<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1995
REGISTRATION NO. 33-60539
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN RICE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
TEXAS 2040 75-0231626
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYMENT
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
------------------------
<TABLE>
<S> <C>
AMERICAN RICE, INC. DOUGLAS A. MURPHY
16825 NORTHCHASE DRIVE, #1600 16825 NORTHCHASE DRIVE, #1600
HOUSTON, TEXAS 77060 HOUSTON, TEXAS 77060
(713) 873-8800 (713) 873-8800
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE TELEPHONE NUMBER, INCLUDING AREA CODE
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
GARY L. WOOLFOLK, ESQ. PAUL D. TOSETTI, ESQ.
VIAL, HAMILTON, KOCH & KNOX, L.L.P. LATHAM & WATKINS
1717 MAIN STREET, SUITE 4400 633 WEST 5TH STREET
DALLAS, TEXAS 75201 LOS ANGELES, CA 90071
(214) 712-4344 (213) 485-1234
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box / /.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
AMERICAN RICE, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
- -------- ----------------------------------------------- -------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Facing Page of Registration
Statement; Cross Reference Sheet;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Prospectus Summary; Risk Factors; The
Company; Summary Consolidated
Financial Data
4. Use of Proceeds................................ Prospectus Summary -- The Offering;
Use of Proceeds
5. Determination of Offering Price................ *
6. Dilution....................................... *
7. Selling Security Holders....................... *
8. Plan of Distribution........................... Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be Registered..... Outside Front Cover Page of
Prospectus; Prospectus Summary -- The
Offering; Risk Factors -- Ability to
Realize on Collateral; Description of
Mortgage Notes
10. Interest of Named Experts and Counsel.......... *
11. Information with Respect to the Registrant..... Prospectus Summary; Summary
Consolidated Financial Data; Risk
Factors; The Company; Capitalization;
Pro Forma Consolidated Financial
Data; Selected Consolidated Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Executive Compensation;
Security Ownership of Certain
Beneficial Owners and Management;
Certain Relationships and Related
Transactions; Description of Capital
Stock; Description of Mortgage Notes;
Description of Certain Indebtedness;
Material Federal Income Tax
Consequences; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... *
</TABLE>
- ---------------
*Item inapplicable or answer is negative and omitted from Prospectus.
<PAGE> 3
PROSPECTUS
$100,000,000
LOGO
AMERICAN RICE, INC.
13% MORTGAGE NOTES DUE 2002
WITH CONTINGENT INTEREST
---------------------------
The 13% Mortgage Notes due 2002 (the "Mortgage Notes") are being offered
(the "Offering") by American Rice, Inc. ("ARI" or the "Company"). The Mortgage
Notes are being offered at a discount from the aggregate principal amount of the
Mortgage Notes so as to provide gross proceeds to the Company of $94.0 million.
Fixed Interest (as defined) will accrue on the Mortgage Notes at the rate of
13% per annum and will be payable semiannually in cash in arrears on February 28
and August 31 of each year (each, an "Interest Payment Date"), commencing
February 28, 1996. Contingent Interest (as defined) is payable on the Mortgage
Notes, on each such Interest Payment Date, in an aggregate amount equal to 4% of
the Company's Consolidated Cash Flow (as defined) for the six-month period
ending on June 30 or December 31 (each, a "Semiannual Period") immediately
preceding the Semiannual Period most recently completed prior to such Interest
Payment Date, up to a limit of the Contingent Interest on $40.0 million of the
Company's Consolidated Cash Flow during the fiscal year in which such interest
is accrued; provided that Contingent Interest shall be deemed not to accrue
during any Semiannual Period at the end of which the Company's Consolidated Cash
Flow (as defined) during such Semiannual Period and the immediately preceding
Semiannual Period is less than $20.0 million. The aggregate amount of Contingent
Interest payable in any Semiannual Period will be reduced pro rata for
reductions in the outstanding principal amount of Mortgage Notes occurring prior
to the close of business on the record date immediately preceding such payment
of Contingent Interest. The Company, at its option, may defer payment of all or
a portion of any installment of Contingent Interest then otherwise due if, and
only to the extent that, (a) the payment of such portion of Contingent Interest
will cause the Company's Adjusted Fixed Charge Coverage Ratio (as defined) for
the two consecutive Semiannual Periods immediately preceding the Semiannual
Period last completed prior to such Interest Payment Date to be less than 2.0:1
on a pro forma basis after giving effect to the assumed payment of such
Contingent Interest and (b) the principal of the Mortgage Notes corresponding to
such Contingent Interest has not then matured and become due and payable (at
stated maturity, upon acceleration, upon maturity of repurchase obligation or
otherwise). The payment of Contingent Interest is subject to the restrictions
described herein.
The Mortgage Notes will mature on July 31, 2002. The Company will not be
required to make any mandatory redemption or sinking fund payments with respect
to the Mortgage Notes prior to maturity. However, in the event of a Change of
Control (as defined), holders of the Mortgage Notes will have the right to
require the Company to repurchase their Mortgage Notes, in whole or in part, at
a price equal to the lesser of 101% or the optional redemption price then
applicable of the Accreted Value (as defined) of the Mortgage Notes, plus
accrued and unpaid interest to the date of repurchase. A Change of Control also
may constitute a default under the Company's Revolving Credit Loan (as defined),
and as a result, the Company may not have the financial resources to repay all
of its Indebtedness obligations upon the occurrence of a Change of Control. In
addition, the Company may be obligated to offer to repurchase Mortgage Notes on
a pro rata basis at 100% of their Accreted Value, plus accrued interest to the
date of repurchase, with the Net Cash Proceeds of certain sales or other
dispositions of assets, including the sale of the Houston Property (as defined)
or the proceeds from remarketing the Company's Freeport IRBs (as defined).
The Mortgage Notes will not be redeemable prior to July 31, 1999, except
that prior to August 31, 1998, the Company may redeem at its option up to
one-third of the initial aggregate principal amount of the Mortgage Notes at the
redemption price set forth herein, plus accrued and unpaid interest to the date
of redemption, with the net proceeds received by the Company from a public
offering of common stock of the Company, provided that at least two-thirds of
the initial aggregate principal amount of the Mortgage Notes remain outstanding
immediately after the occurrence of such redemption. On or after July 31, 1999,
the Mortgage Notes will be redeemable at the option of the Company, in whole or
in part, at the redemption prices set forth herein, plus accrued and unpaid
interest to the date of redemption.
The Mortgage Notes will be senior secured obligations of the Company and
will rank pari passu in right of payment with all existing and future senior
Indebtedness (as defined), including borrowings under the Company's Revolving
Credit Loan (as defined) and senior in right of payment to all future
subordinated Indebtedness of the Company. The Mortgage Notes will be secured by,
among other things: (i) a deed of trust creating a second priority security
interest in the Company's leasehold interests in rice processing facilities
located in Freeport, Texas that is junior in priority only to $13.3 million in
aggregate principal amount of the Freeport IRBs, which currently are held by the
Company and will be pledged to the holders of the Mortgage Notes until such time
as the Company remarkets the Freeport IRBs; (ii) a deed of trust creating a
first priority security interest in the Company's fee and leasehold interests in
rice processing facilities located in Maxwell, California; (iii) a mortgage
creating a first priority security interest in the Company's fee interest in
rice processing facilities located in Stuttgart, Arkansas; (iv) a deed of trust
creating a first priority security interest in the Company's fee interest in the
Houston Property; (v) first priority pledges of the Company's capital stock held
by the Company's parent (other than certain shares of preferred stock previously
pledged), the capital stock of the Company's subsidiaries held by the Company,
the ERLY Intercompany Notes (as defined) and the Subsidiary Intercompany Notes
(as defined); and (vi) a pledge of the Company's registered trademarks. At June
30, 1995, on a pro forma basis after giving effect to the Offering and the
application of the net proceeds therefrom as described under "Use of Proceeds,"
the Company would have had approximately $0.2 million of outstanding senior
Indebtedness other than the Mortgage Notes. The Indenture pursuant to which the
Mortgage Notes will be issued will limit the ability of the Company and its
subsidiaries to incur certain additional Indebtedness.
