations.
<TABLE>
<CAPTION>
Percentage of Net Sales
YEARS ENDED
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER SEPTEMBER SEPTEMBER
27, 1997 28, 1996 30, 1995
Net sales 100.0% 100.0% 100.0%
Cost of sales 91.0 93.8 92.0
Gross profit 9.0 6.2 8.0
Selling, general and
administrative expense 4.0 4.3 5.3
Operating income 5.0 1.9 2.7
Interest expense 1.7 1.9 1.9
Income before income
taxes and extraordinary
charge 3.4 0.0 0.2
Net income (loss) 3.2 (0.6) (0.9)
</TABLE>
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996:
NET SALES. Consolidated net sales were $1.3 billion for fiscal 1997,
an increase of $138.3 million, or 12.1%, over fiscal 1996. The increase in
consolidated net sales resulted from an $84.5 million increase in U.S. chicken
sales to $858.1 million, a $46.9 million increase in Mexican chicken
sales to $275.0 million and from a $7.0 million increase of sales of other
U.S. products to $144.5 million. The increase in U.S. chicken sales was
primarily due to a 14.0% increase in dressed pounds produced primarily as a
result of the Company's expansion of existing facilities and the purchase of
poultry producing assets capable of producing 650,000 chickens per week from
Green Acre Foods, Inc. on April 15, 1997, offset partially by a 2.7% decrease
in total revenue per dressed pound produced. The increase in Mexican
chicken sales was primarily due to a 25.5% increase in total revenue per
dressed pound partially offset by a 3.9% decrease in dressed pounds
produced resulting from management's decision in fiscal 1996 to reduce
production due to the recession in Mexico. Increased revenue per dressed
pound produced in Mexico was primarily the result of higher sales prices as
well as generally improved economic conditions in Mexico compared to the prior
year. The increase in sales of other domestic products was primarily
the result of increased sales of the company's chicken by-products group.
COST OF SALES. Consolidated cost of sales was $1.2 billion in fiscal 1997,
an increase of $94.5 million, or 8.8%, over fiscal 1996. The increase primarily
resulted from a $91.7 million increase in cost of sales of U.S.
operations, and a $2.8 million increase in the cost of sales in Mexican
operations. The cost of sales increase in U.S. operations of $91.7 million
was due to a 14.0% increase in dressed pounds produced and increased production
of higher cost and margin products in prepared foods, partially offset by a
decrease in feed ingredient cost when compared to fiscal 1996. The $2.8
million cost of sales increase in Mexican operations was primarily due to
a 5.4% increase in average costs of sales per pound partially offset by a
3.9% decrease in dressed pounds produced. The increase in average costs of
sales per pound was primarily the result of cost adjusting upward due to
generally improved economic conditions in Mexico compared to the prior year
offset partially by lower feed ingredient cost experienced in the period.
GROSS PROFIT. Gross profit as a percentage of sales increased to 9.0% in
fiscal 1997 from 6.2% in fiscal 1996. The increased gross profit resulted
mainly from significantly higher margins in Mexico.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses were $50.6 million in fiscal 1997, and $49.1 million
in fiscal 1996. Consolidated selling, general and administrative expenses as
a percentage of sales decreased in fiscal 1997 to 4.0% compared to 4.3% in
fiscal 1996. The decrease in selling, general and administrative expenses
as a percent of sales was primarily due to increased sales, while selling,
general and administrative expenses remained relatively constant.
OPERATING INCOME. Consolidated operating income was $63.9 million for
fiscal 1997, an increase of $42.4 million, or 197.13% when compared to
fiscal 1996, resulting from higher margins experienced in the Mexican
operations.
INTEREST EXPENSE. Consolidated net interest expense increased slightly to
$22.1 million, or 2.5% in fiscal 1997, when compared to $21.5 million in
fiscal 1996, due to slightly higher levels of outstanding
indebtedness in 1997. As a percentage of sales, however, interest
expense decreased to 1.7% in fiscal 1997 compared to 1.9% in fiscal 1996.
MISCELLANEOUS EXPENSE. Consolidated miscellaneous, net, a component of
"Other Expense (Income)", was ($2.4) million in fiscal 1997 and includes a
$2.2 million final settlement of claims resulting from the January 8, 1992
fire at the Company's prepared foods plant in Mt. Pleasant, Texas.
INCOME TAX EXPENSE. Consolidated income tax expense in fiscal 1997
decreased to $2.8 million compared to an expense of $4.6 million in fiscal
1996. The lower consolidated income tax expense in contrast to higher
consolidated income resulted from increased Mexican earnings that are not
currently subject to income taxes.
FISCAL 1996 COMPARED TO FISCAL 1995:
NET SALES. Consolidated net sales were $1.14 billion for fiscal 1996,
an increase of $207.5 million, or 22.3%, over fiscal 1995. The increase in
consolidated net sales resulted from a $102.6 million increase in U.S. chicken
sales to $773.7 million, a $68.6 million increase in Mexican chicken
sales to $228.1 million and a $36.3 million increase in sales of other
domestic products to $137.5 million. The increase in U.S. chicken
sales was primarily due to a 7.7% increase in total revenue per dressed
pound produced and a 7.0% increase in dressed pounds produced. The
increase in Mexican chicken sales was primarily due to a 35.6% increase in
Mexican dressed pounds produced and a 5.5% increase in total revenue per
dressed pound. The increase in Mexican dressed pounds produced
resulted primarily from the July 5, 1995 acquisition of five chicken companies
located near Queretaro, Mexico. The increase in sales of other domestic
products was primarily the result of increased sales of the Company's
chicken by-products group and higher sales prices for table eggs.
Increased revenues per dressed pound produced both in the U.S. and in Mexico
were primarily the result of higher sales prices caused by the chicken
markets adjusting to higher feed ingredient cost.
COST OF SALES. Consolidated cost of sales was $1.07 billion in fiscal
1996, an increase of $211.0 million, or 24.6%, over fiscal 1995. The increase
primarily resulted from a $150.8 million increase in cost of sales of
U.S. operations, and a $60.2 million increase in the cost of sales in Mexican
operations. The cost of sales increase in U.S. operations of $150.8 million
was due to a 41.5% increase in feed ingredient costs, a 7.0% increase in
dressed pounds produced and increased production of higher cost and margin
products in prepared foods. Since the fiscal 1995 year end, feed
ingredient costs increased substantially due to lower crop yields in the
1995 harvest season. Beginning in July 1996, feed ingredient prices declined
significantly due to a favorable crop harvest. The $60.2 million cost of
sales increase in Mexican operations was primarily due to a 35.6% increase
in dressed pounds produced and a 7.0% increase in average costs of sales per
pound. The increase in average costs of sales per pound was primarily
the result of a 37.2% increase in feed ingredient costs resulting from the
reasons discussed above.
GROSS PROFIT. Gross profit as a percentage of sales decreased to 6.2% in
fiscal 1996 from 8.0% in fiscal 1995. The decreased gross profit as a
percentage of sales resulted mainly from increased costs of sales due to
higher feed ingredient prices experienced in fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling,
general and administrative expenses were $49.1 million in fiscal 1996 and
$49.2 million in fiscal 1995. Consolidated selling, general and administrative
expenses as a percentage of sales decreased in fiscal 1996 to 4.3% compared
to 5.3% in fiscal 1995.
OPERATING INCOME. Consolidated operating income was $21.5 million for
fiscal 1996, a decrease of $3.4 million, when compared to fiscal 1995,
resulting primarily from higher feed ingredient cost.
INTEREST EXPENSE. Consolidated net interest expense was $21.5
million in fiscal 1996, an increase of $4.1 million, or 23.2%, when compared
to fiscal 1995. This increase was due to higher outstanding debt levels
resulting primarily from expansions in the U.S. and the prior year acquisitions
in Mexico, offset slightly by lower interest rates when compared to fiscal
1995.
INCOME TAX EXPENSE. Consolidated income tax expense in fiscal 1996 was
$4.6 million compared to a consolidated income tax expense of $10.1 million
in fiscal 1995. Consolidated income tax expense is significantly in excess
of the amount computed at the statutory U.S. income tax rate due to the
non-deductibility of Mexican losses in the U.S. in both fiscal 1996 and fiscal
1995. The decrease in consolidated income tax expense in fiscal 1996 compared
to fiscal 1995 primarily resulted from the $13.6 million decrease in income
before income taxes and extraordinary charges for domestic operations
in fiscal 1996 compared to fiscal 1995.
EXTRAORDINARY CHARGE. The extraordinary charge-early repayment of debt
in the amount of $2.8 million, net of tax, was incurred while refinancing
certain debt at a lower interest rate, which will result in long-term
interest expense reductions.
LIQUIDITY AND CAPITAL RESOURCES:
At September 27, 1997, the Company's working capital was $133.5
million and a current ratio was 2.14 to 1 compared with working capital
of $88.5 million and a current ratio of 1.63 to 1 at September 28, 1996. The
increases in working capital and current ratio from September 28, 1996 to
September 27, 1997 were due primarily to income from operations.
Trade accounts and other receivables were $78.0 million at September 27,
1997, a $12.1 million increase from September 28, 1996. The 18.3% increase
was due primarily to increased sales volumes. Inventories were $146.2 million
at September 27, 1997 compared to $136.9 million at September 28, 1996.
The $9.3 million increase between September 28, 1996 to September 27, 1997
was due primarily to larger inventories from the inclusion of recently
acquired production capabilities from Green Acre Foods, Inc., offset
partially by the reduction of feed costs in inventories.
Capital expenditures for fiscal 1997 were $50.2 million and were incurred
primarily to acquire or expand production capacities in the U.S., improve
efficiencies, reduce costs and for the routine replacement of equipment.
The Company anticipates that it will spend approximately $55.0
million for capital expenditures in fiscal year 1998 and expects to finance
such expenditures with available operating cash flows and long-term
financing.
Capital expenditures include the Company's April 15, 1997, acquisition
of certain chicken producing assets of Green Acre Foods, Inc., an integrated
poultry producer located in the Center and Nacogdoches area of East
Texas. These assets are capable of producing 650,000 chickens per week.
Cash flows provided by operating activities were $49.6 million, $11.4
million and $32.7 million in fiscal 1997, 1996 and 1995, respectively.
The significant increase in cash flows provided by operating activities for
fiscal 1997 when compared to fiscal 1996 was due primarily to net income
for fiscal 1997 compared to a net loss in fiscal 1996. The decrease in cash
flows provided by operating activities between fiscal 1996 and fiscal 1995 was
primarily caused by increased inventories resulting from higher feed costs
in fiscal 1996.
Cash flows provided by financing activities were $348,000, $27.3 million and
$40.2 million in fiscal 1997, 1996 and 1995, respectively. The cash provided
by financing activities primarily reflects the net proceeds from notes payable
and long-term financing and debt retirements.
At September 27, 1997, the Company's stockholder's equity increased to
$182.5 million from $143.1 million at September 28, 1996. Total debt to
capitalization decreased to 56.4% at September 27, 1997 compared to 62.1%
at September 28, 1996. The Company maintains $110 million in revolving
credit facilities and $45 million in secured term borrowing facilities.
The credit facilities provide for interest at rates ranging from LIBOR
plus one and three-quarters percent to LIBOR plus two percent and are
secured by inventory, trade accounts receivable and fixed assets. At September
27, 1997, $102 million was available under the revolving credit facilities and
$25 million was available under the term borrowing facilities.
The Company's deferred income taxes have resulted primarily from
the Company's use of the cash method of accounting for periods before
July 2, 1988. The "Omnibus Budget Reconciliation Act of 1987" required
certain family-owned farming businesses to switch to the accrual method of
accounting and provided that such corporations establish a suspense account
in lieu of taking the adjustment into taxable income currently. "The Taxpayer
Relief Act of 1997" requires that this suspense account be taken into
income ratably over 20 years beginning in fiscal 1997, however, any
remaining balance in the suspense account will be accelerated if the Company
ceases to be family-owned corporation. A "family-owned" corporation is
one in which at least 50 percent of the total combined voting power of all
classes of stock of the corporation are owned by members of the same
family. The Company believes that it will remain a family owned corporation
for the foreseeable future.
IMPACT OF MEXICAN PESO DEVALUATION:
In December 1994, the Mexican government changed its policy of defending
the peso against the U.S. dollar and allowed it to float freely on the currency
markets. These events resulted in the Mexican peso exchange rate declining from
3.39 to 1 U.S. dollar at October 1, 1994 to a low of 8.50 at October 28, 1997.
The decline in the Mexican peso exchange rate affected the Company's operations
directly and indirectly as a result of the related economic recession in Mexico
in fiscal 1995. Similarly, the Company's results of operations were adversely
affected by the continuation of the economic recession in Mexico in fiscal 1996.
On December 3, 1997 the Mexican peso closed at 8.13 to 1 U.S. dollar. No
assurance can be given as to the future valuation of the Mexican peso and
further movement in the Mexican peso could affect future earnings positively
or negatively.
IMPACT OF INFLATION:
Due to moderate inflation and the Company's rapid inventory turnover
rate, the results of operations have not been adversely affected by inflation
during the past three-year period.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements together with the report of
independent auditors, and financial statement schedules are included on pages
36 through 49 of this document. Financial statement schedules other than those
included herein have been omitted because the required information is contained
in the consolidated financial statements or related notes, or such information
is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NOT APPLICABLE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Reference is made to "Election of Directors" on pages 3 through 5 of
Registrant's Proxy Statement for its 1998 Annual Meeting of Stockholders,
which section is incorporated herein by reference.
Reference is made to "Compliance with Section 16(a) of the Exchange Act"
on page 9 of Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders, which section is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information responsive to Items 11, 12 and 13 is incorporated by
reference from sections entitled "Security Ownership", "Election of
Directors", "Executive Compensation", and "Certain Transactions" of the
Registrant's Proxy Statement for its 1998 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The financial statements listed in the accompanying index to financial
statements and schedules are filed as part of this report.
(2) No schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are required
under the related instructions or are applicable and therefore have
been omitted.
(3) Exhibits
Exhibit
NUMBER
2.1 Agreement and Plan of Reorganization dated September 15, 1986, by and
among Pilgrim's Pride Corporation, a Texas corporation; Pilgrim's Pride
Corporation, a Delaware corporation; and Doris Pilgrim Julian, Aubrey Hal
Pilgrim, Paulette Pilgrim Rolston, Evanne Pilgrim, Lonnie "Bo" Pilgrim,
Lonnie Ken Pilgrim, Greta Pilgrim Owens and Patrick Wayne Pilgrim
(incorporated by reference from Exhibit 2.1 to the Company's Registration
Statement on Form S-1 (No. 33-8805) effective November 14, 1986).
3.1 Certificate of Incorporation of the Company (incorporated by reference
from Exhibit 3.1 of the Company's Registration Statement on Form S-1
(No.33-8805) effective November 14, 1986).
3.2 Amended and Restated Corporate Bylaws of Pilgrim's Pride Corporation, a
Delaware Corporation, effective December 4, 1996 (incorporated by
reference from Exhibit 3.3 of the Company's Quarterly Report on Form 10-Q
for the three months ended March 29, 1997).
4.1 Certificate of Incorporation of the Company (incorporated by reference
from Exhibit 3.1 of the Company's Registration Statement on Form S-1
(No. 33-8805) effective November 14, 1986).
4.2 Amended and Restated Corporate Bylaws of Pilgrim's Pride Corporation,
a Delaware Corporation, effective December 4, 1996 (incorporated by
reference from Exhibit 3.3 of the Company's Quarterly Report on Form 10-Q
for the three months ended March 29, 1997).
4.3 Specimen Certificate for shares of Common Stock, par value $.01 per
share, of the Company (incorporated by reference from Exhibit 4.6 of the
Company's Form 8 filed on July 1, 1992).
4.4 Form of Indenture between the Company and Ameritrust Texas National
Association relating to the Company's 10 7/8% Senior Subordinated Notes
Due 2003 (incorporated by reference from Exhibit 4.6 of the Company's
Registration Statement on Form S-1 (No.33-59626) filed on March 16, 1993).
4.5 Form of 10 7/8% Senior Subordinated Note Due 2003 (incorporated by
reference from Exhibit 4.8 of the Company's Registration Statement on
Form S-1 (No. 33-61160) filed on June 16, 1993).
10.1 Pilgrim's Industries, Inc. Profit Sharing Retirement Plan, restated as
of July 1, 1987 (incorporated by reference from Exhibit 10.1 of the
Company's Form 8 filed on July 1, 1992).
10.2 Bonus Plan of the Company (incorporated by reference from Exhibit 10.2
to the Company's Registration Statement on Form S-1 (No.33-8805) effective
November 14, 1986).
10.3 Stock Purchase Agreement dated May 12, 1992, between the Company and
Archer Daniels Midland Company (incorporated by reference from
Exhibit 10.45 of the Company's Form 10-K for the year ended September 26,
1992).
10.4 Employee Stock Investment Plan of the Company (incorporated by
reference from Exhibit 10.28 of the Company's Registration Statement on
Form S-1 (No. 33-21057) effective May 2, 1988).
10.5 Promissory Note dated September 20, 1990, by and between the Company
and Hibernia National Bank of Texas (incorporated by reference from
Exhibit 10.42 of the Company's Form 8 filed on July 1, 1992).
10.6 Loan Agreement dated October 16, 1990, by and among the Company,
Lonnie "Bo" Pilgrim and North Texas Production Credit Association, with
related Variable Rate Term Promissory Note and Deed of Trust (incorporated
by reference from Exhibit 10.43 of the Company's Form 8 filed on July 1,
1992).
10.7 Secured Credit Agreement dated May 27, 1993, by and among the Company
and Harris Trust and Savings Bank, and FBS AG Credit, Inc., Internationale
Nederlanden Bank, N.V., Boatmen's First National Bank of Kansas City, and
First Interstate Bank of Texas, N.A. (incorporated by reference from
Exhibit 10.31 of the Company's Registration Statement on Form S-1
(No. 33-61160) filed on June 16, 1993).
10.8 First Amendment to Secured Credit Agreement dated June 30, 1994 to the
Secured Credit Agreement dated May 27, 1993, by and among the Company and
Harris Trust and Savings Bank, and FBS AG Credit, Inc., Internationale
Nederlanden Bank N.V., Boatmen's First National Bank of Kansas City and
First Interstate Bank of Texas, N.A. (incorporated by reference from
Exhibit 10.33 of the Company's annual report on Form 10-K for the fiscal
year ended September 28, 1996).
10.9 Second Amendment to Secured Credit Agreement dated December 6, 1994 to
the Secured Credit Agreement dated May 27, 1993, by and among the Company
and Harris Trust and Savings Bank, and FBS AG Credit, Inc., Internationale
Nederlanden Bank N.V., Boatmen's First National Bank of Kansas City and
First Interstate Bank of Texas, N.A. (incorporated by reference from
Exhibit 10.36 of the Company's annual report on Form 10-K for the fiscal
year ended September 28, 1996).
10.10 Third Amendment to Secured Credit Agreement dated June 30, 1995 to the
Secured Credit Agreement dated May 27, 1993, by and among the Company and
Harris Trust and Savings Bank, and FBS AG Credit, Inc., Internationale
Nederlanden Bank N.V., (incorporated by reference from Exhibit 10.37 of
the Company's annual report of Form 10-K for the fiscal year ended
September 28, 1996).
10.11 Second Amended and Restated Loan and Security Agreement dated July 31,
1995, by and among the Company, the banks party thereto and Creditanstalt-
Bankverein, as agent (incorporated by reference from Exhibit 10.38 of the
Company's annual report on Form 10-K for the fiscal year ended
September 28, 1996).
10.12 Revolving Credit Loan Agreement dated March 27, 1995 by and among the
Company and Agricultural Production Credit Association (incorporated by
reference from Exhibit 10.39 of the Company's annual report on Form 10-K
for the fiscal year ended September 28, 1996).
10.13 First Supplement to Revolving Credit Loan Agreement dated July 6, 1995
by and among the Company and Agricultural Production Credit Association
(incorporated by reference from Exhibit 10.40 of the Company's annual
report on Form 10-K for the fiscal year ended September 28, 1996).
10.14 Credit Agreement dated as of January 31, 1996 is entered into among
Pilgrim's Pride, S.A. de C.V., and Internationale Nederlanden (U.S.)
Capital Corporation, Pilgrim's Pride Corporation, Avicola Pilgrim's
Pride de Mexico, S.A. de C.V., Compania Incubadora Avicola Pilgrim's
Pride, S.A. de C.V., Productora Y Distribuidora de Alimentos, S.A. de
C.V., Immobiliaria Avicola Pilgrim's Pride, S. De R.L. de C.V. and C.I.A.
Incubadora Hidalgo, S.A. de C.V. (incorporated by reference from
Exhibit 10.42 of the Company's annual report on Form 10-K for the fiscal
year ended September 28, 1996).
10.15 Fourth Amendment to Secured Credit Agreement dated June 6, 1996 to the
Secured Credit Agreement dated May 27, 1993, by and among the Company and
Harris Trust and Savings Bank, and FBS AG Credit, Inc., Internationale
Nederlanden Bank N.V., successor to First Interstate Bank of Texas., N.A.
(incorporated by reference from Exhibit 10.43 of the Company's annual
report on Form 10-K for the fiscal year ended September 28, 1996).
10.16 Second Supplement to Revolving Credit Loan Agreement dated June 28,
1996 by and among the Company and Agricultural Production Credit
Association (incorporated by reference from Exhibit 10.44 of the Company's
annual report on Form 10-K for the fiscal year ended September 28, 1996).
10.17 Third Supplement to Revolving Credit Loan Agreement dated August 22,
1996 by and among the Company and Agricultural Production Credit
Association (incorporated by reference from Exhibit 10.45 of the Company's
annual report on Form 10-K for the fiscal year ended September 28, 1996).
10.18 Note Purchase Agreement dated April 14, 1997 by and between John
Hancock Mutual Life Insurance Company and Signature 1A (Cayman), Ltd. and
the Company (incorporated by reference from Exhibit 10.46 of the Company's
Quarterly Report on Form 10-Q for the three months ended March 29, 1997).
10.19 Guaranty Fee Agreement between Pilgrim's Pride Corporation and Certain
Shareholders dated November 28, 1996 (incorporated by reference from
Exhibit 10.47 of the Company's Quarterly Report on Form 10-Q for the three
months ended March 29, 1997).
10.20 Aircraft Lease Extension Agreement between B.P. Leasing Co., (L.A.
Pilgrim, Individually) and Pilgrim's Pride Corporation, (formerly
Pilgrim's Industries, Inc.) effective November 15, 1992 (incorporated
by reference from Exhibit 10.48 of the Company's Quarterly Report on
Form 10-Q for the three months ended March 29, 1997).
10.21 Broiler Grower Contract dated May 6, 1997 between Pilgrim's Pride
Corporation and Lonnie "Bo" Pilgrim (Farm 30) (incorporated by reference
from Exhibit 10.49 of the Company's Quarterly Report on Form 10- for the
three months ended March 29, 1997).
10.22 Commercial Egg Grower Contract dated May 7, 1997 between Pilgrim's
Pride Corporation and Pilgrim Poultry G.P. (incorporated by reference from
Exhibit 10.50 of the Company's Quarterly Report on Form 10-Q for the three
months ended March 29, 1997).
10.23 Agreement dated October 15, 1996 between Pilgrim's Pride Corporation
and Pilgrim Poultry G.P. (incorporated by reference from Exhibit 10.51 of
the Company's Quarterly Report on Form 10-Q for the three months ended
March 29, 1997).
10.24 Heavy Breeder Contract dated May 7, 1997 between Pilgrim's Pride
Corporation and Lonnie "Bo" Pilgrim (Farms 44, 45 & 46) (incorporated by
reference from Exhibit 10.51 of the Company's Quarterly Report on
Form 10-Q for the three months ended March 29, 1997).
10.25 Broiler Grower Contract dated January 9, 1997 by and between Pilgrim's
Pride and O.B. Goolsby, Jr. (incorporated by reference from Exhibit 10.25
of the Company's Registration Statement on Form S-1 (No. 333-29163)
effective June 27, 1997).
10.26 Broiler Grower Contract dated January 15, 1997 by and between
Pilgrim's Pride Corporation and B.J.M. Farms. (incorporated by reference
from Exhibit 10.26 of the Company's Registration Statement on Form S-1
(No. 333-29163) effective June 27, 1997).
10.27 Broiler Grower Agreement dated January 29, 1997 by and between
Pilgrim's Pride Corporation and Clifford E. Butler (incorporated by
reference from Exhibit 10.27 of the Company's Registration Statement on
Form S-1 (No. 333-29163) effective June 27, 1997).
10.28 Secured Term Credit Agreement dated June 5, 1997 by and among
Pilgrim's Pride Corporation and Harris Trust and Savings Bank, and FBS AG
Credit, Inc., CoBank, ACB, ING (U.S.) Capital Corporation, Wells Fargo
Bank(Texas) and N.A., Caisse National de Credit Agricole, Chicago Branch.*
10.29 Amended and Restated Secured Credit Agreement dated August 11, 1997 to
the Secured Credit Agreement dated May 27, 1993 by and among the Company
and Harris Trust and Savings Bank, and FBS AG Credit, Inc., CoBank, ACB,
ING (U.S.) Capital Corporation, Wells Fargo Bank (Texas) and N.A., Caisse
National de Credit Agricole, Chicago Branch.*
10.30 Second Amendment to Second Amended and Restated Loan and Security
Agreement dated September 18, 1997 by and among the Company, the banks
party thereto and Creditanstalt-Bankverein, as agent.*
10.31 Guaranty Fee Agreement between Pilgrim's Pride Corporation and Certain
Shareholders dated July 23, 1997.*
21.1 Subsidiaries of Registrant.*
23.1 Consent of Ernst & Young LLP.*
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the issuer has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 12th day of
December 1997.
PILGRIM'S PRIDE CORPORATION
By: \s\ Richard A. Cogdill
Richard A. Cogdill
Chief Financial Officer
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
\s\ Lonnie "Bo Pilgrim
________________________ Chairman of the Board 12/12/97
Lonnie "Bo" Pilgrim of Directors and Chief
Executive Officer
(Principal Executive Officer)
\s\ Clifford E. Butler
_______________________ Vice Chairman of the 12/12/97
Clifford E. Butler Board of Directors,
Executive President
\s\ Lindy M. "Buddy" Pilgrim
________________________ President and 12/12/97
Lindy M. "Buddy" Pilgrim Chief Operating Officer and
Director
\s\ Robert L. Hendrix
_______________________ Executive Vice President 12/12/97
Robert L. Hendrix Operations and
Director
\s\ James J. Miner
_______________________ Senior Vice President 12/12/97
James J. Miner Technical Services and
Director
\s\ Lonnie Ken Pilgrim
_______________________ Senior Vice President and 12/12/97
Lonnie Ken Pilgrim Director
\s\ Charles L. Black
_______________________ Director 12/12/97
Charles L. Black
_______________________ Director 12/12/97
Robert E. Hilgenfeld
_______________________ Director 12/12/97
Vance C. Miller
______________________ Director 12/12/97
James J. Vetter, Jr.
_______________________ Director 12/12/97
Donald L. Wass
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Pilgrim's Pride Corporation
We have audited the accompanying consolidated balance sheets of Pilgrim's Pride
Corporation and subsidiaries at September 27, 1997 and September 28, 1996 and
the related consolidated statements of income (loss), stockholders' equity and
cash flows for each of the three years in the period ended September 27, 1997.
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 audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pilgrim's
Pride Corporation and subsidiaries at September 27, 1997 and September 28, 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended September 27, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
\s\ Ernst & Young LLP
Dallas, Texas
November 5, 1997
<PAGE>
C O N S O L I D A T E D B A L A N C E S H E E T S
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED
<S> <C> <C> <C> <C>
SEPTEMBER SEPTEMBER
27, 1997 28, 1996
ASSETS (IN THOUSANDS)
Current Assets
Cash and cash equivalents $ 20,338 $ 18,040
Trade accounts and other receivables,
less allowance for doubtful accounts 77,967 65,887
Inventories 146,180 136,866
Deferred income taxes 3,998 6,801
Prepaid expenses 2,353 907
Other current assets 311 757
Total Current Assets 251,147 229,258
OTHER ASSETS 18,094 18,827
PROPERTY, PLANT AND EQUIPMENT
Land 25,737 19,818
Buildings, machinery and equipment 436,783 409,191
Autos and trucks 33,278 32,503
Construction-in-progress 14,863 5,160
510,661 466,672
Less accumulated depreciation 200,778 178,035
309,883 288,637
$579,124 $536,722
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ - $ 27,000
Accounts payable 71,225 71,354
Accrued expenses 34,784 33,599
Current maturities of long-term debt 11,596 8,850
Total Current Liabilities 117,605 140,803
LONG-TERM DEBT, less current maturities 224,743 198,334
DEFERRED INCOME TAX 53,418 53,608
MINORITY INTEREST IN SUBSIDIARY 842 842
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
authorized 5,000,000 shares; none issued - -
Common stock, $.01 par value,
authorized 45,000,000 shares;
27,589,250 issued and outstanding
in 1997 and 1996 276 276
Additional paid-in capital 79,763 79,763
Retained earnings 102,477 63,096
Total Stockholders' Equity 182,516 143,135
$579,124 $536,722
See Notes to Consolidated Financial Statements
</TABLE>
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E ( L O S S )
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER SEPTEMBER SEPTEMBER
27, 1997 28, 1996 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET SALES $1,277,649 $1,139,310 $931,806
COSTS AND EXPENSES:
Cost of sales 1,163,152 1,068,670 857,662
Selling, general
and administrative 50,603 49,136 49,214
1,213,755 1,117,806 906,876
Operating Income 63,894 21,504 24,930
OTHER EXPENSES (INCOME):
Interest expense, net 22,075 21,539 17,483
Foreign exchange loss 434 1,275 5,605
Miscellaneous, net (2,439) (1,357) (249)
20,070 21,457 22,839
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY CHARGE 43,824 47 2,091
Income tax expense 2,788 4,551 10,058
Net income (loss) before
extraordinary charge 41,036 (4,504) (7,967)
EXTRAORDINARY CHARGE-EARLY
REPAYMENT OF DEBT, NET OF TAX - (2,780) -
NET INCOME (LOSS) $41,036 $(7,284) $(7,967)
Net income (loss) per common
share before extraordinary
charge $1.49 $(0.16) $(0.29)
Extraordinary charge per
common share - (0.10) -
NET INCOME (LOSS)
PER COMMON SHARE $1.49 $(0.26) $(0.29)
See Notes to Consolidated Financial Statements.
</TABLE>
C O N S O L I D A T E D S T A T E M E N T S O F
S T O C K H O L D E R S ' E Q U I T Y
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
NUMBER ADDITIONAL
OF COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Balance at October 1, 1994
27,589,250 $276 $79,763 $81,657 $161,696
Net loss for year (7,967) (7,967)
Cash dividends declared
($.06 per share) (1,655) (1,655)
Balance at September 30, 1995
27,589,250 276 79,763 72,035 152,074
Net loss for year (7,284) (7,284)
Cash dividends declared
($.06 per share) (1,655) (1,655)
Balance at September 28, 1996
27,589,250 276 79,763 63,096 143,135
Net income for year 41,036 41,036
Cash dividends declared
($.06 per share) (1,655) (1,655)
Balance at September 27, 1997
27,589,250 $276 $79,763 $102,477 $182,516
See Notes to Consolidated Financial Statements
</TABLE>
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER SEPTEMBER SEPTEMBER
27, 1997 28, 1996 30, 1995
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 41,036 $ (7,284) $ (7,967)
Adjustments to reconcile net income
(loss) to cash provided by operating
activities:
Depreciation and amortization 29,796 28,024 26,127
(Gain) loss on property disposals 874 (211) (263)
Provision for doubtful accounts (60) 1,003 1,133
Deferred income taxes 2,613 (354) 3,785
Extraordinary charge - 4,587 -
Changes in operating assets
and liabilities:
Accounts and other receivables (15,213) (6,858) (3,370)
Inventories (9,314) (24,830) (4,336)
Prepaid expenses (999) (674) 1,066
Accounts payable and accrued expenses 1,056 18,165 15,249
Other (174) (177) 1,288
Net Cash Flows Provided by
Operating Activitie 49,615 11,391 32,712
INVESTING ACTIVITIES:
Acquisitions of property,
plant and equipment (50,231) (34,314) (35,194)
Business acquisitions - - (36,178)
Proceeds from property disposal 3,853 1,468 541
Other, net (1,291) 312 (758)
Net Cash Used in Investing Activities (47,669) (32,534) (71,589)
FINANCING ACTIVITIES:
Proceeds from notes payable to banks 68,500 91,000 15,000
Repayments on notes payable to banks (95,500) (77,000) (2,000)
Proceeds from long-term debt 39,030 51,028 45,030
Payments on long-term debt (10,027) (32,140) (16,202)
Cash dividends paid (1,655) (1,655) (1,655)
Extraordinary charge, cash items - (3,920) -
Net Cash Provided by Financing Activities 348 27,313 40,173
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS: 4 (22) (648)
Increase in cash and cash equivalents 2,298 6,148 648
Cash and cash equivalents at
beginning of year 18,040 11,892 11,244
CASH AND CASH EQUIVALENTS
AT END OF YEAR: $20,338 $18,040 $11,892
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $22,026 $20,310 $16,764
Income taxes $ 2,021 $4,829 $5,128
See Notes to Consolidated Financial Statements.
</TABLE>
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Pilgrim's Pride Corporation and Subsidiaries
NOTE A - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pilgrim's Pride Corporation ("the Company") is a vertically integrated
producer of chicken products, controlling the breeding, hatching and growing of
chickens and the processing, preparation and packaging of its product lines.
The Company is the fourth largest producer of chicken in the United States,
with production and distribution facilities located in Texas, Arkansas,
Oklahoma and Arizona, and one of the two largest producers of chicken in
Mexico, with production and distribution facilities located in Mexico City and
the states of Coahuila, San Louis Potosi, Queretaro and Hidalgo. The Company's
chicken products consist primarily of prepared foods, which include portion-
controlled breast fillets, tenderloins and strips, formed nuggets and patties
and bone-in chicken parts, fresh foodservice chicken, prepackaged chicken, and
bulk packaged chicken.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Pilgrim's Pride Corporation and its wholly and majority owned
subsidiaries. Significant intercompany accounts and transactions have been
eliminated.
The financial statements of the Company's Mexican subsidiaries are
remeasured as if the U.S. dollar were the functional currency. Accordingly,
assets and liabilities of the Mexican subsidiaries are translated at end-of-
period exchange rates, except for non-monetary assets which are translated at
equivalent dollar costs at dates of acquisition using historical rates.
Operations are translated at average exchange rates in effect during the
period. Foreign exchange (gains) losses are separately stated as components of
"Other expenses (income)" in the Consolidated Statement of Income (Loss).
CASH EQUIVALENTS: The Company considers highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
ACCOUNTS RECEIVABLE: The Company does not believe it has significant
concentrations of credit risk in its accounts receivable, which are generally
unsecured. Credit evaluations are performed on all significant customers and
updated as circumstances dictate. Allowances for doubtful accounts were $3.8
million and $4.0 million at September 27, 1997 and September 28, 1996,
respectively.
INVENTORIES: Live chicken inventories are stated at the lower of cost or
market and breeder hens at the lower of cost, less accumulated amortization,
or market. The costs associated with breeder hens are accumulated up to
the production stage and amortized over the productive lives using the
straight-line method. Finished chicken products, feed, eggs and other
inventories are stated at the lower of cost (first-in, first-out method) or
market. Occasionally, the Company hedges a portion of its purchases of
major feed ingredients using futures contracts to minimize the risk of adverse
price fluctuations. Gains and losses on the hedge transactions are deferred and
recognized as a component of cost of sales when products are sold.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at
cost. For financial reporting purposes, depreciation is computed using the
straight-line method over the estimated useful lives of these assets.
Depreciation expense was $28.7 million, $26.8 million and $24.8 million in
1997, 1996 and 1995, respectively.
NET INCOME (LOSS) PER COMMON SHARE: Net income (loss) per share is based
on the weighted average shares of common stock outstanding during the year.
The weighted average number of shares outstanding was 27,589,250 in all
periods.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS
128), which the Company will be required to initially adopt in the first
quarter of 1998. The adoption of SFAS 128 will have no impact on its reporting
of earnings per share.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE B - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED
<S> <C> <C> <C> <C>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
(IN THOUSANDS)
Live chickens and hens $68,034 $66,248
Feed, eggs and other 43,878 39,804
Finished chicken products 34,268 30,814
$146,180 $136,866
</TABLE>
NOTE C - NOTES PAYABLE AND LONG-TERM DEBT
The Company maintains a $110 million in revolving credit facilities and $45
million in secured term borrowing facilities. These credit facilities provide
for interest at rates ranging from LIBOR plus one and three-quarters percent to
LIBOR plus two percent and are secured by inventory, trade accounts receivable
and fixed assets. At September 27, 1997, $102 million was available under the
revolving credit facilities and $25 million was available under the term
borrowing facilities.
The table below sets forth maturities on long-term debt during the next
five years.
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C><C> <C> <C>
(in thousands)
1998 $11,596
1999 11,630
2000 11,799
2001 11,942
2002 12,201
</TABLE>
During 1996, the Company retired certain debt prior to its scheduled
maturity. These repayments resulted in an extraordinary charge of $2.8
million, net of $1.8 million tax benefit.
The Company is required, by certain provisions of its debt agreements, to
maintain minimum levels of working capital and net worth, to limit dividends to
a maximum of $1.7 million per year, to maintain various fixed charge, leverage,
current and debt-to-equity ratios, and to limit annual capital expenditures.
Substantially all of the Company's domestic property, plant an equipment is
pledged as collateral on its long-term debt.
Total interest was $23.4 million in 1997 and 1996, and $19.1 million in
1995. Interest related to new construction capitalized in 1997, 1996 and 1995
was $.5 million, $1.3 million and $.6 million, respectively. The weighted
average interest rate on short term borrowings outstanding as of September 28,
1996 was 7.2%
The fair value of the Company's long-term debt was estimated using quoted
market prices, where available. For long-term debt not actively traded, fair
values were estimated using discounted cash flow analysis using current market
rates for similar types of borrowings.
<TABLE>
<CAPTION>
Long-term debt and the related fair values consist of the following:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEARS ENDED
SEPTEMBER 27, 1997 SEPTEMBER 28, 1996
CARRYING FAIR CARRYING FAIR
AMOUNTS VALUE AMOUNTS VALUE
(IN THOUSANDS)
Senior subordinated notes due August 1,
2003, interest at 10 7/8% (effective rate of
11/8%) payable in semi-annual installments,
less discount of $882,105 and $1,032,000
in 1997 and 1996, respectively. $ 99,118 $106,000 $ 98,968 $100,219
Notes payable to an insurance company
at 7.21%, payable in monthly installments
of $455,305 including interest, plus one
final balloon payment at maturity on
February 28, 2006. 47,065 45,463 48,896 46,063
Notes payable to bank, interest paid
monthly at LIBOR plus 1.8% currently
and 2.0% in both 1997 and 1996, with
quarterly principal payments of
$950,000 in 1997 and 1996 and
$1,000,000 in 1998 and thereafter,
plus one final balloon payment at 40,000 40,000 29,732 29,732
maturity on June 30, 2003.
Notes payable to an agricultural
lender at a rate approximating LIBOR
plus 1.65%, payable in equal monthly
installments including interest through
April 1, 2003. 28,871 28,871 27,080 27,080
Notes payable to an insurance company,
interest paid monthly at LIBOR plus 2.0%,
with monthly principal payments of $70,899
plus one fixed balloon payment at
maturity on February 28, 2006. 12,478 12,478 - -
Other notes payable 8,807 8,589 2,508 2,547
236,339 241,401 207,184 205,641
Less current maturities 11,596 8,850
$224,743 $198,334
</TABLE>
NOTE D - INCOME TAXES
Income (loss) before income taxes and extraordinary charge after allocation
of certain expenses to foreign operations for 1997, 1996 and 1995 was $15.8
million, $16.3 million and $29.9 million, respectively, for U.S. operations,
and $28 million, $(16.3) million and $(27.8) million, respectively, for foreign
operations. The provisions for income taxes are based on pretax financial
statement income.
The components of income tax expense (benefit) are set forth below:
<TABLE>
<CAPTION>
YEARS ENDED
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER SEPTEMBER SEPTEMBER
27, 1997 28, 1996 30, 1995
(IN THOUSANDS)
Current:
Federal $1 ,113 $3,005 $5,215
Foreign 245 817 638
State and other (1,183) 1,083 420
175 4,905 6,273
Deferred:
Reinstatement of
deferred taxes
through utilization
of tax credits
and net operating
losses 516 397 3,542
Accelerated tax
depreciation 558 (195) 215
Expenses deductible
in a different year
for tax and financial
reporting purposes 841 238 411
Other, net 698 (794) (383)
2,613 (354) 3,785
$ 2,788 $4,551 $10,058
</TABLE>
The following is a reconciliation between the statutory U.S. federal income
tax rate and the Company's effective income tax rate.
<TABLE>
<CAPTION>
YEARS ENDED
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER SEPTEMBER SEPTEMBER
27, 1997 28, 1996 30, 1995
Federal income tax rate 35.0% 35.0% 35.0%
State tax rate, net (0.8) 1,674.1 40.1
Effect of Mexican loss
being non- deductible in U.S. - 6,252.3 411.1
Difference in U.S.
statutory tax rate
and Mexican effective
tax rate (27.8) 1,649.3 -
Other, net - 0.2 (5.2)
6.4% 9,610.9% 481.0%
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
<S> <C> <C> <C> <C>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
Deferred tax liabilities: (IN THOUSANDS)
Tax over book depreciation $ 24,584 $24,027
Prior use of cash accounting 34,223 33,418
Other 823 930
Total deferred tax liabilities 59,630 58,375
Deferred tax assets:
AMT credit carryforward 3,518 4,034
Expenses deductible in
different years 6,692 7,534
Total deferred tax asset 10,210 11,568
Net deferred tax liabilities $49,420 $46,807
</TABLE>
The Company has not provided any U.S. deferred income taxes on the
undistributed earnings of its Mexican subsidiaries based upon its determination
that such earnings will be indefinitely reinvested. As of September 27, 1997,
the cumulative undistributed earnings of these subsidiaries were approximately
$54.9 million. If such earnings were not considered indefinitely reinvested,
deferred U.S. and foreign income taxes would have been provided, after
consideration of estimated foreign tax credits. However, determination of the
amount of deferred federal and foreign income taxes is not practical.
As of September 27, 1997, approximately $3.5 million of alternative
minimum tax credits were available to offset future income taxes. All credits
have been reflected in the financial statements as a reduction of deferred
taxes. As these credits are utilized for tax purposes, deferred taxes will be
reinstated.
NOTE E - SAVINGS PLAN
The Company maintains a Section 401(k) Salary Deferral Plan ("the Plan").
Under the Plan, eligible domestic employees may voluntarily contribute a
percentage of their compensation. The Plan provides for a contribution of up
to four percent of compensation subject to an overall Company contribution
limit of five percent of the U.S. operation income before taxes. Under this
plan, the Company's expenses were $2.1 million, $1.8 million and $1.9 million
in 1997, 1996 and 1995, respectively.
NOTE F - RELATED PARTY TRANSACTIONS
The major stockholder of the Company owns an egg laying and a chicken
growing operation. Transactions with related entities are summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER SEPTEMBER SEPTEMBER
27, 1997 28, 1996 30, 1995
(IN THOUSANDS)
Contract egg grower
fees to major stockholder $ 4,926 $ 4,697 $ 4,760
Chick, feed and other
sales to major stockholder 20,116 18,057 12,478
Live chicken purchases
from major stockholder 20,442 18,112 12,721
</TABLE>
The Company leases an airplane from its major stockholder under an operating
lease agreement. The terms of the lease agreement require monthly payments of
$33,000 plus operating expenses. Lease expense was $396,000 for each of the
years 1997, 1996 and 1995. Operating expenses were $107,000, $88,000 and
$149,000 in 1997, 1996 and 1995, respectively.
Expenses incurred for the guarantee of certain debt by stockholders were
$1,137,000, $1,027,000 and $623,000 in 1997, 1996 and 1995, respectively.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Consolidated Statements of Income (Loss) included rental expense for
operating leases of approximately $11.3 million, $10.1 million and $9.8 million
in 1997, 1996 and 1995, respectively. The Company's future minimum lease
commitments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1998 $10,238
1999 9,259
2000 8,148
2001 10,288
2002 8,301
Thereafter 9,567
</TABLE>
At September 27, 1997, the Company had $8.0 million letters of credit
outstanding relating to normal business transactions.
The Company is subject to various legal proceedings and claims which arise
in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not materially
affect the financial position or results of operations of the Company.
NOTE H - BUSINESS SEGMENTS
The Company operates in a single business segment as a producer of
agricultural products and conducts separate operations in the United States and
Mexico.
Inter-area sales, which are not material, are accounted for at prices
comparable to normal trade customer sales. Identifiable assets by geographic
area are those assets, which are used in the Company's operation in each area.