---------------------------
SEE "RISK FACTORS" ON PAGE 8 FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
--------- ------------ -----------
<S> <C> <C> <C>
Per Mortgage Note..................... 94.0% 4.0% 90.0%
Total................................. $94,000,000 $4,000,000 $90,000,000
</TABLE>
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(1) Plus accrued interest and accretion, if any, from August 24, 1995 (the
"Closing Date").
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses and other fees payable by the Company estimated at
$2,000,000.
---------------------------
The Mortgage Notes are offered by the Underwriter subject to prior sale,
when, as and if issued to and accepted by the Underwriter and subject to
approval of certain legal matters by counsel for the Underwriter. It is expected
that delivery of the Mortgage Notes will be made against payment therefor on or
about August 24, 1995, in New York, New York.
---------------------------
JEFFERIES & COMPANY, INC.
August 21, 1995
<PAGE> 4
[INSERT COLORWORK HERE]
<PAGE> 5
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
ADDITIONAL INFORMATION
This Prospectus is part of a Registration Statement on Form S-1 (together
with all amendments and exhibits thereto, the "Registration Statement") which
the Company has filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), relating to the securities offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to herein are by necessity
summaries, but all material terms are summarized herein. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information as well as the Registration Statement and Exhibits of
which this Prospectus is a part may be inspected and copied at the public
reference facilities of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Commission's regional
offices: 7 World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Commission by mail at prescribed rates. Requests should be
directed to the Commission's Public Reference Section, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Company's Common
Stock, $1.00 par value per share (the "Common Stock") is listed on the Nasdaq
Small Capitalization Market. Material filed by the Company can be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006-1500.
FOR CALIFORNIA RESIDENTS: WITH RESPECT TO SALES OF THE SECURITIES BEING
OFFERED HEREBY TO CALIFORNIA RESIDENTS AS OF THE DATE OF THIS PROSPECTUS, SUCH
SECURITIES MAY BE SOLD ONLY TO (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT, (2) BANKS, SAVINGS AND LOAN ASSOCIATIONS,
TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT COMPANIES REGISTERED UNDER THE
INVESTMENT COMPANY ACT OF 1940, PENSION OR PROFIT-SHARING TRUSTS, CORPORATIONS
OR OTHER ENTITIES WHICH, TOGETHER WITH THE CORPORATION'S OR OTHER ENTITY'S
AFFILIATES WHICH ARE UNDER COMMON CONTROL, HAVE A NET WORTH ON A CONSOLIDATED
BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED FINANCIAL STATEMENTS
(WHICH SHALL HAVE BEEN REVIEWED BUT NOT NECESSARILY AUDITED BY OUTSIDE
ACCOUNTANTS) OF NOT LESS THAN $14 MILLION, AND SUBSIDIARIES OF THE FOREGOING OR
(3) ANY PERSON (OTHER THAN A PERSON FORMED FOR THE SOLE PURPOSE OF PURCHASING
THE SECURITY BEING OFFERED HEREBY) WHO PURCHASES AT LEAST $1,000,000 AGGREGATE
AMOUNT OF THE SECURITIES OFFERED HEREBY. EACH CALIFORNIA RESIDENT PURCHASING THE
SECURITIES OFFERED HEREBY WILL BE DEEMED TO REPRESENT BY SUCH PURCHASE THAT IT
COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND THAT IT WILL NOT SELL OR
OTHERWISE TRANSFER SUCH SECURITIES TO A CALIFORNIA RESIDENT UNLESS THE
TRANSFEREE COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND THAT IT WILL
ADVISE THE TRANSFEREE OF THIS CONDITION WHICH TRANSFEREE, BY BECOMING SUCH, WILL
BE DEEMED TO BE BOUND BY THE SAME RESTRICTIONS ON RESALE.
i
<PAGE> 6
[THIS PAGE INTENTIONALLY LEFT BLANK]
ii
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements of
the Company, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, references in this Prospectus to a
fiscal year shall mean the fiscal year ending March 31 of such year and
references to a crop year shall mean the twelve-month period beginning August 1
of such year. References to "ERLY" shall mean ERLY Industries Inc., ARI's parent
company; references to "Pre-Acquisition ARI" shall mean American Rice, Inc.
prior to the Acquisition (as defined); and references to "Comet" shall mean
Comet Rice, Inc., unless otherwise indicated.
THE COMPANY
The Company is the largest U.S.-based and one of the world's leading
processors and marketers of branded rice products, with leading brand positions
in many U.S. markets as well as Saudi Arabia, Haiti, Puerto Rico and certain
other rice consuming markets. The Company annually markets approximately 15% of
the total U.S. rice crop and is the only marketer of rice in the world with
significant sources of rough rice and milling facilities in the two major rice
producing regions of the United States as well as certain strategic locations
overseas. This allows ARI to moderate the impact of regional trade imbalances
caused by climate and geopolitical factors on operating performance. The Company
is able to maximize its margins by purchasing rice grown domestically and abroad
to take advantage of regional cost and supply availabilities. The Company
generated net sales of $373.1 million and earnings before management fees,
interest, taxes, depreciation and amortization ("EBITDA") of $22.8 million in
fiscal 1995.
Approximately 70% of the Company's net sales over the last two fiscal years
has been attributable to sales of branded rice, which typically commands a
higher price and profit margin than commodity rice and is less susceptible to
decreases in sales volume due to increases in consumer prices. With leading
brand names that sustain the number one or number two positions in many of the
major domestic rice markets, ARI typically is able to achieve high margins in
these branded markets. ARI markets white rice, instant rice, parboiled rice,
brown rice and rice mixes under proprietary, trademarked brand names such as
Blue Ribbon(R), Comet(R), Adolphus(R), AA(R), Cinta Azul(R), Wonder(R), Colusa
Rose(R) and Chopstick(R). ARI is a leading marketer of U.S. rice in many of the
world's major rice importing countries, including Saudi Arabia, Haiti and
Turkey. In Saudi Arabia, the third largest import rice market in the world, the
Chopstick(R) brand, known locally as Abu Bint(R), has been the number one brand
of U.S. grown rice sold in that country since 1979 and has consistently
represented over two-thirds of the U.S. grown rice sold in that country. ARI's
leading brand names and broad product lines have facilitated the Company's
penetration into new markets and introduction of new products in existing
markets.
Rice is the primary staple food in many countries and is the cereal grain
with the highest level of human consumption in the world, comprising
approximately 40% of world cereal grain consumption. Primarily as a result of
population increases, world rice consumption has increased approximately 125%
during the last 30 years to approximately 350 million metric tons in 1994.
Domestic consumption of rice has more than doubled since 1984 and currently
exceeds 3.3 million metric tons annually. The increase in U.S. rice consumption
is primarily due to the substantial population growth of certain ethnic groups
in the United States and, to a lesser degree, increased awareness by the general
population of the impact of diet on health.
On May 26, 1993, the Company and Comet, a wholly owned subsidiary of ERLY,
were combined by transferring all of the operating assets and liabilities of
Comet to ARI in exchange for additional shares of ARI capital stock (the
"Acquisition"). As a result of the Acquisition, the Company diversified the
market for its products, expanded its share of both the domestic and export rice
markets, increased its sources of supply of rough rice and reduced its operating
costs. The Acquisition reduced manufacturing and distribution costs, increased
gross margins and allowed ARI to process and package products closer to the
ultimate customer, thereby utilizing its total production capacity more
efficiently. Management believes that significant cost savings and operating
synergies directly resulted from the Acquisition and it increased the diversity
of its raw product sources and expanded the number of its markets, thus reducing
the Company's exposure to the uncertainties of a regional rice crop or the loss
of a single market.