Information about the Company's operations in these geographic areas is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER SEPTEMBER SEPTEMBER
27, 1997 28, 1996 30, 1995
(IN THOUSANDS)
Sales to unaffiliated
customers:
United States $1,002,652 $ 911,181 $772,315
Mexico 274,997 228,129 159,491
$1,277,649 $1,139,310 $931,806
Operating income(loss):
United States $ 29,321 $ 29,705 $ 41,923
Mexico 34,573 (8,201) (16,993)
$ 63,894 $ 21,504 $ 24,930
Identifiable assets:
United States $ 404,213 $ 363,543 $328,489
Mexico 174,911 173,179 169,115
$ 579,124 $ 536,722 $497,604
</TABLE>
The operating losses in Mexico in 1996 and 1995 were primarily the result of
currency devaluation and other economic factors. As of September 27, 1997 the
Company had net assets in Mexico of $154 million.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
(SFAS 131), effective for years beginning after December 15, 1997. SFAS No.
131 supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE, and requires that a public company report annual and interim
financial and descriptive information about its reportable operating segments
pursuant to criteria that differ from current accounting practice. Because
this statement addresses how supplemental financial information is disclosed in
annual and interim reports, the adoption will have no impact on the Company's
financial statements, but may affect the disclosure of segment information.
NOTE I - ACQUISITIONS AND INVESTMENTS
On July 5, 1995, the Company acquired certain assets of Union de
Queretaro, et al, a group of five chicken companies located near Queretaro,
Mexico for approximately $35.3 million. These assets were integrated with the
Company's existing Mexican operation, headquartered in Queretaro, Mexico, which
is one of the two largest chicken operations in Mexico. The acquisition has
been accounted for as a purchase, and the results of operations for this
acquisition have been included in the Company's consolidated results of
operations since the acquisition date. Pro forma operating results are not
presented as they would not differ materially from actual results reported in
1995.
<PAGE>
NOTE J - QUARTERLY RESULTS - (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 27, 1997
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $297,806 $303,401 $335,168 $341,274 $1,277,649
Gross profit 30,267 23,085 27,285 33,860 114,497
Operating income 16,314 9,660 12,627 25,293 63,894
Net income 10,105(a) 4,954 7,286 18,691 41,036(a)
Per Share:
Net income 0.37(a) 0.18 0.26 0.68 1.49 (a)
Cash dividends 0.015 0.015 0.015 0.015 0.06
Market price:
High 9 12 1/8 12 3/4 15 3/8 15 3/8
Low 7 3/4 8 5/8 9 1/2 10 5/16 7 3/4
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 28, 1996
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $267,475 $272,004 $294,339 $305,492 $1,139,310
Gross profit 20,972 16,047 17,384 16,237 70,640
Operating income 8,825 3,684 5,454 3,541 21,504
Extraordinary
charge (b) - (2,780) - - (2,780)
Net income (loss) (704) (3,335) 1,007 (4,252) (7,284)
Per share:
Net income (loss)
before extraordinary
charge (0.03) (0.02) 0.04 (0.15) (0.16)
Extraordinary charge - (0.10) - - (0.10)
Net income (loss) (0.03) (0.12) 0.04 (0.15) (0.26)
Cash dividends 0.015 0.015 0.015 0.015 0.06
Market price:
High 8 3/8 7 5/8 9 9 9
Low 6 5/8 6 3/4 6 3/4 7 1/2 6 5/8
</TABLE>
(a) Includes $2.2 million ($1.3 million net of taxes) of other income arising
from the final settlement of claims arising from a January 1992 fire at the
Company's prepared foods plant.
(b) The extraordinary charge of $2.8 million, net of tax, is the result of the
early repayment of 10.49% and 9.55% senior secured debt payable to an insurance
company. (See Note C).
<PAGE>
EXHIBIT 22 - SUBSIDIARIES OF REGISTRANT
1. AVICOLA PILGRIM'S PRIDE DE MEXICO, S.A. DE C.V.
2. COMPANIA INCUBADORA AVICOLA PILGRIM'S PRIDE, S.A. DE C.V.
3. CIA. INCUBADORA HIDALGO, S.A. DE C.V.
4. INMOBILIARIA AVICOLA PILGRIM'S PRIDE, S. DE R.L. DE C.V.
5. PILGRIM'S PRIDE, S.A. DE C.V.
6. PRODUCTORA Y DISTRIBUIDORA DE ALIMENTOS, S.A. DE C.V.
7. GALLINA PESADA S.A. DE C.V.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 3-12043) of Pilgrim's Pride Corporation
of our report dated November 5, 1997, with respect to the
consolidated financial statements of Pilgrim's Pride Corporation
included in this Annual Report (Form 10-K) for the year ended
September 7, 1997.
Ernst & Young LLP
\s\ Ernst & Young LLP
Dallas, Texas
December 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> SEP-27-1997
<CASH> 20338
<SECURITIES> 0
<RECEIVABLES> 77967
<ALLOWANCES> 0
<INVENTORY> 146180
<CURRENT-ASSETS> 251147
<PP&E> 510661
<DEPRECIATION> 309883
<TOTAL-ASSETS> 579124
<CURRENT-LIABILITIES> 117605
<BONDS> 224743
276
0
<COMMON> 0
<OTHER-SE> 182240
<TOTAL-LIABILITY-AND-EQUITY> 579124
<SALES> 1277649
<TOTAL-REVENUES> 1277649
<CGS> 1163152
<TOTAL-COSTS> 1213755
<OTHER-EXPENSES> 20070
<LOSS-PROVISION> (60)
<INTEREST-EXPENSE> 22075
<INCOME-PRETAX> 43824
<INCOME-TAX> 2788
<INCOME-CONTINUING> 41036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41036
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.49
</TABLE>
SECURED TERM CREDIT AGREEMENT
Among
PILGRIM'S PRIDE CORPORATION
And
HARRIS TRUST AND SAVINGS BANK
INDIVIDUALLY AND AS AGENT
AND
FBS Ag Credit, Inc.
COBANK, ACB
ING (U.S.) Capital Corporation
WELLS FARGO BANK (TEXAS), N.A.
Caisse Nationale de Credit Agricole, Chicago Branch
Dated as of June 5, 1997
<PAGE>
TABLE OF CONTENTS
Pilgrim's Pride Corporation
SECURED TERM CREDIT AGREEMENT
Exhibit A Secured Term Credit Note
Exhibit BDeed of Trust
Exhibit C Environmental Disclosure
Exhibit D Permitted Liens
Exhibit E Compliance Certificate
Exhibit F Subsidiaries
Exhibit GLabor Disputes
<PAGE>
Pilgrim's Pride Corporation
SECURED TERM CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
FBS Ag Credit, Inc.
Denver, Colorado
CoBank, ACB
Wichita, Kansas
ING (U.S.) Capital Corporation ("ING")
New York, New York
Wells Fargo Bank (Texas), N.A.
Dallas, Texas
Caisse Nationale de Credit Agricole, Chicago Branch
Chicago, Illinois
Ladies and Gentlemen:
The undersigned, PILGRIM'S PRIDE CORPORATION, a Delaware corporation
(the "COMPANY"), applies to you for your several commitment, subject to
all the terms and conditions hereof and on the basis of the
representations and warranties hereinafter set forth, to make a term
credit (the "TERM CREDIT") available to the Company, all as more fully
hereinafter set forth. Each of you is hereinafter referred to
individually as "BANK" and collectively as "BANKS." Harris Trust and
Savings Bank in its individual capacity is sometimes referred to herein
as "HARRIS", and in its capacity as Agent for the Banks is hereinafter in
such capacity called the "AGENT."
SECTION 1. THE CREDIT FACILITIES.
SECTION 1.1. THE TERM CREDIT. (a) Subject to all of the terms and
conditions hereof, the Banks agree, severally and not jointly, to extend
a Term Credit to the Company which may be utilized by the Company in the
form of loans (individually a "TERM LOAN" and collectively the "TERM
LOANS"). The aggregate principal amount of all Term Loans made hereunder
shall not exceed the Banks' Term Credit Commitments (as hereinafter
defined). The Term Loans may be disbursed in one or more borrowings
during the period from the date hereof to and including April 30, 1999
(the "TERMINATION DATE").
(b) The respective maximum aggregate principal amounts of the Term
Credit and the percentage of the Term Credit (the "COMMITMENT
PERCENTAGE") available at any time which each Bank by its acceptance
hereof severally agrees to make available to the Company are as follows
(collectively, the "TERM CREDIT COMMITMENTS" and individually, a "TERM
CREDIT COMMITMENT"):
<TABLE>
<S> <C>
Harris Trust and Savings Bank $2,666,667.00
FBS Ag Credit, Inc. $2,000,000.00
CoBank, ACB $2,000,000.00
ING (U.S.) Capital Corporation $1,333,333.00
Wells Fargo Bank (Texas), N.A. $1,000,000.00
Caisse Nationale de Credit Agricole $1,000,000.00
Total $10,000,000.00
</TABLE>
All Term Loans shall be made from each Bank in proportion to its
respective Term Credit Commitment as above set forth. Each borrowing of
Term Loans shall be in an amount not less than $1,000,000 or such greater
amount which is an integral multiple of $500,000 and each Fixed Rate
Portion shall be in an amount not less than $1,000,000. The Term Loans
shall mature on the Termination Date.
SECTION 1.2. THE NOTES. All Term Loans made by each Bank hereunder
shall be evidenced by a single Secured Term Credit Note of the Company
substantially in the form of Exhibit A hereto (individually, a "TERM
NOTE" and together, the "TERM NOTES") payable to the order of each Bank
in the principal amount of such Bank's Term Credit Commitment, but the
aggregate principal amount of indebtedness evidenced by such Term Note at
any time shall be, and the same is to be determined by, the aggregate
principal amount of all Term Loans made by such Bank to the Company
pursuant hereto on or prior to the date of determination less the
aggregate amount of principal repayments on such Term Loans received by
or on behalf of such Bank on or prior to such date of determination.
Each Term Note shall be dated as of the execution date of this Agreement,
shall be delivered concurrently herewith, and shall be expressed to
mature on the Termination Date and to bear interest as provided in
Section 1.3 hereof. Each Bank shall record on its books or records or on
a schedule to its Term Note the amount of each Term Loan made by it
hereunder, and, with respect to Eurodollar Portions, the interest rate
and Interest Period applicable thereto, and all payments of principal and
interest and the principal balance from time to time outstanding,
provided that prior to any transfer of such Term Note all such amounts
shall be recorded on a schedule to such Term Note. The record thereof,
whether shown on such books or records or on the schedule to the Term
Note, shall be PRIMA FACIE evidence as to all such amounts; provided,
however, that the failure of any Bank to record or any mistake in
recording any of the foregoing shall not limit or otherwise affect the
obligation of the Company to repay all Term Loans made hereunder together
with accrued interest thereon. Upon the request of any Bank, the Company
will furnish a new Term Note to such Bank to replace its outstanding Term
Note and at such time the first notation appearing on the schedule on the
reverse side of, or attached to, such Term Note shall set forth the
aggregate unpaid principal amount of Term Loans then outstanding from
such Bank, and, with respect to each Fixed Rate Portion, the interest
rate and Interest Period applicable thereto. Such Bank will cancel the
outstanding Term Note upon receipt of the new Term Note.
SECTION 1.3. INTEREST RATES AND RATE SELECTION. (a) INTEREST RATE
OPTIONS. Subject to all of the terms and conditions of this Section 1.3,
portions of the principal indebtedness evidenced by each Term Note (all
of the indebtedness evidenced by each Term Note bearing interest at the
same rate for the same period of time being hereinafter referred to as a
"PORTION") may, at the option of the Company, bear interest with
reference to the Domestic Rate (the "DOMESTIC RATE PORTION") or with
reference to an Adjusted Eurodollar Rate ("EURODOLLAR PORTIONS") or with
reference to an Adjusted CD Rate ("CD RATE PORTIONS"), and Portions may
be converted from time to time from one basis to another. All of the
indebtedness evidenced by each Term Note which is not part of a Fixed
Rate Portion shall constitute a single Domestic Rate Portion. All of the
indebtedness evidenced by each Term Note which bears interest with
reference to a particular Adjusted Eurodollar Rate for a particular
Interest Period shall constitute a single Eurodollar Portion, all of the
indebtedness evidenced by each Term Note which bears interest with
reference to a particular Adjusted CD Rate for a particular Interest
Period shall constitute a single CD Rate Portion. Each Domestic Rate
Portion shall be in an amount not less than $1,000,000 or such greater
amount which is an integral multiple of $500,000 and each Fixed Rate
Portion shall be in an amount not less than $1,000,000 or such greater
amount which is an integral multiple of $1,000,000.
(b) DOMESTIC RATE PORTIONS. Each Domestic Rate Portion shall bear
interest (computed on the basis of a year of 360 days and actual days
elapsed) on the unpaid principal amount thereof from the date such Loan
is made until maturity (whether by acceleration, upon prepayment or
otherwise) at a rate per annum equal to the lesser of (i) the Highest
Lawful Rate and (ii) the sum of the Applicable Margin plus the Domestic
Rate from time to time in effect, payable quarterly in arrears on the
last day of each calendar quarter, commencing on the first of such dates
occurring after the date hereof and at maturity (whether by acceleration,
upon prepayment or otherwise).
(c) EURODOLLAR PORTIONS. Each Eurodollar Portion shall bear
interest (computed on the basis of a year of 360 days and actual days
elapsed) on the unpaid principal amount thereof from the date such Loan
is made until the last day of the Interest Period applicable thereto or,
if earlier, until maturity (whether by acceleration or otherwise) at a
rate per annum equal to the lesser of (i) the Highest Lawful Rate and
(ii) the sum of the Applicable Margin plus the Adjusted Eurodollar Rate,
payable on the last day of each Interest Period applicable thereto and at
maturity (whether by acceleration or otherwise) and, with respect to
Eurodollar Portions with an Interest Period in excess of three months, on
the date occurring every three months from the first day of the Interest
Period applicable thereto.
(d) CD RATE PORTIONS. Each CD Rate Portion shall bear interest
(computed on the basis of a year of 360 days and actual days elapsed) on
the unpaid principal amount thereof from the date such Loan is made until
the last day of the Interest Period applicable thereto or, if earlier,
until maturity (whether by acceleration or otherwise) at a rate per annum
equal to the lesser of (i) the Highest Lawful Rate and (ii) the sum of
the Applicable Margin plus the Adjusted CD Rate, payable on the last day
of each Interest Period applicable thereto and at maturity (whether by
acceleration of otherwise) and, with respect to CD Rate Portions with an
Interest Period in excess of 90 days, on the date occurring every 90 days
from the first day of the Interest Period applicable thereto.
(e) DEFAULT RATE. During the existence of an Event of Default all
Loans and Reimbursement Obligations shall bear interest (computed on the
basis of a year of 360 days and actual days elapsed) from the date of
such Event of Default until paid in full, payable on demand, at a rate
per annum equal to the sum of 2.5% plus the Domestic Rate from time to
time in effect plus the Applicable Margin.
(f) The Company shall give telephonic, telex or telecopy notice to
the Agent (which notice, if telephonic, shall be promptly confirmed in
writing) no later than (i) 11:00 a.m. (Chicago time) on the date the
Banks are requested to make each Domestic Rate Portion, (ii) 11:00 a.m.
(Chicago time) on the date at least three (3) Banking Days prior to the
date of (A) each Eurodollar Portion which the Banks are requested to make
or continue, and (B) the conversion of any CD Rate Portion or Domestic
Rate Portion into a Eurodollar Portion and (iii) 11:00 a.m. (Chicago
time) on the date at least one (1) Business Day prior to the date of (A)
each CD Rate Portion which the Banks are requested to make and (B) the
conversion of any Eurodollar Portion or Domestic Rate Portion into a CD
Rate Portion. Each such notice shall specify the date of the Loan
requested (which shall be a Business Day in the case of Domestic Rate
Portions and CD Rate Portions and a Banking Day in the case of a
Eurodollar Portion), the amount of such Loan, whether the Loan is to be
made available by means of a Domestic Rate Portion, CD Rate Portion or
Eurodollar Portion and, with respect to Fixed Rate Portions, the Interest
Period applicable thereto. The Company agrees that the Agent may rely on
any such telephonic, telex or telecopy notice given by any person who the
Agent believes is authorized to give such notice without the necessity of
independent investigation and in the event any notice by such means
conflicts with the written confirmation, such notice shall govern if any
Bank has acted in reliance thereon. The Agent shall, no later than 12:30
p.m. (Chicago time) on the day any such notice is received by it, give
telephonic, telex or telecopy (if telephonic, to be confirmed in writing
within one Business Day) notice of the receipt of notice from the Company
hereunder to each of the Banks, and, if such notice requests the Banks to
make, continue or convert any Fixed Rate Portions, the Agent shall
confirm to the Company by telephonic, telex or telecopy means, which
confirmation shall be conclusive and binding on the Company in the
absence of manifest error, the Interest Period and the interest rate
applicable thereto promptly after such rate is determined by the Agent.
SECTION 1.4. CONVERSION AND CONTINUATION OF PORTIONS. (a) Provided
that no Event of Default or Potential Default has occurred and is
continuing, the Company shall have the right, subject to the other terms
and conditions of this Agreement, to continue in whole or in part (but,
if in part, in the minimum amount specified for Fixed Rate Portions in
Section 1.3(a) hereof) any Fixed Rate Portion from any current Interest
Period into a subsequent Interest Period, provided that the Company shall
give the Bank notice of the continuation of any such Loan as provided in
Section 1.3(f) hereof.
(b) In the event that the Company fails to give notice pursuant to
Section 1.3(f) hereof of the continuation of any Fixed Rate Portion or
fails to specify the Interest Period applicable thereto, or an Event of
Default or Potential Default has occurred and is continuing at the time
any such Portion is to be continued hereunder, then such Portion shall be
automatically converted as (and the Company shall be deemed to have given
notice requesting) a Domestic Rate Portion, subject to Sections 1.3, 8.2
and 8.3 hereof, unless paid in full on the last day of the then
applicable Interest Period.
(c) Provided that no Event of Default or Potential Default has
occurred and is continuing, the Company shall have the right, subject to
the terms and conditions of this Agreement, to convert Portions of one
type (in whole or in part) into Portions of another type from time to
time provided that: (i) the Company shall give the Bank notice of each
such conversion as provided in Section 1.3(f) hereof, (ii) the principal
amount of any Portion converted hereunder shall be in an amount not less
than the minimum amount specified for the type of Portion in Section
1.3(a) hereof, (iii) after giving effect to any such conversion in part,
the principal amount of any Fixed Rate Portion then outstanding shall not
be less than the minimum amount specified for the type of Portion in
Section 1.3(a) hereof, (iv) any conversion of a Portion hereunder shall
only be made on a Banking Day, and (v) any Fixed Rate Portion may be
converted only on the last day of the Interest Period then applicable
thereto.
SECTION 1.5. MANNER OF BORROWING. (a) In addition to any notice
required by Section 1.3(f) of this Agreement, the Company shall give
telephonic, telex or telecopy notice to the Agent (which notice, if
telephonic, shall be promptly confirmed in writing) no later than 11:00
a.m. (Chicago time) on the date the Banks are requested to make a
borrowing of Term Loans available hereunder. Each such notice shall
specify the date of the proposed borrowing and the amount of such
borrowing. The Company agrees that the Agent may rely on any such
telephonic, telex or telecopy notice given by any person who the Agent
believes is authorized to give such notice without the necessity of
independent investigation and in the event any notice by such means
conflicts with the written confirmation, such notice shall govern if any
Bank has acted in reliance thereon. The Agent shall, no later than 12:30
p.m. (Chicago time) on the day any such notice is received by it, give
telephonic, telex or telecopy (if telephonic, to be confirmed in writing
within one Business Day) notice of the receipt of notice from the Company
hereunder to each of the Banks.
(b) Subject to the provisions of Section 6 hereof, the proceeds of
each Term Loan shall be made available to the Company at the principal
office of the Agent in Chicago, Illinois, in immediately available funds,
on the date such Term Loan is requested to be made. Not later than
2:00 p.m. Chicago time, on the date specified for any Term Loan to be
made hereunder, each Bank shall make its portion of such Term Loan
available to the Company in immediately available funds at the principal
office of the Agent.
(c) Unless the Agent shall have been notified by a Bank prior to
1:00 p.m. (Chicago time) on the date a Term Loan is to be made by such
Bank (which notice shall be effective upon receipt) that such Bank does
not intend to make the proceeds of such Term Loan available to the Agent,
the Agent may assume that such Bank has made such proceeds available to
the Agent on such date and the Agent may in reliance upon such assumption
(but shall not be required to) make available to the Company a
corresponding amount. If such corresponding amount is not in fact made
available to the Agent by such Bank, the Agent shall be entitled to
receive such amount on demand from such Bank (or, if such Bank fails to
pay such amount forthwith upon such demand, to recover such amount,
together with interest thereon at the rate otherwise applicable thereto
under Section 1.3 hereof, from the Company) together with interest
thereon in respect of each day during the period commencing on the date
such amount was made available to the Company and ending on the date the
Agent recovers such amount, at a rate per annum equal to the effective
rate charged to the Agent for overnight Federal funds transactions with
member banks of the Federal Reserve System for each day, as determined by
the Agent (or, in the case of a day which is not a Business Day, then for
the preceding Business Day) (the "FED FUNDS RATE"). Nothing in this
Section 1.5(c) shall be deemed to permit any Bank to breach its
obligations to make Term Loans under the Term Credit or to limit the
Company's claims against any Bank for such breach.
SECTION 1.6 LETTER OF CREDIT. Subject to all the terms and
conditions hereof, satisfaction of all conditions precedent set forth in
this Agreement and so long as no Potential Default or Event of Default is
in existence, at the Company's request Harris shall issue a standby
letter of credit (the "BOND L/C") in an original stated amount of up to
$10,000,000 (the "L/C COMMITMENT") for the account of the Company at any
time on or prior to April 30, 1999 (the "L/C FACILITY EXPIRATION DATE").
The Bond L/C shall be issued pursuant to a Reimbursement Agreement (the
"L/C AGREEMENT" ) in form and substance satisfactory to the Banks and
shall be for the purpose of supporting tax-exempt industrial revenue
bonds which may be issued to finance the Company's Tenaha Feed Mill (the
"IRBS"). The Bond L/C shall have an expiry date not more than three
years from the date of issuance thereof, subject to extension as provided
in the L/C Agreement. Nothing contained in this Agreement shall be
deemed to require the Company to cause any IRBs to be issued, it being
agreed that the issuance of IRBs shall be within the Company's sole
discretion.
SECTION 1.7. REIMBURSEMENT OBLIGATION. The Company will be obligated
to pay in immediately available funds to Harris each demand for payment
made under the Bond L/C as provided in the L/C Agreement (the obligation
of the Company under the L/C Agreement is hereinafter referred to as a
"REIMBURSEMENT OBLIGATION").
SECTION 1.8. PARTICIPATION IN THE BOND L/C. Each of the Banks will
acquire a risk participation for its own account, without recourse to or
representation or warranty from Harris, in the Bond L/C upon the issuance
thereof ratably in accordance with its Commitment Percentage. In the
event any Reimbursement Obligation is not immediately paid by the Company
pursuant to Section 1.7 hereof and the L/C Agreement, each Bank will pay
to Harris funds in an amount equal to such Bank's Commitment Percentage
of the unpaid amount of such Reimbursement Obligation. The obligation of
the Banks to Harris under this Section 1.9 shall be absolute and
unconditional and shall not be affected or impaired by any Event of
Default or Potential Default which may then be continuing hereunder.
Harris shall notify each Bank by telephone of its Commitment Percentage
of such unpaid Reimbursement Obligation. If such notice has been given
to each Bank by 12:00 Noon, Chicago time, each Bank agrees to pay Harris
in immediately available and freely transferable funds on the same
Business Day. If such notice is received after 12:00 noon, Chicago time,
each Bank agrees to pay Harris in immediately available and freely
transferable funds no later than the following Business Day. Funds shall
be so made available at the account designated by Harris in such notice
to the Banks. Harris shall share with each Bank on a pro rata basis
relative to its Commitment Percentage a portion of each payment of a
Reimbursement Obligation (whether of principal or interest) and any L/C
Fee (but not any L/C Issuance Fee) payable by the Company. Any such
amount shall be promptly remitted to the Banks when and as received by
Harris from the Company.
SECTION 1.9. REDUCTIONS AND REINSTATEMENTS. The Company and the Banks
recognize, acknowledge and agree that (i) the Bond L/C provides for
automatic reductions and reinstatements as set forth in the provisions of
such Bond L/C, and (ii) the Bond L/C provides for the beneficiary thereof
to reduce from time to time the amounts available to be drawn thereon.
Each Bank acknowledges that, because the interest component of the Bond
L/C may be reinstated at a time when the Company has not reimbursed the
Banks in full for an interest drawing under the Bond L/C, the total may
exceed the total amount of L/Cs that may be issued pursuant to
Section 1.6 hereof and each Bank agrees to pay Harris its pro rata share
of any drawing under the Bond L/C notwithstanding that any such payment
may result in the aggregate principal amount owing such Bank hereunder
exceeding the Revolving Credit Commitment of such Bank.
SECTION 1.10. LIABILITY OF HARRIS. None of the Harris-Related Persons
shall (i) be liable for any action taken or omitted to be taken by any of
them under or in connection with the L/C Agreement or any Bond Document
(except for its own gross negligence or willful misconduct), or (ii) be
responsible in any manner to any of the Banks for any recital, statement,
representation or warranty made by the Company, the Subsidiary Guarantors
or any Affiliate of the Company or the Subsidiary Guarantors, or any
officer thereof, contained in the L/C Agreement or any Bond Document, or
in any certificate, report, statement or other document referred to or
provided for in, or received by Harris under or in connection with, the
L/C Agreement or any Bond Document, or for the validity, effectiveness,
genuineness, enforceability or sufficiency of the L/C Agreement or any
Bond Document, or for any failure of the Company or any other party to
the L/C Agreement or any Bond Document to perform its obligations
thereunder (other than for the gross negligence or willful misconduct of
Harris). No Harris-Related Person shall be under any obligation to any
Bank to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, the L/C Agreement
or any Bond Document, or to inspect the properties, books or records of
the Company, the Subsidiary Guarantors or any of their respective
Affiliates.
SECTION 1.11. RELIANCE BY HARRIS. Harris shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, telegram, facsimile,
telex or telephone message, statement or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or
made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to the Company). Harris shall be fully
justified in failing or refusing to take any action under the L/C
Agreement or any Bond Document which would otherwise require the consent
of the Required Banks or all of the Banks unless it shall first receive
such advice or concurrence of the Required Banks (or, if required by this
Agreement, all Banks) as it deems appropriate and, if it so requests, it
shall first be indemnified to its satisfaction by the Banks against any
and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action. Harris shall in all cases
be fully protected in acting, or in refraining from acting, under the L/C
Agreement or any Bond Document in accordance with a request or consent of
the Required Banks (or, if required by this Agreement, all Banks) and
such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
SECTION 1.12. NOTICE OF DEFAULT. Harris shall not be deemed to have
knowledge or notice of the occurrence of any Potential Default or Event
of Default under Section 8.1(1) hereof, unless Harris shall have received
written notice from the Company or any other party to a Bond Document.
Harris shall take such action with respect to such Potential Default or
Event of Default under the L/C Agreement and the Bond Documents as shall
be required pursuant to Section 8 hereof; PROVIDED that unless and until
Harris shall have received direction under Section 8, Harris may (but
shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Potential Default or Event of Default as it
shall deem advisable and in the best interest of the Banks, except any
action resulting in the acceleration or redemption of any Bonds.
SECTION 1.13. INDEMNIFICATION. The Banks shall indemnify upon demand
the Harris-Related Persons (to the extent not reimbursed by or on behalf
of the Company and without limiting the obligation of the Company to do
so), ratably according to such Bank's Revolving Credit Commitment from
and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements
of any kind whatsoever which may at any time (including at any time
following the termination of the Bond L/C) be imposed on, incurred by or
asserted against any such Person and which are in any way relating to or
arising out of this Agreement or any document contemplated by or referred
to herein or the transactions contemplated hereby or thereby or any
action taken or omitted by any such Person under or in connection with
any of the foregoing; PROVIDED that no Bank shall be liable for the
payment to the Harris-Related Persons of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from such Person's
gross negligence or willful misconduct or for the fees and expenses of
counsel in connection with the preparation, execution, delivery,
administration, or modification of the L/C Agreement or any Bond Document
or any amendments thereto. The obligation of the Banks in this Section
shall survive the payment of all amounts owing by the Company hereunder.
SECTION 1.14. DOCUMENTS AND REPORTS. Harris agrees to deliver to the
Banks promptly upon receipt thereof copies of all documents and reports
delivered to Harris pursuant to the L/C Agreement or any Bond Document.
SECTION 1.15. AMENDMENTS. Harris may enter into any amendment or
modification of, or may waive compliance with the terms of any Bond
Document (other than an Indenture) without the consent of any Bank;
PROVIDED (a) that without the consent of the Required Banks, Harris shall
not execute any instrument agreeing to any amendment or modification of,
or waiver of compliance with the L/C Agreement or any Bond Document,
which would waive any "EVENT OF DEFAULT" arising under the L/C Agreement
or any Bond Document, and (b) without the consent of all of the Banks,
Harris shall not execute any instrument agreeing to any amendment or
modification of, or waiver of compliance with the L/C Agreement or any
Bond Document, (i) which would (A) reduce the principal of, or interest
on, any Reimbursement Obligation, (B) postpone the due date for any
payment of principal of, or interest on, any Reimbursement Obligation,
(C) extend the stated expiration date of the Bond L/C, (D) increase in
any material manner (in the reasonable opinion of Harris) the obligations
of the Banks, or (E) release or otherwise adversely affect the interests
of the Banks in any collateral granted under the L/C Agreement or any
Bond Document, or (ii) after the occurrence of a Potential Default or
Event of Default.
SECTION 1.16. CAPITAL ADEQUACY. If, after the date hereof, any Bank or
the Agent shall have determined in good faith that the adoption of any
applicable law, rule or regulation regarding capital adequacy, or any
change therein (including, without limitation, any revision in the Final
Risk-Based Capital Guidelines of the Board of Governors of the Federal
Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A)
or of the Office of the Comptroller of the Currency (12 CFR Part 3,
Appendix A), or in any other applicable capital rules heretofore adopted
and issued by any governmental authority), or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Lending Office)
with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of
return on such Bank's capital, or on the capital of any corporation
controlling such Bank, in each case as a consequence of its obligations
hereunder to a level below that which such Bank would have achieved but
for such adoption, change or compliance (taking into consideration such
Bank's policies with respect to capital adequacy) by an amount reasonably
deemed by such Bank to be material, then from time to time, within
fifteen (15) days after demand by such Bank (with a copy to the Agent),
the Company shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such reduction.
SECTION 2. FEES, PREPAYMENTS AND TERMINATIONS.
SECTION 2.1.(A) COMMITMENT FEE. For the Period from the date hereof
through the Termination Date or such earlier date on which the Banks'
Term Credit Commitments are terminated in whole, the Company shall pay
the Banks a commitment fee at the rate of one-quarter of one percent
(0.25%) per annum (computed on the basis of a year of 360 days and actual
days elapsed) of the average daily unused portion of the Term Credit
Commitments, as the same may be reduced from time to time pursuant to
Section 2.4 hereof, such fee to be payable quarterly in arrears on the
last day of each March, June, September and December commencing on the
first such date occurring after the date of this Agreement and on the
Termination Date, unless the Term Credit Commitments are terminated in
whole on an earlier date, in which event this commitment fee for the
final period shall be paid on the date of such earlier termination in
whole.
(B) L/C FEES. The Company shall pay the Bank an L/C fee (the "L/C
FEE") with respect to the Bond L/C for the period from and including the
date of issuance of the Bond L/C and thereafter until the expiration or
termination of the Bond L/C, such fee to be in the amount per annum equal
to the Applicable Margin in Eurodollar Portions (calculated on the basis
of a year of 360 days and actual days elapsed), payable quarterly in
arrears on the last day of each March, June, September and December
commencing on the first of such date occurring after the issuance of the
Bond L/C and on the date the Bond L/C terminates or expires; PROVIDED,
HOWEVER, that upon the occurrence of an Event of Default and during the
continuation thereof such fee shall be in the amount of three percent
(3%) per annum, calculated and payable as described above.
(C) L/C ISSUANCE FEES. The company shall pay Harris for its own
account such issuance, drawing, negotiation, amendment and other
administration fees (collectively, "L/C Issuance Fees") in connection
with the Bond L/C as may be established by Harris from time to time.
SECTION 2.2. OPTIONAL PREPAYMENTS. The Company shall have the
privilege of prepaying without premium or penalty and in whole or in part
(but if in part, then in a minimum principal amount of $1,000,000 or such
greater amount which is an integral multiple of $100,000) any Domestic
Rate Portion at any time upon prior telex or telephonic notice to the
Agent on or before 12:00 Noon on the same Business Day. The Company may
not prepay any Fixed Rate Portion. Any amount prepaid under the Term
Credit may not be borrowed again.
SECTION 2.3. MANDATORY PREPAYMENT. The Term Loans shall be subject to
mandatory prepayment in full on the date of issuance of the Bond L/C.
Such prepayment shall be effected by the payment of the entire
outstanding principal amount of the Term Loans together with all accrued
and unpaid interest thereon and any amounts payable pursuant to
Section 9.4 of this Agreement.
SECTION 2.4. TERMINATION BY COMPANY. The Company shall have the
option at any time upon 10 Business Days written notice to the Bank to
terminate the Banks' Term Credit Commitments in whole. Upon such
termination of the Banks' Term Credit Commitment all amounts payable
hereunder and under the Notes will become due and payable on the
effective date of such termination without notice to the Company,
notwithstanding anything to the contrary contained in the Notes.
SECTION 3. PLACE AND APPLICATION OF PAYMENTS.
All payments of principal and interest made by the Company in
respect of the Notes and Reimbursement Obligations and all fees payable
by the Company hereunder, shall be made to the Agent at its office at
111 West Monroe Street, Chicago, Illinois 60690 and in immediately
available funds, prior to 12:00 noon on the date of such payment. All
such payments shall be made without setoff or counterclaim and without
reduction for, and free from, any and all present and future levies,
imposts, duties, fees, charges, deductions withholdings, restrictions or
conditions of any nature imposed by any government or any political
subdivision or taxing authority thereof. Unless the Banks otherwise
agree, any payments received after 12:00 noon Chicago time shall be
deemed received on the following Business Day. The Agent shall remit to
each Bank its proportionate share of each payment of principal, interest
and facility fees and L/C fees received by the Agent by 3:00 P.M. Chicago
time on the same day of its receipt if received by the Agent by 12:00
noon, Chicago time, and its proportionate share of each such payment
received by the Agent after 12:00 noon on the Business Day following its
receipt by the Agent. In the event the Agent does not remit any amount
to any Bank when required by the preceding sentence, the Agent shall pay
to such Bank interest on such amount until paid at a rate per annum equal
to the Fed Funds Rate. The Company hereby authorizes the Agent to
automatically debit its account with Harris for any principal, interest
and fees when due under the Notes, the L/C Agreement or this Agreement
and to transfer the amount so debited from such account to the Agent for
application as herein provided. All proceeds of Collateral shall be
applied in the manner specified in the Security Documents.
SECTION 4. DEFINITIONS.
SECTION 4.1. CERTAIN TERMS DEFINED. The terms hereinafter set forth
when used herein shall have the following meanings:
"ADJUSTED CD RATE" shall mean a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined in accordance with the
following formula:
CD RATE Assessment
Adjusted CD Rate = 100% - CD Reserve Percentage + Rate
"ADJUSTED EURODOLLAR RATE" means a rate per annum determined
pursuant to the following formula:
Adjusted Eurodollar Rate = EURODOLLAR RATE
{ }100% - Reserve Percentage
"AGENT" is defined in the first paragraph of this Agreement.
"AGREEMENT" shall mean this Secured Term Credit Agreement as
supplemented, modified, restated and amended from time to time.
"APPLICABLE MARGIN" shall mean, with respect to each type of Loan
described in Column A below, the rate of interest per annum shown in
Columns B, C and D below for the range of Leverage Ratio specified for
each Column:
<TABLE>
<CAPTION>
A B C D E
<S> <C> <C> <C> <C>
Leverage Ratio <.45 >.45 to 1 and >.50 to 1 and >.60 to 1 and
<0.5 to 1 <.60 to 1 <.70 to 1
Eurodollar Portions 0.75% 1.125% 1.375% 1.75%
Domestic Rate Portions 0% 0.125% 0.375% 0.75%
CD Rate Portions 0.875% 1.25% 1.50% 1.875%
</TABLE>
Not later than 5 Business Days after receipt by the Agent of the
financial statements called for by Section 7.4 hereof for the applicable
fiscal quarter, the Agent shall determine the Leverage Ratio for the
applicable period and shall promptly notify the Company and the Banks of
such determination and of any change in the Applicable Margins resulting
therefrom. Any such change in the Applicable Margins shall be effective
as of the date the Agent so notifies the Company and the Banks with
respect to all Loans and L/Cs outstanding on such date, and such new
Applicable Margins shall continue in effect until the effective date of
the next quarterly redetermination in accordance with this Section. Each
determination of the Leverage Ratio and Applicable Margins by the Agent
in accordance with this Section shall be conclusive and binding on the
Company and the Banks absent manifest error. From the date hereof until
the Applicable Margins are first adjusted pursuant hereto, the Applicable
Margins shall be those set forth in column D above.
"ASSESSMENT RATE" shall mean the assessment rate (rounded upwards,
if necessary, to the nearest 1/100 of 1%) imposed by the Federal Deposit
Insurance Corporation or its successors for insuring the Agent's
liability for time deposits, as in effect from time to time.
"BANK" and "BANKS" shall have the meanings specified in the first
paragraph of this Agreement.
"BOND DOCUMENTS" shall mean the Indenture and all other documents
relating to the issuance and sale of the IRBs.
"BOND L/C" shall have the meaning specified in Section 1.6 hereof.
"CD RATE" shall mean, with respect to each Interest Period
applicable to a CD Rate Portion, the rate per annum determined by the
Agent to be the arithmetic average of the rate per annum determined by
the Agent to be the average of the bid rates quoted to the Agent at
approximately 10:00 a.m. Chicago time (or as soon thereafter as
practicable) on the first day of such Interest Period by at least two
certificate of deposit dealers of recognized national standing selected
by the Agent for the purchase at face value of certificates of deposit of
the Agent having a term comparable to such Interest Period and in an
amount comparable to the principal amount of the CD Rate Loan to be made
by the Agent for such Interest Period. Each determination of the CD Rate
made by the Agent in accordance with this paragraph shall be conclusive
and binding on the Company except in the case of manifest error or
willful misconduct.
"CD RESERVE PERCENTAGE" shall mean the rate (as determined by the
Bank) of the maximum reserve requirement (including, without limitation,
any supplemental, marginal and emergency reserves) imposed on the Agent
by the Board of Governors of the Federal Reserve System (or any
successor) from time to time on non-personal time deposits having a
maturity equal to the applicable Interest Period and in an amount equal
to the unpaid principal amount of the relevant CD Rate Portion, subject
to any amendments of such reserve requirement by such Board or its
successor, taking into account any transitional adjustments thereto. The
Adjusted CD Rate shall automatically be adjusted as of the date of any
change in the CD Reserve Percentage.
"CHANGE IN LAW" shall have the meaning specified in Section 9.3
hereof.
"COLLATERAL" shall mean the collateral security provided to the
Agent for the benefit of the Banks pursuant to the Security Documents.
"COMMITMENT PERCENTAGE" shall have the meaning set forth in
Section 1.1(b) hereof.
"COMPANY" shall have the meaning specified in the first paragraph of
this Agreement.
"DOMESTIC RATE" means for any day the rate of interest announced by
Harris from time to time as its prime commercial rate in effect on such
day, with any change in the Domestic Rate resulting from a change in said
prime commercial rate to be effective as of the date of the relevant
change in said prime commercial rate (the "HARRIS PRIME RATE"), provided
that if the rate per annum determined by adding 1/2 of 1% to the rate at
which Harris would offer to sell federal funds in the interbank market on
or about 10:00 a.m. (Chicago time) on any day (the "ADJUSTED FED FUNDS
RATE") shall be higher than the Harris Prime Rate on such day, then the
Domestic Rate for such day and for any succeeding day which is not a
Business Day shall be such Adjusted Fed Funds Rate. The determination of
the Adjusted Fed Funds Rate by Harris shall be final and conclusive
except in the case of manifest error or willful misconduct.
"DOMESTIC RATE PORTION" means a Term Loan which bears interest as
provided in Section 1.3(a) hereof.
"EURODOLLAR PORTION" shall mean a Term Loan which bears interest as
provided in Section 1.3(b) hereof.
"EURODOLLAR RATE" shall mean for each Interest Period applicable to
a Eurodollar Portion, (a) the LIBOR Index Rate for such Interest Period,
if such rate is available, and (b) if the LIBOR Index Rate cannot be
determined, the arithmetic average of the rate of interest per annum
(rounded upwards, if necessary, to nearest 1/100 of 1%) at which deposits
in U.S. dollars in immediately available funds are offered to the Agent
at 11:00 a.m. (London, England time) two (2) Business Days before the
beginning of such Interest Period by major banks in the interbank
eurodollar market for a period equal to such Interest Period and in an
amount equal or comparable to the principal amount of the Eurodollar
Portion scheduled to be made by the Agent during such Interest Period.
"EVENT OF DEFAULT" shall mean any event or condition identified as
such in Section 8.1 hereof.
"FED FUNDS RATE" shall have the meaning specified in Section 1.5(c)
hereof.
"FIXED RATE" shall mean either of the Adjusted Eurodollar Rate or
the Adjusted CD Rate.
"FIXED RATE PORTION" shall mean a Eurodollar Portion or a CD Rate
Portion and "FIXED RATE PORTIONS" shall mean either or both of such types
of Portion.
"HARRIS" shall have the meaning specified in the first paragraph of
this Agreement.
"HARRIS-RELATED PERSON" means Harris, together with its Affiliates,
and the officers, directors, employees, agents and attorneys-in-fact of
Harris and such Affiliates.
"HIGHEST LAWFUL RATE" shall have the meaning specified in
Section 11.19 hereof.
"INDENTURE" shall mean any trust indenture, trust agreement or other
agreement pursuant to which the IRBs are issued.
"IRBS" shall have the meaning specified in Section 1.6 hereof.
"INTEREST PERIOD" shall mean with respect to (a) the Eurodollar
Portions, the period used for the computation of interest commencing on
the date the relevant Eurodollar Portion is made, continued or effected
by conversion and concluding on the date one, two, three or six months
thereafter and, (b) with respect to the CD Rate Portions, the period used
for the computation of interest commencing on the date the relevant CD
Rate Portion is made, continued or effected by conversion and concluding
on the date 30, 60, 90 or 180 days thereafter; PROVIDED, HOWEVER, that no
Interest Period for any Fixed Rate Portion may extend beyond the
Termination Date. For purposes of determining an Interest Period
applicable to a Eurodollar Portion, a month means a period starting on
one day in a calendar month and ending on a numerically corresponding day
in the next calendar month; PROVIDED, HOWEVER, that if there is no
numerically corresponding day in the month in which an Interest Period is
to end or if an Interest Period begins on the last day of a calendar
month, then such Interest Period shall end on the last Banking Day of the
calendar month in which such Interest Period is to end.
"L/C Agreement" shall have the meaning set forth in Section 1.6
hereof.
"L/C COMMITMENT' shall have the meaning specified in Section 1.6
hereof.
"L/C FACILITY EXPIRATION DATE" shall have the meaning specified in
Section 1.6 hereof.
"L/C FEE" has the meaning specified in Section 2.1(b) hereof.
"L/C ISSUANCE FEE" has the meaning specified in Section 2.1(c)
hereof.
"LIBOR INDEX RATE" shall mean, for any Interest Period applicable to
a Eurodollar Portion, the rate per annum (rounded upwards, if necessary,
to the next higher one hundred-thousandth of a percentage point) for
deposits in U.S. Dollars for a period equal to such Interest Period,
which appears on the Telerate Page 3750 as of 11:00 a.m. (London, England
time) on the day two Banking Days before the commencement of such
Interest Period.
"LOAN DOCUMENTS" shall mean this Agreement and any and all exhibits
hereto, the Notes, the L/C Agreement and the Security Documents.
"MORTGAGE" shall mean a Deed of Trust and Security Agreement with
Assignment of Rents substantially in the form of Exhibit B hereto from
the Company to a trustee for the benefit of the Agent, as the same may be
amended and supplemented from time to time.
"NOTES" shall mean the Term Notes, and "NOTE" means any of the
Notes.
"POTENTIAL DEFAULT" shall mean any event or condition which, with
the lapse of time, or giving of notice, or both, would constitute an
Event of Default.
"REIMBURSEMENT OBLIGATION" has the meaning specified in Section 1.7
hereof.
"REQUIRED BANKS" shall mean (a) prior to the issuance of the Bond
L/C, any Bank or Banks which in the aggregate hold at least 66-2/3% of
the aggregate unpaid principal balance of the Term Loans or, if no Term
Loans are outstanding hereunder, any Bank or Banks in the aggregate
having at least 66-2/3% of the Term Credit Commitments, and (b) after the
issuance of the Bond L/C, any Bank or Banks which in the aggregate hold
66-2/3% of the participation interests in the Bond L/C or, if the Bond
L/C is not outstanding, 66-2/3% of the participation interests in the
outstanding Reimbursement Obligations.