1
<PAGE> 8
The Company's business strategy is to increase net sales and cash flow by
implementing the following:
BUILD UPON BRAND LEADERSHIP. Strengthen existing and build new premium,
high margin brands on a worldwide basis and utilize Company-owned or controlled
processing, distribution and marketing systems to ensure superior product
quality and customer service.
CONTINUE EXPANSION INTO NEW MARKETS. Continue to expand and diversify its
customer base and enter new domestic and international markets with its branded
products.
INCREASE DIVERSITY OF SOURCES. Continue to diversify sources of supply as
new opportunities arise to obtain the greatest variety of products on a cost
competitive basis.
IMPROVE SIZE AND SCALE EFFICIENCY. Capitalize on new industry technologies
as they develop and expand ARI's use of innovative bulk handling procedures to
realize increased margins from lower cost operations.
Consistent with its business strategy, ARI recently entered into a joint
venture ("ARI-Vinafood") with a company owned by the Socialist Republic of
Vietnam to process and market Vietnamese grown rice. ARI's 55% ownership in
ARI-Vinafood enables it to participate in the world market for Asian origin
rice, the largest market segment in the world rice market. Management believes
that this new product source will enable it to increase its market share in
certain key regions as well as provide a competitive product under its existing
brand names to major rice consuming markets in Asia and South America.
The Company believes that the depth, experience and ability of its
management team represents a significant competitive advantage. The Company's
executive officers average over 17 years of industry experience and are led by
Douglas A. Murphy, President and Chief Executive Officer, who has been with the
Company since 1982.
ERLY holds 81% of the voting power of the Company as a result of the
Acquisition. The common stock of ERLY is directly and indirectly owned of record
and beneficially in the aggregate percentage of 47.2% by Gerald D. Murphy,
Douglas A. Murphy and William H. Burgess, each of whom are directors of ARI and,
in the case of Gerald D. Murphy and Douglas A. Murphy, officers of ARI. On the
Closing Date the Company will make a loan to ERLY in the principal amount of
$10.5 million. ERLY will use substantially all of the loan proceeds to pay a
debt of its subsidiary that has discontinued operations, which ERLY guaranteed.
Partial consideration for the loan to ERLY by ARI is the pledge by ERLY of the
ARI capital stock owned by ERLY. See "Use of Proceeds," "Management," "Security
Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions -- Transactions with Affiliates."
The Mortgage Notes will be secured by, among other things, the Company's
fee and leasehold interests in its rice processing facilities located in
Freeport, Texas and Maxwell, California and the Company's registered U.S.
trademarks. The Company has obtained appraisals, dated as of May 31, 1995 and
June 1, 1995, respectively, from American Appraisal Associates, Inc. and Jack K.
Mann, Inc. of its rice processing facilities in Freeport, Texas and Maxwell,
California, respectively. The Freeport, Texas facility and the Maxwell,
California facility were appraised, together with the Company's registered U.S.
trademarks used by each facility, on a going concern basis, at approximately
$91.0 million and $45.0 million, respectively.
The Company's Board of Directors has adopted a resolution authorizing
management to sell 39 acres of land in Houston, Texas (the "Houston Property").
Management believes that the net realizable value of the Houston Property
exceeds its current carrying value of approximately $18.3 million. The Houston
Property constitutes a portion of the Collateral (as defined).
2
<PAGE> 9
THE OFFERING
Securities Offered......$100.0 million aggregate principal amount of 13%
Mortgage Notes due 2002. The Mortgage Notes are being
offered at a discount from the aggregate principal
amount of the Mortgage Notes so as to provide gross
proceeds to the Company of $94.0 million.
Maturity................July 31, 2002.
Interest Payment
Dates...................February 28 and August 31, commencing February 28, 1996.
Fixed Interest..........Fixed Interest will accrue at the rate of 13% per annum
and will be payable pro rata to the holders of the
Mortgage Notes on each Interest Payment Date in cash in
arrears.
Contingent Interest.....Contingent Interest is payable pro rata to the holders
of the Mortgage Notes, on each Interest Payment Date, in
an amount equal to 4% of the Company's Consolidated Cash
Flow for the Semiannual Period immediately preceding the
Semiannual Period most recently completed prior to such
Interest Payment Date, up to a limit of the Contingent
Interest on $40.0 million of the Company's Consolidated
Cash Flow during the fiscal year in which such interest
is accrued; provided that Contingent Interest shall be
deemed not to accrue during any Semiannual Period at the
end of which the Company's Consolidated Cash Flow during
such Semiannual Period and the immediately preceding
Semiannual Period is less than $20.0 million. Payment of
all or a portion of any installment of Contingent
Interest may be deferred if (a) the payment of such
portion of Contingent Interest will cause the Company's
Adjusted Fixed Charge Coverage Ratio for the two
consecutive Semiannual Periods immediately preceding the
Semiannual Period last completed prior to such Interest
Payment Date to be less than 2.0:1 on a pro forma basis
after giving effect to the assumed payment of such
Contingent Interest and (b) the principal of the
Mortgage Notes corresponding to such Contingent Interest
has not then matured and become due and payable (whether
at stated maturity, upon acceleration, upon maturity of
repurchase obligation or otherwise). The aggregate
amount of Contingent Interest payable in any Semiannual
Period will be reduced pro rata for reductions in the
outstanding principal amount of Mortgage Notes prior to
the close of business on the record date immediately
preceding such payment of Contingent Interest. The
payment of Contingent Interest is subject to the
restrictions set forth herein. See "Description of
Mortgage Notes -- Principal, Maturity and Interest."
Security................The Mortgage Notes will be secured by the Collateral,
which includes: (i) the Freeport Deed of Trust (as
defined) creating a second priority security interest in
the Company's leasehold interests in rice processing
facilities located in Freeport, Texas (the "Freeport
Facility") that is junior in priority only to $13.3
million in aggregate principal amount of the Company's
Freeport IRBs, which currently are held by the Company
and will be pledged to the holders of the Mortgage Notes
until such time as the Company remarkets the Freeport
IRBs in accordance with the terms of the indenture
pursuant to which the Mortgage Notes will be issued (the
"Indenture"); (ii) the Maxwell Deed of Trust (as
defined) creating a first priority security interest in
the Company's fee and leasehold interests in rice
processing facilities located in Maxwell, California
(the "Maxwell Facility"); (iii) the Stuttgart Mortgage
(as defined) creating a first priority security interest
in the Company's fee interest in rice processing
facilities located in Stuttgart, Arkansas (the
"Stuttgart Facility"); (iv) the Houston Deed of Trust
(as defined) creating a first priority security interest
in
3
<PAGE> 10
the Company's fee interest in the Houston Property; (v)
pledge agreements creating first priority security
interests in the capital stock of the Company held by
ERLY (other than 200,000 shares of the Company's Series
B Preferred Stock (as defined) pledged to the holders of
the Company's Series C Preferred Stock (as defined)),
the capital stock of the Company's subsidiaries held by
the Company, the ERLY Intercompany Notes and the
Subsidiary Intercompany Notes; (vi) a security agreement
creating a first priority security interest in all
registered U.S. trademarks, and a security interest in
all other registered trademarks, owned or licensed by
the Company; and (vii) a pledge of all proceeds of the
foregoing (including insurance). See "Description of
Mortgage Notes -- Security." In the case of the
leasehold interests of the Company in the Freeport
Facility and the Maxwell Facility, the leases for such
facilities, as clarified by landlord estoppel agreements
to be entered into on or before the Closing Date, will
permit a mortgage lien in favor of the Trustee to be
placed on such leasehold interests and permit the
assignment of such leasehold interests by the Trustee
following an Event of Default (as defined). See
"Description of Mortgage Notes -- Security." The
Indenture will prohibit the Company from creating
additional liens on the Collateral, except for Permitted
Liens (as defined), which include certain liens securing
Indebtedness under the Revolving Credit Loan that are
junior in priority to the liens on the Collateral in
favor of the Trustee, certain liens renewed or extended
in connection with Permitted Refinancing Indebtedness
(as defined), liens securing performance of certain
statutory obligations arising in the ordinary course of
business, liens created by minor real property
encumbrances that do not interfere in any material
respect with the ordinary course of business of the
Company and its subsidiaries, liens on the Freeport
Facility securing the Freeport IRBs to the extent
necessary for the Company to remarket the Freeport IRBs,
and certain liens incurred in the ordinary course of
business of the Company or any of its subsidiaries in an
amount not to exceed $2.5 million at any time
outstanding. See "Description of Mortgage
Notes -- Certain Covenants -- Liens."