"RESERVE PERCENTAGE" means the daily arithmetic average maximum rate
at which reserves (including, without limitation, any supplemental,
marginal and emergency reserves) are imposed on member banks of the
Federal Reserve System during the applicable Interest Period by the Board
of Governors of the Federal Reserve System (or any successor) under
Regulation D on "EUROCURRENCY LIABILITIES" (as such term is defined in
Regulation D), subject to any amendments of such reserve requirement by
such Board or its successor, taking into account any transitional
adjustments thereto. For purposes of this definition, the Eurodollar
Portions shall be deemed to be eurocurrency liabilities as defined in
Regulation D without benefit or credit for any prorations, exemptions or
offsets under Regulation D.
"REVOLVING AGREEMENT" shall mean the Secured Credit Agreement dated
as of May 27, 1993, among the Company, Harris Trust and Savings Bank,
individually and as Agent thereunder, and the other lenders named
therein, as amended, supplemented, restated and otherwise modified from
time to time, and all agreements entered into in substitution or
replacement thereof.
"SECURITY AGREEMENT" shall mean that certain Security Agreement Re:
Accounts Receivable, Farm Products and Inventory from the Company to
Harris, as Agent, as such agreement may be supplemented and amended from
time to time.
"SECURITY DOCUMENTS" shall mean the Security Agreement and the
Mortgage.
"SUBORDINATED DEBT" shall mean indebtedness for borrowed money of
the Company which is subordinate in right of payment to the prior payment
in full of the Company's indebtedness, obligations and liabilities to the
Banks under the Revolving Agreement and the Loan Documents pursuant to
written subordination provisions satisfactory in form and substance to
the Banks.
"TENAHA FEED MILL" shall mean a feed mill and related facilities and
equipment to be located in Tenaha, Shelby County, Texas.
"TELERATE PAGE 3750" shall mean the display designated as "PAGE
3750" on the Telerate Service (or such other page as may replace Page
3750 on that service or such other service as may be nominated by the
British Bankers' Association as the information vendor for the purpose of
displaying British Bankers' Association Interest Settlement Rates for
U.S. Dollar deposits).
"TERM CREDIT COMMITMENT" and "TERM CREDIT COMMITMENTS" shall have
the meanings specified in Section 1.1(b) hereof.
"TERM LOAN" and "TERM LOANS" shall have the meanings specified in
Section 1.1(a) hereof.
"TERM NOTE" or "TERM NOTES" shall have the meanings specified in
Section 1.1(d) hereof.
"TERMINATION DATE" shall have the meaning set forth in
Section 1.1(a) hereof.
SECTION 4.2. TERMS DEFINED IN THE REVOLVING AGREEMENT. Unless
otherwise defined in this Agreement, all defined terms used herein shall
have the same meaning as in the Revolving Agreement.
SECTION 4.3. ACCOUNTING TERMS. Any accounting term or the character
or amount of any asset or liability or item of income or expense required
to be determined under this Agreement, shall be determined or made in
accordance with generally accepted accounting principles at the time in
effect, to the extent applicable, except where such principles are
inconsistent with the requirements of this Agreement.
SECTION 5. Representations and Warranties.
The Company represents and warrants to the Banks as follows:
SECTION 5.1. REVOLVING AGREEMENT REPRESENTATIONS. The representations
and warranties of the Company contained in Section 5 of the Revolving
Agreement are true and correct in all material respects on the date
hereof (except that the representations contained in Section 5.3 of the
Revolving Agreement shall be deemed to refer to the most recent financial
statements of the Company delivered to the Banks).
SECTION 5.2. NO DEFAULT. The Company is in full compliance with all
of the terms and conditions of this Agreement, and no Potential Default
or Event of Default is existing under this Agreement.
SECTION 6. CONDITIONS PRECEDENT.
The obligation of the Banks to make any Term Loan pursuant hereto or
to issue the Bond L/C shall be subject to the following conditions
precedent:
SECTION 6.1. INITIAL EXTENSION OF CREDIT. Prior to the initial Term
Loan hereunder:
(a) the Company shall have delivered to the Agent for the
benefit of the Banks in sufficient counterparts for distribution to
the Banks:
(i) a fully executed Note payable to the order of each
Bank;
(ii) a fully executed supplement to the Security
Agreement;
(iii) a fully executed Mortgage encumbering the real estate
on which the Tenaha Feed Mill is to be located;
(iv) an appraisal of the real estate subject to the
Mortgage which complies with all regulatory requirements
applicable to the Banks with respect thereto;
(v) a mortgagee's policy or policies of title insurance
(or a binding commitment or commitments therefor) relating to
the Mortgage and in an amount equal to $6,500,000 of the
appraised value of the real estate, buildings and improvements
subject to the Mortgage, with a wavier of coinsurance insuring
the liens of those Security Documents creating liens on real
property to be valid first liens subjected to no defects or
objections which are unacceptable to the Agent, together with
such direct access reinsurance agreements and endorsements
(including without limitation a letter of credit endorsement
and doing business, usury and zoning endorsements) as the Agent
may require;
(vi) current ALTA surveys of and current Phase I
environmental inspection reports for so much of the Collateral
under the Mortgage as consists of real property;
(vii) an opinion of local counsel to the Agent with respect
to the Mortgage and other real estate matters;
(viii) appropriate forms of financing statements to perfect
the security interest of the Agent provided for by the
Mortgage;
(ix) a fully executed counterpart of a Guaranty Agreement
from Mr. and Mrs. Lonnie A. Pilgrim to the Banks satisfactory
in form and substance to the Banks;
(x) evidence of insurance required by Section 7.3 hereof
and by the Security Agreement showing the Agent as loss payee
thereunder;
(xi) a good standing certificate or certificate of
existence for the Company, dated as of the date no earlier than
April 1, 1997, from the office of the secretary of state of the
state of its incorporation and each state in which it is
qualified to do business as a foreign corporation;
(xii) copies of the Certificate of Incorporation, and all
amendments thereto, of the Company certified by the office of
the secretary of state of its state of incorporation as of the
date no earlier than April 1, 1997;
(xiii) copies of the By-Laws, and all amendments thereto, of
the Company, certified as true, correct and complete on the
date hereof by the Secretary of the Company;
(xiv) copies, certified by the Secretary or Assistant
Secretary of the Company, of resolutions regarding the
transactions contemplated by this Agreement, duly adopted by
the Board of Directors of the Company, and satisfactory in form
and substance to all of the Banks;
(xv) an incumbency and signature certificate for the
Company satisfactory in form and substance to all of the Banks;
and
(xvi) such other documents as the Banks may reasonably
require;
(b) legal matters incident to the execution and delivery of
the Loan Documents shall be satisfactory to each of the Banks and
their legal counsel; and prior to the initial Term Loans hereunder,
the Agent shall have received the favorable written opinion of
Godwin & Carlton, counsel for the Company, substantially in the form
of Exhibit E, in substance satisfactory to each of the Banks and
their respective legal counsel; and
(c) the Agent shall have received copies (executed or
certified, as may be appropriate) of all documents or proceedings
taken in connection with the execution and delivery of the Loan
Documents to the extent any Bank or its respective legal counsel
requests.
SECTION 6.2. EACH EXTENSION OF CREDIT. As of the time of the making
of each Term Loan and the issuance of the Bond L/C hereunder (including
the initial Term Loan):
(a) each of the representations and warranties set forth
in Section 5 hereof shall be and remain true and correct as of
said time as if made at said time, except that (i) the
representations and warranties made under Section 5.3 shall be
deemed to refer to the most recent financial statements
furnished to the Banks pursuant to Section 7.4 hereof and (ii)
with respect to the Company's Subsidiaries in Mexico the
representations and warranties made under Section 5.13(d) shall
be deemed to refer only to material, strikes, work stoppages,
unfair labor practice claims or other material labor disputes;
and
(b) the Company shall be in full compliance with all of
the terms and conditions hereof, and no Potential Default or
Event of Default shall have occurred and be continuing; and
and the request by the Company for any Term Loan or the Bond L/C pursuant
hereto shall be and constitute a warranty to the foregoing effects.
SECTION 6.3. THE BOND L/C. Prior to the issuance of the Bond L/C:
(a) the Agent shall have received:
(i) a fully executed L/C Agreement substantially in the
form of Exhibit B attached hereto;
(ii) a receipt for the L/C from the trustee for the IRBs;
(iii) an opinion of counsel to the Company, in
substantially the form of Exhibit E attached hereto with
respect to the L/C Agreement;
(iv) written evidence of any consents and approvals
required in connection with the issuance of the Bond L/C to
support the IRBs;
(v) an opinion of local counsel to the Agent with respect
to the Mortgage and other real estate matters; and
(vi) certified copies of all documentation, legal opinions
and legal proceedings relating to the issuance of the Bond L/C
to support the IRBs;
(b) the Term Loans shall be fully paid concurrently with the
issuance of the Bond L/C;
(c) all conditions precedent contained in the L/C Agreement
shall be satisfied; and
(d) the conditions precedent set forth in Sections 6.1(a)(ii),
(iii), (v), (vi), (vii), (viii), (xiv), (xv), (xvi), (xvii),
(xviii), (b) and (c) and 6.2(a) and (b) shall be satisfied.
SECTION 7. COVENANTS.
It is understood and agreed that so long as credit is in use or
available under this Agreement or any amount remains unpaid on any Note
or the Bond L/C, except to the extent compliance in any case or cases is
waived in writing by the Required Banks, the Company agrees that it will
comply with, abide by, and be restricted by all the provisions (as
originally in force and effect but amended as set forth below) contained
in Sections 7.1 to and including 7.32 of the Revolving Agreement
regardless of whether any of said provisions were heretofore waived,
modified, amended, released or discharged or whether any indebtedness is
now or hereafter remains outstanding thereunder (all of which provisions,
and all Exhibits to the Revolving Agreement referred to therein, are
incorporated herein by reference and made a part hereof to the same
extent and with the same force and effect as if the same had been herein
set forth and repeated at length); provided, however, that any amendment,
modification or waiver of any of Sections 7.1 to and 7.32 of or any such
Exhibit to the Revolving Agreement shall automatically be and constitute
an amendment, modification or waiver to such Sections or Exhibits as
incorporated herein effective as of the date such amendment, modification
or waiver to the Revolving Agreement is effective, it being specifically
agreed that the payment of all indebtedness under the Revolving Agreement
and the discharge or termination thereof will not constitute an
amendment, modification or waiver of such Sections or Exhibits as
incorporated herein; and provided further, that said provisions as
incorporated herein and made a part hereof shall be amended in the
following respects:
(1) Sections 7.4(d) and (e) of the Revolving Agreement as
incorporated herein shall be of no force or effect;
(2) so long as the Revolving Agreement is in effect, the
Company's delivery of the Compliance Certificate required by
Section 7.4(c) of the Revolving Agreement shall also satisfy the
requirements of Section 7.4(c) of this Agreement;
(3) Section 7.22 of the Revolving Agreement as incorporated
herein shall read as follows:
"SECTION 7.22. USE OF PROCEEDS. The proceeds of all
Term Loans made hereunder shall be used solely to
finance the acquisition and construction of the
Tenaha Feed Mill and the Bond L/C shall be used
solely to support the IRBs.";
(4) the terms "EVENT OF DEFAULT" and "POTENTIAL DEFAULT" now
appearing in said provisions shall mean and refer to an "EVENT OF
DEFAULT" and a "POTENTIAL DEFAULT" as defined herein, respectively;
(5) the terms "HEREIN", "HERETO" and "HEREUNDER" now appearing
in said provisions shall be deemed to refer to this Agreement;
(6) said Sections 7.1 to and including 7.32 of the Revolving
Agreement as incorporated herein by this Section are hereby
renumbered as Sections 7.1 to and including 7.32, respectively, for
all purposes of this Agreement and any reference in other documents
to such Sections of this Agreement;
(7) Exhibits A and B of the Revolving Agreement shall be
replaced by Exhibits A and B, respectively, to this Agreement;
(8) Exhibits C, F, H, J, L and M of the Revolving Agreement
shall be deleted and Exhibits D, E, G, I and K to the Revolving
Agreement shall be redesignated as Exhibits C, D, E, F and G and H,
respectively, for all purposes of this Agreement and any reference
in other documents to such Exhibits to this Agreement; and
(9) any reference in said Exhibits to the Revolving Agreement
as incorporated herein to the Revolving Agreement shall be deemed to
refer to this Agreement.
Other than as hereinabove amended, any terms contained in the
Sections of the Revolving Agreement as incorporated herein which are
defined in the Revolving Agreement shall have the same meaning herein as
in the Revolving Agreement.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
SECTION 8.1. DEFINITIONS. Any one or more of the following shall
constitute an Event of Default:
(a) Default in the payment when due of any interest on or
principal of any Note or Reimbursement Obligation, whether at
the stated maturity thereof or as required by Section 2.4
hereof or at any other time provided in this Agreement, or of
any fee or other amount payable by the Company pursuant to this
Agreement;
(b) Default in the observance or performance of any
covenant set forth in Sections 7.4, 7.5, 7.6, 7.7, 7.15, 7.17,
7.19 and 7.20, inclusive, hereof, or of any provision of any
Security Document requiring the maintenance of insurance on the
Collateral subject thereto or dealing with the use or
remittance of proceeds of such Collateral;
(c) Default in the observance or performance of any
covenant set forth in Sections 7.8, 7.9, 7.10, 7.11, 7.12,
7.13, 7.14, 7.16, 7.18, 7.21, 7.23 and 7.31, inclusive, hereof
and such default shall continue for 10 days after written
notice thereof to the Company by any Bank;
(d) Default in the observance or performance of any other
covenant, condition, agreement or provision hereof or any of
the other Loan Documents and such default shall continue for 30
days after written notice thereof to the Company by any Bank;
(e) Default shall occur under any evidence of
indebtedness in a principal amount exceeding $1,000,000 issued
or assumed or guaranteed by the Company, or under any mortgage,
agreement or other similar instrument under which the same may
be issued or secured and such default shall continue for a
period of time sufficient to permit the acceleration of
maturity of any indebtedness evidenced thereby or outstanding
or secured thereunder;
(f) Any representation or warranty made by the Company
herein or in any Loan Document or in any statement or
certificate furnished by it pursuant hereto or thereto, proves
untrue in any material respect as of the date made or deemed
made pursuant to the terms hereof;
(g) Any judgment or judgments, writ or writs, or warrant
or warrants of attachment, or any similar process or processes
in an aggregate amount in excess of $2,000,000 shall be entered
or filed against the Company or any Subsidiary or against any
of their respective Property or assets and remain unbonded,
unstayed and undischarged for a period of 30 days from the date
of its entry;
(h) Any reportable event (as defined in ERISA) which
constitutes grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of
a trustee to administer or liquidate any such Plan, shall have
occurred and such reportable event shall be continuing thirty
(30) days after written notice to such effect shall have been
given to the Company by any Bank; or any such Plan shall be
terminated; or a trustee shall be appointed by the appropriate
United States District Court to administer any such Plan; or
the Pension Benefit Guaranty Corporation shall institute
proceedings to administer or terminate any such Plan;
(i) The Company or any Subsidiary shall (i) have entered
involuntarily against it an order for relief under the
Bankruptcy Code of 1978, as amended, (ii) admit in writing its
inability to pay, or not pay, its debts generally as they
become due or suspend payment of its obligations, (iii) make an
assignment for the benefit of creditors, (iv) apply for, seek,
consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, conservator, liquidator or similar official
for it or any substantial part of its property, (v) file a
petition seeking relief or institute any proceeding seeking to
have entered against it an order for relief under the
Bankruptcy Code of 1978, as amended, to adjudicate it
insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, marshalling of assets, adjustment
or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors
or fail to file an answer or other pleading denying the
material allegations of any such proceeding filed against it,
or (vi) fail to contest in good faith any appointment or
proceeding described in Section 8.1(j) hereof;
(j) A custodian, receiver, trustee, conservator,
liquidator or similar official shall be appointed for the
Company, any Subsidiary or any substantial part of its
respective Property, or a proceeding described in
Section 8.1(i)(v) shall be instituted against the Company or
any Subsidiary and such appointment continues undischarged or
any such proceeding continues undismissed or unstayed for a
period of 60 days;
(k) The existence of an "EVENT OF DEFAULT" as defined in
the Security Agreement;
(l) Any shares of the capital stock of the Company owned
legally or beneficially by Mr. and/or Mrs. Lonnie A. Pilgrim
shall be pledged, assigned or otherwise encumbered for any
reason, other than the pledge of up to 2,000,000 shares to
secure personal obligations of Mr. and Mrs. Lonnie A. Pilgrim
or such other personal obligations incurred by any Person so
long as such obligations are not related to the financing of
the Company of any of its Subsidiaries;
(m) Mr. and Mrs. Lonnie A. Pilgrim and their descendants
and heirs shall for any reason cease to have legal and/or
beneficial ownership of no less than 51% of the issued and
outstanding shares of all classes of capital stock of the
Company;
(n) Either Mr. or Mrs. Lonnie A. Pilgrim shall terminate,
breach, repudiate or disavow his or her guaranty of the
Company's indebtedness, obligations and liabilities to the
Banks under the Loan Documents or any part thereof, or any
event specified in Sections 8.1(i) or (j) shall occur with
regard to either or both of Mr. and Mrs. Lonnie A. Pilgrim;
(o) The Required Banks shall have determined that one or
more conditions exist or events have occurred which may result
in a material adverse change in the business, operations,
Properties or condition (financial or otherwise) of the Company
or any Subsidiary;
(p) The occurrence of a "CHANGE OF CONTROL" as defined in
that certain Indenture dated as of May 1, 1993 from the Company
to Ameritrust Texas National Association, as Trustee, relating
to the Company's 10.875% Senior Subordinated Notes Due 2003; or
(q) the existence of any condition or the occurrence of any
event which is specified as an "EVENT OF DEFAULT" under the L/C
Agreement.
SECTION 8.2. REMEDIES FOR NON-BANKRUPTCY DEFAULTS. When any Event of
Default, other than an Event of Default described in subsections (i) and
(j) of Section 8.1 hereof, has occurred and is continuing, the Agent, if
directed by the Required Banks, shall give notice to the Company and take
any or all of the following actions: (i) terminate the remaining Term
Credit Commitments or L/C Commitment hereunder on the date (which may be
the date thereof) stated in such notice, (ii) declare the principal of
and the accrued interest on the Notes and unpaid Reimbursement
Obligations to be forthwith due and payable and thereupon the Notes and
unpaid Reimbursement Obligations including both principal and interest,
shall be and become immediately due and payable without further demand,
presentment, protest or notice of any kind, (iii) proceed to foreclose
against any Collateral under any of the Security Documents, take any
action or exercise any remedy under any of the Loan Documents or exercise
any other action, right, power or remedy permitted by law. Any Bank may
exercise the right of set off with regard to any deposit accounts or
other accounts maintained by the Company with any of the Banks, and (iv)
if the Bond L/C is outstanding, require the Company to immediately pay to
the Agent for the benefit of the Banks the maximum amount available to be
drawn under the Bond L/C, which amount shall be held by the Agent as
additional collateral security for the Company's indebtedness,
obligations and liabilities to the Agent and the Banks under the Loan
Documents.
SECTION 8.3. REMEDIES FOR BANKRUPTCY DEFAULTS. When any Event of
Default described in subsections (i) or (j) of Section 8.1 hereof has
occurred and is continuing, then (a) the Notes and all Reimbursement
Obligations shall immediately become due and payable without presentment,
demand, protest or notice of any kind, and the obligation of the Banks to
extend further credit pursuant to any of the terms hereof shall
immediately terminate, and (b) if the Bond L/C is then outstanding, the
Company shall immediately pay to the Agent for the benefit of the Banks
the maximum amount available to be drawn under the Bond L/C, which amount
shall be held by the Agent as additional collateral security for the
Company's indebtedness, obligations and liabilities to the Agent and the
Banks under the Loan Documents.
SECTION 8.4. REMEDIES UNDER THE BOND DOCUMENTS. In addition to the
foregoing, the Banks shall have all of the remedies provided for in the
Bond Documents upon the occurrence of an Event of Default.
SECTION 9. CHANGE IN CIRCUMSTANCES REGARDING FIXED RATE PORTIONS.
SECTION 9.1. CHANGE OF LAW. Notwithstanding any other provisions of
this Agreement or any Note to the contrary, if at any time after the date
hereof with respect to Fixed Rate Portions, any Bank shall determine in
good faith that any change in applicable law or regulation or in the
interpretation thereof makes it unlawful for such Bank to make or
continue to maintain any Fixed Rate Portion or to give effect to its
obligations as contemplated hereby, such Bank shall promptly give notice
thereof to the Company to such effect, and such Bank's obligation to
make, continue or convert any such affected Fixed Rate Portions under
this Agreement shall terminate until it is no longer unlawful for such
Bank to make or maintain such affected Portion. The Company shall prepay
the outstanding principal amount of any such affected Fixed Rate Portion
made to it, together with all interest accrued thereon and all other
amounts due and payable to the Banks under Section 9.4 of this Agreement,
on the earlier of the last day of the Interest Period applicable thereto
and the first day on which it is illegal for such Bank to have such
Portions outstanding; provided, however, the Company may then elect to
borrow the principal amount of such affected Portion by means of another
type of Portion available hereunder, subject to all of the terms and
conditions of this Agreement.
SECTION 9.2. UNAVAILABILITY OF DEPOSITS OR INABILITY TO ASCERTAIN THE
ADJUSTED EURODOLLAR RATE OR ADJUSTED CD RATE. Notwithstanding any other
provision of this Agreement or any Note to the contrary, if prior to the
commencement of any Interest Period any Bank shall determine (i) that
deposits in the amount of any Fixed Rate Portion scheduled to be
outstanding are not available to it in the relevant market or (ii) by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Adjusted Eurodollar
Rate or the Adjusted CD Rate, then such Bank shall promptly give
telephonic or telex notice thereof to the Company, the Agent and the
other Banks (such notice to be confirmed in writing), and the obligation
of the Banks to make, continue or convert any such Fixed Rate Portion in
such amount and for such Interest Period shall terminate until deposits
in such amount and for the Interest Period selected by the Company shall
again be readily available in the relevant market and adequate and
reasonable means exist for ascertaining the Adjusted Eurodollar Rate or
the Adjusted CD Rate, as the case may be. Upon the giving of such
notice, the Company may elect to either (i) pay or prepay, as the case
may be, such affected Portion or (ii) reborrow such affected Portion as
another type of Portion available hereunder, subject to all terms and
conditions of this Agreement.
SECTION 9.3. TAXES AND INCREASED COSTS. With respect to the Fixed
Rate Portions, if any Bank shall determine in good faith that any change
in any applicable law, treaty, regulation or guideline (including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) or any new law, treaty, regulation or guideline, or any
interpretation of any of the foregoing by any governmental authority
charged with the administration thereof or any central bank or other
fiscal, monetary or other authority having jurisdiction over such Bank or
its lending branch or the Fixed Rate Portions contemplated by this
Agreement (whether or not having the force of law) ("CHANGE IN LAW")
shall:
(i) impose, modify or deem applicable any reserve,
special deposit or similar requirements against assets held by,
or deposits in or for the account of, or Loans by, or any other
acquisition of funds or disbursements by, such Bank (other than
reserves included in the determination of the Adjusted
Eurodollar Rate or the Adjusted CD Rate);
(ii) subject such Bank, any Fixed Rate Portion or any Note
to any tax (including, without limitation, any United States
interest equalization tax or similar tax however named
applicable to the acquisition or holding of debt obligations
and any interest or penalties with respect thereto), duty,
charge, stamp tax, fee, deduction or withholding in respect of
this Agreement, any Fixed Rate Portion or any Note except such
taxes as may be measured by the overall net income of such Bank
or its lending branch and imposed by the jurisdiction, or any
political subdivision or taxing authority thereof, in which
such Bank's principal executive office or its lending branch is
located;
(iii) change the basis of taxation of payments of principal
and interest due from the Company to such Bank hereunder or
under any Note (other than by a change in taxation of the
overall net income of such Bank); or
(iv) impose on such Bank any penalty with respect to the
foregoing or any other condition regarding this Agreement, any
Fixed Rate Portion or any Note;
and such Bank shall determine that the result of any of the foregoing is
to increase the cost (whether by incurring a cost or adding to a cost) to
such Bank of making or maintaining any Fixed Rate Portion hereunder or to
reduce the amount of principal or interest received by such Bank, then
the Company shall pay to such Bank from time to time as specified by such
Bank such additional amounts as such Bank shall reasonably determine are
sufficient to compensate and indemnify it for such increased cost or
reduced amount. If any Bank makes such a claim for compensation, it
shall provide to the Company a certificate setting forth such increased
cost or reduced amount as a result of any event mentioned herein
specifying such Change in Law, and such certificate shall be conclusive
and binding on the Company as to the amount thereof except in the case of
manifest error. Upon the imposition of any such cost, the Company may
prepay any affected Portion, subject to the provisions of Sections 2.3
and 9.4 hereof.
SECTION 9.4. FUNDING INDEMNITY. (a) In the event any Bank shall incur
any loss, cost, expense or premium (including, without limitation, any
loss of profit and any loss, cost, expense or premium incurred by reason
of the liquidation or re-employment of deposits or other funds acquired
by such Bank to fund or maintain any Fixed Rate Portion or the relending
or reinvesting of such deposits or amounts paid or prepaid to such Bank)
as a result of:
(i) any payment or prepayment of a Fixed Rate Portion on
a date other than the last day of the then applicable Interest
Period;
(ii) any failure by the Company to create, continue or
convert any Fixed Rate Portion on the date specified in the
notice given pursuant to Section 1.3(f) hereof; or
(iii) the occurrence of any Event of Default;
then, upon the demand of such Bank, the Company shall pay to such Bank
such amount as will reimburse such Bank for such loss, cost or expense.
(b) If any Bank makes a claim for compensation under this Section
9.4, it shall provide to the Company a certificate setting forth the
amount of such loss, cost or expense in reasonable detail and such
certificate shall be conclusive and binding on the Company as to the
amount thereof except in the case of manifest error.
SECTION 9.5. LENDING BRANCH. Each Bank may, at its option, elect to
make, fund or maintain its Eurodollar Portions hereunder at the branch or
office specified opposite its signature on the signature page hereof or
such other of its branches or offices as such Bank may from time to time
elect, subject to the provisions of Section 1.5(b) hereof.
SECTION 9.6. DISCRETION OF BANK AS TO MANNER OF FUNDING.
Notwithstanding any provision of this Agreement to the contrary, each
Bank shall be entitled to fund and maintain its funding of all or any
part of its Term Loans in any manner it sees fit, it being understood
however, that for the purposes of this Agreement all determinations
hereunder shall be made as if the Banks had actually funded and
maintained each Fixed Rate Portion during each Interest Period for such
Portion through the purchase of deposits in the relevant interbank market
having a maturity corresponding to such Interest Period and bearing an
interest rate equal to the Adjusted Eurodollar Rate or Adjusted CD Rate,
as the case may be, for such Interest Period.
SECTION 10. THE AGENT.
SECTION 10.1. APPOINTMENT AND POWERS. Harris Trust and Savings Bank is
hereby appointed by the Banks as Agent under the Loan Documents,
including but not limited to the Security Agreement, wherein the Agent
shall hold a security interest for the benefit of the Banks, solely as
the Agent of the Banks, and each of the Banks irrevocably authorizes the
Agent to act as the Agent of such Bank. The Agent agrees to act as such
upon the express conditions contained in this Agreement.
SECTION 10.2. POWERS. The Agent shall have and may exercise such
powers hereunder as are specifically delegated to the Agent by the terms
of the Loan Documents, together with such powers as are incidental
thereto. The Agent shall have no implied duties to the Banks, nor any
obligation to the Banks to take any action under the Loan Documents
except any action specifically provided by the Loan Documents to be taken
by the Agent.
SECTION 10.3. GENERAL IMMUNITY. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable to the Banks or
any Bank for any action taken or omitted to be taken by it or them under
the Loan Documents or in connection therewith except for its or their own
gross negligence or willful misconduct.
SECTION 10.4. NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. The Agent
shall not (i) be responsible to the Banks for any recitals, reports,
statements, warranties or representations contained in the Loan Documents
or furnished pursuant thereto, (ii) be responsible for the payment or
collection of or security for any Term Loans or Reimbursement Obligations
hereunder except with money actually received by the Agent for such
payment, (iii) be bound to ascertain or inquire as to the performance or
observance of any of the terms of the Loan Documents, or (iv) be
obligated to determine or verify the existence, eligibility or value of
any Collateral, or the correctness of any compliance certificate. In
addition, neither the Agent nor its counsel shall be responsible to the
Banks for the enforceability or validity of any of the Loan Documents or
for the existence, creation, attachment, perfection or priority of any
security interest in the Collateral.
SECTION 10.5. RIGHT TO INDEMNITY. The Banks hereby indemnify the Agent
for any actions taken in accordance with this Section 10, and the Agent
shall be fully justified in failing or refusing to take any action
hereunder, unless it shall first be indemnified to its satisfaction by
the Banks pro rata against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action,
other than any liability which may arise out of Agent's gross negligence
or willful misconduct.
SECTION 10.6. ACTION UPON INSTRUCTIONS OF BANKS. The Agent agrees,
upon the written request of the Required Banks, to take any action of the
type specified in the Loan Documents as being within the Agent's rights,
duties, powers or discretion. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder in
accordance with written instructions signed by the Required Banks, and
such instructions and any action taken or failure to act pursuant thereto
shall be binding on all of the Banks and on all holders of the Notes. In
the absence of a request by the Required Banks, the Agent shall have
authority, in its sole discretion, to take or not to take any action,
unless the Loan Documents specifically require the consent of the
Required Banks or all of the Banks.
SECTION 10.7. EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute
any of its duties as Agent hereunder by or through agents (other than
employees) and attorneys-in-fact and shall not be answerable to the
Banks, 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 in good faith and with reasonable care. The Agent
shall be entitled to advice and opinion of legal counsel concerning all
matters pertaining to the duties of the agency hereby created.
SECTION 10.8. 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 persons, and, in respect to legal matters, upon the opinion of legal
counsel selected by the Agent.
SECTION 10.9. MAY TREAT PAYEE AS OWNER. The Agent may deem and treat
the payee of any Note as the owner thereof for all purposes hereof unless
and until a written notice of the assignment or transfer thereof shall
have been filed with the Agent. Any request, authority or consent of any
person, firm or corporation who at the time of making such request or
giving such authority or consent is the holder of any such Note shall be
conclusive and binding on any subsequent holder, transferee or assignee
of such Note or of any Note issued in exchange therefor.
SECTION 10.10. AGENT'S REIMBURSEMENT. Each Bank agrees to reimburse the
Agent pro rata in accordance with its Commitment Percentage for any
reasonable out-of-pocket expenses (including fees and charges for field
audits) not reimbursed by the Company (a) for which the Agent is entitled
to reimbursement by the Company under the Loan Documents and (b) for any
other reasonable out-of-pocket expenses incurred by the Agent on behalf
of the Banks, in connection with the preparation, execution, delivery,
administration and enforcement of the Loan Documents and for which the
Agent is entitled to reimbursement by the Company and has not been
reimbursed.
SECTION 10.11. RIGHTS AS A LENDER. With respect to its commitment, Term
Loans made by it, the Bond L/C and the Note issued to it, Harris shall
have the same rights and powers hereunder as any Bank and may exercise
the same as though it were not the Agent, and the term "BANK" or "BANKS"
shall, unless the context otherwise indicates, include Harris in its
individual capacity. Harris and each of the Banks may accept deposits
from, lend money to, and generally engage in any kind of banking or trust
business with the Company as if it were not the Agent or a Bank
hereunder, as the case may be.
SECTION 10.12. BANK CREDIT DECISION. Each Bank acknowledges that it
has, independently and without reliance upon the Agent or any other Bank
and based on the financial statements referred to in Section 5.3 and such
other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into the Loan Documents. Each
Bank also acknowledges that it will, independently and without reliance
upon the Agent or any other Bank 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 the Loan
Documents.
SECTION 10.13. RESIGNATION OF AGENT. Subject to the appointment of a
successor Agent, the Agent may resign as Agent for the Banks under this
Agreement and the other Loan Documents at any time by sixty days' notice
in writing to the Banks. Such resignation shall take effect upon
appointment of such successor. The Required Banks shall have the right
to appoint a successor Agent who shall be entitled to all of the rights
of, and vested with the same powers as, the original Agent under the Loan
Documents. In the event a successor Agent shall not have been appointed
within the sixty day period following the giving of notice by the Agent,
the Agent may appoint its own successor. Resignation by the Agent shall
not affect or impair the rights of the Agent under Sections 10.5 and
10.10 hereof with respect to all matters preceding such resignation. Any
successor Agent must be a Bank, a national banking association, a bank
chartered in any state of the United States or a branch of any foreign
bank which is licensed to do business under the laws of any state or the
United States.
SECTION 10.14. DURATION OF AGENCY. The agency established by Section
10.1 hereof shall continue, and Sections 10.1 through and including
Section 10.15 shall remain in full force and effect, until the Notes and
all other amounts due hereunder and thereunder, including without
limitation all Reimbursement Obligations, shall have been paid in full
and the Banks' commitments to extend credit to or for the benefit of the
Company shall have terminated or expired.
SECTION 11. MISCELLANEOUS.
SECTION 11.1. AMENDMENTS AND WAIVERS. Any term, covenant, agreement or
condition of this Agreement may be amended only by a written amendment
executed by the Company, the Required Banks and, if the rights or duties
of the Agent are affected thereby, the Agent, or compliance therewith
only may be waived (either generally or in a particular instance and
either retroactively or prospectively), if the Company shall have
obtained the consent in writing of the Required Banks and, if the rights
or duties of the Agent are affected thereby, the Agent, provided,
however, that without the consent in writing of the holders of all
outstanding Notes and unpaid Reimbursement Obligations and the issuer of
the Bond L/C, or all Banks if no Notes, Reimbursement Obligations or the
Bond L/C are outstanding, no such amendment or waiver shall (i) change
the amount or postpone the date of payment of any scheduled payment or
required prepayment of principal of the Notes or reduce the rate or
extend the time of payment of interest on the Notes, or reduce the amount
of principal thereof, or modify any of the provisions of the Notes with
respect to the payment or prepayment thereof, (ii) give to any Note any
preference over any other Notes, (iii) amend the definition of Required
Banks, (iv) alter, modify or amend the provisions of this Section 11.1,
(v) change the amount or term of any of the Banks' Term Credit
Commitments or the fees required under Section 2.1 hereof, (vi) alter,
modify or amend the provisions of Sections 1.10, 6 or 9 of this
Agreement, (vii) alter, modify or amend any Bank's right hereunder to
consent to any action, make any request or give any notice, (viii)
release any Collateral under the Security Documents or release or
discharge any guarantor of the Company's indebtedness, obligations and
liabilities to the Banks, in each case, unless such release or discharge
is permitted or contemplated by the Loan Documents, or (ix) alter, amend
or modify any subordination provisions of any Subordinated Debt. Any
such amendment or waiver shall apply equally to all Banks and the holders
of the Notes and Reimbursement Obligations and shall be binding upon
them, upon each future holder of any Note and Reimbursement Obligation
and upon the Company, whether or not such Note shall have been marked to
indicate such amendment or waiver. No such amendment or waiver shall
extend to or affect any obligation not expressly amended or waived.
SECTION 11.2. WAIVER OF RIGHTS. No delay or failure on the part of the
Agent or any Bank or on the part of the holder or holders of any Note or
Reimbursement Obligation in the exercise of any power or right shall
operate as a waiver thereof, nor as an acquiescence in any Potential
Default or Event of Default, nor shall any single or partial exercise of
any power or right preclude any other or further exercise thereof, or the
exercise of any other power or right, and the rights and remedies
hereunder of the Agent, the Banks and of the holder or holders of any
Notes are cumulative to, and not exclusive of, any rights or remedies
which any of them would otherwise have.
SECTION 11.3. SEVERAL OBLIGATIONS. The commitments of each of the
Banks hereunder shall be the several obligations of each Bank and the
failure on the part of any one or more of the Banks to perform hereunder
shall not affect the obligation of the other Banks hereunder, provided
that nothing herein contained shall relieve any Bank from any liability
for its failure to so perform. In the event that any one or more of the
Banks shall fail to perform its commitment hereunder, all payments
thereafter received by the Agent on the principal of Term Loans and
Reimbursement Obligations hereunder, whether from any Collateral or
otherwise, shall be distributed by the Agent to the Banks making such
additional Term Loans ratably as among them in accordance with the
principal amount of additional Term Loans made by them until such
additional Term Loans shall have been fully paid and satisfied. All
payments on account of interest shall be applied as among all the Banks
ratably in accordance with the amount of interest owing to each of the
Banks as of the date of the receipt of such interest payment.
SECTION 11.4. NON-BUSINESS DAY. (a) If any payment of principal or
interest on any Domestic Rate Portion shall fall due on a day which is
not a Business Day, interest at the rate such Portion bears for the
period prior to maturity shall continue to accrue on such principal from
the stated due date thereof to and including the next succeeding Business
Day on which the same is payable.
(b) If any payment of principal or interest on any Eurodollar
Portion shall fall due on a day which is not a Banking Day, the payment
date thereof shall be extended to the next date which is a Banking Day
and the Interest Period for such Portion shall be accordingly extended,
unless as a result thereof any payment date would fall in the next
calendar month, in which case such payment date shall be the next
preceding Banking Day.
SECTION 11.5. SURVIVAL OF INDEMNITIES. All indemnities and all
provisions relative to reimbursement to the Banks of amounts sufficient
to protect the yield to the Banks with respect to Eurodollar Portions,
including, but not limited to, Sections 9.3 and 9.4 hereof, shall survive
the termination of this Agreement and the payment of the Notes for a
period of one year.
SECTION 11.6. DOCUMENTARY TAXES. Although the Company is of the
opinion that no documentary or similar taxes are payable in respect of
this Agreement or the Notes, the Company agrees that it will pay such
taxes, including interest and penalties, in the event any such taxes are
assessed irrespective of when such assessment is made and whether or not
any credit is then in use or available hereunder.
SECTION 11.7. REPRESENTATIONS. All representations and warranties made
herein or in certificates given pursuant hereto shall survive the
execution and delivery of this Agreement and of the Notes, and shall
continue in full force and effect with respect to the date as of which
they were made and as reaffirmed on the date of each borrowing the
request for the Bond L/C and as long as any credit is in use or available
hereunder.
SECTION 11.8. NOTICES. Unless otherwise expressly provided herein, all
communications provided for herein shall be in writing or by telex and
shall be deemed to have been given or made when served personally, when
an answer back is received in the case of notice by telex or 2 days after
the date when deposited in the United States mail (registered, if to the
Company) addressed if to the Company to 110 South Texas, Pittsburg, Texas
75686 Attention: Clifford E. Butler; if to the Agent or Harris at
111 West Monroe Street, Chicago, Illinois 60690, Attention: Agribusiness
Division; and if to any of the Banks, at the address for each Bank set
forth under its signature hereon; or at such other address as shall be
designated by any party hereto in a written notice to each other party
pursuant to this Section 11.8.
SECTION 11.9. COSTS AND EXPENSES; INDEMNITY;. The Company agrees to
pay on demand all costs and expenses of the Agent, in connection with the
negotiation, preparation, execution and delivery of this Agreement, the
Notes and the other instruments and documents to be delivered hereunder
or in connection with the transactions contemplated hereby, including the
fees and expenses of Messrs. Chapman and Cutler, special counsel to the
Agent; all costs and expenses of the Agent (including attorneys' fees)
incurred in connection with any consents or waivers hereunder or
amendments hereto, and all costs and expenses (including attorneys'
fees), if any, incurred by the Agent, the Banks or any other holders of a
Note or any Reimbursement Obligation in connection with the enforcement
of this Agreement or the Notes and the other instruments and documents to
be delivered hereunder. The Company agrees to indemnify and save
harmless the Banks and the Agent from any and all liabilities, losses,
costs and expenses incurred by the Banks or the Agent in connection with
any action, suit or proceeding brought against the Agent or any Bank by
any Person which arises out of the transactions contemplated or financed
hereby or by the Notes, or out of any action or inaction by the Agent or
any Bank hereunder or thereunder, except for such thereof as is caused by
the gross negligence or willful misconduct of the party indemnified. The
provisions of this Section 11.9 shall survive payment of the Notes and
Reimbursement Obligations and the termination of the Revolving Credit
Commitments hereunder.
SECTION 11.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and all such counterparts taken together shall be
deemed to constitute one and the same instrument. One or more of the
Banks may execute a separate counterpart of this Agreement which has also
been executed by the Company, and this Agreement shall become effective
as and when all of the Banks have executed this Agreement or a
counterpart thereof and lodged the same with the Agent.
SECTION 11.11. SUCCESSORS AND ASSIGNS.. This Agreement shall be binding
upon each of the Company and the Banks and their respective successors
and assigns, and shall inure to the benefit of the Company and each of
the Banks and the benefit of their respective successors and assigns,
including any subsequent holder of any Note or Reimbursement Obligation.
The Company may not assign any of its rights or obligations hereunder
without the written consent of the Banks.
SECTION 11.12. NO JOINT VENTURE. Nothing contained in this Agreement
shall be deemed to create a partnership or joint venture among the
parties hereto.
SECTION 11.13. SEVERABILITY. In the event that any term or provision
hereof is determined to be unenforceable or illegal, it shall deemed
severed herefrom to the extent of the illegality and/or unenforceability
and all other provisions hereof shall remain in full force and effect.
SECTION 11.14. TABLE OF CONTENTS AND HEADINGS. The table of contents
and section headings in this Agreement are for reference only and shall
not affect the construction of any provision hereof.
SECTION 11.15. PARTICIPANTS. Each Bank shall have the right at its own
cost to grant participations (to be evidenced by one or more agreements
or certificates of participation) in the Term Loans made, and/or Term
Credit Commitment and participations in the Bond L/C and Reimbursement
Obligations held, by such Bank at any time and from time to time, and to
assign its rights under such Term Loans, participations in the Bond L/C
and Reimbursement Obligations or the Notes evidencing such Loans to one
or more other Persons; PROVIDED that no such participation shall relieve
any Bank of any of its obligations under this Agreement, and any
agreement pursuant to which such participation or assignment of a Note or
the rights thereunder is granted shall provide that the granting Bank
shall retain the sole right and responsibility to enforce the obligations
of the Company under the Loan Documents, including, without limitation,
the right to approve any amendment, modification or waiver of any
provision thereof, except that such agreement may provide that such Bank
will not agree without the consent of such participant or assignee to any
modification, amendment or waiver of this Agreement that would (A)
increase any Term Credit Commitment of such Lender, or (B) reduce the
amount of or postpone the date for payment of any principal of or
interest on any Term Loan or Reimbursement Obligation or of any fee
payable hereunder in which such participant or assignee has an interest,
or (C) reduce the interest rate applicable to any Term Loan or other
amount payable in which such participant or assignee has an interest or
(D) release any collateral security for or guarantor for any of the
Company's indebtedness, obligations and liabilities under the Loan
Documents, and provided further that no such assignee or participant
shall have any rights under this Agreement except as provided in this
Section 11.15, and the Agent shall have no obligation or responsibility
to such participant or assignee, except that nothing herein provided is
intended to affect the rights of an assignee of a Note to enforce the
Note assigned. Any party to which such a participation or assignment has
been granted shall have the benefits of Section 1.10, Section 9.3 and
Section 9.4 hereof but shall not be entitled to receive any greater
payment under any such Section than the Bank granting such participation
or assignment would have been entitled to receive with respect to the
rights transferred.
SECTION 11.16. ASSIGNMENT OF COMMITMENTS OR TERM LOANS BY BANK. Each
Bank shall have the right at any time, with the prior consent of the
Company and the Agent (which consent will not be unreasonably withheld),
to sell, assign, transfer or negotiate all or any part of its Term Credit
Commitment or Term Loans to one or more commercial banks or other
financial institutions; PROVIDED that such assignment is in an amount of
at least $500,000 or, if less, the entire unused amount of the Term
Credit Commitment or the entire principal amount of the Term Loans of
such Bank, PROVIDED FURTHER that no Bank may so assign more than one-half
of its original Term Credit Commitment or one-half of the principal
amount of such Bank's Term Loans outstanding hereunder, and PROVIDED
FURTHER that any Bank may assign all of its interest hereunder to any of
its subsidiaries or affiliates that are under Under Common Control with
such Bank. Upon any such assignment, and its notification to the Agent,
the assignee shall become a Bank hereunder, all Term Loans and the Term
Credit Commitment it thereby holds shall be governed by all the terms and
conditions hereof, and the Bank granting such assignment shall have its
Term Credit Commitment and its obligations and rights in connection
therewith, reduced by the amount of such assignment. Upon each such
assignment the Bank granting such assignment shall pay to the Agent for
the Agent's sole account a fee of $2,500.
SECTION 11.17. SHARING OF PAYMENTS. Each Bank agrees with each other
Bank that if such Bank shall receive and retain any payment, whether by
set-off or application of deposit balances or otherwise ("SET-OFF"), on
any Term Loan, Reimbursement Obligation or other amount outstanding under
this Agreement in excess of its ratable share of payments on all Term
Loans, Reimbursement Obligations and other amounts then outstanding to
the Banks, then such Bank shall purchase for cash at face value, but
without recourse, ratably from each of the other Banks such amount of the
Term Loans and Reimbursement Obligations held by each such other Bank (or
interest therein) as shall be necessary to cause such Bank to share such
excess payment ratably with all the other Banks; PROVIDED, HOWEVER, that
if any such purchase is made by any Bank, and if such excess payment or
part thereof is thereafter recovered from such purchasing Bank, the
related purchases from the other Banks shall be rescinded ratably and the
purchase price restored as to the portion of such excess payment so
recovered, but without interest. Each Bank's ratable share of any such
Set-Off shall be determined by the proportion that the aggregate
principal amount of Term Loans and Reimbursement Obligations then due and
payable to such Bank bears to the total aggregate principal amount of
Term Loans and Reimbursement Obligations then due and payable to all the
Banks.