Mandatory Redemption....None.
Optional Redemption.....The Mortgage Notes will not be redeemable prior to July
31, 1999, except that prior to August 31, 1998, the
Company may redeem at its option up to one-third of the
initial aggregate principal amount of the Mortgage Notes
at the redemption price set forth herein, plus accrued
and unpaid interest to the date of redemption, with the
net proceeds received by the Company from a public
offering of common stock of the Company, provided that
at least two-thirds of the initial aggregate principal
amount of the Mortgage Notes remain outstanding
immediately after the occurrence of such redemption. On
or after July 31, 1999, the Mortgage Notes will be
redeemable at the option of the Company, in whole or in
part, at the redemption prices set forth herein, plus
accrued and unpaid interest to the date of redemption.
Change of Control.......In the event of a Change of Control, the holders of the
Mortgage Notes will have the right to require the
Company to repurchase their Mortgage Notes at a price
equal to the lesser of 101% or the optional redemption
price then applicable of the Accreted Value of the
Mortgage Notes, plus accrued and unpaid interest to the
date of repurchase. Due to the highly leveraged nature
of the Company, the Company may not have sufficient
funds or financing to repurchase the Mortgage Notes and
satisfy the Company's obligations under the Revolving
Credit Loan up to a maximum borrowing of $47.5 million,
which may become due upon a Change of Control. See
"Description of
4
<PAGE> 11
Mortgage Notes -- Repurchase at the Option of Holders --
Change of Control."
Ranking.................The Mortgage Notes will be senior secured obligations of
the Company and will rank pari passu in right of payment
with all existing and future senior Indebtedness,
including borrowings made under the Revolving Credit
Loan and senior in right of payment to all future
subordinated Indebtedness of the Company. The Collateral
(other than capital stock) is subject to liens in favor
of the lender under the Revolving Credit Loan that will
be subordinate to the liens in such Collateral granted
to the Trustee (as defined) under the Indenture. In
addition, any claim by the Company or the Trustee
against the assets of the Company's subsidiaries to
satisfy the Company's obligations under the Mortgage
Notes would be subordinate in right of payment to the
amount of Indebtedness of such subsidiaries in excess of
the amount of sums advanced to them by the Company and
represented by Subsidiary Intercompany Notes (as
defined). At June 30, 1995, on a pro forma basis after
giving effect to the Offering and the application of the
net proceeds therefrom as described under "Use of
Proceeds," the Company would have had approximately $0.2
million of outstanding senior Indebtedness other than
the Mortgage Notes and the Company's subsidiaries in the
aggregate would have had approximately $5.4 million in
Indebtedness attributable to trade accounts payable,
secured inventory financings, secured purchase money
loans, financing lease obligations and unsecured
borrowings.
Covenants...............The Indenture will contain certain covenants that, among
other things, limit the ability of the Company and its
subsidiaries to incur additional Indebtedness and issue
preferred stock, pay dividends or make other
distributions, repurchase Equity Interests (as defined)
or subordinated Indebtedness, make Restricted
Investments (as defined), create certain liens, enter
into certain transactions with affiliates, sell assets
of the Company or its subsidiaries, issue or sell Equity
Interests of the Company's subsidiaries or enter into
certain mergers and consolidations. In addition, under
certain circumstances, the Company will be required to
offer to repurchase the Mortgage Notes at a price equal
to 100% of their Accreted Value, plus accrued and unpaid
interest to the date of repurchase, with the net
proceeds of certain Asset Sales (as defined), including
the sale of the Houston Property, or the proceeds from
remarketing the Freeport IRBs. Also, the Company will be
required to pay Liquidated Damages (as defined) pro rata
to the holders of the Mortgage Notes if the Company
fails to sell the Houston Property within 18 months of
the Closing Date, which obligation to pay Liquidated
Damages will continue until such property is sold. See
"Description of Mortgage Notes -- Certain Covenants."
Original Issue
Discount................The Mortgage Notes will be issued with original issue
discount requiring holders of the Mortgage Notes to
include amounts in gross income for U.S. federal income
tax purposes prior to receipt of the cash to which the
income is attributable. See "Material Federal Income Tax
Consequences."
Use of Proceeds.........The proceeds from the Offering will be used to repay
certain indebtedness, to make an intercompany loan to
ERLY and for working capital and general corporate
purposes. See "Use of Proceeds."
5
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables set forth summary consolidated financial data of the
Company for the years ended March 31, 1993 to 1995, for the three-month periods
ended June 30, 1994 and 1995, and for Pre-Acquisition ARI for the year ended
March 31, 1993 and the period from April 1, 1993 to May 26, 1993. The summary
consolidated financial data are derived from the audited financial statements of
the Company and of Pre-Acquisition ARI, except for the period from April 1, 1993
to May 26, 1993 and the three-month periods ended June 30, 1994 and 1995, which
are unaudited. The unaudited financial statements include all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
results of operations for the period, all of which are of a normal, recurring
nature. Because the Acquisition was accounted for as a purchase by Comet of
Pre-Acquisition ARI, the Company's consolidated financial data prior to the
Acquisition reflects the operations of Comet rather than Pre-Acquisition ARI.