SECTION 11.18. JURISDICTION; VENUE. THE COMPANY HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS AND OF ANY ILLINOIS COURT SITTING IN
CHICAGO FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE COMPANY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
SECTION 11.19. LAWFUL RATE. All agreements between the Company, the
Agent and each of the Banks, whether now existing or hereafter arising
and whether written or oral, are expressly limited so that in no
contingency or event whatsoever, whether by reason of demand or
acceleration of the maturity of any of the indebtedness hereunder or
otherwise, shall the amount contracted for, charged, received, reserved,
paid or agreed to be paid to the Agent or each Bank for the use,
forbearance, or detention of the funds advanced hereunder or otherwise,
or for the performance or payment of any covenant or obligation contained
in any document executed in connection herewith (all such documents being
hereinafter collectively referred to as the "CREDIT DOCUMENTS"), exceed
the highest lawful rate permissible under applicable law (the "HIGHEST
LAWFUL RATE"), it being the intent of the Company, the Agent and each of
the Banks in the execution hereof and of the Credit Documents to contract
in strict accordance with applicable usury laws. If, as a result of any
circumstances whatsoever, fulfillment by the Company of any provision
hereof or of any of such documents, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by applicable usury law or result in the Agent or any Bank
having or being deemed to have contracted for, charged, reserved or
received interest (or amounts deemed to be interest) in excess of the
maximum, lawful rate or amount of interest allowed by applicable law to
be so contracted for, charged, reserved or received by the Agent or such
Bank, then, IPSO FACTO, the obligation to be fulfilled by the Company
shall be reduced to the limit of such validity, and if, from any such
circumstance, the Agent or such Bank shall ever receive interest or
anything which might be deemed interest under applicable law which would
exceed the Highest Lawful Rate, such amount which would be excessive
interest shall be refunded to the Company or, to the extent (i) permitted
by applicable law and (ii) such excessive interest does not exceed the
unpaid principal balance of the Notes and the amounts owing on other
obligations of the Company to the Agent or any Bank under any Loan
Document applied to the reduction of the principal amount owing on
account of the Notes or the amounts owing on other obligations of the
Company to the Agent or any Bank under any Loan Document and not to the
payment of interest. All interest paid or agreed to be paid to the Agent
or any Bank shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full period of
the indebtedness hereunder until payment in full of the principal of the
indebtedness hereunder (including the period of any renewal or extension
thereof) so that the interest on account of the indebtedness hereunder
for such full period shall not exceed the highest amount permitted by
applicable law. This paragraph shall control all agreements between the
Company, the Agent and the Banks.
SECTION 11.20. GOVERNING LAW. (a) THIS AGREEMENT AND THE RIGHTS AND
DUTIES OF THE PARTIES HERETO, SHALL BE CONSTRUED AND DETERMINED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, EXCEPT TO THE
EXTENT PROVIDED IN SECTION 11.20(b) HEREOF AND TO THE EXTENT THAT THE
FEDERAL LAWS OF THE UNITED STATES OF AMERICA MAY OTHERWISE APPLY.
(b) NOTWITHSTANDING ANYTHING IN SECTION 11.20(a) HEREOF TO THE
CONTRARY, NOTHING IN THIS AGREEMENT, THE NOTES, OR THE OTHER LOAN
DOCUMENTS SHALL BE DEEMED TO CONSTITUTE A WAIVER OF ANY RIGHTS WHICH THE
COMPANY, THE AGENT OR ANY OF THE BANKS MAY HAVE UNDER THE NATIONAL BANK
ACT OR OTHER APPLICABLE FEDERAL LAW.
SECTION 11.21. LIMITATION OF LIABILITY. NO CLAIM MAY BE MADE BY THE
COMPANY, ANY SUBSIDIARY OR ANY GUARANTOR AGAINST ANY BANK OR ITS
AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS FOR ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR
WRONGFUL CONDUCT (WHETHER THE CLAIM THEREFOR IS BASED ON CONTRACT, TORT
OR DUTY IMPOSED BY LAW) IN CONNECTION WITH, ARISING OUT OF OR IN ANY WAY
RELATED TO THE TRANSACTIONS CONTEMPLATED AND RELATIONSHIPS ESTABLISHED BY
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY ACT, OMISSION
OR EVENT OCCURRING IN CONNECTION THEREWITH. THE COMPANY, EACH SUBSIDIARY
AND EACH GUARANTOR HEREBY WAIVE, RELEASE AND AGREE NOT TO SUE UPON SUCH
CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT
KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
SECTION 11.22. NONLIABILITY OF LENDERS. The relationship between the
Company and the Banks is, and shall at all times remain, solely that of
borrower and lenders, and the Banks and the Agent neither undertake nor
assume any responsibility or duty to the Company to review, inspect,
supervise, pass judgment upon, or inform the Company of any matter in
connection with any phase of the Company's business, operations, or
condition, financial or otherwise. The Company shall rely entirely upon
its own judgment with respect to such matters, and any review,
inspection, supervision, exercise of judgment, or information supplied to
the Company by any Bank or the Agent in connection with any such matter
is for the protection of the Bank and the Agent, and neither the Company
nor any third party is entitled to rely thereon.
SECTION 11.23. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, TOGETHER
WITH THE OTHER LOAN DOCUMENTS EXECUTED CONTEMPORANEOUSLY HEREWITH,
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
Upon your acceptance hereof in the manner hereinafter set forth,
this Agreement shall be a contract between us for the purposes
hereinabove set forth.
Dated as of June 5, 1997.
PILGRIM'S PRIDE CORPORATION
By \s\ Clifford E. Butler
____________Its Executive
President
Accepted and Agreed to as of the day and year last above written.
HARRIS TRUST AND SAVINGS BANK
individually and as Agent
By \s\ Carl Blackham
_________________Its Vice
President
Address: 111 West Monroe Street
Chicago, Illinois 60690
Attention: Agribusiness Division
FBS AG CREDIT, INC.
By \s\ Ronald E. van Steyn
________________________________
Its
Address 4643 South Ulster Street,
Suite 1280
Denver, Colorado 80237
Attention: _______________________
COBANK, ACB
By \s\ Virgil Harms
________________________________
Its
Address: P.O. Box 2940
245 North Waco
Wichita, Kansas 67201-
2940
Attention:
ING (U.S.) CAPITAL CORPORATION
By \s\ Sheila M. Greatrex
________________________________
Its
Address 135 East 57th Street
New York, New York 10022
2101
Attention: _______________________
WELLS FARGO BANK (TEXAS), N.A.
By \s\ Vito Carborne
________________________________
Its
Address: 1445 Ross Avenue
Dallas, Texas 75202
Attention:
CAISSE NATIONALE DE CREDIT AGRICOLE,
CHICAGO BRANCH
By \s\ W. Leroy Startz
________________________________
Its
Address:
Attention:
<PAGE>
EXHIBIT A
Pilgrim's Pride Corporation
SECURED TERM CREDIT NOTE
$_______________ June 5,
1997
FOR VALUE RECEIVED, the undersigned, PILGRIM'S PRIDE CORPORATION, a
Delaware corporation (the "COMPANY"), promises to pay to the order of
________________ (the "LENDER") on April 30, 1999, at the principal
office of Harris Trust and Savings Bank in Chicago, Illinois, the
principal sum of ___________________ or, if less, the aggregate unpaid
principal amount of all Term Loans made by the Lender to the Company
under the Term Credit provided for under the Credit Agreement hereinafter
mentioned and remaining unpaid on April 30, 1999, together with interest
on the principal amount of each Term Loan from time to time outstanding
hereunder at the rates, and payable in the manner and on the dates
specified in said Credit Agreement.
The Lender shall record on its books or records or on the schedule
to this Note which is a part hereof the principal amount of each Term
Loan made under the Term Credit, each Domestic Rate Portion, CD Rate
Portion and Eurodollar Portion and, with respect to Eurodollar Portions,
the interest rate and Interest Period applicable thereto, and all
payments of principal and interest and the principal balances from time
to time outstanding; provided that prior to the transfer of this Note all
such amounts shall be recorded on a schedule attached to this Note. The
record thereof, whether shown on such books or records or on the schedule
to this Note, shall be PRIMA FACIE evidence as to all such amounts;
provided, however, that the failure of the Lender to record or any
mistake in recording any of the foregoing shall not limit or otherwise
affect the obligation of the Company to repay all Term Loans made under
the Term Credit, together with accrued interest thereon.
This Note is one of the Term Notes referred to in and issued under
that certain Secured Term Credit Agreement dated as of June 5, 1997,
among the Company, Harris Trust and Savings Bank, as Agent, and the banks
named therein, as amended from time to time (the "CREDIT AGREEMENT"), and
this Note and the holder hereof are entitled to all of the benefits and
security provided for thereby or referred to therein, including without
limitation the collateral security provided pursuant to the Security
Documents (as defined in the Credit Agreement), to which Credit Agreement
and Security Documents reference is hereby made for a statement thereof
and a statement of the terms and conditions upon which the Agent may
exercise rights with respect to such collateral. All defined terms used
in this Note, except terms otherwise defined herein, shall have the same
meaning as such terms have in said Credit Agreement.
Prepayments may be made on any Term Loan evidenced hereby and this
Note (and the Term Loans evidenced hereby) may be declared due prior to
the expressed maturity thereof, all in the events, on the terms and in
the manner as provided for in said Credit Agreement and the Security
Documents.
All agreements between the Company, the Agent (as defined in the
Credit Agreement) and each of the Banks (as defined in the Credit
Agreement), whether now existing or hereafter arising and whether written
or oral, are expressly limited so that in no contingency or event
whatsoever, whether by reason of demand or acceleration of the maturity
of any of the indebtedness hereunder or otherwise, shall the amount
contracted for, charged, received, reserved, paid or agreed to be paid to
the Agent or each Bank for the use, forbearance, or detention of the
funds advanced hereunder or otherwise, or for the performance or payment
of any covenant or obligation contained in any document executed in
connection herewith (all such documents being hereinafter collectively
referred to as the "CREDIT DOCUMENTS"), exceed the highest lawful rate
permissible under applicable law (the "HIGHEST LAWFUL RATE"), it being
the intent of the Company, the Agent and each of the Banks in the
execution hereof and of the Credit Documents to contract in strict
accordance with applicable usury laws. If, as a result of any
circumstances whatsoever, fulfillment by the Company of any provision
hereof or of any of such documents, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by applicable usury law or result in the Agent or any Bank
having or being deemed to have contracted for, charged, reserved or
received interest (or amounts deemed to be interest) in excess of the
maximum, lawful rate or amount of interest allowed by applicable law to
be so contracted for, charged, reserved or received by the Agent or such
Bank, then, IPSO FACTO, the obligation to be fulfilled by the Company
shall be reduced to the limit of such validity, and if, from any such
circumstance, the Agent or such Bank shall ever receive interest or
anything which might be deemed interest under applicable law which would
exceed the Highest Lawful Rate, such amount which would be excessive
interest shall be refunded to the Company or, to the extent (i) permitted
by applicable law and (ii) such excessive interest does not exceed the
unpaid principal balance of the Notes (as defined in the Credit
Agreement) and the amounts owing on other obligations of the Company to
the Agent or any Bank under any Loan Document (as defined in the Credit
Agreement) applied to the reduction of the principal amount owing on
account of the Notes or the amounts owing on other obligations of the
Company to the Agent or any Bank under any Loan Document and not to the
payment of interest. All interest paid or agreed to be paid to the Agent
or any Bank shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full period of
the indebtedness hereunder until payment in full of the principal of the
indebtedness hereunder (including the period of any renewal or extension
thereof) so that the interest on account of the indebtedness hereunder
for such full period shall not exceed the highest amount permitted by
applicable law. This paragraph shall control all agreements between the
Company, the Agent and the Banks.
The undersigned hereby expressly waives diligence, presentment,
demand, protest, notice of protest, notice of intent to accelerate,
notice of acceleration, and notice of any other kind.
IT IS AGREED THAT THIS NOTE AND THE RIGHTS AND REMEDIES OF THE
HOLDER HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS, PROVIDED, HOWEVER, THAT NOTHING
IN THIS NOTE SHALL BE DEEMED TO CONSTITUTE A WAIVER OF ANY RIGHTS WHICH
THE COMPANY, THE AGENT OR ANY OF THE BANKS MAY HAVE UNDER THE NATIONAL
BANK ACT OR OTHER APPLICABLE FEDERAL LAW.
PILGRIM'S PRIDE CORPORATION
By \s\ Clifford E. Butler
____________Its Executive
President
-1-
AMENDED AND RESTATED SECURED CREDIT AGREEMENT
Among
PILGRIM'S PRIDE CORPORATION
And
HARRIS TRUST AND SAVINGS BANK
INDIVIDUALLY AND AS AGENT
AND
FBS Ag Credit, Inc.
COBANK, ACB
ING (U.S.) Capital Corporation
WELLS FARGO BANK (TEXAS), N.A.
Caisse Nationale de Credit Agricole, Chicago Branch
Dated as of August 11, 1997
<PAGE>
-2-
TABLE OF CONTENTS
Pilgrim's Pride Corporation
AMENDED AND RESTATED SECURED CREDIT AGREEMENT
Exhibit A Secured Revolving Credit Note
Exhibit B Application and Agreement for Letter of Credit
Exhibit C Environmental Disclosure
Exhibit D Permitted Liens
Exhibit E Form of Legal Opinion
Exhibit F Compliance Certificate
Exhibit G Borrowing Base Certificate
Exhibit H Subsidiaries
Exhibit I Accounts Receivable Aging Report
Exhibit JLabor Disputes
Exhibit K Intercreditor Agreement
Exhibit L Competitive Bid Request Confirmation
Exhibit M Confirmation of Notice of Competitive Bid Request
Exhibit N Confirmation of Competitive Bid
<PAGE>
-2-
Pilgrim's Pride Corporation
AMENDED AND RESTATED
Secured Credit Agreement
Harris Trust and Savings Bank
Chicago, Illinois
FBS Ag Credit, Inc.
Denver, Colorado
CoBank, ACB
Wichita, Kansas
ING (U.S.) Capital Corporation ("ING ")
New York, New York
Wells Fargo Bank (Texas), N.A.
Dallas, Texas
Caisse Nationale de Credit Agricole, Chicago Branch
Chicago, Illinois
Ladies and Gentlemen:
The undersigned, PILGRIM'S PRIDE CORPORATION, a Delaware corporation
(the "COMPANY"), refers to the Secured Credit Agreement dated as of May 27,
1993, as amended and currently in effect between the Company and you (such
Secured Credit Agreement as so amended is hereinafter referred to as the
"CREDIT AGREEMENT") pursuant to which you agreed to make a revolving credit
(the "REVOLVING CREDIT") available to the Company, all as more fully set
forth therein. Each of you is hereinafter referred to individually as
"BANK" and collectively as "BANKS." Harris Trust and Savings Bank in its
individual capacity is sometimes referred to herein as "HARRIS", and in its
capacity as Agent for the Banks is hereinafter in such capacity called the
"AGENT." The Company requests you to make certain further amendments to
the Credit Agreement and, for the sake of convenience and clarity, to
restate the Credit Agreement in its entirety as so amended. Accordingly,
upon your acceptance hereof in the space provided for that purpose below
and upon satisfaction of the conditions precedent to effectiveness
hereinafter set forth, Section 1 through 11 of the Credit Agreement and
Exhibits A through P thereto shall be amended and as so amended shall be
restated in their entirety to read as follows:
"1. THE REVOLVING CREDIT.
SECTION 1.1. THE REVOLVING CREDIT. (a) Subject to all of the terms and
conditions hereof, the Banks agree, severally and not jointly, to extend a
Revolving Credit to the Company which may be utilized by the Company in the
form of loans (individually a "REVOLVING CREDIT LOAN" and collectively the
"REVOLVING CREDIT LOANS"), and L/Cs (as hereinafter defined). The
aggregate principal amount of all Revolving Credit Loans under the
Revolving Credit plus the aggregate principal amount of all Bid Loans
outstanding under this Agreement plus the amount available for drawing
under all L/Cs and the aggregate principal amount of all unpaid
Reimbursement Obligations (as hereinafter defined) at any time outstanding
shall not exceed the lesser of (i) the sum of the Banks' Revolving Credit
Commitments (as hereinafter defined) in effect from time to time during the
term of this Agreement (as hereinafter defined) or (ii) the Borrowing Base
as determined on the basis of the most recent Borrowing Base Certificate.
The Revolving Credit shall be available to the Company, and may be availed
of by the Company from time to time, be repaid (subject to the restrictions
on prepayment set forth herein) and used again, during the period from the
date hereof to and including May 31, 2000 (the "TERMINATION DATE").
(b) At any time not earlier than 120 days prior to, nor later than 60
days prior to, the date that is two years before the Termination Date then
in effect (the "ANNIVERSARY DATE"), the Company may request that the Banks
extend the then scheduled Termination Date to the date one year from such
Termination Date. If such request is made by the Company each Bank shall
inform the Agent of its willingness to extend the Termination Date no later
than 20 days prior to such Anniversary Date. Any Bank's failure to respond
by such date shall indicate its unwillingness to agree to such requested
extension, and all Banks must approve any requested extension. At any time
more than 15 days before such Anniversary Date the Banks may propose, by
written notice to the Company, an extension of this Agreement to such later
date on such terms and conditions as the Banks may then require. If the
extension of this Agreement to such later date is acceptable to the Company
on the terms and conditions proposed by the Banks, the Company shall notify
the Banks of its acceptance of such terms and conditions no later than the
Anniversary Date, and such later date will become the Termination Date
hereunder and this Agreement shall otherwise be amended in the manner
described in the Banks' notice proposing the extension of this Agreement
upon the Agent's receipt of (i) an amendment to this Agreement signed by
the Company and all of the Banks, (ii) resolutions of the Company's Board
of Directors authorizing such extension and (iii) an opinion of counsel to
the Company equivalent in form and substance to the form of opinion
attached hereto as Exhibit E and otherwise acceptable to the Banks.
(c) The respective maximum aggregate principal amounts of the
Revolving Credit at any one time outstanding and the percentage of the
Revolving Credit available at any time which each Bank by its acceptance
hereof severally agrees to make available to the Company are as follows
(collectively, the "REVOLVING CREDIT COMMITMENTS" and individually, a
"REVOLVING CREDIT COMMITMENT"):
<TABLE>
<CAPTION>
<S> <C> <C>
Harris Trust and Savings Bank $ 26,666,667 26.66666667%
FBS Ag Credit, Inc. $ 20,000,000 20%
CoBank, ACB $ 20,000,000 20%
ING (U.S.) Capital Corporation $ 13,333,333 13.33333334%
Wells Fargo Bank (Texas), N.A. $ 10,000,000 10%
Caisse Nationale de Credit
Agricole, Chicago Branch $ 10,000,000 10%
Total $100,000,000 100%
</TABLE>
Each Bank's Revolving Credit Commitment shall be reduced from time to time
by the aggregate outstanding principal amount of all Bid Loans made by such
Bank, and shall be increased (but in no event above the amount set forth
above for each Bank) by the aggregate principal amount of each principal
repayment of such Bid Loans made from time to time.
(d) Loans under the Revolving Credit may be Eurodollar Loans, CD Rate
Loans or Domestic Rate Loans. All Loans under the Revolving Credit shall
be made from each Bank in proportion to its respective Revolving Credit
Commitment as above set forth, as adjusted from time to time to reflect
outstanding Bid Loans. Each Domestic Rate Loan shall be in an amount not
less than $3,000,000 or such greater amount which is an integral multiple
of $500,000 and each Fixed Rate Loan shall be in an amount not less than
$3,000,000 or such greater amount which is an integral multiple of
$1,000,000.
SECTION 1.2. THE NOTES. All Revolving Credit Loans made by each Bank
hereunder shall be evidenced by a single Secured Revolving Credit Note of
the Company substantially in the form of Exhibit A hereto (individually, a
"REVOLVING NOTE" and together, the "REVOLVING NOTES") payable to the order
of each Bank. The aggregate principal amount of indebtedness evidenced by
such Revolving Note at any time shall be, and the same is to be determined
by, the aggregate principal amount of all Revolving Credit Loans and Bid
Loans made by such Bank to the Company pursuant hereto on or prior to the
date of determination less the aggregate amount of principal repayments on
such Revolving Credit Loans and Bid Loans received by or on behalf of such
Bank on or prior to such date of determination. Each Revolving Note shall
be dated as of the execution date of this Agreement, and shall be expressed
to mature on the Termination Date and to bear interest as provided in
Section 1.3 hereof. Each Bank shall record on its books or records or on a
schedule to its Revolving Note the amount of each Revolving Credit Loan and
Bid Loan made by it hereunder, whether each Revolving Credit Loan is a
Domestic Rate Loan, CD Rate Loan or Eurodollar Loan, and, with respect to
Fixed Rate Loans and Bid Loans, the interest rate and Interest Period
applicable thereto, and all payments of principal and interest and the
principal balance from time to time outstanding, provided that prior to any
transfer of such Revolving Note all such amounts shall be recorded on a
schedule to such Revolving Note. The record thereof, whether shown on such
books or records or on the schedule to the Revolving Note, shall be PRIMA
FACIE evidence as to all such amounts; provided, however, that the failure
of any Bank to record or any mistake in recording any of the foregoing
shall not limit or otherwise affect the obligation of the Company to repay
all Revolving Credit Loans and Bid Loans made hereunder together with
accrued interest thereon. Upon the request of any Bank, the Company will
furnish a new Revolving Note to such Bank to replace its outstanding
Revolving Note and at such time the first notation appearing on the
schedule on the reverse side of, or attached to, such Revolving Note shall
set forth the aggregate unpaid principal amount of Revolving Credit Loans
and Bid Loans then outstanding from such Bank, and, with respect to each
Fixed Rate Loan, the interest rate and Interest Period applicable thereto.
Such Bank will cancel the outstanding Revolving Note upon receipt of the
new Revolving Note.
SECTION 1.3. INTEREST RATES. (a) DOMESTIC RATE LOANS. Each Domestic
Rate Loan shall bear interest (computed on the basis of a year of 360 days
and actual days elapsed) on the unpaid principal amount thereof from the
date such Loan is made until maturity (whether by acceleration, upon
prepayment or otherwise) at a rate per annum equal to the lesser of (i) the
Highest Lawful Rate and (ii) the sum of the Applicable Margin plus the
Domestic Rate from time to time in effect, payable quarterly in arrears on
the last day of each calendar quarter, commencing on the first of such
dates occurring after the date hereof and at maturity (whether by
acceleration, upon prepayment or otherwise).
(b) EURODOLLAR LOANS. Each Eurodollar Loan under the Revolving
Credit shall bear interest (computed on the basis of a year of 360 days and
actual days elapsed) on the unpaid principal amount thereof from the date
such Loan is made until the last day of the Interest Period applicable
thereto or, if earlier, until maturity (whether by acceleration or
otherwise) at a rate per annum equal to the lesser of (i) the Highest
Lawful Rate and (ii) the sum of the Applicable Margin plus the Adjusted
Eurodollar Rate, payable on the last day of each Interest Period applicable
thereto and at maturity (whether by acceleration or otherwise) and, with
respect to Eurodollar Loans with an Interest Period in excess of three
months, on the date occurring every three months from the first day of the
Interest Period applicable thereto.
(c) CD RATE LOANS. Each CD Rate Loan under the Revolving Credit
shall bear interest (computed on the basis of a year of 360 days and actual
days elapsed) on the unpaid principal amount thereof from the date such
Loan is made until the last day of the Interest Period applicable thereto
or, if earlier, until maturity (whether by acceleration or otherwise) at a
rate per annum equal to the lesser of (i) the Highest Lawful Rate and (ii)
the sum of the Applicable Margin plus the Adjusted CD Rate, payable on the
last day of each Interest Period applicable thereto and at maturity
(whether by acceleration of otherwise) and, with respect to CD Rate Loans
with an Interest Period in excess of 90 days, on the date occurring every
90 days from the first day of the Interest Period applicable thereto.
(d) DEFAULT RATE. During the existence of an Event of Default all
Loans and Reimbursement Obligations shall bear interest (computed on the
basis of a year of 360 days and actual days elapsed) from the date of such
Event of Default until paid in full, payable on demand, at a rate per annum
equal to the sum of 2.5% plus the Domestic Rate from time to time in effect
plus the Applicable Margin.
SECTION 1.4. CONVERSION AND CONTINUATION OF REVOLVING CREDIT LOANS.
(a) Provided that no Event of Default or Potential Default has occurred and
is continuing, the Company shall have the right, subject to the other terms
and conditions of this Agreement, to continue in whole or in part (but, if
in part, in the minimum amount specified for Fixed Rate Loans in
Section 1.1 hereof) any Fixed Rate Loan made under the Revolving Credit
from any current Interest Period into a subsequent Interest Period,
provided that the Company shall give the Agent notice of the continuation
of any such Loan as provided in Section 1.7 hereof.
(b) In the event that the Company fails to give notice pursuant to
Section 1.7 hereof of the continuation of any Fixed Rate Loan under the
Revolving Credit or fails to specify the Interest Period applicable
thereto, or an Event of Default or Potential Default has occurred and is
continuing at the time any such Loan is to be continued hereunder, then
such Loan shall be automatically converted as (and the Company shall be
deemed to have given notice requesting) a Domestic Rate Loan, subject to
Sections 1.7(b), 8.2 and 8.3 hereof, unless paid in full on the last day of
the then applicable Interest Period.
(c) Provided that no Event of Default or Potential Default has
occurred and is continuing, the Company shall have the right, subject to
the terms and conditions of this Agreement, to convert Revolving Credit
Loans of one type (in whole or in part) into Revolving Credit Loans of
another type from time to time provided that: (i) the Company shall give
the Agent notice of each such conversion as provided in Section 1.7 hereof,
(ii) the principal amount of any Revolving Credit Loan converted hereunder
shall be in an amount not less than the minimum amount specified for the
type of Revolving Credit Loan in Section 1.1 hereof, (iii) after giving
effect to any such conversion in part, the principal amount of any Fixed
Rate Loan under the Revolving Credit then outstanding shall not be less
than the minimum amount specified for the type of Loan in Section 1.1
hereof, (iv) any conversion of a Revolving Credit Loan hereunder shall only
be made on a Banking Day, and (v) any Fixed Rate Loan may be converted only
on the last day of the Interest Period then applicable thereto.
SECTION 1.5. LETTERS OF CREDIT. Subject to all the terms and conditions
hereof, satisfaction of all conditions precedent to borrowing under this
Agreement and so long as no Potential Default or Event of Default is in
existence, at the Company's request Harris may in its discretion issue
letters of credit (an "L/C" and collectively the "L/Cs") for the account of
the Company subject to availability under the Revolving Credit, and the
Banks hereby agree to participate therein as more fully described in
Section 1.8 hereof. Each L/C shall be issued pursuant to an Application
for Letter of Credit (the "L/C Agreement") in the form of Exhibit B hereto.
The L/Cs shall consist of standby letters of credit in an aggregate face
amount not to exceed $20,000,000. Each L/C shall have an expiry date not
more than one year from the date of issuance thereof (but in no event later
than the Termination Date). The amount available to be drawn under each
L/C issued pursuant hereto shall be deducted from the credit otherwise
available under the Revolving Credit. In consideration of the issuance of
L/Cs the Company agrees to pay Harris a fee (the "L/C FEE") in the amount
per annum equal to (a) 1.0% of the face amount of each Performance L/C and
(b) the Applicable Margin for Eurodollar Loans of the stated amount of each
Financial Guarantee L/C (in each case computed on the basis of a 360 day
year and actual days elapsed) of the face amount for any L/C issued
hereunder. In addition the Company shall pay Harris for its own account an
issuance fee (the "L/C ISSUANCE FEE") in an amount equal to one-eighth of
one percent (0.125%) of the stated amount of each L/C issued by Harris
hereunder. All L/C Fees shall be payable quarterly in arrears on the last
day of each calendar quarter and on the Termination Date, and all L/C
Issuance Fees shall be payable on the date of issuance of each L/C
hereunder and on the date of each extension, if any, of the expiry date of
each L/C.
SECTION 1.6. REIMBURSEMENT OBLIGATION. The Company is obligated, and
hereby unconditionally agrees, to pay in immediately available funds to the
Agent for the account of Harris and the Banks who are participating in L/Cs
pursuant to Section 1.8 hereof the face amount of each draft drawn and
presented under an L/C issued by Harris hereunder not later than 11:00 a.m.
(Chicago Time) on the date such draft is presented for payment to Harris
(the obligation of the Company under this Section 1.7 with respect to any
L/C is a "REIMBURSEMENT OBLIGATION"). If at any time the Company fails to
pay any Reimbursement Obligation when due, the Company shall be deemed to
have automatically requested a Domestic Rate Loan from the Banks hereunder,
as of the maturity date of such Reimbursement Obligation, the proceeds of
which Loan shall be used to repay such Reimbursement Obligation. Such Loan
shall only be made if no Potential Default or Event of Default shall exist
and upon approval by all of the Banks, and shall be subject to availability
under the Revolving Credit. If such Loan is not made by the Banks for any
reason, the unpaid amount of such Reimbursement Obligation shall be due and
payable to the Agent for the pro rata benefit of the Banks upon demand and
shall bear interest at the rate of interest specified in Section 1.3(d)
hereof.
SECTION 1.7. MANNER OF BORROWING AND RATE SELECTION. (a) The Company
shall give telephonic, telex or telecopy notice to the Agent (which notice,
if telephonic, shall be promptly confirmed in writing) no later than (i)
11:00 a.m. (Chicago time) on the date the Banks are requested to make each
Domestic Rate Loan, (ii) 11:00 a.m. (Chicago time) on the date at least
three (3) Banking Days prior to the date of (A) each Eurodollar Loan which
the Banks are requested to make or continue, and (B) the conversion of any
CD Rate Loan or Domestic Rate Loan into a Eurodollar Loan and (iii) 11:00
a.m. (Chicago time) on the date at least one (1) Business Day prior to the
date of (A) each CD Rate Loan which the Banks are requested to make and (B)
the conversion of any Eurodollar Loan or Domestic Rate Loan into a CD Rate
Loan. Each such notice shall specify the date of the Revolving Credit Loan
requested (which shall be a Business Day in the case of Domestic Rate Loans
and CD Rate Loans and a Banking Day in the case of a Eurodollar Loan), the
amount of such Revolving Credit Loan, whether the Revolving Credit Loan is
to be made available by means of a Domestic Rate Loan, CD Rate Loan or
Eurodollar Loan and, with respect to Fixed Rate Loans, the Interest Period
applicable thereto; provided, that in no event shall the principal amount
of any requested Revolving Credit Loan plus the aggregate principal or face
amount, as appropriate, of all Revolving Credit Loans, L/Cs, and unpaid
Reimbursement Obligations outstanding hereunder exceed the amounts
specified in Section 1.1 hereof. The Company agrees that the Agent may
rely on any such telephonic, telex or telecopy notice given by any person
who the Agent believes is authorized to give such notice without the
necessity of independent investigation and in the event any notice by such
means conflicts with the written confirmation, such notice shall govern if
any Bank has acted in reliance thereon. The Agent shall, no later than
12:30 p.m. (Chicago time) on the day any such notice is received by it,
give telephonic, telex or telecopy (if telephonic, to be confirmed in
writing within one Business Day) notice of the receipt of notice from the
Company hereunder to each of the Banks, and, if such notice requests the
Banks to make, continue or convert any Fixed Rate Loans, the Agent shall
confirm to the Company by telephonic, telex or telecopy means, which
confirmation shall be conclusive and binding on the Company in the absence
of manifest error, the Interest Period and the interest rate applicable
thereto promptly after such rate is determined by the Agent.
(b) Subject to the provisions of Section 6 hereof, the proceeds of
each Revolving Credit Loan shall be made available to the Company at the
principal office of the Agent in Chicago, Illinois, in immediately
available funds, on the date such Revolving Credit Loan is requested to be
made, except to the extent such Revolving Credit Loan represents (i) the
conversion of an existing Revolving Credit Loan or (ii) a refinancing of a
Reimbursement Obligation, in which case each Bank shall record such
conversion on the schedule to its Revolving Note, or in lieu thereof, on
its books and records, and shall effect such conversion or refinancing, as
the case may be, on behalf of the Company in accordance with the provisions
of Section 1.4(a) hereof and 1.8 hereof, respectively. Not later than
2:00 p.m. Chicago time, on the date specified for any Revolving Credit Loan
to be made hereunder, each Bank shall make its portion of such Revolving
Credit Loan available to the Company in immediately available funds at the
principal office of the Agent, except (i) as otherwise provided above with
respect to converting or continuing any outstanding Revolving Credit Loans
and (ii) to the extent such Revolving Credit Loan represents a refinancing
of any outstanding Reimbursement Obligations.
(c) Unless the Agent shall have been notified by a Bank prior to
1:00 p.m. (Chicago time) on the date a Revolving Credit Loan is to be made
by such Bank (which notice shall be effective upon receipt) that such Bank
does not intend to make the proceeds of such Revolving Credit Loan
available to the Agent, the Agent may assume that such Bank has made such
proceeds available to the Agent on such date and the Agent may in reliance
upon such assumption (but shall not be required to) make available to the
Company a corresponding amount. If such corresponding amount is not in
fact made available to the Agent by such Bank, the Agent shall be entitled
to receive such amount on demand from such Bank (or, if such Bank fails to
pay such amount forthwith upon such demand, to recover such amount,
together with interest thereon at the rate otherwise applicable thereto
under Section 1.3 hereof, from the Company) together with interest thereon
in respect of each day during the period commencing on the date such amount
was made available to the Company and ending on the date the Agent recovers
such amount, at a rate per annum equal to the effective rate charged to the
Agent for overnight Federal funds transactions with member banks of the
Federal Reserve System for each day, as determined by the Agent (or, in the
case of a day which is not a Business Day, then for the preceding Business
Day) (the "FED FUNDS RATE"). Nothing in this Section 1.7(c) shall be
deemed to permit any Bank to breach its obligations to make Loans under the
Revolving Credit or to limit the Company's claims against any Bank for such
breach.
SECTION 1.8. PARTICIPATION IN L/Cs. Each of the Banks will acquire a
risk participation for its own account, without recourse to or
representation or warranty from Harris, in each L/C upon the issuance
thereof ratably in accordance with its Commitment Percentage. In the event
any Reimbursement Obligation is not immediately paid by the Company
pursuant to Section 1.6 hereof, each Bank will pay to Harris funds in an
amount equal to such Bank's ratable share of the unpaid amount of such
Reimbursement Obligation (based upon its proportionate share relative to
its percentage of the Revolving Credit (as set forth in Section 1.1
hereof)). At the election of all of the Banks, such funding by the Banks
of the unpaid Reimbursement Obligations shall be treated as additional
Revolving Credit Loans to the Company hereunder rather than a purchase of
participations by the Banks in the related L/Cs held by Harris. The
availability of funds to the Company under the Revolving Credit shall be
reduced in an amount equal to any such L/C. The obligation of the Banks to
Harris under this Section 1.8 shall be absolute and unconditional and shall
not be affected or impaired by any Event of Default or Potential Default
which may then be continuing hereunder. Harris shall notify each Bank by
telephone of its proportionate share relative to its percentage of the
total Banks' Revolving Credit Commitments set forth in Section 1.1 hereof
(a "COMMITMENT PERCENTAGE") of such unpaid Reimbursement Obligation. If
such notice has been given to each Bank by 12:00 Noon, Chicago time, each
Bank agrees to pay Harris in immediately available and freely transferable
funds on the same Business Day. If such notice is received after 12:00
noon, Chicago time, each Bank agrees to pay Harris in immediately available
and freely transferable funds no later than the following Business Day.
Funds shall be so made available at the account designated by Harris in
such notice to the Banks. Upon the election by the Banks to treat such
funding as additional Revolving Credit Loans hereunder and payment by each
Bank, such Loans shall bear interest in accordance with Section 1.3(a)
hereof. Harris shall share with each Bank on a pro rata basis relative to
its Commitment Percentage a portion of each payment of a Reimbursement
Obligation (whether of principal or interest) and any L/C Fee (but not any
L/C Issuance Fee) payable by the Company. Any such amount shall be
promptly remitted to the Banks when and as received by Harris from the
Company.
SECTION 1.9. CAPITAL ADEQUACY. If, after the date hereof, any Bank or
the Agent shall have determined in good faith that the adoption of any
applicable law, rule or regulation regarding capital adequacy, or any
change therein (including, without limitation, any revision in the Final
Risk-Based Capital Guidelines of the Board of Governors of the Federal
Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A)
or of the Office of the Comptroller of the Currency (12 CFR Part 3,
Appendix A), or in any other applicable capital rules heretofore adopted
and issued by any governmental authority), or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Lending Office)
with any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on such
Bank's capital, or on the capital of any corporation controlling such Bank,
in each case as a consequence of its obligations hereunder to a level below
that which such Bank would have achieved but for such adoption, change or
compliance (taking into consideration such Bank's policies with respect to
capital adequacy) by an amount reasonably deemed by such Bank to be
material, then from time to time, within fifteen (15) days after demand by
such Bank (with a copy to the Agent), the Company shall pay to such Bank
such additional amount or amounts as will compensate such Bank for such
reduction.
2. THE COMPETITIVE BID FACILITY.
SECTION 2.1. AMOUNT AND TERM. The Company may from time to time before
the Termination Date request Competitive Bids from the Banks and the Banks
may make, at their sole discretion, Bid Loans to the Company on the terms
and conditions set forth in this Agreement. Notwithstanding any provision
to the contrary contained in this Agreement, (a) the aggregate principal
amount of all Bid Loans outstanding hereunder at any time may not exceed
$50,000,000, (b) no Bank may make Bid Loans in an aggregate principal
amount in excess of the maximum amount of such Bank's Revolving Credit
Commitment set forth in Section 1.1(b) of this Agreement, and (c) the
aggregate principal amount of all Bid Loans outstanding hereunder at any
time together with the aggregate principal amount of all Revolving Credit
Loans outstanding under the Revolving Credit shall not exceed the Banks'
Revolving Credit Commitments from time to time in effect. The Company may
request Competitive Bids and the Banks may, in their discretion, make such
Competitive Bids on the terms and conditions set forth in this Section 2.
SECTION 2.2. COMPETITIVE BID REQUESTS. In order to request Competitive
Bids, the Company shall give telephonic notice to be received by the Agent
no later than 11:00 A.M., Chicago time, one Business Day before the date,
which must be a Business Day, on which a proposed Bid Loan is to be made
(the "BORROWING DATE"), followed on the same day by a duly completed
Competitive Bid Request Confirmation in the form of Exhibit N hereto to be
received by the Agent not later than 11:30 A.M., Chicago time. Competitive
Bid Request Confirmations that do not conform substantially to the format
of Exhibit N may be rejected and the Agent shall give telephonic notice to
the Company of such rejection promptly after it determines (which
determination shall be conclusive) that a Competitive Bid Request
Confirmation does not substantially conform to the format of Exhibit L.
Competitive Bid Requests shall in each case refer to this Agreement and
specify (x) the proposed Borrowing Date (which shall be a Business Day),
(y) the aggregate principal amount thereof (which shall not be less than
$3,000,000 and shall be an integral multiple of $1,000,000), and (z) up to
3 Interest Periods with respect to the entire amount specified in such
Competitive Bid Request (which must be of no less than 30 and no more than
180 days duration and may not end after the Termination Date). Upon
receipt by the Agent of a Competitive Bid Request Confirmation which
conforms substantially to the format of Exhibit L attached hereto, the
Agent shall invite, by telephone promptly confirmed in writing in the form
of Exhibit M attached hereto, the Banks to bid, on the terms and conditions
of this Agreement, to make Bid Loans pursuant to the Competitive Bid
Request.
SECTION 2.3. SUBMISSION OF COMPETITIVE BIDS. Each Bank may, in its sole
discretion, make one or more Competitive Bids to the Company responsive to
the Competitive Bid Request. Each Competitive Bid by a Bank must be
received by the Agent by telephone not later than 8:45 A.M., Chicago time,
on the Borrowing Date, promptly confirmed in writing by a duly completed
Confirmation of Competitive Bid substantially in the form of Exhibit N
attached hereto to be received by the Agent no later than 9:00 A.M. on the
same day; PROVIDED, HOWEVER, that any Competitive Bid made by Harris must
be made by telephone to the Company no later than 8:30 A.M., Chicago time,
and confirmed by telecopier to the Company no later than 8:45 A.M., Chicago
time, on the Borrowing Date. Competitive Bids which do not conform
precisely to the terms of this Section 2.3 may be rejected by the Agent and
the Agent shall notify the Bank submitting such Competitive Bid of such
rejection by telephone as soon as practicable after determining that the
Competitive Bid does not conform precisely to the terms of this
Section 2.3. Each Competitive Bid shall refer to this Agreement and
specify (x) the maximum principal amount (which shall not be less than
$3,000,000 and shall be an integral multiple of $1,000,000) of the Bid Loan
that the Bank is willing to make to the Company (y) the Yield (which shall
be computed on the basis of a 360-day year and actual days elapsed and for
a period equal to the Interest Period applicable thereto) at which the Bank
is prepared to make the Bid Loan and (z) the Interest Period applicable
thereto. The Agent shall reject any Competitive Bid if such Competitive
Bid (i) does not specify all of the information specified in the
immediately preceding sentence, (ii) contains any qualifying, conditional,
or similar language, (iii) proposes terms other than or in addition to
those set forth in the Competitive Bid Request to which it responds, or
(iv) is received by the Agent later than 8:45 A.M. (Chicago time). Any
Competitive Bid submitted by a Bank pursuant to this Section 2.3 shall be
irrevocable and shall be promptly confirmed in writing in the form of
Exhibit P; PROVIDED THAT in all events the telephone Competitive Bid
received by the Agent shall be binding on the relevant Bank and shall not
be altered, modified, or in any other manner affected by any inconsistent
terms contained in, or terms missing from, the Bank's Confirmation of
Competitive Bid.
SECTION 2.4. NOTICE OF BIDS. The Agent shall give telephonic notice to
the Company no later than 9:15 A.M., Chicago time, on the proposed
Borrowing Date, of the number of Competitive Bids made, the Yield with
respect to each proposed Bid Loan, the Interest Period applicable thereto
and the maximum principal amount of each Bid Loan in respect of which a
Competitive Bid was made and the identity of the Bank making each bid. The
Agent shall send a summary of all Competitive Bids received by the Agent to
the Company as soon as practicable after receipt of a Competitive Bid from
each Bank that has made a Competitive Bid.
SECTION 2.5. ACCEPTANCE OR REJECTION OF BIDS. The Company may in its
sole and absolute discretion, subject only to the provisions of this
Section, irrevocably accept or reject, in whole or in part, any Competitive
Bid referred to in Section 2.4 above. No later than 9:45 A.M., Chicago
time, on the proposed Borrowing Date, the Company shall give telephonic
notice to the Agent of whether and to what extent it has decided to accept
or reject any or all the Competitive Bids referred to in Section 2.4 above,
which notice shall be promptly confirmed in a writing to be received by the
Agent on the proposed Borrowing Date; PROVIDED, HOWEVER, that (x) no bid
shall be accepted for a Bid Loan in a minimum principal amount of less than
$3,000,000, (y) the Company shall accept bids solely on the basis of
ascending Yields for each Interest Period, (z) if the Company declines to
borrow, or it is restricted by other conditions hereof from borrowing, the
maximum principal amount of Bid Loans in respect of which bids at such
Yield have been made, then the Company shall accept a pro rata portion of
each bid made at the same Yield, based as nearly as possible on the ratio
of the maximum aggregate principal amounts of Bid Loans for which each such
bid was made (provided that if the available principal amount of Bid Loans
to be so allocated is not sufficient to enable Bid Loans to be so allocated
to each such Bank in integral multiples of $1,000,000, the Company shall
select which Banks will be allocated such Bid Loans and will round
allocations up or down to the next higher or lower multiple of $1,000,000
as it shall deem appropriate but in no event shall any Bid Loan be
allocated in a principal amount of less than $3,000,000), and (w) the
aggregate principal amount of all Competitive Bids accepted by the Company
shall not exceed the amount contained in the related Confirmation of
Competitive Bid Request. A notice given by the Company pursuant to this
Section 2.5 shall be irrevocable and shall not be altered, modified, or in
any other manner affected by any inconsistent terms contained in, or terms
missing from, any written confirmation of such notice.
SECTION 2.6. NOTICE OF ACCEPTANCE OR REJECTION OF BID. The Agent shall
promptly (but in any event no later than 10:30 A.M., Chicago time) give
telephonic notice to the Banks whether or not their Competitive Bids have
been accepted (and if so, in what amount and at what Yield) on the proposed
Borrowing Date, and each successful bidder will thereupon become bound,
subject to Section 7 and the other applicable conditions hereof, to make
the Bid Loan in respect of which its bid has been accepted. Each Bank so
bound shall notify the Agent upon making the Bid Loan. As soon as
practicable on each Borrowing Date, the Agent shall notify each Bank of the
aggregate principal amount of all Bid Loans made pursuant to a Competitive
Bid Request on such Borrowing Date, the Interest Period(s) applicable
thereto and the highest and lowest Yields at which such Bid Loans were made
for each Interest Period.