The Company's audited financial statements for the year ended March 31, 1993 and
the period from April 1, 1993 to May 26, 1993, included in the audited financial
statements for the year ended March 31, 1994, represent the results of the
Company, including the Company's share of Pre-Acquisition ARI results, using the
equity method due to the Company's 48% interest in Pre-Acquisition ARI prior to
the Acquisition. For all periods after May 26, 1993, the Company's Consolidated
Financial Statements include the results of Pre-Acquisition ARI and Comet. The
pro forma credit statistics and pro forma balance sheet data below give effect
to the Offering as if it had been completed on April 1, 1994 and March 31, 1995,
respectively. The information in the tables should be read in conjunction with
"Selected Consolidated Financial Data," "Pro Forma Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and the notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
COMET(1) ARI(1)
-------- ---------------------------------------------------
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------------ -----------------------
1993(2) 1994 1995 1994 1995
-------- -------- ---------- -------- ----------
(IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND PER HUNDREDWEIGHT
DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales..................................... $169,617 $284,464 $ 373,050 $105,706 $ 86,392
Gross profit.................................. 8,363 36,418 40,814 11,323 9,537
Selling, general and administrative
expenses.................................... 10,779 21,497 23,235 5,272 5,771
Earnings (loss) before extraordinary items.... (11,265) 3,465 3,913 2,010 376
Primary earnings (loss) per share before
extraordinary items(3)...................... -- $ (0.45) $ (0.83) $ 0.16 $ (0.45)
OTHER FINANCIAL DATA:
EBITDA(4)..................................... $ 1,497 $ 19,839 $ 22,751 $ 7,326 $ 5,031
EBIT.......................................... (316) 16,017 18,501 6,281 3,998
Gross profit margin........................... 4.9% 12.8% 10.9% 10.7% 11.0%
Depreciation and amortization(5).............. $ 1,813 $ 3,822 $ 4,250 $ 1,045 $ 1,033
Capital expenditures.......................... 2,651 2,844 3,562 1,625 1,422
Hundredweight of rice sold(6)................. 12,918 17,114 22,304 6,155 5,098
Net sales per hundredweight................... $ 13.13 $ 16.62 $ 16.73 $ 17.17 $ 16.94
Ratio of earnings to fixed charges(7)......... -- 1.5x 1.4x -- 1.1x
PRO FORMA CREDIT STATISTICS:
EBITDA to pro forma cash interest expense, net(8).................... 1.7x -- --
Pro forma total debt to EBITDA....................................... 4.5 -- --
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1995 JUNE 30,
----------------------- 1995
PRO ----------
HISTORICAL FORMA HISTORICAL
---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 1,864 $ 0 $ 2,742
Current assets....................................................... 89,736 87,872 75,449
Total assets......................................................... 177,500 190,753 163,705
Total debt(9)........................................................ 89,237 103,873 84,300
Total stockholders' equity........................................... 44,212 43,327 44,588
</TABLE>
6
<PAGE> 13
<TABLE>
<CAPTION>
PRE-ACQUISITION ARI(1)
----------------------------
PERIOD FROM
YEAR ENDED APRIL 1, 1993
MARCH 31, TO MAY 26,
1993 1993(1)
---------- -------------
(IN THOUSANDS, EXCEPT
RATIOS, PER SHARE AND PER
HUNDREDWEIGHT DATA)
<S> <C> <C>
OPERATING DATA:
Net sales.......................................................... $176,619 $ 27,025
Gross profit....................................................... 24,580 4,243
Selling, general and administrative expenses....................... 14,163 2,380
Earnings (loss) before extraordinary items......................... 3,250 888
Primary earnings (loss) per share before extraordinary items....... $ 0.20 $ 0.06
OTHER FINANCIAL DATA:
EBITDA(4).......................................................... $ 13,606 $ 2,356
EBIT............................................................... 10,536 1,863
Gross profit margin................................................ 13.9% 15.7%
Depreciation and amortization(5)................................... $ 3,070 $ 493
Capital expenditures............................................... 762 31
Hundredweight of rice sold(6)...................................... 12,645 1,361
Net sales per hundredweight........................................ $ 13.97 $ 19.86
Ratio of earnings to fixed charges(7).............................. 1.4x 1.9x
</TABLE>
- ---------------
(1) On May 26, 1993, the Company consummated the Acquisition which was accounted
for as a purchase of ARI by Comet. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 1 to the
Company's Consolidated Financial Statements.
(2) For a discussion of the various factors affecting operating results during
the period indicated, such as the impact of the U.S. trade embargo of Iraq,
see "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Results of Operations."
(3) Represents primary earnings (loss) per share before extraordinary items
applicable to common stock after preferred stock dividend requirements.
Earnings per share are not presented for the year ended March 31, 1993
because the data presented is that of Comet, which was a wholly owned
subsidiary of ERLY.
(4) EBITDA represents operating income before management fees, depreciation and
amortization. The Company has included EBITDA data (which are not a measure
of financial performance under generally accepted accounting principles)
because it understands such data are used by certain investors to determine
the Company's historical ability to service its indebtedness. EBITDA should
not be considered by an investor as an alternative to net income, as an
indicator of the Company's operating performance or as an alternative to
cash flow as a measure of liquidity. For the cash flows for each of the
Company and Pre-Acquisition ARI for the periods presented, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
(5) Excludes amortization of deferred financing costs included in interest
expense.
(6) A hundredweight is equivalent to 100 pounds. A metric ton is equivalent to
22.046 hundredweight.
(7) For purposes of calculating the ratio of earnings to fixed charges, earnings
are defined as earnings (loss) from continuing operations before income
taxes, plus fixed charges. Fixed charges consist of interest expense on all
indebtedness (including amortization of deferred debt issuance costs) and
the portion of operating lease rental expenses that is representative of the
interest factor (deemed to be one-third of the lease rentals). For the year
ended March 31, 1993, Comet's earnings were inadequate to cover fixed
charges by $9.6 million.
(8) EBITDA to pro forma cash interest expense, net of pro forma interest income
on average cash balance. Pro forma for the Offering, the Company is
estimated to have an average cash balance of $1.0 million earning 5.25% per
annum. EBITDA to pro forma cash interest expense, net of pro forma total
interest income would be 2.0x in fiscal 1995. For discussion of assumptions
and adjustments underlying the pro forma financial data, see "Pro Forma
Consolidated Financial Data."
(9) Represents total of notes payable, current portion of long-term debt and
long-term debt.
7
<PAGE> 14
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained or incorporated by reference in this Prospectus, the
following factors before purchasing the Mortgage Notes offered hereby.
HIGHLY LEVERAGED NATURE OF THE COMPANY
The Company is highly leveraged and will continue to be highly leveraged
after the consummation of the Offering. At June 30, 1995, ARI had Indebtedness
(including the current portion thereof) of approximately $84.3 million,
including approximately $26.6 million of borrowings under the Company's
Revolving Credit Loan. A portion of the net proceeds of the Offering will be
used to repay $77.5 million of ARI's existing Indebtedness, including all
amounts outstanding under the Revolving Credit Loan. See "Use of Proceeds." At
June 30, 1995, on a pro forma basis after giving effect to the Offering and the
repayment of such outstanding Indebtedness, ARI would have had no outstanding
senior Indebtedness other than $0.2 million under the Revolving Credit Loan and
$100.0 million represented by the Mortgage Notes, and ARI's stockholders' equity
would have been approximately $44.3 million. In addition, management expects
that on the Closing Date at least approximately $23.5 million will be available
to the Company for borrowing under the Revolving Credit Loan. See
"Capitalization." ARI may incur additional Indebtedness in the future, including
Indebtedness under the Revolving Credit Loan and by remarketing the Freeport
IRBs. See "Description of Certain Indebtedness."
The degree to which the Company is leveraged could have important
consequences to holders of the Mortgage Notes. For example, ARI's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired. Furthermore, certain of ARI's existing and anticipated future
borrowings are and will continue to be at variable rates of interest, which
causes ARI to be vulnerable to increases in interest rates. See "Description of
Mortgage Notes" and "Description of Certain Indebtedness."
Based upon its current level of operations, the Company believes that its
cash flow from operations together with other available sources of liquidity
will be adequate to meet ARI's anticipated requirements for working capital,
capital expenditures, interest payments and scheduled principal payments.
Following the Offering, the Indenture will restrict ARI from incurring
additional Indebtedness (other than under the Revolving Credit Loan and
remarketing the Freeport IRBs) which requires principal payments prior to
maturity of the Mortgage Notes. The ability of the Company to make scheduled
payments or to refinance its obligations with respect to its Indebtedness
depends on its financial and operating performance, which, in turn is subject to
prevailing economic conditions and to financial, business and other factors,
many of which are beyond ARI's control. There can be no assurance, however, that
ARI will continue to generate cash flow sufficient to meet its obligations. In
any event, a refinancing of all or a portion of its Indebtedness may not be
available on terms acceptable to ARI, if at all, particularly in light of ARI's
high levels of Indebtedness, the pledge of its significant production and
intellectual property assets as security for the Mortgage Notes, the pledge of
substantially all of ARI's assets to secure certain other Indebtedness to which
ARI is or may become a party and the restrictive covenants in the Revolving
Credit Loan and the Indenture.
INTERNATIONAL OPERATIONS
The Company's foreign operations are exposed to certain political, economic
and other risks inherent in doing business abroad, including exposure to
potentially unfavorable changes in tax or other laws, partial or total
expropriation, and the risks of war, terrorism and other civil disturbances for
which the Company carries no insurance coverage. ARI's exports of rice products
to many countries are limited by government quotas, levies or other restrictions
or prohibitions on the importation of rice from the United States. In addition,
the Company's rice business has been adversely affected in the past by armed
conflicts, embargoes declared by the U.S. government, international political
disagreements, civil unrest and political instability. Certain markets for ARI's
rice products and certain of its operating facilities are located in developing
nations and there can be
8
<PAGE> 15
no assurance that the occurrence of such events will not disrupt the Company's
business in the future. The loss of any significant export rice market because
of these events or conditions could have a material adverse effect on the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
COMPETITION
While the Company maintains a significant market share in most of its
markets, the overall market for branded rice remains competitive both
domestically and abroad. In general, competition in both domestic and
international markets is based upon the quality of rice, brand recognition,
price, quality of service, seller relationships with the purchasers and the
ability to arrange financing. The Company's U.S. competitors in the domestic and
export milled rice markets include Riviana Foods Inc., Riceland Foods, Inc.,
Producers Rice Mills, Inc., Continental Grain Company, Cargill Inc. and Farmers
Rice Cooperative. There are other competitors in certain specialized marketing
areas, such as Mars, Inc. (Uncle Ben's), Philip Morris Companies, Inc. (Minute)
and the Quaker Oats Company (Rice-a-Roni), who typically have greater financial
and other resources than the Company and may devote substantially greater
resources to increase the amount of direct competition with the Company.
Currently, no domestic company has more than 25% of the United States rice
exporting business. In addition, the Company's competitors in the international
rice trading markets include marketers from other exporting countries such as
Thailand and Pakistan that compete on the basis of quality and price and
marketers from other countries such as Vietnam and Burma that compete primarily
based upon price. There can be no assurance that the Company will maintain its
market position or improve its financial performance. See
"Business -- Competition."
GOVERNMENT SUPPORT PROGRAMS
Price supports and other government programs have significant influence
over ARI's net sales. The adoption of the Food Security Act of 1985 opened world
markets to U.S. rice millers, processors and marketers and generally resulted in
increased throughput from higher domestic and export sales beginning in April
1986. This legislation provides subsidies to rice producers so that rice can be
milled at prices expected to be competitive in the world market. The Food
Security Act of 1985 originally was only applicable to crops produced through
1990; however, through the Food, Agriculture, Conservation and Trade Act of
1990, these price supports have been extended to crops produced through the crop
year 1995. There can be no assurance that the currently favorable provisions of
such legislation will be extended into future periods or will not be amended due
to budgetary or other governmental constraints. Proposals to significantly limit
or eliminate altogether federal farm price support programs have been introduced
in the United States Congress and if such legislation is enacted, there could be
a significant impact on the supply and price of U.S. grown rice. Management
believes that, should such a change occur, any adverse effect would be of
limited duration because (i) domestic prices would adjust to a point of economic
equilibrium with imports which would justify adequate production by U.S. growers
using alternate or fallow acreage and employing economies of scale and (ii) any
shortage of U.S. grown rice due to termination of price supports could be offset
by imports from other countries using ARI's cost efficient bulk handling
facilities at the Freeport, Texas deep water port and ARI's other strategically
located packaging facilities.
FLUCTUATIONS IN WORLD RICE PRICES
The Company buys its rough and milled rice on the open market from various
independent growers and suppliers at prices that are subject to worldwide market
fluctuations in rice prices. Historically, world market prices for rice have
fluctuated in response to a number of factors, including changes in domestic
governmental farm support programs, changes in international agriculture and
trading policies and weather conditions during the growing and harvesting
seasons in the world's major rice growing regions. Increases in rice prices can
have a significant adverse short-term effect on the Company's results of
operations. ARI's opportunities to reduce the risk of short-term fluctuations in
rice prices by utilizing the commodity futures market are limited by the
relatively small size of the existing rice futures market. Historically, the
volume of rice covered by futures
9
<PAGE> 16
contracts has been immaterial and management does not anticipate that this will
change. No assurance can be given that future fluctuations in world rice prices
will not have an adverse short-term effect on ARI's results of operations.
ABILITY TO REALIZE ON COLLATERAL
The Mortgage Notes will be secured by the Collateral pursuant to the
Collateral Documents (as defined), which include (i) the Freeport Deed of Trust
creating a second priority security interest in the Company's leasehold
interests in the Freeport Facility that is junior only to $13.3 million in
aggregate principal amount of the Company's Freeport IRBs, which currently are
held by the Company and will be pledged to the holders of the Mortgage Notes
until such time as the Company remarkets the Freeport IRBs in accordance with
the terms of the Indenture; (ii) the Maxwell Deed of Trust creating a first
priority security interest in the Company's fee and leasehold interests in the
Maxwell Facility; (iii) the Stuttgart Mortgage creating a first priority
security interest in the Company's fee interest in the Stuttgart Facility; (iv)
the Houston Deed of Trust creating a first priority security interest in the
Company's fee interest in the Houston Property; (v) pledge agreements creating
first priority security interests in the capital stock of the Company held by
ERLY (other than 200,000 shares of the Company's Series B Preferred Stock
pledged to the holders of the Company's Series C Preferred Stock), the capital
stock of the Company's subsidiaries held by the Company, the ERLY Intercompany
Notes and the Subsidiary Intercompany Notes; (vi) a security agreement creating
a first priority security interest in all registered U.S. trademarks, and a
security interest in all other registered trademarks, owned or licensed by the
Company; and (vii) a pledge of all proceeds of the foregoing. The Freeport
Facility is subject to a first deed of trust securing the Freeport IRBs, which
if foreclosed upon would extinguish the Lien (as defined) on the Freeport
Facility in favor of the Trustee and would result in the proceeds of a
foreclosure sale being applied first to the Freeport IRBs. The Collateral (other
than the capital stock of the Company and the Company's subsidiaries) is subject
to liens in favor of the lender under the Revolving Credit Loan that will be
subordinate to the liens in such Collateral granted to the Trustee under the
Collateral Documents. The rights of the Trustee and the lender under the
Revolving Credit Loan will be subject to the terms of an Intercreditor Agreement
(as defined), that will include the right of such lender, under the Revolving
Credit Loan, for a period of 90 days, to access and utilize the Company's rice
processing facilities to create additional inventory and affix the Company's
trademarks to such inventory, which right may adversely impact the ability of
the Trustee to sell such facilities and trademarks, and the value realized
therefrom, in the event of foreclosure under the Indenture and the Collateral
Documents. See "Description of Mortgage Notes -- Security."
The Trustee's ability to realize upon real property collateral is limited
and restricted by the laws of the applicable states in which the real property
is located. For example, California has adopted a "one-form-of-action rule,"
under which the trustor under a deed of trust on California real property may
require a creditor to exhaust its real property collateral before seeking a
judgment on the debt (whether in or out of California). Exercising a right of
setoff or otherwise proceeding against the trustor's assets in which the
creditor does not have a perfected Lien or failing to proceed against real
property collateral before seeking to enforce the trustor's obligations may
result in the loss of the liens on the real property and any right to pursue
other remedies, including a legal action to collect the debt. Moreover, such
consequences may also result from any such actions taken by a single holder of
Mortgage Notes. In addition, certain states, including California and Texas,
have adopted "anti-deficiency laws," which may restrict the ability of the
Trustee or the holders of the Mortgage Notes to obtain a deficiency judgment
against the Company after a foreclosure or limit the amount that may be
recovered in an action to recover deficiencies. In general, any foreclosure must
be conducted in accordance with the laws of the applicable states. Accordingly,
there can be no assurance that the holders of the Mortgage Notes will be able to
realize upon the Collateral in an amount sufficient to satisfy the Mortgage
Notes or that they will be able to obtain recourse against other assets of the
Company, even as unsecured creditors, if the value of the Collateral which is
foreclosed upon is insufficient to satisfy the Mortgage Notes.