SECTION 2.7. RESTRICTIONS ON BID LOANS. A Bid Loan shall not be made if
an Event of Default or Potential Default shall have occurred and be
continuing on the date on which such Bid Loan is to be made and the Company
may not obtain more than three Bid Loans in any calendar week.
SECTION 2.8. MINIMUM AMOUNT. Each Bid Loan made to the Company on any
date shall be in an integral multiple of $1,000,000 and in a minimum
principal amount of $3,000,000. Bid Loans shall be made in the amounts
accepted by the Company in accordance with Section 2.5.
SECTION 2.9. THE NOTES. The Bid Loans made by each Bank to the Company
shall be evidenced by the Revolving Note of the Company payable to the
order of such Bank as described in Section 1.2. The outstanding principal
balance of each Bid Loan, as evidenced by a Note, shall be payable at the
end of every Interest Period applicable to such Bid Loan. Each Bid Loan
evidenced by each Revolving Note shall bear interest from the date such Bid
Loan is made on the outstanding principal balance thereof as set forth in
Section 2.10 below.
SECTION 2.10. TERM OF AND INTEREST ON BID LOANS. Each Bid Loan shall
bear interest during the Interest Period applicable thereto at a rate per
annum equal to the rate of interest offered in the Competitive Bid therefor
submitted by the Bank making such Bid Loan and accepted by the Company
pursuant to Section 2.5 above. The principal amount of each Bid Loan,
together with all accrued interest thereon, shall be due and payable on the
last day of the Interest Period applicable thereto and at maturity (whether
by acceleration or otherwise) and, with respect to any Interest Period in
excess of three months, interest on the unpaid principal amount shall be
due on the date occurring every three months after the date the relevant
Bid Loan was made. If any payment of principal or interest on any Bid Loan
is not made when due, such Bid Loan shall bear interest (computed on the
basis of a year of 360 days and actual days elapsed) from the date such
payment was due until paid in full, payable on demand, at a rate per annum
equal to the sum of 2.5% plus the rate of interest in effect thereon at the
time of such default until the end of the Interest Period then applicable
thereto, and, thereafter, at a rate per annum equal to the sum of 2.5 plus
the Domestic Rate from time to time in effect.
SECTION 2.11. DISBURSEMENT OF BID LOANS. (a) Subject to the provisions
of Section 6 hereof, the proceeds of each Bid Loan shall be made available
to the Company by, at the Company's option, crediting an account maintained
by the Company at Harris Trust and Savings Bank or by wire transfer of such
proceeds to such account as the Company shall designate in writing to the
Agent from time to time, in immediately available funds. Not later than
12:00 Noon, Chicago time, on the date specified for any Bid Loan to be made
hereunder, each Bank which is bound to make such Bid Loan pursuant to
Section 2.6 hereof shall make its portion of such Bid Loan available to the
Company in immediately available funds at the principal office of the Agent
in Chicago, Illinois.
(b) Unless the Agent shall have been notified by a Bank no later than
the time the Agent gives such Bank a notice pursuant to Section 2.6 hereof
(which notice shall be effective upon receipt) that such Bank does not
intend to make the proceeds of such Bid Loan available to the Agent, the
Agent may assume that such Bank has made such proceeds available to the
Agent on such date and the Agent may in reliance upon such assumption (but
shall not be required to) make available to the Company a corresponding
amount. If such corresponding amount is not in fact made available to the
Agent by such Bank, the Agent shall be entitled to receive such amount on
demand from such Bank (or, if such Bank fails to pay such amount forthwith
upon such demand, to recover such amount from the Company) together with
interest thereon in respect of each day during the period commencing on the
date such amount was made available to the Company and ending on the date
the Agent recovers such amount, at a rate per annum equal to the effective
rate charged to the Agent for overnight Federal funds transactions with
member banks of the Federal Reserve System for each day, as determined by
the Agent (or, in the case of a day which is not a Business Day, then for
the preceding Business Day). Nothing in this Section 2.11(b) shall be
deemed to permit any Bank to breach its obligations to make Bid Loans
hereunder, or to limit the Company's claims against any Bank for such
breach.
SECTION 2.12. RELIANCE ON TELEPHONIC NOTICES; INDEMNITY. (a) The Company
agrees that the Agent may rely on any telephonic notice referred to in this
Section 2 and given by any person the Agent reasonably believes is
authorized to give such notice without the necessity of independent
investigation, and in the event any such telephonic notice conflicts with
any written notice relating thereto, or in the event no such written notice
is received by the Agent, such telephonic notice shall govern if the Agent
or any Bank has acted in reasonable reliance thereon. The Agent's books
and records shall be PRIMA FACIE evidence of all of the matters set forth
in Sections 2.2, 2.3, 2.4., 2.5 and 2.6 hereof.
(b) The Company hereby agrees to indemnify and hold the Agent
harmless from and against any and all claims, damages, losses, liabilities
and expenses, including court costs and legal expenses, paid or incurred by
the Agent in connection with any action the Agent may take, or fail to
take, in reasonable reliance upon and in accordance with any telephonic
notice received by the Agent as described in this Section 2.
(c) The Banks hereby agree to indemnify and hold the Agent harmless
from and against any and all claims, damages, losses, liabilities and
expenses, including court costs and legal expenses, paid or incurred by the
Agent in connection with any action the Agent may take, or fail to take, in
reasonable reliance upon and in accordance with any telephonic notice
received by the Agent as described in this Section 2, to the extent the
Agent is not promptly reimbursed therefor by the Company.
SECTION 2.13. TELEPHONIC NOTICE. Each Bank's telephonic notice to the
Agent of its Competitive Bid pursuant to Section 2.3, and the Company's
telephonic acceptance of any offer contained in a Bid pursuant to
Section 2.5, shall be irrevocable and binding on such Bank and the Company,
as applicable, and shall not be altered, modified, or in any other manner
affected by any inconsistent terms contained in, or missing from, any
written confirmation of such telephonic notice. It is understood and
agreed by the parties hereto that the Agent shall be entitled to act, or to
fail to act, hereunder in reliance on its records of any telephonic notices
provided for herein and that the Agent shall not incur any liability to any
Person in so doing if its records conflict with any written confirmation of
a telephone notice or otherwise, provided that any such action taken or
omitted by the Agent is taken or omitted reasonably and in good faith. It
is further understood and agreed by the parties hereto that each party
hereto shall in good faith endeavor to provide the notices specified herein
by the times of day as set forth in this Section 2 but that no party shall
incur any liability or other responsibility for any failure to provide such
notices within the specified times; PROVIDED, HOWEVER, that the Agent shall
have no obligation to notify the Company of any Competitive Bid received by
it later than 8:45 A.M. (Chicago time) on the proposed Borrowing Date, and
no acceptance by the Company of any offer contained in a Competitive Bid
shall be effective to bind any Bank to make a Bid Loan, nor shall the Agent
be under any obligation to notify any Person of an acceptance, if notice of
such acceptance is received by the Agent later than 9:45 A.M. (Chicago
time) on the proposed Borrowing Date.
3. FEES, PREPAYMENTS, TERMINATIONS AND PLACE AND APPLICATION OF
PAYMENTS.
SECTION 3.1. FACILITY FEE. For the period from the date hereof to and
including the Termination Date, the Company shall pay to the Agent for the
account of the Banks a facility fee with respect to the Revolving Credit at
the rate of three-eighths of one percent (0.375%) per annum if the
Company's Leverage Ratio is equal to or greater than 0.45 to 1 and one-
quarter of one percent (0.25%) per annum if the Company's Leverage Ratio is
less than 0.45 to 1 (in each case computed in each case on the basis of a
year of 360 days for the actual number of days elapsed) of the aggregate
maximum amount of the Banks' Revolving Credit Commitments hereunder in
effect from time to time and whether or not any credit is in use under the
Revolving Credit, all such fees to be payable quarterly in arrears on the
last day of each calendar quarter commencing on the last day of
September 30, 1997, and on the Termination Date, unless the Revolving
Credit is terminated in whole on an earlier date, in which event the
facility fee for the final period shall be paid on the date of such earlier
termination in whole.
SECTION 3.2. AGENT'S FEE. The Company shall pay to and for the sole
account of the Agent such fees as may be agreed upon in writing from time
to time by the Agent and the Company. Such fees shall be in addition to
any fees and charges the Agent may be entitled to receive under Section 10
hereunder or under the other Loan Documents.
SECTION 3.3. OPTIONAL PREPAYMENTS. The Company shall have the privilege
of prepaying without premium or penalty and in whole or in part (but if in
part, then in a minimum principal amount of $2,500,000 or such greater
amount which is an integral multiple of $100,000) any Domestic Rate Loan at
any time upon prior telex or telephonic notice to the Agent on or before
12:00 Noon on the same Business Day. The Company may not prepay any
Eurodollar Loan, CD Rate Loan or Bid Loan. Any amount prepaid under the
Revolving Credit may, subject to the terms and conditions of this
Agreement, be borrowed, repaid and borrowed again.
SECTION 3.4. MANDATORY PREPAYMENTS - BORROWING BASE. The Company shall
not permit the sum of the principal amount of all Loans plus the amount
available for drawing under all L/Cs and the aggregate principal amount of
all unpaid Reimbursement Obligations at any time outstanding to exceed the
lesser of (i) the sum of the Banks' Revolving Credit Commitments or (ii)
the Borrowing Base as determined on the basis of the most recent Borrowing
Base Certificate. In addition to the Company's obligations to pay any
outstanding Reimbursement Obligations as set forth in Section 1.6 hereof,
the Company will make such payments on any outstanding Loans and
Reimbursement Obligations (and, if any L/Cs are then outstanding, deposit
an amount equal to the aggregate amount available for drawing under all
L/Cs into an interest bearing account with the Agent which shall be held as
additional collateral security for such L/Cs) which are necessary to cure
any such excess within three Business Days after the occurrence thereof.
Any amount prepaid under the Revolving Credit may, subject to the terms and
conditions of this Agreement, be borrowed, prepaid and borrowed again.
SECTION 3.5. PLACE AND APPLICATION OF PAYMENTS. All payments of
principal and interest made by the Company in respect of the Notes and
Reimbursement Obligations and all fees payable by the Company hereunder,
shall be made to the Agent at its office at 111 West Monroe Street,
Chicago, Illinois 60690 and in immediately available funds, prior to 12:00
noon on the date of such payment. All such payments shall be made without
setoff or counterclaim and without reduction for, and free from, any and
all present and future levies, imposts, duties, fees, charges, deductions
withholdings, restrictions or conditions of any nature imposed by any
government or any political subdivision or taxing authority thereof.
Unless the Banks otherwise agree, any payments received after 12:00 noon
Chicago time shall be deemed received on the following Business Day. The
Agent shall remit to each Bank its proportionate share of each payment of
principal, interest and facility fees, and L/C fees received by the Agent
by 3:00 P.M. Chicago time on the same day of its receipt if received by the
Agent by 12:00 noon, Chicago time, and its proportionate share of each such
payment received by the Agent after 12:00 noon on the Business Day
following its receipt by the Agent. In the event the Agent does not remit
any amount to any Bank when required by the preceding sentence, the Agent
shall pay to such Bank interest on such amount until paid at a rate per
annum equal to the Fed Funds Rate. The Company hereby authorizes the Agent
to automatically debit its account with Harris for any principal, interest
and fees when due under the Notes, any L/C Agreement or this Agreement and
to transfer the amount so debited from such account to the Agent for
application as herein provided. All proceeds of Collateral shall be
applied in the manner specified in the Security Agreement.
4. DEFINITIONS.
SECTION 4.1. CERTAIN TERMS DEFINED. The terms hereinafter set forth
when used herein shall have the following meanings:
"ACCOUNT DEBTOR" shall mean the Person who is obligated on a
Receivable.
"ADJUSTED CD RATE" shall mean a rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) determined in accordance with the
following formula:
CD RATE Assessment
Adjusted CD Rate = 100% - CD Reserve Percentage + Rate
"ADJUSTED EURODOLLAR RATE" means a rate per annum determined pursuant
to the following formula:
Adjusted Eurodollar Rate = EURODOLLAR RATE
{ }100% - Reserve Percentage
"AFFILIATE" shall mean any person, firm or corporation which, directly
or indirectly controls, or is controlled by, or is under common control
with, the Company. As used in this definition the term "CONTROLS"
(including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall
have the meaning given below.
"AGENT" is defined in the first paragraph of this Agreement.
"AGREEMENT" shall mean this Secured Credit Agreement as supplemented,
modified, restated and amended from time to time.
"ANNIVERSARY DATE" has the meaning specified in Section 1.1(b) hereof.
"APPLICABLE MARGIN" shall mean, with respect to each type of Loan
described in Column A below, the rate of interest per annum shown in
Columns B, C, D and E below for the range of Leverage Ratio specified for
each Column:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
A B C D E
Leverage Ratio <0.45 to 1 >.45 to 1 and >.50 to 1 and >.60 to 1 and
<0.5 to 1 <.60 to 1 <.70 to 1
Eurodollar Loans 0.75% 1.125% 1.375% 1.75%
Domestic Rate Loans 0.0% 0.125% 0.375% 0.75%
CD Rate Loans 0.875% 1.25% 1.50% 1.875%
</TABLE>
Not later than 5 Business Days after receipt by the Agent of the financial
statements called for by Section 7.4 hereof for the applicable fiscal
quarter, the Agent shall determine the Leverage Ratio for the applicable
period and shall promptly notify the Company and the Banks of such
determination and of any change in the Applicable Margins resulting
therefrom. Any such change in the Applicable Margins shall be effective as
of the date the Agent so notifies the Company and the Banks with respect to
all Loans outstanding on such date, and such new Applicable Margins shall
continue in effect until the effective date of the next quarterly
redetermination in accordance with this Section. Each determination of the
Leverage Ratio and Applicable Margins by the Agent in accordance with this
Section shall be conclusive and binding on the Company and the Banks absent
manifest error. From the date hereof until the Applicable Margins are
first adjusted pursuant hereto, the Applicable Margins shall be those set
forth in column D above.
"ASSESSMENT RATE" shall mean the assessment rate (rounded upwards, if
necessary, to the nearest 1/100 of 1%) imposed by the Federal Deposit
Insurance Corporation or its successors for insuring the Agent's liability
for time deposits, as in effect from time to time.
"BANK" and "BANKS" shall have the meanings specified in the first
paragraph of this Agreement.
"BANKING DAY" shall mean a day on which banks are open for business in
Nassau, Bahamas, London, England, Dallas, Texas, Denver, Colorado, Wichita,
Kansas, New York, New York and Chicago, Illinois, other than a Saturday or
Sunday, and dealing in United States Dollar deposits in London, England and
Nassau, Bahamas.
"BORROWING BASE", as determined on the basis of the information
contained in the most recent Borrowing Base Certificate, shall mean an
amount equal to:
(a) 80% of the amount of Eligible Receivables, plus
(b) 65% of the Value of Eligible Inventory consisting of feed
grains, feed and ingredients, plus
(c) 65% percent of the Value of Eligible Inventory consisting of
live and dressed broiler chickens and commercial eggs, plus
(d) 65% of the Value of Eligible Inventory consisting of
prepared foods, plus
(e) 100% of the Value of Eligible Inventory consisting of
breeder hens, breeder pullets, commercial hens, commercial pullets and
hatching eggs, plus
(f) 40% of the Value of Eligible Inventory consisting of
packaging materials, vaccines, general supplies, and maintenance
supplies, minus
(g) the aggregate outstanding amount of all Grower Payables that
are more than 15 days past due.
"BORROWING BASE CERTIFICATE" shall mean the certificate in the form of
Exhibit G hereto which is required to be delivered to the Banks in
accordance with Section 7.4(d) hereof.
"BUSINESS DAY" shall mean any day except Saturday or Sunday on which
banks are open for business in Chicago, Illinois, Dallas, Texas, Denver,
Colorado, Wichita, Kansas and New York, New York.
"CAPITALIZED LEASE" shall mean, as applied to any Person, any lease of
any Property the discounted present value of the rental obligations of such
person as lessee under which, in accordance with generally accepted
accounting principles, is required to be capitalized on the balance sheet
of such Person.
"CAPITALIZED LEASE OBLIGATION" shall mean, as applied to any Person,
the discounted present value of the rental obligation, as aforesaid, under
any Capitalized Lease.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock, whether or not outstanding on the date of this
Agreement, including, without limitation, any option, warrant or other
right relating to any such capital stock.
"CD RATE" shall mean, with respect to each Interest Period applicable
to a CD Rate Loan, the rate per annum determined by the Agent to be the
arithmetic average of the rate per annum determined by the Agent to be the
average of the bid rates quoted to the Agent at approximately 10:00 a.m.
Chicago time (or as soon thereafter as practicable) on the first day of
such Interest Period by at least two certificate of deposit dealers of
recognized national standing selected by the Agent for the purchase at face
value of certificates of deposit of the Agent having a term comparable to
such Interest Period and in an amount comparable to the principal amount of
the CD Rate Loan to be made by the Agent for such Interest Period. Each
determination of the CD Rate made by the Agent in accordance with this
paragraph shall be conclusive and binding on the Company except in the case
of manifest error or willful misconduct.
"CD RESERVE PERCENTAGE" shall mean the rate (as determined by the
Bank) of the maximum reserve requirement (including, without limitation,
any supplemental, marginal and emergency reserves) imposed on the Agent by
the Board of Governors of the Federal Reserve System (or any successor)
from time to time on non-personal time deposits having a maturity equal to
the applicable Interest Period and in an amount equal to the unpaid
principal amount of the relevant CD Rate Loan, subject to any amendments of
such reserve requirement by such Board or its successor, taking into
account any transitional adjustments thereto. The Adjusted CD Rate shall
automatically be adjusted as of the date of any change in the CD Reserve
Percentage.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"CERCLIS" shall mean the CERCLA Information System.
"CHANGE IN CONTROL" means (a) a sale of all or substantially all the
assets of the Company to any Person or related group of Persons as an
entirety or substantially as an entirety in one transaction or series of
transactions, (b) the merger or consolidation of the Company with or into
another corporation or the merger of another corporation into the Company
with the effect that immediately after such transaction the stockholders of
the Company immediately prior to such transaction hold less than 50% of the
total voting power generally entitled to vote in the election of directors,
managers or trustees of the Person surviving such merger or consolidation,
(c) the Pilgrim Family shall cease to own more than 50% of the total voting
power generally entitled to vote in the election of directors, managers or
trustees of the Company or more than 50% of all non-voting classes of
Capital Stock of the Company, (d) during any period of two consecutive
years, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board or whose nomination for election by the stockholders
of the Company was approved by a vote of a majority of the directors then
still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors of
the Company then in office, or (e) the stockholders of the Company shall
approve any plan for the liquidation or dissolution of the Company.
"CHANGE IN LAW" shall have the meaning specified in Section 9.3
hereof.
"COLLATERAL" shall mean the collateral security provided to the Agent
for the benefit of the Banks pursuant to the Security Agreement.
"COMMITMENT PERCENTAGE" shall have the meaning set forth in
Section 1.8 hereof.
"COMPANY" shall have the meaning specified in the first paragraph of
this Agreement.
"BID LOAN" shall mean an advance from a Bank to the Company pursuant
to the binding procedures described in Section 2 hereof.
"COMPETITIVE BID" shall mean an offer by a Bank to make a Bid Loan
pursuant to Section 2 hereof.
"COMPETITIVE BID REQUEST" shall mean a request made by the Company
pursuant to Section 2.2 hereof.
"CONTROL" or "CONTROLLED BY" or "UNDER COMMON CONTROL" shall mean
possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of voting
securities, by contract or otherwise); provided that, in any event any
Person which beneficially owns, directly or indirectly, 10% or more (in
number of votes) of the securities having ordinary voting power for the
election of directors of a corporation shall be conclusively presumed to
control such corporation, and provided further that any Consolidated
Subsidiary shall be conclusively presumed to be controlled by the Company.
"CURRENT ASSETS" of any Person shall mean the aggregate amount of
assets of such Person which in accordance with generally accepted
accounting principles may be properly classified as current assets after
deducting adequate reserves where proper.
"CURRENT LIABILITIES" shall mean all items (including taxes accrued as
estimated) which in accordance with generally accepted accounting
principles may be properly classified as current liabilities, and including
in any event all amounts outstanding from time to time under this
Agreement.
"CURRENT RATIO" shall mean the ratio of Current Assets to Current
Liabilities of the Company and its Subsidiaries.
"DEBT" of any Person shall mean as of any time the same is to be
determined, the aggregate of:
(a) all indebtedness, obligations and liabilities of such Person
with respect to borrowed money (including by the issuance of debt
securities);
(b) all guaranties, endorsements and other contingent
obligations of such Person with respect to indebtedness arising from
money borrowed by others;
(c) all reimbursement and other obligations with respect to
letters of credit, bankers acceptances, customer advances and other
extensions of credit whether or not representing obligations for
borrowed money;
(d) the aggregate of the principal components of all leases and
other agreements for the use, acquisition or retention of real or
personal property which are required to be capitalized under generally
accepted accounting principles consistently applied;
(e) all indebtedness, obligations and liabilities representing
the deferred purchase price of property or services; and
(f) all indebtedness secured by a lien on the Property of such
Person, whether or not such Person has assumed or become liable for
the payment of such indebtedness.
"DOMESTIC RATE" means for any day the rate of interest announced by
Harris from time to time as its prime commercial rate in effect on such
day, with any change in the Domestic Rate resulting from a change in said
prime commercial rate to be effective as of the date of the relevant change
in said prime commercial rate (the "HARRIS PRIME RATE"), provided that if
the rate per annum determined by adding 1/2 of 1% to the rate at which
Harris would offer to sell federal funds in the interbank market on or
about 10:00 a.m. (Chicago time) on any day (the "ADJUSTED FED FUNDS RATE")
shall be higher than the Harris Prime Rate on such day, then the Domestic
Rate for such day and for any succeeding day which is not a Business Day
shall be such Adjusted Fed Funds Rate. The determination of the Adjusted
Fed Funds Rate by Harris shall be final and conclusive except in the case
of manifest error or willful misconduct.
"DOMESTIC RATE LOAN" means a Revolving Credit Loan which bears
interest as provided in Section 1.3(a) hereof.
"EBITDA" shall mean, in any fiscal year of the Company, all earnings
(other than extraordinary items) of the Company before interest and income
tax obligations of the Company for said year and before depreciation and
amortization charges of the Company for said year, all determined in
accordance with generally accepted accounting principles, consistently
applied.
"ELIGIBLE INVENTORY" shall mean any Inventory of the Company in which
the Agent has a first priority perfected security interest, which the Banks
in their sole judgment deem to be acceptable for inclusion in the Borrowing
Base and which complies with each of the following requirements:
(a) it consists solely of feed grains, feed, ingredients, live
broiler chickens, dressed broiler chickens, commercial eggs, prepared
food products, breeder hens, breeder pullets, hatching eggs,
commercial hens, commercial pullets, packaging materials, vaccines,
general supplies and maintenance supplies;
(b) it is in first class condition, not obsolete, and is readily
usable or salable by the Company in the ordinary course of its
business;
(c) it substantially conforms to the advertised or represented
specifications and other quality standards of the Company, and has not
been determined by the Banks to be unacceptable due to age, type,
category, quality and/or quantity;
(d) all warranties as set forth in this Agreement and the
Security Agreement are true and correct with respect thereto;
(e) it has been identified to the Banks in the manner prescribed
pursuant to the Security Agreement;
(f) it is located at a location within the United States
disclosed to and approved by the Banks and, if requested by the Agent,
any Person (other than the Company) owning or controlling such
location shall have waived all right, title and interest in and to
such Inventory in a manner satisfactory to the Banks; and
(g) it is not subject to any other lien, security interest or
counterclaim.
"ELIGIBLE RECEIVABLES" shall mean any Receivable of the Company in
which the Agent has a first priority perfected security interest, which the
Banks, in their sole judgment deem to be acceptable for inclusion in the
Borrowing Base and which complies with each of the following requirements:
(a) It arises out of a bona fide rendering of services or sale
of goods sold and delivered by or on behalf of the Company to, or in
the process of being delivered by or on behalf of the Company to, the
Account Debtor on said Receivables;
(b) all warranties set forth in this Agreement and the Security
Agreement are true and correct with respect thereto;
(c) it has been identified to the Banks in a manner satisfactory
to the Banks;
(d) it is evidenced by an invoice (dated not later than five
days after the date of shipment or performance of services) rendered
to the Account Debtor thereunder;
(e) the invoice representing such Receivable shall have a due
date not more than 45 days following the invoice date for such
products;
(f) it is not owing by an Account Debtor who shall have failed
to pay 10% or more of all Receivables owed by such Account Debtor
within the period set forth in (g) below or who has become insolvent
or is the subject of any bankruptcy, arrangement, reorganization
proceedings or other proceedings for relief of debtors;
(g) it has not remained unpaid in whole or in part from and
after the due date thereof;
(h) it is payable in United States Dollars;
(i) it is not owing by the United States of America or any
department, agency or instrumentality thereof;
(j) it is not owing by any Account Debtor located outside of the
United States;
(k) it is net of any credit or allowance given by the Company to
such Account Debtor;
(l) the Receivable is not subject to any counterclaim or defense
asserted by the Account Debtor thereunder, nor is it subject to any
offset or contra account payable to the Account Debtor (in any case,
unless the amount of such Receivable is net of such counterclaim,
defense, offset or contra account); and
(m) it is not owing by an Account Debtor that is an Affiliate of
the Company other than Archer Daniels Midland.
"ENVIRONMENTAL LAWS" shall have the meaning specified in Section 5.10
hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EURODOLLAR LOAN" shall mean a Revolving Credit Loan which bears
interest as provided in Section 1.3(b) hereof.
"EURODOLLAR RATE" shall mean for each Interest Period applicable to a
Eurodollar Loan, (a) the LIBOR Index Rate for such Interest Period, if such
rate is available, and (b) if the LIBOR Index Rate cannot be determined,
the arithmetic average of the rate of interest per annum (rounded upwards,
if necessary, to nearest 1/100 of 1%) at which deposits in U.S. dollars in
immediately available funds are offered to the Agent at 11:00 a.m. (London,
England time) two (2) Business Days before the beginning of such Interest
Period by major banks in the interbank eurodollar market for a period equal
to such Interest Period and in an amount equal or comparable to the
principal amount of the Eurodollar Loan scheduled to be made by the Agent
during such Interest Period.
"EVENT OF DEFAULT" shall mean any event or condition identified as
such in Section 8.1 hereof.
"FED FUNDS RATE" shall have the meaning specified in Section 1.7(c)
hereof.
"FINANCIAL GUARANTEE L/C" shall mean an L/C issued hereunder that
constitutes a financial guaranty letter of credit under the capital
adequacy requirements applicable to any of the Banks.
"FISCAL YEAR" shall mean the 52 or 53 week period ending on the
Saturday closest to September 30 in each calendar year, regardless of
whether such Saturday occurs in September or October of any calendar year.
"FIXED CHARGE COVERAGE RATIO" shall mean the ratio of (a) the sum of
EBITDA and all amounts payable under all non-cancellable operating leases
(determined on a consolidated basis in accordance with generally accepted
accounting principles, consistently applied) for the period in question, to
(b) the sum of (without duplication) (i) Interest Expense for such period,
(ii) the sum of the scheduled current maturities (determined in accordance
with generally accepted accounting principles consistently applied) of
Funded Debt during the period in question, (iii) all amounts payable under
non-cancellable operating leases (determined as aforesaid) during such
period, and (iv) all amounts payable with respect to capitalized leases
(determined on a consolidated basis in accordance with generally accepted
accounting principles, consistently applied) for the period in question.
"FIXED RATE" shall mean either of the Eurodollar Rate or the Adjusted
CD Rate.
"FIXED RATE LOAN" shall mean a Eurodollar Loan, a CD Rate Loan or a
Bid Loan, and "FIXED RATE LOANS" shall mean any one or more of such types
of Loans.
"FUNDED DEBT," with respect to any Person shall mean all indebtedness
for borrowed money of such Person and with respect to the Company all
indebtedness for borrowed money of the Company, in each case maturing by
its terms more than one year after, or which is renewable or extendible at
the option of such Person for a period ending one year or more after, the
date of determination, and shall include indebtedness for borrowed money of
such maturity created, assumed or guaranteed by such Person either directly
or indirectly, including obligations of such maturity secured by liens upon
Property of such Person and upon which such entity customarily pays the
interest, all current maturities of all such indebtedness of such maturity
and all rental payments under capitalized leases of such maturity.
"GROWER PAYABLES" shall mean all amounts owed from time to time by the
Company to any Person on account of the purchase price of agricultural
products or services (including poultry and livestock) if the Agent
reasonably determines that such Person is entitled to the benefits of any
grower's lien, statutory trust or similar security arrangements to secure
the payment of any amounts owed to such Person.
"GUARANTY FEES" shall have the meaning specified in Section 7.30
hereof.
"HARRIS" shall have the meaning specified in the first paragraph of
this Agreement.
"HIGHEST LAWFUL RATE" shall have the meaning specified in
Section 11.19 hereof.
"INTANGIBLE ASSETS" shall mean license agreements, trademarks, trade
names, patents, capitalized research and development, proprietary products
(the results of past research and development treated as long term assets
and excluded from Inventory) and goodwill (all determined on a consolidated
basis in accordance with generally accepted accounting principles
consistently applied).
"INTERCREDITOR AGREEMENT" shall mean the letter agreement dated as of
May 27, 1993 originally among the Agent, the Banks, John Hancock Mutual
Life Insurance Company, Aetna Life Insurance Company, The Aetna Casualty
and Surety Company and Creditanstalt-Bankverein, individually and as agent.
"INTEREST EXPENSE" for any period shall mean all interest charges
during such period, including all amortization of debt discount and expense
and imputed interest with respect to capitalized lease obligations,
determined on a consolidated basis in accordance with generally accepted
accounting principles, consistently applied.
"INTEREST PERIOD" shall mean with respect to (a) the Eurodollar Loans,
the period used for the computation of interest commencing on the date the
relevant Eurodollar Loan is made, continued or effected by conversion and
concluding on the date one, two, three or six months thereafter and, (b) to
the CD Rate Loans, the period used for the computation of interest
commencing on the date the relevant CD Rate Loan is made, continued or
effected by conversion and concluding on the date 30, 60, 90 or 180 days
thereafter, and (c) the Bid Loans, the period used for the computation of
interest commencing on the date the relevant Bid Loan is made and ending on
the date such Bid Loan is scheduled to mature, but in no event may such
period have a duration of less than 30 days or more than 180 days;
PROVIDED, HOWEVER, that no Interest Period for any Fixed Rate Loan may
extend beyond the Termination Date. For purposes of determining an
Interest Period applicable to a Eurodollar Loan, a month means a period
starting on one day in a calendar month and ending on a numerically
corresponding day in the next calendar month; PROVIDED, HOWEVER, that if
there is no numerically corresponding day in the month in which an Interest
Period is to end or if an Interest Period begins on the last day of a
calendar month, then such Interest Period shall end on the last Banking Day
of the calendar month in which such Interest Period is to end.
"INVENTORY" shall mean all raw materials, work in process, finished
goods, and goods held for sale or lease or furnished or to be furnished
under contracts of service in which the Company or any Subsidiary now has
or hereafter acquires any right.
"IRB" shall mean tax-exempt industrial revenue bonds which may be
issued to finance the Company's Tenaha Feed Mill.
"L/C" shall have the meaning set forth in Section 1.5 hereof.
"L/C Agreement" shall have the meaning set forth in Section 1.5
hereof.
"L/C FEE" has the meaning specified in Section 1.5 hereof.
"L/C ISSUANCE FEE" has the meaning specified in Section 1.5 hereof.
"LEVERAGE RATIO" shall mean the ratio for the Company and its
Subsidiaries of (a) the aggregate outstanding principal amount of all Debt
(other than Debt consisting of reimbursement and other obligations with
respect to undrawn letters of credit) to (b) the sum of the aggregate
outstanding principal amount of all Debt included in clause (a) above plus
Net Worth.
"LIBOR INDEX RATE" shall mean, for any Interest Period applicable to a
Eurodollar Loan, the rate per annum (rounded upwards, if necessary, to the
next higher one hundred-thousandth of a percentage point) for deposits in
U.S. Dollars for a period equal to such Interest Period, which appears on
the Telerate Page 3750 as of 11:00 a.m. (London, England time) on the day
two Banking Days before the commencement of such Interest Period.
"LOAN" shall mean a Revolving Credit Loan or a Bid Loan, and "Loans"
shall mean any two or more Revolving Credit Loans and/or Bid Loans.
"LOAN DOCUMENTS" shall mean this Agreement and any and all exhibits
hereto, the Notes, the L/C Agreements and the Security Agreement.
"NET INCOME" shall mean the net income of the Company and its
Subsidiaries determined on a consolidated basis in accordance with
generally accepted accounting principles, consistently applied.
"NET TANGIBLE ASSETS" shall mean the excess of the value of the Total
Assets over the value of the Intangible Assets of the Company and its
Subsidiaries.
"NET WORKING CAPITAL" shall mean the excess for the Company of Current
Assets over Current Liabilities.
"NET WORTH" shall mean the Total Assets minus the Total Liabilities of
the Company and its Subsidiaries, all determined on a consolidated basis in
accordance with generally accepted accounting principles, consistently
applied.
"NOTES" shall mean the Revolving Notes, and "NOTE" means any of the
Notes.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PERFORMANCE L/C" shall mean any L/C issued hereunder that does not
constitute a Financial Guarantee L/C.
"PERSON" shall mean and include any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party or government (whether
national, federal, state, county, city, municipal, or otherwise, including,
without limitation, any instrumentality, division, agency, body or
department thereof).
"PILGRIM FAMILY" means Lonnie A. "Bo" Pilgrim, his spouse, his issue,
his estate and any trust entirely for the benefit of his spouse and/or
issue.
"PLAN" shall mean any employee benefit plan covering any officers or
employees of the Company or any Subsidiary, any benefits of which are, or
are required to be, guaranteed by the PBGC.
"POTENTIAL DEFAULT" shall mean any event or condition which, with the
lapse of time, or giving of notice, or both, would constitute an Event of
Default.
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed or tangible or intangible.
"RECEIVABLES" shall mean all accounts, contract rights, instruments,
documents, chattel paper and general intangibles in which the Company now
has or hereafter acquires any right.
"REIMBURSEMENT OBLIGATION" has the meaning specified in Section 1.6
hereof.
"REQUIRED BANKS" shall mean any Bank or Banks which in the aggregate
hold at least 66-2/3% of the aggregate unpaid principal balance of the
Loans and Reimbursement Obligations or, if no Loans are outstanding
hereunder, any Bank or Banks in the aggregate having at least 66-2/3% of
the Revolving Credit Commitments.
"RESERVE PERCENTAGE" means the daily arithmetic average maximum rate
at which reserves (including, without limitation, any supplemental,
marginal and emergency reserves) are imposed on member banks of the Federal
Reserve System during the applicable Interest Period by the Board of
Governors of the Federal Reserve System (or any successor) under
Regulation D on "EUROCURRENCY LIABILITIES" (as such term is defined in
Regulation D), subject to any amendments of such reserve requirement by
such Board or its successor, taking into account any transitional
adjustments thereto. For purposes of this definition, the Eurodollar Loans
shall be deemed to be eurocurrency liabilities as defined in Regulation D
without benefit or credit for any prorations, exemptions or offsets under
Regulation D.
"REVOLVING CREDIT" shall have the meaning specified in the first
paragraph of this Agreement.
"REVOLVING CREDIT COMMITMENT" and "REVOLVING CREDIT COMMITMENTS" shall
have the meanings specified in Section 1.1(c) hereof.
"REVOLVING CREDIT LOAN" and "REVOLVING CREDIT LOANS" shall have the
meanings specified in Section 1.1(a) hereof.
"REVOLVING NOTE" or "REVOLVING NOTES" shall have the meanings
specified in Section 1.1(d) hereof.
"SECURITY AGREEMENT" shall mean that certain Security Agreement Re:
Accounts Receivable, Farm Products and Inventory, dated as of May 27, 1993,
from the Company to Harris, as Agent, as such agreement may be supplemented
and amended from time to time.
"SUBORDINATED DEBT" shall mean indebtedness for borrowed money of the
Company which is subordinate in right of payment to the prior payment in
full of the Company's indebtedness, obligations and liabilities to the
Banks under the Loan Documents pursuant to written subordination provisions
satisfactory in form and substance to the Banks.
"SUBSIDIARY" shall mean collectively any corporation or other entity
at least a majority of the outstanding voting equity interests (other than
directors' qualifying shares) of which is at the time owned directly or
indirectly by the Company or by one of more Subsidiaries or by the Company
and one or more Subsidiaries. The term "CONSOLIDATED SUBSIDIARY" shall
mean any Subsidiary whose accounts are consolidated with those of the
Company in accordance with generally accepted accounting principles.
"TANGIBLE NET WORTH" shall mean the Net Worth minus the amount of all
Intangible Assets of the Company and its Subsidiaries, determined on a
consolidated basis in accordance with generally accepted accounting
principles, consistently applied.
"TELERATE PAGE 3750" shall mean the display designated as "PAGE 3750"
on the Telerate Service (or such other page as may replace Page 3750 on
that service or such other service as may be nominated by the British
Bankers' Association as the information vendor for the purpose of
displaying British Bankers' Association Interest Settlement Rates for U.S.
Dollar deposits).
"TENAHA FEED MILL" shall mean a feed mill and related facilities and
equipment to be located in Tenaha, Shelby County, Texas.
"TERM LOANS" shall mean the term loans made pursuant to the Term Loan
Agreement.
"TERM LOAN AGREEMENT" shall mean the Secured Term Credit Agreement
dated as of June 5, 1997, among the Company, the Agent and the Banks, as
the same may be supplemented and amended from time to time.
"TERMINATION DATE" shall have the meaning set forth in Section 1.1(a)
hereof.
"TOTAL ASSETS" shall mean at any date, the aggregate amount of assets
of the Company and its Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles consistently
applied.
"TOTAL LIABILITIES" shall mean at any date, the aggregate amount of
all liabilities of the Company and its Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting
principles, consistently applied.
"VALUE OF ELIGIBLE INVENTORY" shall mean as of any given date with
respect to Eligible Inventory:
(a) With respect to Eligible Inventory consisting of feed
grains, feed, ingredients, dressed broiler chickens and commercial
eggs, an amount equal to the lower of (i) costs determined on a
first-in-first-out inventory basis (determined in accordance with
generally accepted accounting principles consistently applied), or
(ii) wholesale market value;
(b) With respect to Eligible Inventory consisting of live
broiler chickens, a price per pound equal to 75% of (i) the price
quoted on the Los Angeles Majority Market on the date of calculation
minus (ii) $0.085, rounded up to the nearest 1/4 cent;
(c) With respect to Eligible Inventory consisting of prepared
food products, the standard cost value;
(d) With respect to Eligible Inventory consisting of: breeder
hens, $1.50 per head; breeder pullets, $1.00 per head; commercial
hens, $0.70 per head; commercial pullets, $0.40 per head; and hatching
eggs, $1.25 a dozen; or in each case such other values as may be
agreed upon by the Company and the Required Banks; and
(e) With respect to Eligible Inventory consisting of packaging
materials, vaccines, general supplies and maintenance supplies, actual
costs.
SECTION 4.2. ACCOUNTING TERMS. Any accounting term or the character or
amount of any asset or liability or item of income or expense required to
be determined under this Agreement, shall be determined or made in
accordance with generally accepted accounting principles at the time in
effect, to the extent applicable, except where such principles are
inconsistent with the requirements of this Agreement.
5. Representations and Warranties.
The Company represents and warrants to the Banks as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized and existing and in good standing under the laws
of the State of Delaware, has full and adequate corporate power to carry on
its business as now conducted, is duly licensed or qualified in all
jurisdictions wherein the nature of its activities requires such licensing
or qualification except where the failure to be so licensed or qualified
would not have a material adverse effect on the condition, financial or
otherwise, of the Company, has full right and authority to enter into this
Agreement and the other Loan Documents, to make the borrowings herein
provided for, to issue the Notes in evidence thereof, to encumber its
assets as collateral security for such borrowings and to perform each and
all of the matters and things herein and therein provided for; and this
Agreement does not, nor does the performance or observance by the Company
of any of the matters or things provided for in the Loan Documents,
contravene any provision of law or any charter or by-law provision or any
covenant, indenture or agreement of or affecting the Company or its
Properties.
SECTION 5.2. SUBSIDIARIES. Each Subsidiary is duly organized and
existing under the laws of the jurisdiction of its incorporation, has full
and adequate corporate power to carry on its business as now conducted and
is duly licensed or qualified in all jurisdictions wherein the nature of
its business requires such licensing or qualification and the failure to be
so licensed or qualified would have a material adverse effect upon the
business, operations or financial condition of such Subsidiary and the
Company taken as a whole. The only Subsidiaries of the Company are set
forth on Exhibit H hereto.
SECTION 5.3. FINANCIAL REPORTS. The Company has heretofore delivered to
the Banks a copy of the Audit Report as of September 28, 1996 of the
Company and its Subsidiaries and unaudited financial statements (including
a balance sheet, statement of income and retained earnings, statement of
cash flows, footnotes and comparison to the comparable prior year period)
of the Company as of, and for the period ending May 24, 1997. Such audited
financial statements have been prepared in accordance with generally
accepted accounting principles on a basis consistent, except as otherwise
noted therein, with that of the previous fiscal year or period and fairly
reflect the financial position of the Company and its Subsidiaries as of
the dates thereof, and the results of its operations for the periods
covered thereby. The Company and its Subsidiaries have no material
contingent liabilities other than as indicated on said financial statements
and since said date of September 28, 1996 there has been no material
adverse change in the condition, financial or otherwise, of the Company or
any Subsidiary that has not been disclosed in writing to the Banks.
SECTION 5.4. LITIGATION; TAX RETURNS; APPROVALS. There is no litigation
or governmental proceeding pending, nor to the knowledge of the Company
threatened, against the Company or any Subsidiary which, if adversely
determined, is likely to result in any material adverse change in the
Properties, business and operations of the Company or any Subsidiary. All
income tax returns for the Company required to be filed have been filed on
a timely basis, all amounts required to be paid as shown by said returns
have been paid. There are no pending or, to the best of the Company's
knowledge, threatened objections to or controversies in respect of the
United States federal income tax returns of the Company for any fiscal
year. No authorization, consent, license, exemption or filing (other than
the filing of financing statements) or registration with any court or
governmental department, agency or instrumentality, is or will be necessary
to the valid execution, delivery or performance by the Company of the Loan
Documents.
SECTION 5.5. REGULATION U. Neither the Company nor any Subsidiary is
engaged in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System) and no part of the proceeds of
any Loan made hereunder will be used to purchase or carry any margin stock
or to extend credit to others for such a purpose.
SECTION 5.6. NO DEFAULT. As of the date of this Agreement, the Company
is in full compliance with all of the terms and conditions of this
Agreement, and no Potential Default or Event of Default is existing under
this Agreement.
SECTION 5.7. ERISA. The Company and its Subsidiaries are in compliance
in all material respects with ERISA to the extent applicable to them and
have received no notice to the contrary from the PBGC or any other
governmental entity or agency.
SECTION 5.8. SECURITY INTERESTS AND DEBT. There are no security
interests, liens or encumbrances on any of the Property of the Company or
any Subsidiary except such as are permitted by Section 7.16 of this
Agreement, and the Company and its Subsidiaries have no Debt except such as
is permitted by Section 7.17 of this Agreement.
SECTION 5.9. ACCURATE INFORMATION. No information, exhibit or report
furnished by the Company to the Banks in connection with the negotiation of
the Loan Documents contained any material misstatement of fact or omitted
to state a material fact or any fact necessary to make the statements
contained therein not misleading in light of the circumstances in which
made. The financial projections furnished by the Company to the Banks
contain to the Company's knowledge and belief, reasonable projections as of
the date hereof of future results of operations and financial position of
the Company.
SECTION 5.10. ENVIRONMENTAL MATTERS. (a) Except as disclosed on EXHIBIT
C, the Company has not received any notice to the effect, or has any
knowledge, that its or any Subsidiary's Property or operations are not in
compliance with any of the requirements of applicable federal, state and
local environmental, health and safety statutes and regulations
("ENVIRONMENTAL LAWS") or are the subject of any federal or state
investigation evaluating whether any remedial action is needed to respond
to a release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action could have a material
adverse effect on the business, operations, Property, assets or conditions
(financial or otherwise) of the Company or any Subsidiary;
(b) there have been no releases of hazardous materials at, on or
under any Property now or previously owned or leased by the Company or any
Subsidiary that, singly or in the aggregate, have, or may reasonably be
expected to have, a material adverse effect on the financial condition,
operations, assets, business, Properties or prospects of the Company or
such Subsidiary;
(c) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or
previously owned or leased by the Company or any Subsidiary that, singly or
in the aggregate, have, or may reasonably be expected to have, a material
adverse effect on the financial condition, operations, assets, business,
Properties or prospects of the Company or such Subsidiary;
(d) neither the Company nor any Subsidiary has directly transported
or directly arranged for the transportation of any hazardous material to
any location which is listed or proposed for listing on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state
list or which is the subject of federal, state or local enforcement actions
or other investigations which may lead to material claims against the
Company or any Subsidiary thereof for any remedial work, damage to natural
resources or personal injury, including claims under CERCLA; and
(e) no conditions exist at, on or under any Property now or
previously owned or leased by the Company or any Subsidiary which, with the
passage of time, or the giving of notice or both, would give rise to any
material liability under any Environmental Law.