The land, improvements and certain equipment at the Freeport Facility and a
portion of the land, improvements and equipment at the Maxwell Facility are
leasehold properties. Accordingly, the Liens upon such Collateral are subject to
the terms of the applicable leases and the rights of the landlords thereunder in
10
<PAGE> 17
the event of a breach of the lease, including the right to terminate the leases.
If any such lease were terminated, the Company would lose possession of the
leasehold properties and its ability to conduct operations on the premises, and
the Liens in favor of the Trustee would be extinguished. The terms of the leases
provide that notices of default must be delivered to a mortgagee of which the
landlord has notice (and the Indenture will require the Company to give notices
in accordance with the leases) and such mortgagee has certain rights to cure
certain defaults within specified time periods. However, the Trustee has no
obligation under the Indenture to cure such defaults unless so instructed by the
holders of a majority of the outstanding Mortgage Notes. There can, therefore,
be no assurance that any defaults under the leases will be timely cured, or that
the leases will not be terminated and, consequently, the Liens on the Collateral
lost. Further, the leases contain restrictions on assignment which may affect
the ability of the Trustee to dispose of the Collateral following a foreclosure.
Finally, if the Company or the landlord were to become the debtor in a
bankruptcy proceeding, the leases could be rejected, which may result in the
loss of the leasehold interests as Collateral, or may be assumed and assigned.
NO ASSURANCE AS TO VALUE OF ASSETS
If an Event of Default (as defined) occurs with respect to the Mortgage
Notes, there can be no assurance that the liquidation of the Collateral securing
the Mortgage Notes would produce proceeds in an amount sufficient to pay the
principal of or accrued and unpaid interest on the Mortgage Notes. The Company
has obtained appraisals dated as of May 31, 1995 and June 1, 1995, of the
Freeport Facility and the Maxwell Facility, respectively, together with the
Company's registered U.S. trademarks associated with each such facility, both on
a going concern basis, reflecting valuations of approximately $91.0 million and
$45.0 million, respectively. The Company did not obtain appraisals for the other
assets of the Company that constitute Collateral. Caution generally should be
exercised in evaluating appraisal results. An appraisal is only an estimate of
value and should not be relied upon as a proven measure of realizable value.
Moreover, a valuation of the Freeport Facility and the Maxwell Facility on a
liquidation basis likely would result in a significantly lower valuation than
reflected by the preliminary appraisals. It is likely that a forced sale of the
Collateral would provide proceeds far below the values set forth in the
preliminary appraisals.
CERTAIN BANKRUPTCY CONSIDERATIONS
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default on the Mortgage Notes is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
were to be commenced by or against the Company, whether by a holder of the
Mortgage Notes or another creditor (including a junior creditor), prior to such
repossession and disposition. Under applicable bankruptcy law, secured creditors
such as the holders of the Mortgage Notes are prohibited from repossessing their
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval. Moreover,
applicable bankruptcy laws permit debtors to continue to retain and to use the
collateral even though the debtor is in default under the applicable debt
instruments, provided that the secured creditor is given "adequate protection."
The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the secured
creditor's interest in the collateral and may include cash payments or the
granting of additional security, at such time and in such amount as the court in
its discretion may determine, for any diminution in the value of the collateral
as a result of the stay of repossession or disposition or any use of the
collateral by the debtor during the pendency of the bankruptcy case. In view of
the lack of a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how long
payments under the Mortgage Notes could be delayed following commencement of a
bankruptcy case, whether or when the Trustee could repossess or dispose of the
Collateral and whether or to what extent the holders of the Mortgage Notes would
be compensated for any delay in payment or loss of value of the Collateral
through the requirement of "adequate protection." If the bankruptcy court
determines that the value of the Collateral is not sufficient to repay the
Mortgage Notes, holders of the Mortgage Notes would not be permitted to receive
payments or accrue interest, costs or attorneys' fees during the term of the
case.
11
<PAGE> 18
CONTROL BY CERTAIN STOCKHOLDERS
The principal stockholders of ERLY, Gerald D. Murphy and his son, Douglas
A. Murphy, each of whom is a director and an officer of ERLY, are the direct and
indirect record and beneficial owners of 1,517,191 shares, representing
approximately 37.4% of the outstanding shares of common stock of ERLY, and
506,502 shares, representing 12.5% of the outstanding shares of common stock of
ERLY, respectively. Accordingly, by virtue of ERLY's direct control of the
Company (of which ERLY owns 81% of the voting power), in connection with matters
submitted to a vote of ERLY's shareholders, such as the election of ERLY's Board
of Directors, the Murphy's collectively will be able to significantly influence
the direction and future operations of the Company. See "Management" and
"Security Ownership of Certain Beneficial Owners and Management."
CHANGE OF CONTROL
The Indenture governing the Mortgage Notes provides that, upon the
occurrence of a Change of Control (as defined in the Indenture), the holders of
the Mortgage Notes will have the right to require the Company to repurchase
their Mortgage Notes at a price equal to the lesser of 101% or the optional
redemption price then applicable of the Accreted Value of the Mortgage Notes,
plus accrued and unpaid interest to the date of repurchase. In addition, a
Change of Control may constitute a default under the Revolving Credit Loan. If a
Change of Control were to occur, the Company may not have the financial
resources to repay all of its obligations under the Revolving Credit Loan, the
Indenture and any other indebtedness that may become payable upon the occurrence
of such Change of Control.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous materials (collectively,
"Environmental Laws"). The Company believes that it currently conducts its
operations, and in the past has operated its business, in substantial compliance
with applicable Environmental Laws. From time to time, operations of the Company
may result in noncompliance with or liability for cleanup pursuant to
Environmental Laws. However, the Company believes that any such noncompliance or
liability under current Environmental Laws would not have a material adverse
effect on its results of operations and financial condition. See
"Business -- Environmental Matters." Any environmental problems at the Company's
properties could adversely affect the value of the Collateral or the ability of
the Trustee to foreclose on the Collateral.
RECOGNITION OF INCOME AND RISK OF ADVERSE TAX CHARACTERIZATION
The Mortgage Notes will be issued with original issue discount, which will
require holders of the Mortgage Notes to recognize income for federal income tax
purposes prior to actual receipt of the cash to which that income is
attributable. See "Material Federal Income Tax Consequences."
The Mortgage Notes provide for payment of both Fixed Interest and
Contingent Interest, which is based on the Company's operating results and is
calculated as a fixed percentage of the Company's Consolidated Cash Flow for
such periods. The Mortgage Notes and the Indenture have legal and other economic
terms typically contained in instruments evidencing indebtedness and are
intended to create a debtor-creditor relationship between the Company and the
holders of the Mortgage Notes. Based on advice of tax counsel, the Company
intends to treat the Mortgage Notes as indebtedness for federal income tax
purposes. If the Company's treatment of the Mortgage Notes is not upheld, some
or all of the payments on the Mortgage Notes may be recharacterized and the
holders may face other adverse tax consequences, including recognition
12
<PAGE> 19
of income for federal income tax purposes prior to actual receipt of the cash to
which that income is attributable. See "Material Federal Income Tax
Consequences."