SECTION 5.11. ENFORCEABILITY. This Agreement and the other Loan
Documents are legal, valid and binding agreements of the Company,
enforceable against it in accordance with their terms, except as may be
limited by (a) bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium or other similar laws or judicial decisions for the relief of
debtors or the limitation of creditors' rights generally; and (b) any
equitable principles relating to or limiting the rights of creditors
generally.
SECTION 5.12. RESTRICTIVE AGREEMENTS. Neither the Company nor any
Subsidiary is a party to any contract or agreement, or subject to any
charge or other corporate restriction, which affects its ability to
execute, deliver and perform the Loan Documents to which it is a party and
repay its indebtedness, obligations and liabilities under the Loan
Documents or which materially and adversely affects or, insofar as the
Company can reasonably foresee, could materially and adversely affect, the
property, business, operations or condition (financial or otherwise) of the
Company or any of its Subsidiaries, or would in any respect materially and
adversely affect the Collateral, the repayment of the indebtedness,
obligations and liabilities under the Loan Documents, or any Bank's or the
Agent's rights under the Loan Documents.
SECTION 5.13. LABOR DISPUTES. Except as set forth on EXHIBIT J,
(a) there is no collective bargaining agreement or other labor contract
covering employees of the Company or any of its Subsidiaries; (b) no such
collective bargaining agreement or other labor contract is scheduled to
expire during the term of this Agreement; (c) no union or other labor
organization is seeking to organize, or to be recognized as, a collective
bargaining unit of employees of the Company or any of its Subsidiaries; and
(d) there is no pending or (to the best of the Company's knowledge)
threatened strike, work stoppage, material unfair labor practice claim or
other material labor dispute against or affecting the Company or any of its
Subsidiaries or their respective employees.
SECTION 5.14. NO VIOLATION OF LAW. Neither the Company nor any
Subsidiary is in violation of any law, statute, regulation, ordinance,
judgment, order or decree applicable to it which violation might in any
respect materially and adversely affect the Collateral, the repayment of
the indebtedness, obligations and liabilities under the Loan Documents, any
Bank's or the Agent's rights under the Loan Documents, or the Property,
business, operations or condition (financial or otherwise) of the Company
or such Subsidiary.
SECTION 5.15. NO DEFAULT UNDER OTHER AGREEMENTS. Neither the Company nor
any Subsidiary is in default with respect to any note, indenture, loan
agreement, mortgage, lease, deed, or other agreement to which it is a party
or by which it or its Property is bound, which default might materially and
adversely affect the Collateral, the repayment of the indebtedness,
obligations and liabilities under the Loan Documents, any Bank's or the
Agent's rights under the Loan Documents or the Property, business,
operations or condition (financial or otherwise) of the Company or any
Subsidiary.
SECTION 5.16. STATUS UNDER CERTAIN LAWS. Neither the Company nor any of
its Subsidiaries is an "INVESTMENT COMPANY" or a person directly or
indirectly controlled by or acting on behalf of an "INVESTMENT COMPANY"
within the meaning of the Investment Company Act of 1940, as amended, or a
"HOLDING COMPANY," or a "SUBSIDIARY COMPANY" of a "HOLDING COMPANY," or an
"AFFILIATE" of a "HOLDING COMPANY" or a "SUBSIDIARY COMPANY" of a "HOLDING
COMPANY," within the meaning of the Public Utility Holding Company Act of
1935, as amended.
SECTION 5.17. FEDERAL FOOD SECURITY ACT. The Company has received no
notice given pursuant to Section 1324(e)(1) or (3) of the Federal Food
Security Act and there has not been filed any financing statement or
notice, purportedly in compliance with the provisions of the Federal Food
Security Act, purporting to perfect a security interest in farm products
purchased by the Company in favor of a secured creditor of the seller of
such farm products. The Company has registered, pursuant to Section
1324(c)(2)(D) of the Federal Food Security Act, with the Secretary of State
of each State in which are produced farm products purchased by the Company
and which has established or hereafter establishes a central filing system,
as a buyer of farm products produced in such State; and each such
registration is in full force and effect.
Section 5.18. FAIR LABOR STANDARDS ACT. The Company and each Subsidiary
has complied in all material respects with, and will continue to comply
with, the provisions of the Fair Labor Standards Act of 1938, 29 U.S.C.
(section)201, ET SEQ., as amended from time to time (the "FLSA"), including
specifically, but without limitation, 29 U.S.C. (section)215(a). This
representation and warranty, and each reconfirmation hereof, shall
constitute written assurance from the Company, given as of the date hereof
and as of the date of each reconfirmation, that the Company and each
Subsidiary has complied with the requirements of the FLSA, in general, and
Section 15(a)(1), 29 U.S.C. (section>215(a)(1), thereof, in particular.
6. CONDITIONS PRECEDENT.
The obligation of the Banks to make any Loan pursuant hereto or to
issue any L/C shall be subject to the following conditions precedent:
SECTION 6.1. GENERAL. The Agent shall have received the notice of
borrowings and requests for L/Cs and the Notes hereinabove provided for.
SECTION 6.2. EACH EXTENSION OF CREDIT. As of the time of the making of
each Loan and the issuance of each L/C hereunder (including the initial
Loan or L/C, as the case may be):
(a) each of the representations and warranties set forth in
Section 5 hereof shall be and remain true and correct as of said time
as if made at said time, except that (i) the representations and
warranties made under Section 5.3 shall be deemed to refer to the most
recent financial statements furnished to the Banks pursuant to Section
7.4 hereof and (ii) with respect to the Company's Subsidiaries in
Mexico the representations and warranties made under Section 5.13(d)
shall be deemed to refer only to material strikes, work stoppages,
unfair labor practice claims or other material labor disputes;
(b) the Company shall be in full compliance with all of the
terms and conditions hereof, and no Potential Default or Event of
Default shall have occurred and be continuing; and
(c) after giving effect to the requested extension of credit and
to each Loan that has been made and L/C issued hereunder, the
aggregate principal amount of all Loans, the amount available for
drawing under all L/Cs and the aggregate principal amount of all
Reimbursement Obligations then outstanding shall not exceed the lesser
of (i) the sum of the Banks' Revolving Credit Commitments then in
effect and (ii) the Borrowing Base as determined on the basis of the
most recent Borrowing Base Certificate, except as otherwise agreed by
the Company and all of the Banks;
and the request by the Company for any Loan or L/C pursuant hereto shall be
and constitute a warranty to the foregoing effects.".
SECTION 6.3. LEGAL MATTERS. Legal matters incident to the execution and
delivery of the Loan Documents shall be satisfactory to each of the Banks
and their legal counsel; and prior to the initial Loan or L/C hereunder,
the Agent shall have received the favorable written opinion of Godwin &
Carlton, counsel for the Company, substantially in the form of Exhibit E,
in substance satisfactory to each of the Banks and their respective legal
counsel.
SECTION 6.4. DOCUMENTS. The Agent shall have received copies (executed
or certified, as may be appropriate) of all documents or proceedings taken
in connection with the execution and delivery of the Loan Documents to the
extent any Bank or its respective legal counsel requests.
SECTION 6.5. LIEN SEARCHES. The Agent shall have received lien searches
showing that the Property of the Company is subject to no security interest
or liens except those permitted by Section 7.16 hereof.
7. COVENANTS.
It is understood and agreed that so long as credit is in use or
available under this Agreement or any amount remains unpaid on any Note,
Reimbursement Obligation or L/C, except to the extent compliance in any
case or cases is waived in writing by the Required Banks:
SECTION 7.1. MAINTENANCE. The Company will, and will cause each
Subsidiary to, maintain, preserve and keep its plant, Properties and
equipment in good repair, working order and condition and will from time to
time make all needful and proper repairs, renewals, replacements, additions
and betterments thereto so that at all times the efficiency thereof shall
be preserved and maintained in all material respects, normal wear and tear
excepted.
SECTION 7.2. TAXES. The Company will, and will cause each Subsidiary
to, duly pay and discharge all taxes, rates, assessments, fees and
governmental charges upon or against the Company or its Subsidiaries or
against their respective Properties in each case before the same become
delinquent and before penalties accrue thereon unless and to the extent
that the same are being contested in good faith and by appropriate
proceedings diligently conducted and for which adequate reserves in form
and amount reasonably satisfactory to the Required Banks have been
established, provided that the Company shall pay or cause to be paid all
such taxes, rates, assessments, fees and governmental charges forthwith
upon the commencement of proceedings to foreclose any lien which is
attached as security therefor, unless such foreclosure is stayed by the
filing of an appropriate bond in a manner satisfactory to the Required
Banks.
SECTION 7.3. MAINTENANCE OF INSURANCE. The Company will, and will cause
each Subsidiary to, maintain insurance coverage by good and responsible
insurance underwriters in such forms and amounts and against such risks and
hazards as are customary for companies engaged in similar businesses and
owning and operating similar Properties, provided that the Company and its
Subsidiaries may self-insure for workmen's compensation, group health risks
and their live chicken inventory in accordance with applicable industry
standards. In any event, the Company will insure any of its Property which
is insurable against loss or damage by fire, theft, burglary, pilferage and
loss in transit, all in amounts and under policies containing loss payable
clauses to the Agent as its interest may appear (and, if the Required Banks
request, naming the Agent as additional insured therein) and providing for
advance notice to the Agent of cancellation thereof, issued by sound and
reputable insurers accorded a rating of A-XII or better by A.M. Best
Company, Inc. or A or better by Standard & Poor's Corporation or Moody's
Investors Service, Inc. and all premiums thereon shall be paid by the
Company and certificates summarizing the same delivered to the Agent.
SECTION 7.4. FINANCIAL REPORTS. The Company will, and will cause each
Subsidiary to, maintain a standard and modern system of accounting in
accordance with sound accounting practice and will furnish to the Banks and
their duly authorized representatives such information respecting the
business and financial condition of the Company and its Subsidiaries as may
be reasonably requested and, without any request, will furnish to CoBank
and the Banks:
(a) as soon as available, and in any event within 45 days after
the close of each monthly fiscal period of the Company a copy of the
consolidated and consolidating balance sheet, statement of income and
retained earnings, statement of cash flows, and the results of
operations for each division of the Company, for such period of the
Company and its Subsidiaries, together with all such information for
the year to date, all in reasonable detail, prepared by the Company
and certified on behalf of the Company by the Company's chief
financial officer;
(b) as soon as available, and in any event within 90 days after
the close of each fiscal year, a copy of the audit report for such
year and accompanying financial statements, including a consolidated
balance sheet, a statement of income and retained earnings, and a
statement of cash flows, together with all footnotes thereto, for the
Company and its Subsidiaries, and unaudited consolidating balance
sheets, statement of income and retained earnings and statements of
cash flows for the Company and its Subsidiaries, in each case, showing
in comparative form the figures for the previous fiscal year of the
Company, all in reasonable detail, accompanied by an unqualified
opinion of Ernst & Young or other independent public accountants of
nationally recognized standing selected by the Company and
satisfactory to the Required Banks, such opinion to indicate that such
statements are made in accordance with generally accepted accounting
principles;
(c) each of the financial statements furnished to the Banks
pursuant to paragraph (a) and (b) above shall be accompanied by a
Compliance Certificate in the form of Exhibit F hereto signed on
behalf of the Company by its chief financial officer;
(d) within 30 days after the end of each month, a Borrowing Base
Certificate in the form of Exhibit G hereto, setting forth a
computation of the Borrowing Base as of that month's end date,
certified as correct on behalf of the Company by the Company's chief
financial officer and certifying that as of the last day of the
preceding monthly period the signer thereof has re-examined the terms
and provisions of this Agreement and the Security Agreement and that
to the best of his knowledge and belief, no Potential Default or Event
of Default has occurred or, if any such Potential Default or Event of
Default has occurred, setting forth the description of such Potential
Default or Event of Default and specifying the action, if any, taken
by the Company to remedy the same;
(e) with 30 Business Days after the end of each month, an
accounts receivable aging report in the form of Exhibit I hereto,
signed by the chief financial officer of the Company;
(f) promptly upon preparation thereof copies in the form
presented to the Company's Board of Directors of its annual budgets
and forecasts of operations and capital expenditures including
investments, a balance sheet, an income statement and a projection of
cash flow for each fiscal year;
(g) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, which
the Company shall have filed with the Securities and Exchange
Commission or any governmental agency substituted therefor, or any
national securities exchange, including copies of the Company's form
10-K annual report, including financial statements audited by Ernst &
Young or other independent public accountants of nationally recognized
standing selected by the Company and satisfactory to the Bank, its
form 10-Q quarterly report to the Securities and Exchange Commission
and any Form 8-K filed by the Company with the Securities and Exchange
Commission;
(h) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and
proxy statements so mailed; and
(i) within 90 days of the last day of each Fiscal Year of the
Company, a summary of the capital expenditures made or incurred by the
Company and its Subsidiaries during such Fiscal Year, for the
applicable period and the year to date, all in reasonable detail,
prepared by the Company and certified on behalf of the Company by the
Company's chief financial officer.
SECTION 7.5. INSPECTION AND REVIEWS. The Company shall, and shall cause
each Subsidiary to, permit the Agent and the Banks, by their
representatives and agents, to inspect any of the properties, corporate
books and financial records of the Company and its Subsidiaries, to review
and make copies of the books of accounts and other financial records of the
Company and its domestic Subsidiaries, and to discuss the affairs, finances
and accounts of the Company and its Subsidiaries with, and to be advised as
to the same by, its officers at such reasonable times and intervals as the
Agent or the Banks may designate. In addition to any other compensation or
reimbursement to which the Agent and the Banks may be entitled under the
Loan Documents, after the occurrence of an Event of Default and during the
continuation thereof the Company shall pay to the Agent from time to time
upon demand the amount necessary to compensate it for all fees, charges and
expenses incurred by the Agent or its designee in connection with the
audits of Collateral, or inspections or review of the books, records and
accounts of the Company or any domestic Subsidiary conducted by the Agent
or its designee or any of the Banks.
SECTION 7.6. CONSOLIDATION AND MERGER. The Company will not, and will
not permit any Subsidiary to, consolidate with or merge into any Person, or
permit any other Person to merge into it, or acquire (in a transaction
analogous in purpose or effect to a consolidation or merger) all or
substantially all the Property of the other Person, or acquire
substantially as an entirety the business of any other Person, without the
prior written consent of the Required Banks; PROVIDED, HOWEVER, that if no
Potential Default or Event of Default shall have occurred and be continuing
the Company may acquire all or substantially all the Property of the other
Person, or acquire substantially as an entirety the business of any other
Person if the aggregate fair market value of all consideration paid or
payable by the Company in all such acquisitions made in any Fiscal Year
does not exceed $10,000,000.
SECTION 7.7. TRANSACTIONS WITH AFFILIATES. The Company will not, and
will not permit any Subsidiary to, enter into any transaction, including
without limitation, the purchase, sale, lease or exchange of any Property,
or the rendering of any service, with any Affiliate of the Company or such
Subsidiary except (a) in the ordinary course of and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and
upon fair and reasonable terms not materially less favorable to the Company
than would be obtained in a comparable arm's-length transaction with a
Person not an Affiliate of the Company or such Subsidiary, and (b) on-going
transactions with Affiliates of the type disclosed in the Company's proxy
statement for its Fiscal Year ended September 28, 1996.
SECTION 7.8. LEVERAGE RATIO. The Company will not permit the ratio of
its Leverage Ratio at any time during each period specified below to exceed
the ratio specified below for such period:
(a) from the date hereof through the next to last day of Fiscal
Year 1997, 0.70 to 1;
(b) from the last day of Fiscal Year 1997 through the next to
last day of Fiscal Year 1998, 0.675 to 1;
(c) from the last day of Fiscal Year 1998 through the next to
last day of Fiscal Year 1999, 0.65 to 1; and
(d) on the last day of Fiscal Year 1999 and thereafter, 0.625 to
1.
SECTION 7.9. TANGIBLE NET WORTH. The Company shall maintain its
Tangible Net Worth at all times during the periods specified below in an
amount not less than the minimum required amount for each period set forth
below:
(a) from the date hereof through the next to last day in Fiscal
Year 1997, $125,308,829; and
(b) from the last day of Fiscal Year 1997 and at all times
during each Fiscal Year thereafter, an amount in any Fiscal Year equal
to the minimum amount required to be maintained during the preceding
Fiscal Year plus an amount equal to 75% of the Company's Net Income
(but not less than zero) during such Fiscal Year, if the Company's
Leverage Ratio for such Fiscal Year is equal to or greater than 0.5 to
1, or 50% of the Company's Net Income (but not less than zero) if the
Company's Leverage Ratio for such Fiscal Year is less than 0.5 to 1.
SECTION 7.10. CURRENT RATIO. The Company will maintain at all times and
measured as of the last day of each monthly fiscal accounting period a
Current Ratio of not less than (a) from and after the date hereof through
Fiscal Year 1997, 1.25 to 1, (b) during Fiscal Year 1998, 1.3 to 1 and (c)
during each Fiscal Year thereafter, 1.35 to 1.
SECTION 7.11. NET TANGIBLE ASSETS TO TOTAL LIABILITIES. The Company will
not permit the ratio of its Net Tangible Assets to its Total Liabilities at
any time to be less than 1.3 to 1.
SECTION 7.12. FIXED CHARGE COVERAGE RATIO. The Company will not permit,
as of the last day of each fiscal quarter of the Company, its Fixed Charge
Coverage Ratio in the eight consecutive fiscal quarters of the Company then
ended to be less than 1.5 to 1 on the last day of each fiscal quarter of
the Company.
SECTION 7.13. MINIMUM NET WORKING CAPITAL. The Company will maintain Net
Working Capital at all times during each period specified below (measured
as of the last day of each monthly fiscal accounting period) in an amount
not less than the amount specified below for each period:
(a) during Fiscal Year 1997, $45,000,000;
(b) during Fiscal Year 1998, $50,000,000;
(c) during Fiscal Year 1999, $50,000,000; and
(d) during each Fiscal Year thereafter, $55,000,000.
SECTION 7.14. CAPITAL EXPENDITURES. The Company will not, and will not
permit any Subsidiary to, make or commit to make any capital expenditures
(as defined and classified in accordance with generally accepted accounting
principles consistently applied;) PROVIDED, HOWEVER, that if no Event of
Default or Potential Default shall exist before and after giving effect
thereto, the Company and its Subsidiaries may make (a) capital expenditures
during each Fiscal Year in an aggregate amount in each Fiscal Year not to
exceed the sum of (i) an amount equal to 115% of the Company's depreciation
and amortization charges for the preceding Fiscal Year and (ii) the amount,
if any, by which such capital expenditures made by the Company in the
immediately preceding Fiscal Year was less than the maximum amount of
capital expenditures the Company was permitted to make under this
Section 7.14 during such Fiscal Year, determined without regard to any
carryover amount from any prior Fiscal Year, but not to exceed $5,000,000
in any Fiscal Year, and (b) additional capital expenditures in an aggregate
amount not to exceed $48,000,000 in Fiscal Years 1997 and 1998 in
connection with the acquisition and expansion of the fixed assets,
inventory and operations of Green Acre Foods, Inc.
SECTION 7.15. DIVIDENDS AND CERTAIN OTHER RESTRICTED PAYMENTS. The
Company will not (a) declare or pay any dividends or make any distribution
on any class of its capital stock (other than dividends payable solely in
its capital stock) or (b) directly or indirectly purchase, redeem or
otherwise acquire or retire any of its capital stock (except out of the
proceeds of, or in exchange for, a substantially concurrent issue and sale
of capital stock) or (c) make any other distributions with respect to its
capital stock; PROVIDED, HOWEVER, that if no Potential Default or Event of
Default shall exist before and after giving effect thereto, the Company may
pay (i) dividends in an aggregate amount not to exceed $1,700,000 in any
Fiscal Year, and (ii) dividends permitted under Section 7.15(i) during the
immediately preceding Fiscal Year that were declared but not paid in the
immediately preceding Fiscal Year.
SECTION 7.16. LIENS. The Company will not, and will not permit any
Subsidiary to, pledge, mortgage or otherwise encumber or subject to or
permit to exist upon or be subjected to any lien, charge or security
interest of any kind (including any conditional sale or other title
retention agreement and any lease in the nature thereof), on any of its
Properties of any kind or character other than:
(a) liens, pledges or deposits for workmen's compensation,
unemployment insurance, old age benefits or social security
obligations, taxes, assessments, statutory obligations or other
similar charges, good faith deposits made in connection with tenders,
contracts or leases to which the Company or a Subsidiary is a party or
other deposits required to be made in the ordinary course of business,
provided in each case the obligation secured is not overdue or, if
overdue, is being contested in good faith by appropriate proceedings
and adequate reserves have been provided therefor in accordance with
generally accepted accounting principles and that the obligation is
not for borrowed money, customer advances, trade payables or
obligations to agricultural producers;
(b) the pledge of Property for the purpose of securing an appeal
or stay or discharge in the course of any legal proceedings, provided
that the aggregate amount of liabilities of the Company and its
Subsidiaries so secured by a pledge of Property permitted under this
subsection (b) including interest and penalties thereon, if any, shall
not be in excess of $1,000,000 at any one time outstanding;
(c) liens, pledges, mortgages, security interests, or other
charges granted to the Agent to secure the Notes, L/Cs or the
Reimbursement Obligations;
(d) liens, pledges, security interests or other charges now or
hereafter created under the Security Agreement;
(e) security interests or other interests of a lessor in
equipment leased by the Company or any Subsidiary as lessee under any
financing lease, to the extent such security interest or other
interest secures rental payments payable by the Company thereunder;
(f) liens on the Collateral securing the Company's indebtedness
described in Section 7.17(e) hereof created in accordance with the
Intercreditor Agreement, PROVIDED such liens are subordinated to the
Agent's liens therein and provided that the Agent is concurrently
granted a lien in the collateral security for the Company's
indebtedness described in Section 7.17(e) hereof;
(g) liens of carriers, warehousemen, mechanics and materialmen
and other like liens, in each case arising in the ordinary course of
the Company's or any Subsidiary's business to the extent they secure
obligations that are not past due;
(h) such minor defects, irregularities, encumbrances, easements,
rights of way, and clouds on title as normally exist with respect to
similar properties which do not materially impair the Property
affected thereby for the purpose for which it was acquired;
(i) liens, pledges, mortgages, security interests or other
charges granted by any of the Company's Subsidiaries in Mexico in such
Subsidiary's Inventory and certain fixed assets located in Mexico and
such Subsidiary's accounts receivable, in each case securing only
indebtedness in an aggregate principal amount of up to $10,000,000
incurred by such Subsidiaries for working capital purposes;
(j) statutory landlord's liens under leases;
(k) existing liens described on Exhibit D hereto;
(l) liens on the cash surrender value of the life insurance
policy maintained by the Company on the life of Mr. Lonnie A. Pilgrim,
to the extent such liens secure loans in an aggregate principal amount
not to exceed $900,000;
(m) liens, security interests, pledges, mortgages or other
charges in any Property other than the Collateral securing obligations
in an aggregate amount not exceeding $1,000,000 at any time;
(n) liens, mortgages and security interests in the Company's
real estate, buildings, machinery and equipment securing indebtedness
permitted only by Section 7.17(k) of this Agreement; and
(o) liens and security interests securing the Term Loans and the
IRB.
SECTION 7.17. BORROWINGS AND GUARANTIES. The Company will not, and will
not permit any Subsidiary to, issue, incur, assume, create or have
outstanding any indebtedness for borrowed money (including as such all
indebtedness representing the deferred purchase price of Property) or
customer advances, nor be or remain liable, whether as endorser, surety,
guarantor or otherwise, for or in respect of any liability or indebtedness
of any other Person, other than:
(a) indebtedness of the Company arising under or pursuant to
this Agreement or the other Loan Documents;
(b) the liability of the Company arising out of the endorsement
for deposit or collection of commercial paper received in the ordinary
course of business;
(c) trade payables of the Company arising in the ordinary course
of the Company's business;
(d) indebtedness disclosed on the audited financial statements
referred to in Section 5.3 hereof, except (i) indebtedness to the
Existing Lenders under the Existing Agreement;
(e) indebtedness in an aggregate principal amount not to exceed
$43,000,000 owed to Creditenstalt-Bankverein;
(f) Subordinated Debt in an aggregate principal amount not to
exceed $100,000,000 maturing no earlier than August 1, 2003;
(g) indebtedness in an aggregate principal amount of up to
$10,000,000 incurred by the Company's Subsidiaries in Mexico for
working capital purposes;
(h) Debt arising from sale/leaseback transactions permitted by
Section 7.32 hereof and under Capitalized Lease Obligations;
(i) indebtedness of any Mexican Subsidiary to any other Mexican
Subsidiary;
(j) loans in an aggregate principal amount of up to $900,000
against the cash surrender value of the life insurance policy
maintained on the life of Mr. Lonnie A. Pilgrim;
(k) Funded Debt incurred to finance capital expenditures
permitted by Section 7.14 hereof;
(l) in addition to the indebtedness permitted by Section 7.17(g)
hereof, unsecured indebtedness of the Company or its Mexican
Subsidiaries in an aggregate principal amount not to exceed
$20,000,000 outstanding at any time incurred to finance the Company's
or its Mexican Subsidiaries working capital needs;
(m) the Term Loans;
(n) the IRB;
(o) indebtedness in an aggregate principal amount not to exceed
$35,000,000 owed to Agricultural PCA; at an interest rate
approximating LIBOR plus 1.65%, payable in equal monthly installments
including interests through April 1, 2003; and
(p) indebtedness in an aggregate principal amount not to exceed
$85,000,000, which includes $15,000,000 currently unfunded at
principal and interest payments yet to be determined, owed to John
Hancock Mutual Life; notes payable with interest rates at 7.21%,
9.39%, 9.45% and LIBOR plus 2.0%, payable in monthly installments of
$455,305, $61,839, $23,863 and a principal payment of $70,899 with
interest, respectively, plus balloon payments at maturity on
February 28, 2006 for the 7.21% notes and March 1, 2003 for the
remaining notes.
SECTION 7.18. INVESTMENTS, LOANS AND ADVANCES. The Company will not, and
will not permit any Subsidiary to, make or retain any investment (whether
through the purchase of stock, obligations or otherwise) in or make any
loan or advance to, any other Person, other than:
(a) investments in certificates of deposit having a maturity of
one year or less issued by any United States commercial bank having
capital and surplus of not less than $50,000,000;
(b) investments in an aggregate amount of up to $8,000,000 in
deposits maintained with the Pilgrim Bank of Pittsburg;
(c) investments in commercial paper rated P1 by Moody's
Investors Service, Inc. or A1 by Standard & Poor's Ratings Group
maturing within 180 days of the date of issuance thereof;
(d) marketable obligations of the United States;
(e) marketable obligations guaranteed by or insured by the
United States, or those for which the full faith and credit of the
United States is pledged for the repayment of principal and interest
thereof; provided that such obligations have a final maturity of no
more than one year from the date acquired by the Company;
(f) repurchase, reverse repurchase agreements and security
lending agreements collateralized by securities of the type described
in subsection (c) and having a term of no more than 90 days, PROVIDED,
HOWEVER, that the Company shall hold (individually or through an
agent) all securities relating thereto during the entire term of such
arrangement;
(g) loans, investments (excluding retained earnings) and
advances by the Company to its Subsidiaries located in Mexico in an
aggregate outstanding amount not to exceed $145,000,000 at any time,
PROVIDED, HOWEVER, that the Company may make loans, investments
(excluding retained earnings) and advances to its Subsidiaries located
in Mexico in an aggregate amount equal to the aggregate amount of any
capital withdrawn from its Mexican Subsidiaries after the date hereof
but not to exceed an aggregate amount of $25,000,000 in any Fiscal
Year of the Company, PROVIDED FURTHER that any such investments
(excluding retained earnings), loans and advances shall not cause the
aggregate outstanding amount of all such loans, investments (excluding
retained earnings) and advances to exceed $145,000,000 at any time;
(h) loans and advances to employees and contract growers (other
than executive officers and directors of the Company) for reasonable
expenses incurred in the ordinary course of business;
(i) loans and advances from one Mexican Subsidiary to another
Mexican Subsidiary;
(j) investments in an aggregate amount not to exceed $1,000,000
in Southern Hens, Inc.; and
(k) investments in and loans and advances to each of PPC
Delaware Business Trust, Pilgrim's Pride International, Inc. and PPC
Marketing, Ltd. in an aggregate amount not to exceed $1,000,000 for
each such entity.
SECTION 7.19. SALE OF PROPERTY. The Company will not, and will not
permit any Subsidiary to, sell, lease, assign, transfer or otherwise
dispose of (whether in one transaction or in a series of transactions) all
or a material part of its Property to any other Person in any Fiscal Year
of the Company; PROVIDED, HOWEVER, that this Section shall not prohibit:
(a) sales of Inventory by the Company in the ordinary course of
business;
(b) sales or leases by the Company of its surplus, obsolete or
worn-out machinery and equipment; and
(c) sales of approximately 16,500 acres of farm land in Lamar
and Fannin Counties, Texas.
For purposes of this Section 7.19, "MATERIAL PART" shall mean 5% or more of
the lesser of the book or fair market value of the Property of the Company.
SECTION 7.20. NOTICE OF SUIT, ADVERSE CHANGE IN BUSINESS OR DEFAULT. The
Company shall, as soon as possible, and in any event within fifteen (15)
days after the Company learns of the following, give written notice to the
Banks of (a) any proceeding(s) that, if determined adversely to the Company
or any Subsidiary could have a material adverse effect on the Properties,
business or operations of the Company or such Subsidiary being instituted
or threatened to be instituted by or against the Company or such Subsidiary
in any federal, state, local or foreign court or before any commission or
other regulatory body (federal, state, local or foreign); (b) any material
adverse change in the business, Property or condition, financial or
otherwise, of the Company or any Subsidiary; and (c) the occurrence of a
Potential Default or Event of Default.
SECTION 7.21. ERISA. The Company will, and will cause each Subsidiary
to, promptly pay and discharge all obligations and liabilities arising
under ERISA of a character which if unpaid or unperformed might result in
the imposition of a lien against any of its Property and will promptly
notify the Agent of (i) the occurrence of any reportable event (as defined
in ERISA) which might result in the termination by the PBGC of any Plan
covering any officers or employees of the Company or any Subsidiary any
benefits of which are, or are required to be, guaranteed by PBGC, (ii)
receipt of any notice from PBGC of its intention to seek termination of any
Plan or appointment of a trustee therefor, and (iii) its intention to
terminate or withdraw from any Plan. The Company will not, and will not
permit any Subsidiary to, terminate any Plan or withdraw therefrom unless
it shall be in compliance with all of the terms and conditions of this
Agreement after giving effect to any liability to PBGC resulting from such
termination or withdrawal.
SECTION 7.22. USE OF LOAN PROCEEDS. The Company will use the proceeds of
all Loans and L/Cs made or issued hereunder solely to refinance existing
Debt and for general corporate purposes.
SECTION 7.23. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The
Company will, and will cause each Subsidiary to, continue to engage in
business of the same general type as now conducted by it, and the Company
will, and will cause each Subsidiary to, preserve, renew and keep in full
force and effect its corporate existence and its rights, privileges and
franchises necessary or desirable in the normal conduct of business.
SECTION 7.24. ADDITIONAL INFORMATION. Upon request of the Agent, the
Company shall provide any reasonable additional information pertaining to
any of the Collateral.
SECTION 7.25. SUPPLEMENTAL PERFORMANCE. The Company will at its own
expense, register, file, record and execute all such further agreements and
documents, including without limitation financing statements, and perform
such acts as are necessary and appropriate, or as the Agent or any Bank may
reasonably request, to effect the purposes of the Loan Documents.
SECTION 7.26. COMPANY CHATTEL PAPER - DELIVERY TO BANK. The Company will
keep in its exclusive possession all components of its respective
Receivables which constitute chattel paper. The Agent may request in its
sole discretion, and the Company agrees to deliver to the Agent upon such
request, any or all of such Receivables constituting chattel paper.
SECTION 7.27. COMPLIANCE WITH LAWS, ETC. The Company will, and will
cause each of its Subsidiaries to, comply in all material respects with all
applicable laws, rules, regulations and orders, such compliance to include
(without limitation) (a) the maintenance and preservation of its corporate
existence and qualification as a foreign corporation, (b) the registration
pursuant to the Food Security Act of 1985, as amended, with the Secretary
of State of each State in which are produced any farm products purchased by
the Company and which has established a central filing system, as a buyer
of farm products produced in such state, and the maintenance of each such
registration, (c) compliance with the Packers and Stockyard Act of 1921, as
amended, (d) compliance with all applicable rules and regulations
promulgated by the United States Department of Agriculture and all similar
applicable state rules and regulations, and (e) compliance with all rules
and regulations promulgated pursuant to the Occupational Safety and Health
Act of 1970, as amended.
SECTION 7.28. ENVIRONMENTAL COVENANT. The Company will, and will cause
each of its Subsidiaries to:
(a) use and operate all of its facilities and Properties in
material compliance with all Environmental Laws, keep all
necessary permits, approvals, certificates, licenses and other
authorizations relating to environmental matters in effect and
remain in material compliance therewith, and handle all hazardous
materials in material compliance with all applicable
Environmental Laws;
(b) immediately notify the Agent and provide copies upon
receipt of all material written claims, complaints, notices or
inquiries relating to the condition of its facilities and
Property or compliance with Environmental Laws, and shall
promptly cure and have dismissed, to the reasonable satisfaction
of the Required Banks, any actions and proceedings relating to
compliance with Environmental Laws unless and to the extent that
the same are being contested in good faith and by appropriate
proceedings diligently conducted and for which adequate reserves
in form and amount reasonably satisfactory to the Required Banks
have been established, provided that no proceedings to foreclose
any lien which is attached as security therefor shall have been
commenced unless such foreclosure is stayed by the filing of an
appropriate bond in a manner satisfactory to the Required Banks;
and
(c) provide such information and certifications which the
Agent may reasonably request from time to time to evidence
compliance with this Section 7.28.
SECTION 7.29. NEW SUBSIDIARIES. The Company will not, directly or
indirectly, create or acquire any Subsidiary unless (a) after giving effect
to any such creation or acquisition, the total assets (determined in
accordance with generally accepted accounting principles, consistently
applied) of all such Subsidiaries would not exceed 5% of the Total Assets
of the Company and its Subsidiaries, and (b) all Inventory and Receivables
of such Subsidiaries are pledged to the Agent for the benefit of the Banks
pursuant to a security agreement substantially identical to the Security
Agreement.
SECTION 7.30. GUARANTY FEES. The Company will not, and it will not
permit any Subsidiary to, directly or indirectly, pay to Mr. and/or Mrs.
Lonnie A. Pilgrim or any other guarantor of any of the Company's
indebtedness, obligations and liabilities, any fee or other compensation,
but excluding salary, bonus and other compensation for services rendered as
an employee (collectively the "GUARANTY FEES") in an aggregate amount in
excess of $1,400,000 in any Fiscal Year of the Company. For purposes of
this Section 7.30, any Guaranty Fees paid within 45 days after the last day
of any Fiscal Year shall be deemed to have been paid during such Fiscal
Year.
SECTION 7.31. KEY MAN LIFE INSURANCE. The Company shall continuously
maintain a policy of insurance on the life of Mr. Lonnie A. Pilgrim in the
amount of $1,500,000.00, of which the Company shall be the beneficiary,
such policy to be maintained with a good and responsible insurance company
acceptable to the Required Banks.
SECTION 7.32. SALE AND LEASEBACKS. The Company will not, and will not
permit any Subsidiary to, enter into any arrangement with any lender or
investor providing for the leasing by the Company or any Subsidiary of any
real or personal property previously owned by the Company or any
Subsidiary, except:
(a) any such sale and leaseback transaction, PROVIDED that (i)
such transactions may be entered into only in the year, or in the year
immediately preceding the year, in which net operating losses, credits
or other tax benefits would otherwise expire unutilized and the
Company delivers on officer's certificate to the Agent to the effect
that such expiration of such net operating losses, credits or other
tax benefits would occur but for entering into the sale/leaseback
transaction; (ii) the Company shall be completely discharged with
respect to any Debt of the Company or such Subsidiary assumed by the
purchaser/lessor in such sale/leaseback transaction; (iii) the Company
shall deliver to the Agent an opinion of counsel that the sale of
assets and related lease will be treated as a sale and lease,
respectively, for federal income tax purposes; and (iv) the proceeds
of such transactions are applied to the payment of Debt; and
(b) such transactions in which the aggregate consideration
received by the Company upon the sale of such property does not exceed
$6,000,000 in any Fiscal Year.
8. EVENTS OF DEFAULT AND REMEDIES.
SECTION 8.1. DEFINITIONS. Any one or more of the following shall
constitute an Event of Default:
(a) Default in the payment when due of any interest on or
principal of any Note or Reimbursement Obligation, whether at the
stated maturity thereof or as required by Section 3.4 hereof or
at any other time provided in this Agreement, or of any fee or
other amount payable by the Company pursuant to this Agreement;
(b) Default in the observance or performance of any
covenant set forth in Sections 7.4, 7.5, 7.6, 7.7, 7.15, 7.17,
7.19 and 7.20, inclusive, hereof, or of any provision of any
Security Document requiring the maintenance of insurance on the
Collateral subject thereto or dealing with the use or remittance
of proceeds of such Collateral;
(c) Default in the observance or performance of any
covenant set forth in Sections 7.8, 7.9, 7.10, 7.11, 7.12, 7.13,
7.14, 7.16, 7.18, 7.21, 7.23 and 7.31, inclusive, hereof and such
default shall continue for 10 days after written notice thereof
to the Company by any Bank;
(d) Default in the observance or performance of any other
covenant, condition, agreement or provision hereof or any of the
other Loan Documents and such default shall continue for 30 days
after written notice thereof to the Company by any Bank;
(e) Default shall occur under any evidence of indebtedness
in a principal amount exceeding $1,000,000 issued or assumed or
guaranteed by the Company, or under any mortgage, agreement or
other similar instrument under which the same may be issued or
secured and such default shall continue for a period of time
sufficient to permit the acceleration of maturity of any
indebtedness evidenced thereby or outstanding or secured
thereunder;
(f) Any representation or warranty made by the Company
herein or in any Loan Document or in any statement or certificate
furnished by it pursuant hereto or thereto, proves untrue in any
material respect as of the date made or deemed made pursuant to
the terms hereof;
(g) Any judgment or judgments, writ or writs, or warrant or
warrants of attachment, or any similar process or processes in an
aggregate amount in excess of $2,000,000 shall be entered or
filed against the Company or any Subsidiary or against any of
their respective Property or assets and remain unbonded, unstayed
and undischarged for a period of 30 days from the date of its
entry;
(h) Any reportable event (as defined in ERISA) which
constitutes grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a
trustee to administer or liquidate any such Plan, shall have
occurred and such reportable event shall be continuing thirty
(30) days after written notice to such effect shall have been
given to the Company by any Bank; or any such Plan shall be
terminated; or a trustee shall be appointed by the appropriate
United States District Court to administer any such Plan; or the
Pension Benefit Guaranty Corporation shall institute proceedings
to administer or terminate any such Plan;
(i) The Company or any Subsidiary shall (i) have entered
involuntarily against it an order for relief under the Bankruptcy
Code of 1978, as amended, (ii) admit in writing its inability to
pay, or not pay, its debts generally as they become due or
suspend payment of its obligations, (iii) make an assignment for
the benefit of creditors, (iv) apply for, seek, consent to, or
acquiesce in, the appointment of a receiver, custodian, trustee,
conservator, liquidator or similar official for it or any
substantial part of its property, (v) file a petition seeking
relief or institute any proceeding seeking to have entered
against it an order for relief under the Bankruptcy Code of 1978,
as amended, to adjudicate it insolvent, or seeking dissolution,
winding up, liquidation, reorganization, arrangement, marshalling
of assets, adjustment or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or
relief of debtors or fail to file an answer or other pleading
denying the material allegations of any such proceeding filed
against it, or (vi) fail to contest in good faith any appointment
or proceeding described in Section 8.1(j) hereof;
(j) A custodian, receiver, trustee, conservator, liquidator
or similar official shall be appointed for the Company, any
Subsidiary or any substantial part of its respective Property, or
a proceeding described in Section 8.1(i)(v) shall be instituted
against the Company or any Subsidiary and such appointment
continues undischarged or any such proceeding continues
undismissed or unstayed for a period of 60 days;
(k) The existence of an "EVENT OF DEFAULT" as defined in
the Security Agreement;
(l) Any shares of the capital stock of the Company owned
legally or beneficially by Mr. and/or Mrs. Lonnie A. Pilgrim
shall be pledged, assigned or otherwise encumbered for any
reason, other than the pledge of up to 2,000,000 shares to secure
personal obligations of Mr. and Mrs. Lonnie A. Pilgrim or such
other personal obligations incurred by any Person so long as such
obligations are not related to the financing of the Company of
any of its Subsidiaries;
(m) Mr. and Mrs. Lonnie A. Pilgrim and their descendants
and heirs shall for any reason cease to have legal and/or
beneficial ownership of no less than 51% of the issued and
outstanding shares of all classes of capital stock of the
Company;
(n) Either Mr. or Mrs. Lonnie A. Pilgrim shall terminate,
breach, repudiate or disavow his or her guaranty of the Company's
indebtedness, obligations and liabilities to the Banks under the
Loan Documents or any part thereof, or any event specified in
Sections 8.1(i) or (j) shall occur with regard to either or both
of Mr. and Mrs. Lonnie A. Pilgrim;
(o) The Required Banks shall have determined that one or
more conditions exist or events have occurred which may result in
a material adverse change in the business, operations, Properties
or condition (financial or otherwise) of the Company or any
Subsidiary; or
(p) The occurrence of a Change in Control.
SECTION 8.2. REMEDIES FOR NON-BANKRUPTCY DEFAULTS. When any Event of
Default, other than an Event of Default described in subsections (i) and
(j) of Section 8.1 hereof, has occurred and is continuing, the Agent, if
directed by the Required Banks, shall give notice to the Company and take
any or all of the following actions: (i) terminate the remaining Revolving
Credit Commitments hereunder on the date (which may be the date thereof)
stated in such notice, (ii) declare the principal of and the accrued
interest on the Notes and unpaid Reimbursement Obligations to be forthwith
due and payable and thereupon the Notes and unpaid Reimbursement
Obligations including both principal and interest, shall be and become
immediately due and payable without further demand, presentment, protest or
notice of any kind, and (iii) proceed to foreclose against any Collateral
under any of the Security Documents, take any action or exercise any remedy
under any of the Loan Documents or exercise any other action, right, power
or remedy permitted by law. Any Bank may exercise the right of set off
with regard to any deposit accounts or other accounts maintained by the
Company with any of the Banks.
SECTION 8.3. REMEDIES FOR BANKRUPTCY DEFAULTS. When any Event of
Default described in subsections (i) or (j) of Section 8.1 hereof has
occurred and is continuing, then the Notes and all Reimbursement
Obligations shall immediately become due and payable without presentment,
demand, protest or notice of any kind, and the obligation of the Banks to
extend further credit pursuant to any of the terms hereof shall immediately
terminate.
SECTION 8.4. L/Cs. Promptly following the acceleration of the maturity
of the Notes pursuant to Section 8.2 or 8.3 hereof, the Company shall
immediately pay to the Agent for the benefit of the Banks the full
aggregate amount of all outstanding L/Cs. The Agent shall hold all such
funds and proceeds thereof as additional collateral security for the
obligations of the Company to the Banks under the Loan Documents. The
amount paid under any of the L/Cs for which the Company has not reimbursed
the Banks shall bear interest from the date of such payment at the default
rate of interest specified in Section 1.3(c)(i) hereof.
9. CHANGE IN CIRCUMSTANCES REGARDING FIXED RATE LOANS.
SECTION 9.1. CHANGE OF LAW. Notwithstanding any other provisions of
this Agreement or any Note to the contrary, if at any time after the date
hereof with respect to Fixed Rate Loans, any Bank shall determine in good
faith that any change in applicable law or regulation or in the
interpretation thereof makes it unlawful for such Bank to make or continue
to maintain any Fixed Rate Loan or to give effect to its obligations as
contemplated hereby, such Bank shall promptly give notice thereof to the
Company to such effect, and such Bank's obligation to make, relend,
continue or convert any such affected Fixed Rate Loans under this Agreement
shall terminate until it is no longer unlawful for such Bank to make or
maintain such affected Loan. The Company shall prepay the outstanding
principal amount of any such affected Fixed Rate Loan made to it, together
with all interest accrued thereon and all other amounts due and payable to
the Banks under Section 9.4 of this Agreement, on the earlier of the last
day of the Interest Period applicable thereto and the first day on which it
is illegal for such Bank to have such Loans outstanding; provided, however,
the Company may then elect to borrow the principal amount of such affected
Loan by means of another type of Loan available hereunder, subject to all
of the terms and conditions of this Agreement.
SECTION 9.2. UNAVAILABILITY OF DEPOSITS OR INABILITY TO ASCERTAIN THE
ADJUSTED EURODOLLAR RATE OR ADJUSTED CD RATE. Notwithstanding any other
provision of this Agreement or any Note to the contrary, if prior to the
commencement of any Interest Period any Bank shall determine (i) that
deposits in the amount of any Fixed Rate Loan scheduled to be outstanding
are not available to it in the relevant market or (ii) by reason of
circumstances affecting the relevant market, adequate and reasonable means
do not exist for ascertaining the Adjusted Eurodollar Rate or the Adjusted
CD Rate, then such Bank shall promptly give telephonic or telex notice
thereof to the Company, the Agent and the other Banks (such notice to be
confirmed in writing), and the obligation of the Banks to make, continue or
convert any such Fixed Rate Loan in such amount and for such Interest
Period shall terminate until deposits in such amount and for the Interest
Period selected by the Company shall again be readily available in the
relevant market and adequate and reasonable means exist for ascertaining
the Adjusted Eurodollar Rate or the Adjusted CD Rate, as the case may be.
Upon the giving of such notice, the Company may elect to either (i) pay or
prepay, as the case may be, such affected Loan or (ii) reborrow such
affected Loan as another type of Loan available hereunder, subject to all
terms and conditions of this Agreement.
SECTION 9.3. TAXES AND INCREASED COSTS. With respect to the Fixed Rate
Loans, if any Bank shall determine in good faith that any change in any
applicable law, treaty, regulation or guideline (including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve
System) or any new law, treaty, regulation or guideline, or any
interpretation of any of the foregoing by any governmental authority
charged with the administration thereof or any central bank or other
fiscal, monetary or other authority having jurisdiction over such Bank or
its lending branch or the Fixed Rate Loans contemplated by this Agreement
(whether or not having the force of law) ("CHANGE IN LAW") shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirements against assets held by, or
deposits in or for the account of, or Loans by, or any other
acquisition of funds or disbursements by, such Bank (other than
reserves included in the determination of the Adjusted Eurodollar
Rate or the Adjusted CD Rate);
(ii) subject such Bank, any Fixed Rate Loan or any Note to
any tax (including, without limitation, any United States
interest equalization tax or similar tax however named applicable
to the acquisition or holding of debt obligations and any
interest or penalties with respect thereto), duty, charge, stamp
tax, fee, deduction or withholding in respect of this Agreement,
any Fixed Rate Loan or any Note except such taxes as may be
measured by the overall net income of such Bank or its lending
branch and imposed by the jurisdiction, or any political
subdivision or taxing authority thereof, in which such Bank's
principal executive office or its lending branch is located;
(iii) change the basis of taxation of payments of principal
and interest due from the Company to such Bank hereunder or under
any Note (other than by a change in taxation of the overall net
income of such Bank); or
(iv) impose on such Bank any penalty with respect to the
foregoing or any other condition regarding this Agreement, any
Fixed Rate Loan or any Note;
and such Bank shall determine that the result of any of the foregoing is to
increase the cost (whether by incurring a cost or adding to a cost) to such
Bank of making or maintaining any Fixed Rate Loan hereunder or to reduce
the amount of principal or interest received by such Bank, then the Company
shall pay to such Bank from time to time as specified by such Bank such
additional amounts as such Bank shall reasonably determine are sufficient
to compensate and indemnify it for such increased cost or reduced amount.
If any Bank makes such a claim for compensation, it shall provide to the
Company a certificate setting forth such increased cost or reduced amount
as a result of any event mentioned herein specifying such Change in Law,
and such certificate shall be conclusive and binding on the Company as to
the amount thereof except in the case of manifest error. Upon the
imposition of any such cost, the Company may prepay any affected Loan,
subject to the provisions of Sections 3.3 and 9.4 hereof.
SECTION 9.4. FUNDING INDEMNITY. (a) In the event any Bank shall incur
any loss, cost, expense or premium (including, without limitation, any loss
of profit and any loss, cost, expense or premium incurred by reason of the
liquidation or re-employment of deposits or other funds acquired by such
Bank to fund or maintain any Fixed Rate Loan or the relending or
reinvesting of such deposits or amounts paid or prepaid to such Bank) as a
result of:
(i) any payment or prepayment of a Fixed Rate Loan on a
date other than the last day of the then applicable Interest
Period;
(ii) any failure by the Company to borrow, continue or
convert any Fixed Rate Loan on the date specified in the notice
given pursuant to Section 1.7 hereof; or
(iii) the occurrence of any Event of Default;
then, upon the demand of such Bank, the Company shall pay to such Bank such
amount as will reimburse such Bank for such loss, cost or expense.
(b) If any Bank makes a claim for compensation under this Section
9.4, it shall provide to the Company a certificate setting forth the amount
of such loss, cost or expense in reasonable detail and such certificate
shall be conclusive and binding on the Company as to the amount thereof
except in the case of manifest error.
SECTION 9.5. LENDING BRANCH. Each Bank may, at its option, elect to
make, fund or maintain its Eurodollar Loans hereunder at the branch or
office specified opposite its signature on the signature page hereof or
such other of its branches or offices as such Bank may from time to time
elect, subject to the provisions of Section 1.7(b) hereof.
SECTION 9.6. DISCRETION OF BANK AS TO MANNER OF FUNDING.
Notwithstanding any provision of this Agreement to the contrary, each Bank
shall be entitled to fund and maintain its funding of all or any part of
its Loans in any manner it sees fit, it being understood however, that for
the purposes of this Agreement all determinations hereunder shall be made
as if the Banks had actually funded and maintained each Fixed Rate Loan
during each Interest Period for such Loan through the purchase of deposits
in the relevant interbank market having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the Adjusted
Eurodollar Rate or Adjusted CD Rate, as the case may be, for such Interest
Period.
10. THE AGENT.
SECTION 10.1. APPOINTMENT AND POWERS. Harris Trust and Savings Bank is
hereby appointed by the Banks as Agent under the Loan Documents, including
but not limited to the Security Agreement, wherein the Agent shall hold a
security interest for the benefit of the Banks, solely as the Agent of the
Banks, and each of the Banks irrevocably authorizes the Agent to act as the
Agent of such Bank. The Agent agrees to act as such upon the express
conditions contained in this Agreement.
SECTION 10.2. POWERS. The Agent shall have and may exercise such powers
hereunder as are specifically delegated to the Agent by the terms of the
Loan Documents, together with such powers as are incidental thereto. The
Agent shall have no implied duties to the Banks, nor any obligation to the
Banks to take any action under the Loan Documents except any action
specifically provided by the Loan Documents to be taken by the Agent.
SECTION 10.3. GENERAL IMMUNITY. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable to the Banks or
any Bank for any action taken or omitted to be taken by it or them under
the Loan Documents or in connection therewith except for its or their own
gross negligence or willful misconduct.
SECTION 10.4. NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. The Agent
shall not (i) be responsible to the Banks for any recitals, reports,
statements, warranties or representations contained in the Loan Documents
or furnished pursuant thereto, (ii) be responsible for the payment or
collection of or security for any Loans or Reimbursement Obligations
hereunder except with money actually received by the Agent for such
payment, (iii) be bound to ascertain or inquire as to the performance or
observance of any of the terms of the Loan Documents, or (iv) be obligated
to determine or verify the existence, eligibility or value of any
Collateral, or the correctness of any Borrowing Base Certificate or
compliance certificate. In addition, neither the Agent nor its counsel
shall be responsible to the Banks for the enforceability or validity of any
of the Loan Documents or for the existence, creation, attachment,
perfection or priority of any security interest in the Collateral.
SECTION 10.5. RIGHT TO INDEMNITY. The Banks hereby indemnify the Agent
for any actions taken in accordance with this Section 10, and the Agent
shall be fully justified in failing or refusing to take any action
hereunder, unless it shall first be indemnified to its satisfaction by the
Banks pro rata against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action,
other than any liability which may arise out of Agent's gross negligence or
willful misconduct.
SECTION 10.6. ACTION UPON INSTRUCTIONS OF BANKS. The Agent agrees, upon
the written request of the Required Banks, to take any action of the type
specified in the Loan Documents as being within the Agent's rights, duties,
powers or discretion. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder in accordance with written
instructions signed by the Required Banks, and such instructions and any
action taken or failure to act pursuant thereto shall be binding on all of
the Banks and on all holders of the Notes. In the absence of a request by
the Required Banks, the Agent shall have authority, in its sole discretion,
to take or not to take any action, unless the Loan Documents specifically
require the consent of the Required Banks or all of the Banks.
SECTION 10.7. EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute
any of its duties as Agent hereunder by or through agents (other than
employees) and attorneys-in-fact and shall not be answerable to the Banks,
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 in good faith and with reasonable care. The Agent shall be
entitled to advice and opinion of legal counsel concerning all matters
pertaining to the duties of the agency hereby created.
SECTION 10.8. 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
persons, and, in respect to legal matters, upon the opinion of legal
counsel selected by the Agent.
SECTION 10.9. MAY TREAT PAYEE AS OWNER. The Agent may deem and treat the
payee of any Note as the owner thereof for all purposes hereof unless and
until a written notice of the assignment or transfer thereof shall have
been filed with the Agent. Any request, authority or consent of any
person, firm or corporation who at the time of making such request or
giving such authority or consent is the holder of any such Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of
such Note or of any Note issued in exchange therefor.
SECTION 10.10. AGENT'S REIMBURSEMENT. Each Bank agrees to reimburse the
Agent pro rata in accordance with its Commitment Percentage for any
reasonable out-of-pocket expenses (including fees and charges for field
audits) not reimbursed by the Company (a) for which the Agent is entitled
to reimbursement by the Company under the Loan Documents and (b) for any
other reasonable out-of-pocket expenses incurred by the Agent on behalf of
the Banks, in connection with the preparation, execution, delivery,
administration and enforcement of the Loan Documents and for which the
Agent is entitled to reimbursement by the Company and has not been
reimbursed.
SECTION 10.11. RIGHTS AS A LENDER. With respect to its commitment, Loans
made by it, L/Cs issued by it and the Notes issued to it, Harris shall have
the same rights and powers hereunder as any Bank and may exercise the same
as though it were not the Agent, and the term "BANK" or "BANKS" shall,
unless the context otherwise indicates, include Harris in its individual
capacity. Harris and each of the Banks may accept deposits from, lend
money to, and generally engage in any kind of banking or trust business
with the Company as if it were not the Agent or a Bank hereunder, as the
case may be.
SECTION 10.12. BANK CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and
based on the financial statements referred to in Section 5.3 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into the Loan Documents. Each Bank also
acknowledges that it will, independently and without reliance upon the
Agent or any other Bank 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 the Loan Documents.
SECTION 10.13. RESIGNATION OF AGENT. Subject to the appointment of a
successor Agent, the Agent may resign as Agent for the Banks under this
Agreement and the other Loan Documents at any time by sixty days' notice in
writing to the Banks. Such resignation shall take effect upon appointment
of such successor. The Required Banks shall have the right to appoint a
successor Agent who shall be entitled to all of the rights of, and vested
with the same powers as, the original Agent under the Loan Documents. In
the event a successor Agent shall not have been appointed within the sixty
day period following the giving of notice by the Agent, the Agent may
appoint its own successor. Resignation by the Agent shall not affect or
impair the rights of the Agent under Sections 10.5 and 10.10 hereof with
respect to all matters preceding such resignation. Any successor Agent
must be a Bank, a national banking association, a bank chartered in any
state of the United States or a branch of any foreign bank which is
licensed to do business under the laws of any state or the United States.
SECTION 10.14. DURATION OF AGENCY. The agency established by Section 10.1
hereof shall continue, and Sections 10.1 through and including Section
10.15 shall remain in full force and effect, until the Notes and all other
amounts due hereunder and thereunder, including without limitation all
Reimbursement Obligations, shall have been paid in full and the Banks'
commitments to extend credit to or for the benefit of the Company shall
have terminated or expired.
11. MISCELLANEOUS.
SECTION 11.1. AMENDMENTS AND WAIVERS. Any term, covenant, agreement or
condition of this Agreement may be amended only by a written amendment
executed by the Company, the Required Banks and, if the rights or duties of
the Agent are affected thereby, the Agent, or compliance therewith only may
be waived (either generally or in a particular instance and either
retroactively or prospectively), if the Company shall have obtained the
consent in writing of the Required Banks and, if the rights or duties of
the Agent are affected thereby, the Agent, provided, however, that without
the consent in writing of the holders of all outstanding Notes and unpaid
Reimbursement Obligations and the issuer of any L/C, or all Banks if no
Notes or L/Cs are outstanding, no such amendment or waiver shall (i) change
the amount or postpone the date of payment of any scheduled payment or
required prepayment of principal of the Notes or reduce the rate or extend
the time of payment of interest on the Notes, or reduce the amount of
principal thereof, or modify any of the provisions of the Notes with
respect to the payment or prepayment thereof, (ii) give to any Note any
preference over any other Notes, (iii) amend the definition of Required
Banks, (iv) alter, modify or amend the provisions of this Section 11.1,
(v) change the amount or term of any of the Banks' Revolving Credit
Commitments or the fees required under Section 3.1 hereof, (vi) alter,
modify or amend the provisions of Sections 1.9, 6 or 9 of this Agreement,
(vii) alter, modify or amend any Bank's right hereunder to consent to any
action, make any request or give any notice, (viii) change the advance
rates under the Borrowing Base or the definitions of "ELIGIBLE INVENTORY"
or "ELIGIBLE RECEIVABLES," (ix) release any Collateral under the Security
Documents or release or discharge any guarantor of the Company's
indebtedness, obligations and liabilities to the Banks, in each case,
unless such release or discharge is permitted or contemplated by the Loan
Documents, or (x) alter, amend or modify any subordination provisions of
any Subordinated Debt. Any such amendment or waiver shall apply equally to
all Banks and the holders of the Notes and Reimbursement Obligations and
shall be binding upon them, upon each future holder of any Note and
Reimbursement Obligation and upon the Company, whether or not such Note
shall have been marked to indicate such amendment or waiver. No such
amendment or waiver shall extend to or affect any obligation not expressly
amended or waived.
SECTION 11.2. WAIVER OF RIGHTS. No delay or failure on the part of the
Agent or any Bank or on the part of the holder or holders of any Note or
Reimbursement Obligation in the exercise of any power or right shall
operate as a waiver thereof, nor as an acquiescence in any Potential
Default or Event of Default, nor shall any single or partial exercise of
any power or right preclude any other or further exercise thereof, or the
exercise of any other power or right, and the rights and remedies hereunder
of the Agent, the Banks and of the holder or holders of any Notes are
cumulative to, and not exclusive of, any rights or remedies which any of
them would otherwise have.
SECTION 11.3. SEVERAL OBLIGATIONS. The commitments of each of the Banks
hereunder shall be the several obligations of each Bank and the failure on
the part of any one or more of the Banks to perform hereunder shall not
affect the obligation of the other Banks hereunder, provided that nothing
herein contained shall relieve any Bank from any liability for its failure
to so perform. In the event that any one or more of the Banks shall fail
to perform its commitment hereunder, all payments thereafter received by
the Agent on the principal of Loans and Reimbursement Obligations
hereunder, whether from any Collateral or otherwise, shall be distributed
by the Agent to the Banks making such additional Loans ratably as among
them in accordance with the principal amount of additional Loans made by
them until such additional Loans shall have been fully paid and satisfied.
All payments on account of interest shall be applied as among all the Banks
ratably in accordance with the amount of interest owing to each of the
Banks as of the date of the receipt of such interest payment.
SECTION 11.4. NON-BUSINESS DAY. (a) If any payment of principal or
interest on any Domestic Rate Loan shall fall due on a day which is not a
Business Day, interest at the rate such Loan bears for the period prior to
maturity shall continue to accrue on such principal from the stated due
date thereof to and including the next succeeding Business Day on which the
same is payable.
(b) If any payment of principal or interest on any Eurodollar Loan
shall fall due on a day which is not a Banking Day, the payment date
thereof shall be extended to the next date which is a Banking Day and the
Interest Period for such Loan shall be accordingly extended, unless as a
result thereof any payment date would fall in the next calendar month, in
which case such payment date shall be the next preceding Banking Day.
SECTION 11.5. SURVIVAL OF INDEMNITIES. All indemnities and all
provisions relative to reimbursement to the Banks of amounts sufficient to
protect the yield to the Banks with respect to Eurodollar Loans, including,
but not limited to, Sections 9.3 and 9.4 hereof, shall survive the
termination of this Agreement and the payment of the Notes for a period of
one year.
SECTION 11.6. DOCUMENTARY TAXES. Although the Company is of the opinion
that no documentary or similar taxes are payable in respect of this
Agreement or the Notes, the Company agrees that it will pay such taxes,
including interest and penalties, in the event any such taxes are assessed
irrespective of when such assessment is made and whether or not any credit
is then in use or available hereunder.
SECTION 11.7. REPRESENTATIONS. All representations and warranties made
herein or in certificates given pursuant hereto shall survive the execution
and delivery of this Agreement and of the Notes, and shall continue in full
force and effect with respect to the date as of which they were made and as
reaffirmed on the date of each borrowing or request for L/C and as long as
any credit is in use or available hereunder.
SECTION 11.8. NOTICES. Unless otherwise expressly provided herein, all
communications provided for herein shall be in writing or by telex and
shall be deemed to have been given or made when served personally, when an
answer back is received in the case of notice by telex or 2 days after the
date when deposited in the United States mail (registered, if to the
Company) addressed if to the Company to 110 South Texas, Pittsburg, Texas
75686 Attention: Richard A. Cogdill; if to the Agent or Harris at 111 West
Monroe Street, Chicago, Illinois 60690, Attention: Agribusiness Division;
and if to any of the Banks, at the address for each Bank set forth under
its signature hereon; or at such other address as shall be designated by
any party hereto in a written notice to each other party pursuant to this
Section 11.8.
SECTION 11.9. COSTS AND EXPENSES; INDEMNITY. The Company agrees to pay
on demand all costs and expenses of the Agent, in connection with the
negotiation, preparation, execution and delivery of this Agreement, the
Notes and the other instruments and documents to be delivered hereunder or
in connection with the transactions contemplated hereby, including the fees
and expenses of Messrs. Chapman and Cutler, special counsel to the Agent;
all costs and expenses of the Agent (including attorneys' fees) incurred in
connection with any consents or waivers hereunder or amendments hereto, and
all costs and expenses (including attorneys' fees), if any, incurred by the
Agent, the Banks or any other holders of a Note or any Reimbursement
Obligation in connection with the enforcement of this Agreement or the
Notes and the other instruments and documents to be delivered hereunder.
The Company agrees to indemnify and save harmless the Banks and the Agent
from any and all liabilities, losses, costs and expenses incurred by the
Banks or the Agent in connection with any action, suit or proceeding
brought against the Agent or any Bank by any Person which arises out of the
transactions contemplated or financed hereby or by the Notes, or out of any
action or inaction by the Agent or any Bank hereunder or thereunder, except
for such thereof as is caused by the gross negligence or willful misconduct
of the party indemnified. The provisions of this Section 11.9 shall
survive payment of the Notes and Reimbursement Obligations and the
termination of the Revolving Credit Commitments hereunder.
SECTION 11.10. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and all such counterparts taken together shall be deemed to
constitute one and the same instrument. One or more of the Banks may
execute a separate counterpart of this Agreement which has also been
executed by the Company, and this Agreement shall become effective as and
when all of the Banks have executed this Agreement or a counterpart thereof
and lodged the same with the Agent.
SECTION 11.11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon each of the Company and the Banks and their respective successors and
assigns, and shall inure to the benefit of the Company and each of the
Banks and the benefit of their respective successors and assigns, including
any subsequent holder of any Note or Reimbursement Obligation. The Company
may not assign any of its rights or obligations hereunder without the
written consent of the Banks.
SECTION 11.12. NO JOINT VENTURE. Nothing contained in this Agreement
shall be deemed to create a partnership or joint venture among the parties
hereto.
SECTION 11.13. SEVERABILITY. In the event that any term or provision
hereof is determined to be unenforceable or illegal, it shall deemed
severed herefrom to the extent of the illegality and/or unenforceability
and all other provisions hereof shall remain in full force and effect.
SECTION 11.14. TABLE OF CONTENTS AND HEADINGS. The table of contents and
section headings in this Agreement are for reference only and shall not
affect the construction of any provision hereof.
SECTION 11.15. PARTICIPANTS. Each Bank shall have the right at its own
cost to grant participations (to be evidenced by one or more agreements or
certificates of participation) in the Loans made, and/or Revolving Credit
Commitment and participations in L/Cs and Reimbursement Obligations held,
by such Bank at any time and from time to time, and to assign its rights
under such Loans, participations in L/Cs and Reimbursement Obligations or
the Notes evidencing such Loans to one or more other Persons; provided that
no such participation shall relieve any Bank of any of its obligations
under this Agreement, and any agreement pursuant to which such
participation or assignment of a Note or the rights thereunder is granted
shall provide that the granting Lender shall retain the sole right and
responsibility to enforce the obligations of the Company under the Loan
Documents, including, without limitation, the right to approve any
amendment, modification or waiver of any provision thereof, except that
such agreement may provide that such Bank will not agree without the
consent of such participant or assignee to any modification, amendment or
waiver of this Agreement that would (A) increase any Revolving Credit
Commitment of such Lender, or (B) reduce the amount of or postpone the date
for payment of any principal of or interest on any Loan or Reimbursement
Obligation or of any fee payable hereunder in which such participant or
assignee has an interest or (C) reduce the interest rate applicable to any
Loan or other amount payable in which such participant or assignee has an
interest or (D) release any collateral security for or guarantor for any of
the Company's indebtedness, obligations and liabilities under the Loan
Documents, and provided further that no such assignee or participant shall
have any rights under this Agreement except as provided in this
Section 11.15, and the Agent shall have no obligation or responsibility to
such participant or assignee, except that nothing herein provided is
intended to affect the rights of an assignee of a Note to enforce the Note
assigned. Any party to which such a participation or assignment has been
granted shall have the benefits of Section 1.10, Section 9.3 and
Section 9.4 hereof but shall not be entitled to receive any greater payment
under any such Section than the Bank granting such participation or
assignment would have been entitled to receive with respect to the rights
transferred.
SECTION 11.16. ASSIGNMENT OF COMMITMENTS BY BANK. Each Bank shall have
the right at any time, with the prior consent of the Company and the Agent
(which consent will not be unreasonably withheld), to sell, assign,
transfer or negotiate all or any part of its Revolving Credit Commitment to
one or more commercial banks or other financial institutions; provided that
such assignment is in an amount of at least $5,000,000 (or, if less than
$5,000,000, the amount of its entire Revolving Credit Commitment), provided
further that no Bank may so assign more than one-half of its original
Revolving Credit Commitment hereunder unless it is assigning all of its
interest hereunder, and provided further that any Bank may assign all of
its interest hereunder to any of its subsidiaries or affiliates without the
Company's or the Agent's consent. Upon any such assignment, and its
notification to the Agent, the assignee shall become a Bank hereunder, all
Loans and the Revolving Credit Commitment it thereby holds shall be
governed by all the terms and conditions hereof, and the Bank granting such
assignment shall have its Revolving Credit Commitment and its obligations
and rights in connection therewith, reduced by the amount of such
assignment. Upon each such assignment the Bank granting such assignment
shall pay to the Agent for the Agent's sole account a fee of $2,500.
SECTION 11.17. SHARING OF PAYMENTS. Each Bank agrees with each other Bank
that if such Bank shall receive and retain any payment, whether by set-off
or application of deposit balances or otherwise ("SET-OFF"), on any Loan,
Reimbursement Obligation or other amount outstanding under this Agreement
in excess of its ratable share of payments on all Loans, Reimbursement
Obligations and other amounts then outstanding to the Banks, then such Bank
shall purchase for cash at face value, but without recourse, ratably from
each of the other Banks such amount of the Loans and Reimbursement
Obligations held by each such other Bank (or interest therein) as shall be
necessary to cause such Bank to share such excess payment ratably with all
the other Banks; PROVIDED, HOWEVER, that if any such purchase is made by
any Bank, and if such excess payment or part thereof is thereafter
recovered from such purchasing Bank, the related purchases from the other
Banks shall be rescinded ratably and the purchase price restored as to the
portion of such excess payment so recovered, but without interest. Each
Bank's ratable share of any such Set-Off shall be determined by the
proportion that the aggregate principal amount of Loans and Reimbursement
Obligations then due and payable to such Bank bears to the total aggregate
principal amount of Loans and Reimbursement Obligations then due and
payable to all the Banks.
SECTION 11.18. JURISDICTION; VENUE. THE COMPANY HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS AND OF ANY ILLINOIS COURT SITTING IN CHICAGO
FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
SECTION 11.19. LAWFUL RATE. All agreements between the Company, the Agent
and each of the Banks, whether now existing or hereafter arising and
whether written or oral, are expressly limited so that in no contingency or
event whatsoever, whether by reason of demand or acceleration of the
maturity of any of the indebtedness hereunder or otherwise, shall the
amount contracted for, charged, received, reserved, paid or agreed to be
paid to the Agent or each Bank for the use, forbearance, or detention of
the funds advanced hereunder or otherwise, or for the performance or
payment of any covenant or obligation contained in any document executed in
connection herewith (all such documents being hereinafter collectively
referred to as the "CREDIT DOCUMENTS"), exceed the highest lawful rate
permissible under applicable law (the "HIGHEST LAWFUL RATE"), it being the
intent of the Company, the Agent and each of the Banks in the execution
hereof and of the Credit Documents to contract in strict accordance with
applicable usury laws. If, as a result of any circumstances whatsoever,
fulfillment by the Company of any provision hereof or of any of such
documents, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by applicable usury
law or result in the Agent or any Bank having or being deemed to have
contracted for, charged, reserved or received interest (or amounts deemed
to be interest) in excess of the maximum, lawful rate or amount of interest
allowed by applicable law to be so contracted for, charged, reserved or
received by the Agent or such Bank, then, IPSO FACTO, the obligation to be
fulfilled by the Company shall be reduced to the limit of such validity,
and if, from any such circumstance, the Agent or such Bank shall ever
receive interest or anything which might be deemed interest under
applicable law which would exceed the Highest Lawful Rate, such amount
which would be excessive interest shall be refunded to the Company or, to
the extent (i) permitted by applicable law and (ii) such excessive interest
does not exceed the unpaid principal balance of the Notes and the amounts
owing on other obligations of the Company to the Agent or any Bank under
any Loan Document applied to the reduction of the principal amount owing on
account of the Notes or the amounts owing on other obligations of the
Company to the Agent or any Bank under any Loan Document and not to the
payment of interest. All interest paid or agreed to be paid to the Agent
or any Bank shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full period of the
indebtedness hereunder until payment in full of the principal of the
indebtedness hereunder (including the period of any renewal or extension
thereof) so that the interest on account of the indebtedness hereunder for
such full period shall not exceed the highest amount permitted by
applicable law. This paragraph shall control all agreements between the
Company, the Agent and the Banks.
SECTION 11.20. GOVERNING LAW. (a) THIS AGREEMENT AND THE RIGHTS AND
DUTIES OF THE PARTIES HERETO, SHALL BE CONSTRUED AND DETERMINED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, EXCEPT TO THE
EXTENT PROVIDED IN SECTION 11.20(b) HEREOF AND TO THE EXTENT THAT THE
FEDERAL LAWS OF THE UNITED STATES OF AMERICA MAY OTHERWISE APPLY.
(b) NOTWITHSTANDING ANYTHING IN SECTION 11.20(a) HEREOF TO THE
CONTRARY, NOTHING IN THIS AGREEMENT, THE NOTES, OR THE OTHER LOAN DOCUMENTS
SHALL BE DEEMED TO CONSTITUTE A WAIVER OF ANY RIGHTS WHICH THE COMPANY, THE
AGENT OR ANY OF THE BANKS MAY HAVE UNDER THE NATIONAL BANK ACT OR OTHER
APPLICABLE FEDERAL LAW.
SECTION 11.21. LIMITATION OF LIABILITY. NO CLAIM MAY BE MADE BY THE
COMPANY, ANY SUBSIDIARY OR ANY GUARANTOR AGAINST ANY BANK OR ITS
AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS FOR ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR
WRONGFUL CONDUCT (WHETHER THE CLAIM THEREFOR IS BASED ON CONTRACT, TORT OR
DUTY IMPOSED BY LAW) IN CONNECTION WITH, ARISING OUT OF OR IN ANY WAY
RELATED TO THE TRANSACTIONS CONTEMPLATED AND RELATIONSHIPS ESTABLISHED BY
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY ACT, OMISSION OR
EVENT OCCURRING IN CONNECTION THEREWITH. THE COMPANY, EACH SUBSIDIARY AND
EACH GUARANTOR HEREBY WAIVE, RELEASE AND AGREE NOT TO SUE UPON SUCH CLAIM
FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR
SUSPECTED TO EXIST IN ITS FAVOR.
SECTION 11.22. NONLIABILITY OF LENDERS. The relationship between the
Company and the Banks is, and shall at all times remain, solely that of
borrower and lenders, and the Banks and the Agent neither undertake nor
assume any responsibility or duty to the Company to review, inspect,
supervise, pass judgment upon, or inform the Company of any matter in
connection with any phase of the Company's business, operations, or
condition, financial or otherwise. The Company shall rely entirely upon
its own judgment with respect to such matters, and any review, inspection,
supervision, exercise of judgment, or information supplied to the Company
by any Bank or the Agent in connection with any such matter is for the
protection of the Bank and the Agent, and neither the Company nor any third
party is entitled to rely thereon.
SECTION 11.23. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, TOGETHER WITH
THE OTHER LOAN DOCUMENTS EXECUTED CONTEMPORANEOUSLY HEREWITH, REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES."
Exhibits A through P, inclusive of the Credit Agreement shall each be
amended, and as so amended shall be restated in their entirety to read as
set forth in Exhibits A through P hereto, respectively.
The amendments reflected in the above and foregoing Amended and
Restated Secured Credit Agreement shall not become effective unless and
until the following conditions precedent have been satisfied:
(a) The Company and each of the Banks shall have executed this
Amended and Restated Secured Credit Agreement (such execution may be in
several counterparts and the several parties hereto may execute on separate
counterparts).
(b) Mr. and Mrs. Lonnie A. Pilgrim shall have executed and delivered
to the Banks the Guarantors' Consent in the form set forth below.
(c) Each of the representations and warranties set forth in Section 5
of the Credit Agreement shall be true and correct.
(d) The Company shall be in full compliance with all of the terms and
conditions of the Credit Agreement and no Event of Default or Potential
Default shall have occurred and be continuing thereunder or shall result
after giving effect to this Amended and Restated Secured Credit Agreement.
(e) All legal matters incident to the execution and delivery hereof
and the instruments and documents contemplated hereby shall be satisfactory
to the Banks.
(f) The Agent shall have received (in sufficient counterparts for
distribution to each of the Banks) all of the following in a form
satisfactory to the Agent, the Banks and their respective counsel:
(i) a Secured Revolving Credit Note in the form attached hereto
as Exhibit A payable to the order of each Bank in the principal amount
of its Revolving Credit Commitment;
(ii) copies (executed or certified as may be appropriate) of all
legal documents or proceedings taken in connection with the execution
and delivery of this Amended and Restated Secured Credit Agreement,
and the other instruments and documents contemplated hereby; and
(iii) an opinion of counsel to the Company substantially in a form
as set forth in Exhibit E hereto and satisfactory to the Agent, the
Banks and their respective counsel.
(g) The Company shall at the time all other conditions precedent to
the effectiveness of the above and foregoing amendments have been satisfied
be able to comply with the conditions precedent to borrowing set forth in
Section 6 hereof.
The Company, by its execution of this Amended and Restated
Secured Credit Agreement, hereby represents and warrants the
following:
(a) each of the representations and warranties set forth in
Section 5 of the Credit Agreement is true and correct as of the date
hereof, except that the representations and warranties made under
Section 5.3 shall be deemed to refer to the most recent annual report
furnished to the Banks by the Company; and
(b) the Company is in full compliance with all of the terms and
conditions of the Credit Agreement and no Event of Default or
Potential Default has occurred and is continuing thereunder.
The Company agrees to pay all costs and expenses incurred by the
Agent and the Banks in connection with the preparation, execution and
delivery of this Amended and Restated Secured Credit Agreement and the
documents and transactions contemplated hereby including the fees and
expenses of Messrs. Chapman and Cutler with respect to the foregoing.
No reference to this Amended and Restated Secured Credit Agreement need
be made in any note, security agreement, instrument or other documents
making reference to the Credit Agreement, any reference to the Credit
Agreement in any of such to be deemed to be a reference to the Credit
Agreement as amended and restated hereby. This Amended and Restated
Secured Credit Agreement may be executed in any number of counterparts
and by different parties hereto on separate counterparts, each of which
when so executed shall be deemed an original, but all of which to
constitute but one and the same instrument.
The Company has heretofore executed and delivered to the Agent that
certain Security Agreement Re: Accounts Receivable, Farm Products and
Inventory dated as of May 27, 1993 (the "SECURITY AGREEMENT"), and the
Company hereby agrees that notwithstanding the execution and delivery
hereof, the Security Agreement shall be and remain in full force and effect
and that any rights and remedies of the Agent thereunder, obligations of
the Company thereunder and any liens or security interests created or
provided for thereunder shall be and remain in full force and effect, shall
not be affected, impaired or discharged thereby and shall secure all of the
Company's indebtedness, obligations and liabilities to the Agent and the
Banks under the Credit Agreement as amended and restated hereby. Nothing
herein contained shall in any manner affect or impair the priority of the
liens and security interests created and provided for by the Security
Agreement as to the indebtedness which would be secured thereby prior to
giving effect hereto. Without limiting the foregoing, the Company
acknowledges and agrees that all of its indebtedness, obligations and
liabilities to the Agent and the Banks pursuant to the Credit Agreement as
amended and restated hereby, including without limitation, all principal of
and interest on the Revolving Notes (as defined in the Credit Agreement as
amended and restated hereby), whether presently existing or hereafter
arising, shall constitute "Secured Obligations" as defined in the Security
Agreement and shall be secured by, and entitled to all of the benefits of,
the liens and security interest created and provided for under the Security
Agreement. In furtherance of the foregoing, the Company hereby grants to
the Agent for the benefit of the Banks, and hereby agrees that the Agent
for the benefit of the Banks shall continue to have a continuing security
interest in, all and singular of the Company's receivables, farm products,
inventory, books and records, documents, accessions and additions to all of
the foregoing and all products and proceeds of each of the foregoing, and
all proceeds or collection of any of the foregoing and all of the other
collateral described or referred to in the granting clauses of the Security
Agreement, each and all of which granting clauses are hereby incorporated
by reference herein in their entirety. The foregoing grant shall be in
addition to and supplemental of and not in substitution for the grant by
the Company under the Security Agreement, and shall not affect or impair
the lien or priority of the Security Agreement in the collateral subject
thereto or the indebtedness secured thereby.
THIS AMENDED AND RESTATED SECURED CREDIT AGREEMENT AND THE RIGHTS AND
DUTIES OF THE PARTIES HERETO, SHALL BE CONSTRUED AND DETERMINED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, EXCEPT TO THE
EXTENT PROVIDED IN THE NEXT PARAGRAPH HEREOF AND TO THE EXTENT THAT THE
FEDERAL LAWS OF THE UNITED STATES OF AMERICA MAY OTHERWISE APPLY.
NOTWITHSTANDING ANYTHING IN THE IMMEDIATELY PRECEDING PARAGRAPH HEREOF
TO THE CONTRARY, NOTHING IN THIS AMENDED AND RESTATED SECURED CREDIT
AGREEMENT, THE CREDIT AGREEMENT, THE NOTES, OR THE OTHER LOAN DOCUMENTS
SHALL BE DEEMED TO CONSTITUTE A WAIVER OF ANY RIGHTS WHICH THE COMPANY, THE
AGENT OR ANY OF THE BANKS MAY HAVE UNDER THE NATIONAL BANK ACT OR OTHER
APPLICABLE FEDERAL LAW.
<PAGE>
-3-
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set
forth.
Dated as of August 11, 1997.
PILGRIM'S PRIDE CORPORATION
By \s\ Clifford E. Butler
____________Its Executive President
Accepted and Agreed to as of the day and year last above written.
HARRIS TRUST AND SAVINGS BANK
individually and as Agent
By \s\ Carl Blackham
_________________Its Vice President
Address: 111 West Monroe Street
Chicago, Illinois 60690
Attention: Agribusiness Division
FBS AG CREDIT, INC.
By \s\ Ronald E von Steyn
________________________________Its
Address: 950 Seventeenth Street
Suite 350
Denver, Colorado 80202
Attention: Ron van Steyn
COBANK, ACB
By \s\ Virgil Harms
________________________________Its
Address: P.O. Box 2940
245 North Waco
Wichita, Kansas 67201-2940
Attention:
ING (U.S.) CAPITAL CORPORATION
By \s\ Sheila Greatrex
________________________________Its
Address: 135 East 57th Street
New York, New York 10022-2101
Attenti _______________________
WELLS FARGO BANK (TEXAS), N.A.
By \s\ Hugh S. Miller
________________________________Its
Address: 1455 Ross Avenue
Dallas, Texas 75202
Attention:
CAISSE NATIONALE DE CREDIT AGRICOLE,
CHICAGO BRANCH
By \s\ W. Leroy Startz
________________________________Its
Address: 55 East Monroe Street
Suite 4700
Chicago, Illinois 60603
Attention:
<PAGE>
-2-
GUARANTORS' CONSENT
The undersigned, Lonnie A. Pilgrim and Patty R. Pilgrim, have executed
and delivered a Guaranty Agreement dated as of May 27, 1993 (the
"GUARANTY") to the Banks. As an additional inducement to and in
consideration of the Banks' acceptance of the foregoing Amended and
Restated Secured Credit Agreement (the "AMENDED CREDIT AGREEMENT"), the
undersigned hereby agree with the Banks as follows:
1. Each of the undersigned consents to the execution of the
foregoing Amended Credit Agreement by the Company and acknowledges that
this consent is not required under the terms of the Guaranty and that the
execution hereof by the undersigned shall not be construed to require the
Banks to obtain the undersigneds' consent to any future amendment,
modification or waiver of any term of the Amended Credit Agreement except
as otherwise provided in said Guaranty. Each of the undersigned hereby
agrees that the Guaranty shall apply to all indebtedness, obligations and
liabilities of the Company to the Banks, the Agent and under the Credit
Agreement, as amended and restated pursuant to the foregoing Amended Credit
Agreement. Each of the undersigned further agrees that the Guaranty shall
be and remain in full force and effect.
2. All terms used herein shall have the same meaning as in the
foregoing Amended Credit Agreement, unless otherwise expressly defined
herein.
Dated as of August 11, 1997.
Lonnie A. Pilgrim
\s\ Lonnie A. Pilgrim
Patty R. Pilgrim
\s\ Patty R. Pilgrim
<PAGE>
-2-
EXHIBIT A
Pilgrim's Pride Corporation
SECURED REVOLVING CREDIT NOTE
August 11, 1997
FOR VALUE RECEIVED, the undersigned, PILGRIM'S PRIDE CORPORATION, a
Delaware corporation (the "COMPANY"), promises to pay to the order of
________________ (the "LENDER") on the Termination Date (as defined in the
Credit Agreement referred to below), at the principal office of Harris
Trust and Savings Bank in Chicago, Illinois, the aggregate unpaid principal
amount of all Revolving Credit Loans and Bid Loans made by the Lender to
the Company under the Revolving Credit provided for under the Credit
Agreement hereinafter mentioned and remaining unpaid on the Termination
Date, together with interest on the principal amount of each Revolving
Credit Loan and Bid Loan from time to time outstanding hereunder at the
rates, and payable in the manner and on the dates specified in said Credit
Agreement.
The Lender shall record on its books or records or on the schedule to
this Note which is a part hereof the principal amount of each Revolving
Credit Loan and Bid Loan made under the Revolving Credit, whether each Loan
is a Domestic Rate Loan or a Eurodollar Loan and, with respect to Fixed
Rate Loans, the interest rate and Interest Period applicable thereto, and
all payments of principal and interest and the principal balances from time
to time outstanding; provided that prior to the transfer of this Note all
such amounts shall be recorded on a schedule attached to this Note. The
record thereof, whether shown on such books or records or on the schedule
to this Note, shall be PRIMA FACIE evidence as to all such amounts;
provided, however, that the failure of the Lender to record or any mistake
in recording any of the foregoing shall not limit or otherwise affect the
obligation of the Company to repay all Revolving Credit Loans and Bid Loans
made under the Credit Agreement, together with accrued interest thereon.
This Note is one of the Revolving Notes referred to in and issued
under that certain Amended and Restated Secured Credit Agreement dated as
of August 11, 1997, among the Company, Harris Trust and Savings Bank, as
Agent, and the banks named therein, as amended from time to time (the
"CREDIT AGREEMENT"), and this Note and the holder hereof are entitled to
all of the benefits and security provided for thereby or referred to
therein, including without limitation the collateral security provided
pursuant to the Security Agreement (as defined in the Credit Agreement), to
which Credit Agreement and Security Agreement reference is hereby made for
a statement thereof and a statement of the terms and conditions upon which
the Agent may exercise rights with respect to such collateral. All defined
terms used in this Note, except terms otherwise defined herein, shall have
the same meaning as such terms have in said Credit Agreement.
Prepayments may be made on any Revolving Credit Loan evidenced hereby
and this Note (and the Revolving Credit Loans evidenced hereby) may be
declared due prior to the expressed maturity thereof, all in the events, on
the terms and in the manner as provided for in said Credit Agreement and
the Security Agreement.
All agreements between the Company, the Agent (as defined in the
Credit Agreement) and each of the Banks (as defined in the Credit
Agreement), whether now existing or hereafter arising and whether written
or oral, are expressly limited so that in no contingency or event
whatsoever, whether by reason of demand or acceleration of the maturity of
any of the indebtedness hereunder or otherwise, shall the amount contracted
for, charged, received, reserved, paid or agreed to be paid to the Agent or
each Bank for the use, forbearance, or detention of the funds advanced
hereunder or otherwise, or for the performance or payment of any covenant
or obligation contained in any document executed in connection herewith
(all such documents being hereinafter collectively referred to as the
"CREDIT DOCUMENTS"), exceed the highest lawful rate permissible under
applicable law (the "HIGHEST LAWFUL RATE"), it being the intent of the
Company, the Agent and each of the Banks in the execution hereof and of the
Credit Documents to contract in strict accordance with applicable usury
laws. If, as a result of any circumstances whatsoever, fulfillment by the
Company of any provision hereof or of any of such documents, at the time
performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by applicable usury law or result in the Agent
or any Bank having or being deemed to have contracted for, charged,
reserved or received interest (or amounts deemed to be interest) in excess
of the maximum, lawful rate or amount of interest allowed by applicable law
to be so contracted for, charged, reserved or received by the Agent or such
Bank, then, IPSO FACTO, the obligation to be fulfilled by the Company shall
be reduced to the limit of such validity, and if, from any such
circumstance, the Agent or such Bank shall ever receive interest or
anything which might be deemed interest under applicable law which would
exceed the Highest Lawful Rate, such amount which would be excessive
interest shall be refunded to the Company or, to the extent (i) permitted
by applicable law and (ii) such excessive interest does not exceed the
unpaid principal balance of the Notes (as defined in the Credit Agreement)
and the amounts owing on other obligations of the Company to the Agent or
any Bank under any Loan Document (as defined in the Credit Agreement)
applied to the reduction of the principal amount owing on account of the
Notes or the amounts owing on other obligations of the Company to the Agent
or any Bank under any Loan Document and not to the payment of interest.
All interest paid or agreed to be paid to the Agent or any Bank shall, to
the extent permitted by applicable law, be amortized, prorated, allocated,
and spread throughout the full period of the indebtedness hereunder until
payment in full of the principal of the indebtedness hereunder (including
the period of any renewal or extension thereof) so that the interest on
account of the indebtedness hereunder for such full period shall not exceed
the highest amount permitted by applicable law. This paragraph shall
control all agreements between the Company, the Agent and the Banks.
The undersigned hereby expressly waives diligence, presentment,
demand, protest, notice of protest, notice of intent to accelerate, notice
of acceleration, and notice of any other kind.
IT IS AGREED THAT THIS NOTE AND THE RIGHTS AND REMEDIES OF THE HOLDER
HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF ILLINOIS, PROVIDED, HOWEVER, THAT NOTHING IN THIS NOTE
SHALL BE DEEMED TO CONSTITUTE A WAIVER OF ANY RIGHTS WHICH THE COMPANY, THE
AGENT OR ANY OF THE BANKS MAY HAVE UNDER THE NATIONAL BANK ACT OR OTHER
APPLICABLE FEDERAL LAW.
PILGRIM'S PRIDE CORPORATION
By \s\ Clifford E. Butler
____________Its Executive President
<PAGE>
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EXHIBIT B
L/C AGREEMENT
<PAGE>
-2-
EXHIBIT C
ENVIRONMENTAL DISCLOSURE
1. Pilgrim's Pride Corporation previously leased a facility located at
3100 Randal Mill Road, Arlington, Texas for use as a storage and
distribution center. When Pilgrim's Pride initial occupied the
facility there were underground storage tanks that had been installed
by others. Pilgrim's Pride Corporation subsequently had the tanks
removed in accordance with Texas Natural Resource Conversation
Commission regulations. Testing of soil from the tank holes indicated
some elevated levels of petroleum based compounds. Pilgrim's Pride
Corporation is working with the TNRCC to further investigate this
situation and take remedial action as deemed appropriate. The
majority of any remediation costs will be covered by funds from the
TNRCC remediation fund, with the financial exposure to Pilgrim's Pride
Corporation being relatively minimal, i.e. estimated at less than
$25,000.
<PAGE>
-2-
EXHIBIT D
PERMITTED LIENS
<TABLE>
<CAPTION>
<S> <C> <C>
LIEN DATE LIEN HOLDER COLLATERAL
10/05/90 State Street Bank
& Trust Company
of Connecticut, N.A. Real Property and Personal Property located
in and around Nacogdoches and Lufkin, Texas,
DeQueen and Nashville, Arkansas and Camp and
Upshur Counties more fully described in a Note
Purchase Agreement dated 9/21/90, as amended.
11/05/86 State Street Bank
& Trust Company
of Connecticut, N.A. Real Property and Personal Property located in
and around Nacogdoches and Lufkin, Texas,
DeQueen and Nashville, Arkansas and Camp and
Upshur Counties more fully described in a Note
Purchase Agreement dated 9/21/90, as amended.
05/01/88 Ameritrust Real Property and Personal Property described
in a Deed of Trust dated 10/4/90, as amended,
from Pilgrim's Pride Corporation to
Ameritrust.
08/09/80 Ameritrust First lien on Feed Mill located in
Nacogdoches, Texas.
10/05/90 State Street Bank
& Trust Company of
Connecticut, N.A. Real Property and Personal Property located in
and around Nacogdoches and Lufkin, Texas,
DeQueen and Nashville, Arkansas and Camp and
Upshur Counties more fully described in a Note
Purchase Agreement dated 9/21/90, as amended.
1/23/88 Connecticut Mutual
Life Real Property located in Fannin County and
known as Riverby Farm.
10/28/89 Federal Land Bank Real Property located in Lamar County and known
as Chicota and Slate Shoals Farms.
10/28/87 Federal Land Bank Real Property located in Lamar County and known
as Chicota and Slate Shoals Farms.
2/26/88 Federal Land Bank Real Property located in Lamar County and known
as Chicota and Slate Shoals Farms.
7/28/80 John Hancock Mut.Life Insurance Policy on the Life of
Lonnie A. Pilgrim
2/01/88 John Hancock Mut.Life Real Property and Personal Property described
in a Deed of Trust dated 2/1/88, as amended,
from Pilgrim's Pride Corporation to John
Hancock Mutual Life.
05/24/91 John Hancock Mut.Life Real Property and Personal Property described
in a Deed of Trust dated 2/1/88 as amended,
from Pilgrim's Pride Corporation to John
Hancock Mutual Life.
09/26/90 Hibernia National Bank Real Property and Personal Property described
in a Deed of Trust dated 9/20/90 as amended,
from Pilgrim's Pride Corporation to Hibernia
National Bank.
10/16/90 North Texas P.C.A. Real Property and Personal Property described
in a Deed of Trust dated 10/16/90, as amended,
from Pilgrim's Pride Corporation to The North
Texas P.C.A.
10/03/85 Creditanstalt Real Property and Personal Property described
in a Deed of Trust dated 9/24/85 as amended,
from Pilgrim's Pride Corporation to RaboBank
Nederland.
12/03/87 Creditanstalt Real Property and Personal Property described
in a Deed of Trust dated 9/24/85 as amended,
from Pilgrim's Pride Corporation to RaboBank
Nederland.
06/01/90 Creditanstalt Real Property and Personal Property described
in a Deed of Trust dated 9/24/85 as amended,
from Pilgrim's Pride Corporation to RaboBank
Nederland.
06/02/86 Thomas W. Reardon Real Property located in Camp County and known
as part of "Lake" Property.
09/22/89 NCNB-Kerrville Real Property and Personal Property described
in a Deed of Trust dated 9/21/88 from Pilgrim's
Pride Corporation to Charles Schreiner Bank.
10/11/91 XL Data Comp Capitalized Lease-Master Lease dated 10/11/91.
6/2/89 Dana Commercial Capitalized Lease-Master Lease dated 6/20/89.
4/08/93 Welco, LTD. Capitalized Lease-Master Lease dated 4/08/93.
2/16/96 John Hancock Mut.Life Real and Personal Property described in a Deed
of Trust dated 2/16/96, as amended, from
Pilgrim's Pride Corporation to John Hancock
Mutual Life.
4/13/97 John Hancock Mut.Life Real and Personal Property described in a Deed
of Trust dated 4/13/97, as amended, from
Pilgrim's Pride Corporation to John Hancock
Mutual Life.
3/28/95 Agricultural PCA Real and Personal Property described in a Deed
of Trust dated 3/28/97, as amended, from
Pilgrim's Pride Corporation to Agricultural
PCA.
4/13/97 City of Nacogdoches,
Texas Capitalized Lease-Master Lease dated 1/1/96;
acquired in Green Acre Foods, Inc. Acquisition.
4/13/97 Various Leases Security interest or other interest of lessors
in equipment acquired in Green Acre Foods, Inc.
Acquisition.
</TABLE>
<PAGE>
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EXHIBIT E
LEGAL OPINION
(To Be Retyped On Letterhead Of Counsel
And Dated As Of Date Of Closing)
__________________, 1997
Harris Trust and Savings Bank
Chicago, Illinois
FBS Ag Credit, Inc.
Denver, Colorado
CoBank, ACB
Wichita, Kansas
ING (U.S.) Capital Corporation ("ING")
New York, New York
Wells Fargo Bank (Texas), N.A.
Dallas, Texas
Caisse Nationale de Credit Agricole, Chicago Branch
Chicago, Illinois
Ladies and Gentlemen:
We have served as counsel to Pilgrim's Pride Corporation, a Texas
corporation (the "BORROWER"), in connection with a revolving credit
facility being made available by you to the Borrower. As such counsel, we
have supervised the taking of the corporate proceedings necessary to
authorize the execution and delivery of, and have examined executed
originals of, the instruments and documents identified on Exhibit A to this
letter (collectively the "LOAN DOCUMENTS", individual Loan Documents and
other capitalized terms used below being hereinafter referred to by the
designations appearing on Exhibit A). As counsel to the Borrower, we are
familiar with the articles of incorporation, charter, by-laws and any other
agreements under which the Borrower is organized. We have also examined
such other instruments and records and inquired into such other factual
matters and matters of law as we deem necessary or pertinent to the
formulation of the opinions hereinafter expressed.
Based upon the foregoing and upon our examination of the articles of
incorporation, charter and by-laws of the Borrower, we are of the opinion
that:
1. The Borrower is a corporation duly organized and validly existing
and in good standing under the laws of the State of Texas with full and
adequate corporate power and authority to carry on its business as now
conducted and is duly licensed or qualified and in good standing in
jurisdiction wherein the conduct of its business or the assets and
properties owned or leased by it require such licensing or qualification.
2. The Borrower has full right, power and authority to borrow from
you, to mortgage, pledge, assign and otherwise encumber its assets and
properties as collateral security for such borrowings, to execute and
deliver the Loan Documents executed by it and to observe and perform all
the matters and things therein provided for. The execution and delivery of
the Loan Documents executed by the Borrower does not, nor will the
observance or performance of any of the matters or things therein provided
for, contravene any provision of law or of the respective articles of
incorporation, charter or by-laws of the Borrower (there being no other
agreements under which the Borrower is organized) or, to the best of our
knowledge after due inquiry, of any covenant, indenture or agreement
binding upon or affecting the Borrower or any of its properties or assets.
3. The Loan Documents executed by the Borrower have been duly
authorized by all necessary corporate action (no stockholder approval being
required), have been executed and delivered by the proper officers of the
Borrower and constitute valid and binding agreements of the Borrower
enforceable against it in accordance with their respective terms, subject
to bankruptcy, insolvency and other similar laws affecting creditors'
rights generally and to general principles of equity.
4. No order, authorization, consent, license or exemption of, or
filing or registration with, any court or governmental department, agency,
instrumentality or regulatory body, whether local, state or federal, is or
will be required in connection with the lawful execution and delivery of
the Loan Documents or the observance and performance by the Borrower of any
of the terms thereof.
5. To the best of our knowledge after due inquiry, there is no
action, suit, proceeding or investigation at law or in equity before or by
any court or public body pending or threatened against or affecting the
Borrower or any of its assets and properties which, if adversely
determined, could result in any material adverse change in the properties,
business, operations or financial condition of the Borrower or in the value
of the collateral security for your loans and other credit accommodations
to the Borrower.
6. The rates of interest provided for under the Loan Documents and
any other amounts payable thereunder that would constitute interest would
not violate any usury law of the State of Texas should such laws apply to
any of the Loan Documents or any of the indebtedness, obligations and
liabilities of the Borrower or Mr. and Mrs. Lonnie A. Pilgrim thereunder.
____________Respectfully submitted,
<PAGE>
-3-
Exhibit A
THE LOAN DOCUMENTS
(All Loan Documents are dated as of August 11, 997. Harris Trust
and Savings Bank ("HARRIS") in its capacity as agent under the Amended
and Restated Secured Credit Agreement is referred to below as the "AGENT"
and Harris in its individual capacity, together with the other lenders
party to the Amended and Restated Secured Credit Agreement are referred
to below as the "BANKS".)
1. Amended and Restated Secured Credit Agreement by and among the
Borrower, the Agent and the Banks.
2. Secured Revolving Credit Note of the Borrower payable to the
order of Harris in the principal amount of $26,666,667.
3. Secured Revolving Credit Note of the Borrower payable to the
order of FBS Ag Credit, Inc. in the principal amount of
$20,000,000.
4. Secured Revolving Credit Note of the Borrower payable to the
order of CoBank, ACB in the principal amount of $20,000,000.
5. Secured Revolving Credit Note of the Borrower payable to the
order of ING (U.S.) Capital Corporation in the principal amount
of $13,333,333.
6. Secured Revolving Credit Note of the Borrower payable to the
order of Wells Fargo Bank (Texas), N.A. in the principal amount
of $10,000,000.
7. Secured Revolving Credit Note of the Borrower payable to the
order of Caisse Nationale de Credit Agricole, Chicago Branch.
<PAGE>
-4-
EXHIBIT F
Pilgrim's Pride Corporation
COMPLIANCE CERTIFICATE
This Compliance Certificate is furnished to Harris Trust and Savings
Bank, as agent (the "AGENT"), pursuant to that certain Amended and
Restated Secured Credit Agreement dated as of August 11, 1997 by and
among Pilgrim's Pride Corporation (the "COMPANY"), Harris Trust and
Savings Bank and the other Banks parties thereto (the "AGREEMENT").
Unless otherwise defined herein, the terms used in this Compliance
Certificate have the meanings ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected _____________________________________ of
the Company;
2. I have reviewed the terms of the Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Company during the accounting period
covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and
I have no knowledge of, the existence of any condition or event which
constitutes a Potential Default or Event of Default during or at the end
of the accounting period covered by the attached financial statements or
as of the date of this Certificate, except as set forth below; and
4. If attached financial statements are being furnished pursuant
to Section 7.4(a) or (b) of the Agreement, Schedule I attached hereto
sets forth financial data and computations, evidencing the Company's
compliance with certain covenants of the Agreement, all of which data and
computations are true, complete and correct.
Described below are the exceptions, if any, to paragraph 3 by
listing, in detail, the nature of the condition or event, the period
during which it has existed and the action which the Company has taken,
is taking or proposes to take with respect to each such condition or
event:
_______________________________________________________
_______________________________________________________
The foregoing certifications, together with the computations set
forth in Schedule I hereto and the financial statements delivered with
this Certificate in support hereof, are made and delivered this ________
day of ______________________, 19___.
PILGRIM'S PRIDE CORPORATION
By
________________________________
Its
SECOND AMENDMENT TO SECOND AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT
<PAGE>
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (the "Amendment"), is made and entered into as of the
18th day of September, 1997 by and among PILGRIM'S PRIDE CORPORATION, a
Delaware corporation ("Borrower"), each of the Banks signatory hereto
(hereinafter referred to individually as a ABank@ and collectively as the
"Banks"), and CREDITANSTALT-BANKVEREIN, as agent for the Banks (in such
capacity, together with its successors and assigns in such capacity
hereinafter referred to as the "Agent").
W I T N E S S E T H:
WHEREAS, Borrower, the Banks and the Agent are parties to that
certain Loan and Security Agreement, dated as of June 3, 1993 (the
"Original Loan Agreement"), which provided for a term loan (the "Original
Facility") in the original principal amount of Twenty-Eight Million
Dollars ($28,000,000.00);
WHEREAS, by that certain Amended and Restated Loan and Security
Agreement dated July 29, 1994 (the "Amended and Restated Loan
Agreement"), the Borrower, the Banks and the Agent amended and restated
the Original Loan Agreement (a) to continue the Original Facility at its
then current outstanding balance of $21,700,000.00; (b) to make a
standby/term loan (the AExisting Standby/Term Facility@) to Borrower to
be utilized on or before June 20, 1995 (the "Conversion Date"); and
(c) to make certain other changes as more fully set forth therein;
WHEREAS, by letter agreement of the parties dated June 19, 1995, the
Amended and Restated Loan Agreement was amended to extend the Conversion
Date to September 20, 1995;
WHEREAS, John Hancock Mutual Life Insurance Company, a Massachusetts
corporation, (AHancock@) or its assignee has heretofore released its Lien
on the Mortgaged Property, evidenced by (i) that certain promissory note
dated February 1, 1988, executed by the Borrower and payable to Hancock's
order in the original principal amount of $20,000,000, secured by that
certain Deed of Trust, Mortgage and Security Agreement dated February 1,
1988, executed by the Borrower for the benefit of Hancock, and recorded
in Volume 182, Page 315, aforesaid Records, amended by instruments
recorded in Volume 656, page 163, aforesaid Records and Volume 698, page
77, assigned to Agriculture Production Credit Association ("APCA") by
instrument recorded at file number 2798, aforesaid Records, and (ii) that
certain promissory note dated April 25, 1991, executed by the Borrower
for the benefit of Hancock, and recorded in Volume 656, Page 168, Deed of
Trust Records, Titus County, Texas, amended by instrument recorded in
Volume 698, page 77, aforesaid Records, assigned to APCA by instrument
recorded at file number 2798, aforesaid Records.
WHEREAS, by that certain Second Amended and Restated Loan and
Security Agreement dated as of July 31, 1995 (the "Agreement") the
Borrower, the Banks and the Agent amended and restated the Amended and
Restated Loan Agreement (a) to continue the Original Facility at its then
current outstanding balance of $15,400,000.00; (b) to continue the
Existing Standby/Term Facility at its then current outstanding balance of
$10,000,000.00; (c) to make an additional term loan to Borrower in the
original principal amount of $5,000,000.00 (the "Term Facility"); and
(d) to make certain other changes as more fully set forth therein;
WHEREAS, by that certain First Amendment to Second Amended and
Restated Loan and Security Agreement dated as of May 30, 1996, the
Borrower, the Banks and the Agent amended the Agreement to change the
interest rate and modify certain financial covenants set forth therein;
WHEREAS, the Borrower, the Banks and the Agent wish to amend the
Agreement further (a) to continue the Original Facility at its current
balance of $13,300,000.00; (b) to continue the Existing Standby/Term
Facility at its current outstanding balance of $8,664,000.00; (c) to
continue the Term Facility at its current outstanding balance of
$4,666,000.00; (d) to make an additional term loan to Borrower; (e) to
grant a Lien to Agent in additional collateral; (f) to modify certain
financial covenants set forth therein; and (g) to make certain other
changes as more fully set forth herein;
NOW, THEREFORE, for and in consideration of the premises, the terms
and conditions set forth herein, and for other good and valuable
consideration, the sufficiency and receipt of all of which are
acknowledged by Borrower, Borrower, the Banks and Agent agree as follows:
1. DEFINED TERMS. Defined terms used herein, as indicated by the
initial capitalization thereof, shall have the same respective meanings
ascribed to such terms in the Agreement unless otherwise specifically
defined herein.
2. AMENDMENTS.
(a) The Agreement is hereby amended by adding the following
definitions to Section 1.1:
"FACILITY C TERM LOANS" shall mean, collectively, the
loans made pursuant to Section 2.1(d) hereof, and "FACILITY C
TERM LOAN" shall mean any loan made pursuant to Section 2.1(d)
hereof.
"FACILITY C TERM NOTE" or "FACILITY C TERM NOTES" shall
have the meanings given to such terms in Section 2.1(d) hereof.
"NEW DEED OF TRUST" shall mean the Deed of Trust,
Assignment of Rents and Security Agreement dated as of
September 18, 1997, recorded or to be recorded in the Camp
County, Texas Deed Records, executed by Borrower, conveying a
first Lien security interest in the Camp County Mortgaged
Property to secure the repayment of the Loans and the
performance of the Obligations, and all amendments thereto.
"CAMP COUNTY LAND" shall mean the real estate or interest
therein described in EXHIBIT "A-2" attached hereto and
incorporated herein by this reference, all fixtures or other
improvements situated thereon and all rights, titles and
interests appurtenant thereto.
"CAMP COUNTY MORTGAGED PROPERTY" shall mean the Camp
County Land, the Leases and Equipment and all other property
(real, personal or mixed) which is conveyed by the New Deed of
Trust or any other Loan Document in which a lien therein is
created.
"FOURTH DEED OF TRUST" shall mean the Deed of Trust,
Assignment of Rents and Security Agreement dated as of
September 18, 1997, recorded or to be recorded in the Titus
County, Texas Deed Records, executed by Borrower conveying a
fourth Lien security interest in the Titus County Mortgaged
Property to secure repayment of the Loans and performance of
the Obligations, and all amendments thereto.
"SECOND AMENDMENT CLOSING DATE" shall mean the date this
Amendment has been signed by Borrower, the Banks and the Agent
and has become effective in accordance with Section 3 hereof.
"TITUS COUNTY LAND" shall mean the real estate or interest
therein described in EXHIBIT "A" attached hereto and
incorporated herein by reference, all fixtures or other
improvements situated thereon and all rights, titles and
interests appurtenant thereto.
"TITUS COUNTY MORTGAGED PROPERTY" shall mean the Titus
County Land, the Leases and Equipment relating thereto and all
other property (real, personal or mixed) which is conveyed by
the Deed of Trust, the Second Deed of Trust, the Third Deed of
Trust, the Fourth Deed of Trust or any other Loan Document in
which a lien therein is created.
(b) The Agreement is hereby amended by deleting the definitions of
the following terms in their entirety from Section 1.1 and substituting
in lieu thereof the following definitions:
"LAND" shall mean the Titus County Land and the Camp County
Land.
"LOAN" shall mean either a Term Loan, a Standby/Term Loan,
a Facility B Term Loan or a Facility C Term Loan, and "LOANS"
shall mean, collectively, all Term Loans, Standby/Term Loans,
Facility B Term Loans and Facility C Term Loans. Loans may be
either Eurodollar Loans or Base Rate Loans, each of which is a
"type" of Loan.
"LOAN DOCUMENTS" shall mean this Agreement, the Deed of
Trust, the Second Deed of Trust, the Third Deed of Trust, the
Fourth Deed of Trust, the New Deed of Trust, the Notes, any
financing statements covering portions of the Collateral and
any and all other instruments, documents, and agreements now or
hereafter executed and/or delivered by Borrower or its
Subsidiaries in connection herewith, or any one, more, or all
of the foregoing, as the context shall require, and "LOAN
DOCUMENT" shall mean any one of the Loan Documents.
"MATURITY DATE" shall mean June 30, 2003.
"MORTGAGED PROPERTY" shall mean the Titus County Mortgaged
Property, the Camp County Mortgaged Property and all other
property (real, personal or mixed) on which a Lien is placed or
granted to secure the repayment or the performance of the
Obligations.
"NOTES" shall mean, collectively, the Term Notes, the
Standby/Term Notes, the Facility B Term Notes and the Facility
C Term Notes.
"OBLIGATIONS" shall mean the Loans and any and all other
indebtedness, liabilities and obligations of Borrower and its
Subsidiaries, or any of them, to any Bank of every kind and
nature (including, without limitation, interest charges,
expenses, attorneys= fees and other sums chargeable to Borrower
by Agent or any Bank and future advances made to or for the
benefit of Borrower), arising under this Agreement, the Deed of
Trust, the Second Deed of Trust, the Third Deed of Trust, the
Fourth Deed of Trust, the New Deed of Trust or the other Loan
Documents, whether direct or indirect, absolute or contingent,
primary or secondary, due or to become due, now existing or
hereafter acquired.
(c) Subsections 2.1(a)(ii), 2.1(b)(ii) and 2.1(c)(ii) are hereby
amended to provide that, from and after the Second Amendment Closing
Date, the quarterly installments of principal of the Term Loans, the
Standby/Term Loans and the Facility B Term Loans, respectively, shall be
payable on March 15, June 15, September 15, and December 15 of each year,
commencing December 15, 1997, and continuing through June 15, 2003, in
the quarterly installment amount set forth in each such subsection, with
a final installment due and payable on each such category of Loans on the
Maturity Date in an amount equal to the then-outstanding unpaid aggregate
principal amount thereof, together with all accrued but unpaid interest
thereon.
(d) The Agreement is hereby amended by inserting the following
Subsection 2.1(d) immediately following Subsection 2.1(c) thereof:
(d) FACILITY C TERM LOANS.
(i) Subject to the terms and conditions hereof and
provided there exists no Default or Event of Default, each Bank
severally agrees to make on the Second Amendment Closing Date loans
(each a "Facility C Term Loan" and collectively the "Facility C Term
Loans"), as requested by Borrower in accordance with the provisions
of Section 2.3 hereof, to Borrower in an aggregate amount of
Thirteen Million Three Hundred Seventy Thousand and No 100 Dollars
($13,370,000.00). The Facility C Term Loans made by each Bank shall
be evidenced by a promissory note, substantially in the form of
EXHIBIT "C-3" attached hereto, payable to such Bank in the principal
face amount of such Bank's Loan Percentage of the Facility C Term
Loans (together with any and all amendments, modifications and
supplements thereto, and any renewals, replacements or extensions
thereof (including, but not limited to, pursuant to Sections 13.4
and 13.4(e) hereof), in whole or in part, individually a "Facility C
Term Note" and collectively the "Facility C Term Notes"). Facility
C Term Loans, once borrowed and repaid, may not be reborrowed.
(ii) The aggregate principal amount of the Facility C
Term Loans shall be repayable in twenty-two (22) quarterly
installments of principal, payable on March 15, June 15,
September 15 and December 15 of each year, commencing December 15,
1997, and continuing through June 15, 2003, with the first nineteen
(19) such installments each being in an amount equal to Forty-Nine
Thousand Five Hundred and No/100 Dollars ($49,500.00), and with the
next three (3) such installments each being in an amount equal to
Seven Hundred Forty-Nine Thousand Five Hundred and No/100 Dollars
($749,500.00), and with a final payment due and payable on the
Maturity Date in an amount equal to the then-outstanding unpaid
aggregate principal amount of the Facility C Term Loans, together
with all accrued but unpaid interest thereon.
(e) The Agreement is hereby amended by deleting Section 4.2 thereof
in its entirety and substituting in lieu thereof a new Section 4.2 to
read as follows:
4.2 TITUS COUNTY MORTGAGED PROPERTY. As additional
security for the Obligations, Borrower has heretofore granted
to Agent, for the benefit of the Banks, a first (except for
prior liens expressly permitted thereby) priority lien on and
security interest in the Titus County Mortgaged Property,
evidenced by the Deed of Trust, a second (except for prior
Liens expressly permitted thereby) priority Lien on and
security interest in the Titus County Mortgaged Property,
evidenced by the Second Deed of Trust, and a third (except for
prior Liens expressly permitted thereby) priority Lien on and
security interest in the Titus County Mortgaged Property,
evidenced by the Third Deed of Trust and Borrower has of even
date herewith granted to Agent, for the benefit of the Banks, a
fourth (except for prior Liens expressly permitted thereby)
priority Lien on and security interest in the Titus County
Mortgaged Property, evidenced by the Fourth Deed of Trust,
recorded or to be recorded in the Titus County, Texas Deed
Records.
(f) The Agreement is hereby amended by inserting a new Section 4.5
to read as follows:
4.5 CAMP COUNTY MORTGAGED PROPERTY. As additional
security for the Obligations, Borrower has of even date
herewith granted to Agent, for the benefit of the Banks, a
first (except for prior liens expressly permitted thereby)
priority Lien on and security interest in the Camp County
Mortgaged Property, evidenced by the New Deed of Trust,
recorded or to be recorded in the Camp County, Texas Deed
Records.
(g) The Agreement is hereby amended by deleting Section 9.13
thereof in its entirety and substituting in lieu thereof new Section 9.13
to read as follows:
9.13 EVENT OF DEFAULT UNDER DEED OF TRUST, SECOND DEED OF
TRUST, THIRD DEED OF TRUST, FOURTH DEED OF TRUST OR NEW DEED OF
TRUST. There occurs an AEvent of Default@ under the Deed of
Trust, the Second Deed of Trust, the Third Deed of Trust, the
Fourth Deed of Trust or the New Deed of Trust.
(h) The Agreement is hereby amended by deleting Section 10.7
thereof in its entirety and substituting in lieu thereof new Section 10.7
to read as follows:
10.7 REMEDIES UNDER DEED OF TRUST, SECOND DEED OF TRUST,
THIRD DEED OF TRUST, FOURTH DEED OF TRUST AND NEW DEED OF
TRUST. The right of the Agent to sell or otherwise dispose of
all or any of the Mortgaged Property, in the manner provided
for in the Deed of Trust, the Second Deed of Trust, the Third
Deed of Trust, the Fourth Deed of Trust and the New Deed of
Trust, all other rights and remedies available to the Agent
under the Deed of Trust, the Second Deed of Trust, the Third
Deed of Trust, the Fourth Deed of Trust and the New Deed of
Trust.
(i) The Agreement is hereby amended by adding thereto EXHIBIT "A-2" and
EXHIBIT "C-2" attached hereto and by this reference incorporated in and made a
part of the Agreement.
(j) The Agreement is hereby amended by deleting SCHEDULE 5.2 and
SCHEDULE 5.17 attached thereto in their entirety and substituting in lieu
thereof new SCHEDULE 5.2 and SCHEDULE 5.17, respectively, attached hereto and
by this reference incorporated in the Agreement.
3. CONDITIONS PRECEDENT; EFFECTIVENESS. Subject to the other
terms and conditions hereof, this Amendment, and the amendments and terms
set forth herein, shall not become effective until the following
conditions have been met to the sole and complete satisfaction of Agent
and its counsel:
(a) Agent shall have received the following documents, each duly
executed and delivered to the Agent, for the benefit of the
Banks, and each to be satisfactory in form and substance to
Agent and its counsel:
(i) this Amendment;
(ii) the Facility C Term Note;
(iii) the Fourth Deed of Trust;
(iv) the New Deed of Trust;
(v) a Reaffirmation of that certain Environmental
Indemnity Agreement dated June 3, 1993, reaffirming
the warranties and representations made by Borrower
thereunder;
(vi) a certificate signed by the executive president and
chief financial officer of Borrower dated as of the
Second Amendment Closing Date, stating that the
representations and warranties set forth in Article 5
of the Agreement are true and correct in all material
respects on and as of such date with the same effect
as though made on and as of such date, stating that
Borrower is on such date in compliance with all the
terms and conditions set forth in the Agreement on
its part to be observed and performed, and stating
that on such date, and after giving effect to the
making of any initial Loan no Default or Event of
Default has occurred or is continuing;
(vii) a certificate of the Secretary of Borrower dated as
of the Second Amendment Closing Date certifying
(1) that there have been no amendments to the
Certificate of Incorporation of Borrower since May
30, 1996; (2) that there have been no amendments to
the By-laws of Borrower since May 30, 1996, other
than the amendment dated December 4, 1996, attached
thereto; (3) that attached thereto is a true and
complete copy of Resolutions adopted by the Board of
Directors of Borrower, authorizing the execution,
delivery and performance of this Amendment and the
other Loan Documents; and (4) as to the incumbency
and genuineness of the signatures of the officers of
Borrower executing this Agreement or any of the other
Loan Documents;
(viii) copies of all filing receipts or acknowledgments
issued by any governmental authority to evidence any
filing or recordation necessary to perfect the Liens
of Agent in the Collateral and evidence in a form
acceptable to the Majority Banks that such Liens
constitute valid and perfected first priority Liens;
(ix) a Good Standing Certificate for Borrower and a
Certification of Account Status, issued by the
Secretary of the State of Texas, dated as of a date
close to the Second Amendment Closing Date;
(x) certified copies of Borrower=s casualty and liability
insurance policies with evidence of the payment of
the premium therefor, together, in the case of such
casualty policies, with loss payable and mortgagee
endorsements on Agent=s standard form naming Agent as
loss payee;
(xi) the written opinion of Godwin & Carlton, counsel to
Borrower, dated as of the Second Amendment Closing
Date, in form and content acceptable to Banks and
Agent, as to the transactions contemplated by this
Amendment;
(xii) assurance from a title insurance company
satisfactory to the Agent and the Banks that such
title insurance company is committed to cause the
Fourth Deed of Trust and the New Deed of Trust to be
recorded and, upon recordation of the Fourth Deed of
Trust and the New Deed of Trust to issue its ALTA
lender's title insurance policy in a form acceptable
to the Agent and in amounts satisfactory to the
Agent, showing the Fourth Deed of Trust as the
Ainsured mortgage@ and insuring the validity and
priority of the Fourth Deed of Trust as a Lien upon
the Titus County Mortgaged Property, subject only to
the First Deed of Trust, the Second Deed of Trust,
and the Third Deed of Trust and to the Permitted
Liens described in clauses (b) - (d) of the
definition thereof; and
(xiii) such other documents, instruments and agreements
with respect to the transactions contemplated by this
Amendment, in each case in such form and containing
such additional terms and conditions as may be
reasonably satisfactory to the Majority Banks, and
containing, without limitation, representations and
warranties which are customary and usual in such
documents.
(b) Upon the satisfaction of the foregoing conditions precedent,
this Amendment shall become effective as of September 18, 1997.
4. REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
(a) To induce the Banks to enter into this Amendment and to
continue to make advances to Borrower pursuant to the Agreement, as
amended hereby, Borrower hereby represents and warrants that all
Borrower's representations and warranties contained in the Agreement, as
amended, and the other Loan Documents are true and correct on and as of
the date of Borrower's execution of this Amendment, and no Event of
Default, nor any event or condition which, with notice, lapse of time, or
both, would constitute an Event of Default, has occurred and is
continuing as of such date under any Loan Document.
(b) Borrower hereby further represents and warrants (i) Borrower
has the power and authority to enter into this Amendment and to perform
all of its obligations hereunder; (ii) the execution and delivery of this
Amendment has been duly authorized by all necessary action (corporate or
otherwise) on the part of Borrower; and (iii) the execution and delivery
of this Amendment and performance hereof by Borrower does not and will
not violate the Articles or Certificate of Incorporation, By-laws or
other organizational documents of Borrower and does not and will not
violate or conflict with any law, order, writ, injunction, or decree of
any court, administrative agency or other governmental authority
applicable to Borrower or its properties.
5. EXPENSES. Borrower agrees to pay, immediately upon demand by
the Banks, all costs, expenses, attorneys' fees, and other charges and
expenses incurred by the Banks in connection with the negotiation,
preparation, execution and delivery of this Amendment and other
instrument, document, agreement or amendment executed in connection with
this Amendment.
6. DEFAULTS HEREUNDER. The breach of any representation, warranty
or covenant contained herein or in any document executed in connection
herewith, or the failure to observe or comply with any term or agreement
contained herein or in any document executed in conjunction herewith,
shall constitute an Event of Default under the Documents and the Banks
shall be entitled to exercise all rights and remedies it may have under
the Agreement, any of the other Loan Documents and applicable law.
7. REFERENCES IN LOAN DOCUMENTS. All references in the Agreement
and the other Loan Documents to the Agreement shall hereafter be deemed
to be references to the Agreement as amended hereby and as the same may
hereafter be amended from time to time.
8. NO CLAIMS, OFFSET. Borrower hereby represents, warrants,
acknowledges and agrees to and with the Banks that (a) Borrower does not
hold, to the best of its knowledge, or claim any right of action, claim,
cause of action or damages, either at law or in equity, against the Banks
which arises from, may arise from, allegedly arise from, are based upon
or are related in any manner whatsoever to the Agreement and the Loan
Documents or which are based upon actions or omissions of the Banks in
connection therewith and (b) the Obligations are absolutely owed to the
Banks, without offset, deduction or counterclaim.
9. NO NOVATION. The terms of this Amendment are not intended to
and do not serve to effect a novation as to the Agreement. The parties
hereto expressly do not intend to extinguish any debt or security
interest created pursuant to the Agreement. Instead, it is the express
intention of the parties hereto to affirm the Agreement and the security
created thereby.
10. LIMITATION OF AMENDMENT. Except as expressly set forth herein,
this Amendment shall not be deemed to waive, amend or modify any term or
condition of the Agreement or any of the other Loan Documents, each of
which is hereby ratified and reaffirmed, and which shall remain in full
force and effect, nor to serve as a consent to any matter prohibited by
the terms and conditions thereof.
11. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and any party hereby may execute any counterpart, each of
which, when executed and delivered, will be deemed to be an original and
all of which, taken together, will be deemed to be but one and the same
agreement.
12. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
and inure to the benefit of the successors and permitted assigns of the
parties hereto.
13. SECTION REFERENCES. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.
14. FURTHER ASSURANCES. Borrower agrees to take such further
action as the Banks shall reasonably request in connection herewith to
evidence the amendments herein contained to the Agreement.
15. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York, without
regard to principles of conflicts of law.
[SIGNATURES APPEAR ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal as of the date first written above.
"BORROWER"
PILGRIM'S PRIDE CORPORATION
By: \s\ Clifford E. Butler
Name: Clifford E. Butler
Title: Executive President
Attest: \s\ Richard A. Cogdill
Name: Richard A. Cogdill
Title: Chief Financial Officer,
Secretary and Treasurer
[CORPORATE SEAL]
"AGENT"
CREDITANSTALT-BANKVEREIN
By: \s\ Robert M. Biringer
Robert M. Biringer
Senior Vice President
By: \s\ John G. Taylor
Name: John G. Taylor
Title: Senior Associate
[CORPORATE SEAL]
LOAN PERCENTAGE
"BANKS"
100%
CREDITANSTALT-BANKVEREIN
By: \s\ Robert M. Biringer
Robert M. Biringer
Senior Vice President
By: \s\ John G. Taylor
Name: John G. Taylor
Title: Senior Associate
AGREEMENT BETWEEN PILGRIM'S PRIDE CORPORATION
AND CERTAIN SRAREHOLDERS
AGREEMENT MADE this 23rd day of July, 1997, by, between and among LONNIE
A. PILGRIM and LONNIE KEN PILGRIM herein singly called "Shareholder" and
collectively called "Shareholders"), and PILGRIM'S PRIDE CORPORATION, a
Delaware corporation with its principal offices at 110 South Texas Street,
Pittsburg, Texas (herein called the "Company").
PRELIMINARY STATEMENT
In order to meet its continuing business needs, the Company will incur
after the date of this Agreement certain indebtedness by reason of credit
extended to it by certain creditors who will require one or more of the
Shareholders to guarantee such indebtedness as a condition to extending such
credit ("Guaranteed Indebtedness").
As a condition to any Shareholder's being contingently liable as a
Guarantor on any Guaranteed Indebtedness all of the Shareholders require
that all Shareholders shall be liable ratably with their shares in the
Company for each such Guaranteed Indebtedness either as a Guarantor or as
an Indemnitor of such Shareholders who are Guarantors and that the Company
shall pay each Shareholder a reasonable fee for such guaranty or indemnity
undertaking.
AGREEMENT
In consideration of the premises and the mutual covenants contained
herein it is understood and agreed to by the parties hereto as follows:
1. GUARANTY OF GUARANTEED INDEBTEDNESS.
1.01. GUARANTY. In reliance upon the representations and warranties
herein and subject to the terms and conditions hereof, during the term of this
Agreement any Shareholder shall, when required by the Company, guarantee any
Eligible Indebtedness to be incurred by the Company in form and substance
satisfactory to the related creditor ("Guaranty"). Any Eligible
Indebtedness so guaranteed is herein referred to as "Guaranteed Indebtedness."
1.02. ELIGIBLE INDEBTEDNESS. The term "Eligible indebtedness" shall
mean any indebtedness to be incurred by the Company after the date of this
Agreement and required by its business needs by reason of credit to be extended
to the Company by a creditor who shall require one or more of the Shareholders
to guarantee such indebtedness as a condition to extending such credit
to the Company. For purposes of this Agreement a resolution by the
Board of Directors that such indebtedness is required by the business needs of
the Company shall be binding and conclusive upon all parties to this Agreement.
1.03. CONDITION PRECEDENT TO ISSUANCE OF GUARANTY. No Shareholder
shall be required to issue a Guaranty until they have been furnished a
certificate of the Secretary of the Company certifying (i) the Eligible
Indebtedness (including the maximum amount of indebtedness, the name of the
creditor and the terms and conditions thereof) to be so guaranteed; (ii) a
resolution of the Board of Directors of the Company authorizing the Company to
incur the Eligible Indebtedness; and (iii) the principal amount of all
Guaranteed Indebtedness then outstanding.
1
<PAGE>
2. INDEMNIFICATION OF GUARANTOR.
2.01. INDEMNITY. All Shareholders shall indemnify a Shareholder
who issues a Guaranty ("Guarantor") against all loss, cost and expense
(including reasonable attorneys' fees) which Guarantor shall incur with the
respect to the Guaranty ("Total Indemnified Amount"); provided, however, that
each Shareholder's liability of indemnity hereunder shall be several and shall
be limited to an amount which is equal to that proportion of the Total
Indemnified Amount as the shares of Common Stock of the Company owned of record
or beneficially by such Shareholder on the date of issuance of such Guaranty
shall bear to the shares of Common Stock of the Company owned of record or
beneficially by all Shareholders (including Guarantor) on the date of issuance
of the Guaranty ("Indemnity"). Any Shareholder who is contingently
liable on an Indemnity is herein referred to as "Indemnitor".
2.02. TERMINATION OF INDEMNITY. Notwithstanding the termination
of this Agreement an Indemnity with respect to a Guaranty which shall have
been issued shall continue until (i) the related Guaranteed Indebtedness shall
have been paid in full by the Company; or (ii) the Guarantor shall have been
released from the Guaranty by the creditor; or (iii) the Indemnity shall have
been discharged in full by payment required of the Shareholders under the
Indemnity or otherwise, whichever shall first occur ("Indemnity Termination
Date").
3. GUARANTY OR INDEMNITY FEE.
3.01. GENERAL. So long as a Guaranty shall be outstanding the
Company shall pay a fee to each Shareholder for the undertaking herein
by such Shareholder under a Guaranty issued on or after the date of this
Agreement or an Indemnity covering such Guaranty computed and subject to
limitations as provided herein ("Fee").
3.02. DETERMINATION AND PAYMENT OF FEES ATTRIBUTABLE TO EACH
SHAREHOLDER. The total Fees which shall accrue with respect to any calendar
quarter shall be an amount equal to 1/4th of a percent multiplied by the
average daily balance of the principal amount of Guaranteed Indebtedness
outstanding during such calendar quarter. The total Fees for a particular
calendar quarter shall be apportioned among the Shareholders in the
proportion that they share the contingent liability of such Guaranteed
Indebtedness, however, in no event will a guaranteeing Shareholder receive less
than 5-percent of the allocable fee. For this purpose contingent liability
shall be determined under Section 2.01 hereof except that each Guarantor's
liability shall be deemed an Indemnity and shall be limited to such amount as
such Guarantor would be contingently liable as an Indemnitor rather than a
Guarantor. All Fees shall be paid quarterly within 45 days after the end of
each calendar quarter.
4. REPRESENTATIONS AND WARRANTIES.
4.01. Representations and Warranties of Company. Company represents and
warrant to the Shareholders that:
(a) GUARANTIES REQUIRED BY CREDITORS. Certain creditors or
proposed creditors of the Company (including certain lessors) have
advised the Company that they will not extend credit to the Company
after the date of this Agreement without the Guaranty of Lonnie A.
Pilgrim, or other Shareholders of the Company.
(b) CREDIT REQUIRED BY THE BUSINESS NEEDS OF COMPANY. All
Guaranteed Indebtedness will be required by the business needs of the
Company.
4.02. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Each
Shareholder represents and warrants to the other Shareholder and to the Company
that:
(a) CONDITION TO CONTINGENT LIABILITY. As a condition to
such Shareholder's being contingently liable with respect to his
Guaranty or Indemnity herein such Shareholder requires (i) that all
of the Shareholders shall be liable contingently as provided in this
Agreement (either as a Guarantor or as an Indemnitor of such
Shareholders who are Guarantors) ratably with their shares in the
Company for each such Guaranteed Indebtedness; and (ii) that the Company
shall pay each such Shareholder a reasonable fee for such undertaking'
as Guarantor or Indemnitor.
(b) SHARE OWNERSHIP . Each Shareholder now owns of record or
beneficially such number of shares, $1 par value, of Common Stock of the
Company as is set forth opposite his signature subscribed at the end of
this Agreement.
4.03. REPRESENTATIONS OF PARTIES AS TO REASONABLENESS OF FEES. Each
party hereto represents that the amount of Fees to be paid to each Shareholder
as provided herein is reasonable under the circumstances.
5. MISCELLANEOUS.
5.01. PRIOR AGREEMENT. This Agreement shall supersede any obligation to
issue a Guaranty in the future or any Indemnity with respect to such future
Guaranty as shall have been required by any such prior Agreement among
Shareholders.
5.02. NOTICES. All communications and notices hereunder shall be in
writing and shall be mailed or delivered to the respective Shareholder at
their addresses as appear herein below in this Agreement or to the Company at
its mailing address, P.O. Box 93, Pittsburg, Texas 75686 or delivered to its
principal office, 110 South Texas Street, Pittsburg, Texas. The Company or
any Shareholder may change it or his address where all communications and
notices may be sent hereunder by addressing notice of such change in the manner
above provided.
5.03. EXPENSES. Inasmuch as this Agreement is for the primary
benefit of the Company, the Company shall pay all counsel fees and other
expenses incurred in connection with the preparation and execution of this
Agreement.
5.04. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations, warranties and covenants made by each Shareholder or the
Company herein or in any certificate or other instrument delivered by and
pursuant hereto or in connection herewith, shall be deemed to have been relied
upon by all parties hereto, and shall survive throughout the term of this
Agreement and for two years thereafter regardless of any investigation made by
or on behalf of any party hereto.
5.05. CONTROLLING LAW. The validity of this Agreement shall be
governed by the laws of the State of Texas, and this Agreement shall be
construed and in force in accordance with the laws of the State of Texas.
5.06. BENEFIT. This Agreement shall be binding upon and inure to the
benefit of (i) any successor of the Company by statutory merger or
consolidation; and (ii) the estates of the respective Shareholders except
that the death of a Shareholder shall discharge such deceased Shareholder's
obligation to either issue a Guaranty or incur an Indemnity, with respect to
Eligible Indebtedness to be incurred after such Shareholder's death but nothing
herein shall affect such deceased Shareholder's obligation of Guaranty or
Indemnity with respect to Guaranteed Indebtedness incurred prior to his death.
5.07. PERFORMANCE. Time is of the essence in this Agreement. All
obligations of any party are performable in Camp County, Texas.
5.08. ENTIRE AGREEMENT. This instrument contains the entire Agreement
between the parties hereto with the respect to the transactions contemplated
herein. No modification, alteration or amendment to this Agreement nor any
waiver of any provision hereof shall be valid or effective unless in writing
and executed by all parties hereto.
5.09. SEVERABILITY. If any part of this Agreement is judicially held
to be invalid, unenforceable or void, such holding shall not have the effect of
invalidating or voiding the remainder of this Agreement not so declared, or
any part thereof, the parties hereby agreeing that the part or parts so held
to be invalid, unenforceable or void shall be deemed to have been
stricken here from with the same force and effect as if such part or parts had
never been included herein.
5.10. TERMINATION OF AGREEMENT.
(a) GENERAL. Unless sooner terminated by the consent of
all the parties hereto this Agreement shall terminate upon the earlier
of:
(1) NOTICE EXPIRATION OF TIME. Expiration of 10 years
after the date of this Agreement.
(2) NOTICE BY MAJORITY OF SHAREHOLDERS. Expiration of 30
days after a majority in interest of the Shareholders shall have
given written notice to the Company to such effect on or after
January 1, 1997.
(3) DEATH OF MAJORITY IN INTEREST OF SHAREHOLDERS. Upon
the death of any Shareholder if immediately after such death
less than a majority in interest of the Shareholders shall then
be living.
(b) DETERMINATION OF MAJORITY IN INTEREST. The respective
interests of the Shareholders for purposes of determining a "majority in
interest" shall be determined on the basis of their respective ownership
of record and beneficially of shares of Common Stock of the Company at
the particular time in question.
(c) EFFECT OF TERMINATION. Upon the termination of this
Agreement the obligations of all parties hereto shall then be
discharged in full except that all Guaranties and Indemnities then
outstanding shall remain in full force according to their respective
terms and conditions, and the Company shall pay the Fees to the
Shareholders with respect to Guaranteed Indebtedness outstanding
after termination as provided in Article 3.
This Agreement is signed and delivered on the date and year first above
set forth in multiple counterparts each of which shall be an original.
<PAGE>
Attest PILGRIM'S PRIDE CORPORATION
\s\ Richard A. Cogdill \s\ Clifford E. Butler
Richard A. Cogdill By:Clifford E. Butler
Chief Financial Officer Executive President
SHAREHOLDERS
Name Shares
(SIGNATURES) ADDRESS DIRECTLY OWNED
\s\ Lonnie A. Pilgrim
PO Box 93 16,648,727
Lonnie A. Pilgrim Pittsburg, TX 75686
Lonnie Ken Pilgrim
PO Box 393
Lonnie Ken Pilgrim Pittsburg, TX 75686 375,500
17,024,227