ABSENCE OF PUBLIC MARKET FOR THE MORTGAGE NOTES
Prior to the Offering, there has been no public market for the Mortgage
Notes. The Company has been advised by the Underwriter that it presently intends
to make a market in the Mortgage Notes after the Offering, as permitted by
applicable laws and regulations; however, the Underwriter is not obligated to do
so, and any such market making, if commenced, may be discontinued at any time
without notice. The Company does not intend to apply for the listing of the
Mortgage Notes on any national securities exchange and no assurance can be given
that an active public market for the Mortgage Notes will develop. If a market
for the Mortgage Notes does not develop or is not maintained, holders of
Mortgage Notes may not be able to resell the Mortgage Notes for an extended
period of time, if at all. If a market for the Mortgage Notes were to develop,
future trading prices of the Mortgage Notes will depend on many factors,
including, among other things, prevailing interest rates, the Company's results
of operations, the market for similar securities (which market is subject to
various pressures, including, but not limited to, fluctuating interest rates),
general economic conditions and other factors. No assurance can be given that a
holder of Mortgage Notes will be able to sell such Mortgage Notes in the future
or that such sale will be at a price equal to or greater than the initial
offering price of the Mortgage Notes. See "Underwriting."
13
<PAGE> 20
THE COMPANY
The Company's rice business dates back to 1901 when the predecessor company
to Comet was formed in Beaumont, Texas. Comet rice, named after the appearance
of Halley's Comet during a product presentation, was the first rice to be sold
in branded packages and was widely advertised and marketed as a brand of high
quality rice. In 1952, the predecessor company to Comet merged with Wonder Rice
Mills, Inc. of Stuttgart, Arkansas and Adolphus Rice Mills, Inc. of Houston,
Texas, which added the Wonder(R) and Adolphus(R) brand names to the product
line, as well as the Stuttgart Facility. This rice milling business was
purchased in 1970 by Early California Industries Inc. ("Early"), a California
company engaged in agribusiness. In 1972, Early formed Comet as a new subsidiary
into which Early transferred all of its rice business assets, including its
trademarks. In 1979, Comet acquired United Rice Growers and Millers which owned
the Maxwell Facility. This facility remains the Company's primary milling
facility in the California rice producing region. Early changed its name to ERLY
Industries Inc. in 1985.
In 1986, Comet and American Rice, Inc., a Texas agricultural cooperative
marketing association formed in 1969 comprised primarily of rice growers (the
"ARI Cooperative"), formed a joint venture known as Comet American Marketing
("CAM") for the purpose of conducting joint domestic marketing operations. In
connection with the formation of CAM, both companies contributed virtually all
of their domestic brands to CAM and Comet transferred certain processing and
packaging equipment, packaging supplies and production responsibilities to the
ARI Cooperative. ARI was incorporated in 1987 by the ARI Cooperative and in
1988, the ARI Cooperative contributed all of its assets to the Company in
exchange for 52% of ARI's voting capital stock, which the ARI Cooperative
distributed to its members. Comet obtained the remaining 48% of ARI's voting
capital stock in exchange for contributing to the Company cash and Comet's 50%
interest in CAM. On May 26, 1993, ERLY consolidated its ownership interests in
the Company and Comet through the Acquisition, pursuant to which ERLY
transferred all of the operating assets and liabilities of Comet to ARI in
exchange for shares of voting preferred stock that gave ERLY an additional 33%
of the voting power of ARI. As a result of the Acquisition, ERLY holds 81% of
the voting power of the Company, comprised of a 32% direct common stock equity
interest and an additional 49% voting preferred stock interest.
As a result of the Acquisition, the Company diversified the market for its
products, expanded its share of both the domestic and export rice markets,
increased its sources of supply of rough rice and reduced its operating costs.
The Acquisition reduced manufacturing and distribution costs and increased gross
margins by allowing ARI to process and package products closer to the ultimate
customer and thereby utilize total capacity more efficiently. The Acquisition
also enabled ARI to better utilize its milling facilities due to increased
availability of bank credit lines and working capital, which in turn allowed ARI
to purchase additional raw product from a larger growing area and to sell to
additional export markets. Management believes the Acquisition has significantly
improved ARI's ability to manage short-term fluctuations in the cost of rough
rice by expanding and further diversifying its markets for milled rice.
Management also believes the Acquisition will continue to favorably impact
future operating results as additional synergies from the Acquisition are fully
realized.
The chart below illustrates the current organizational structure of the
Company, its subsidiaries and its parent, ERLY, which holds 81% of the voting
power of the Company as a result of the Acquisition:
<TABLE>
<S> <C> <C> <C> <C> <C>
-------------------------
/ ERLY Industries, Inc. /
-------------------------
/ 81%
------------------------
/ American Rice, Inc. /
------------------------
/
----------------------------------------------------------------------------------------------------------
/ 90% / 100% / 100% / 100% / 100% / 55%
----------------- ----------------- ---------------- ------------------ ----------------- -----------------
Comet Rice Comet Rice
Comet Ventures, of Puerto Rico, of Jamaica Rice Corporation BargeCaribe, ARI-Vinafood
Inc. Inc. Limited of Haiti, S.A. Inc.
----------------- ----------------- ---------------- ------------------ ----------------- -----------------
</TABLE>
The common stock of ERLY is directly and indirectly owned of record and
beneficially in the aggregate percentage of 47.2% by Gerald D. Murphy, Douglas
A. Murphy and William H. Burgess, each of whom are directors of ARI and, in the
case of Gerald D. Murphy and Douglas A. Murphy, officers of ARI. See "Security
Ownership of Certain Beneficial Owners and Management" and "Management."
The Company's principal executive offices are located at 16825 Northchase
Drive, Suite 1600, Houston, Texas 77060, telephone number (713) 873-8800.
14
<PAGE> 21
USE OF PROCEEDS
The Company intends to use the proceeds from the sale of the Mortgage Notes
as follows (in millions):
<TABLE>
<S> <C>
Repayment of Revolving Credit Loan(1)........................................ $23.5
Repayment of Term Loan(2).................................................... 53.0
Repayment of Maxwell Mortgage(3)............................................. 1.0
Intercompany loan to ERLY(4)................................................. 10.5
Estimated fees and expenses.................................................. 6.0
-----
Total................................................................... $94.0
=====
</TABLE>
- ---------------
(1) Proceeds will be used to repay Indebtedness outstanding under the Company's
$47.5 million Revolving Credit Loan, which was amended as of June 30, 1995
(as amended, the "Revolving Credit Loan"). The Revolving Credit Loan bears
interest at the prime rate of interest plus 0.5% and will mature on May 24,
1996, subject to renewal. The outstanding loan balance on the Revolving
Credit Loan at March 31, 1995 was approximately $31.0 million and at June
30, 1995 was approximately $26.6 million. The Company anticipates that the
outstanding balance will be decreased by approximately $3.1 million prior to
the Closing Date. See "Certain Relationships and Related
Transactions -- Transactions with Affiliates." The average balance
outstanding during fiscal 1995 was approximately $23.1 million. The interest
rate on the Revolving Credit Loan ranged from 8.25% to 11.0% per annum over
the year ended March 31, 1995.
(2) Comprised of three term notes under a single loan agreement (the "Term
Loan"), which notes bear interest at varying rates. The blended rate of
interest for the Term Loan was 12.3% per annum at March 31, 1995. These
notes mature on September 27, 1996, March 31, 1997 and December 31, 1997.
(3) Represents a mortgage note with a remaining principal balance of
approximately $0.95 million secured by the Maxwell Facility, which bears
interest at an interest rate of 10% per annum and matures on October 1, 2000
(the "Maxwell Mortgage").
(4) The Company will make a loan to ERLY on the Closing Date that will be
evidenced by a promissory note payable to the Company (the "15% ERLY
Intercompany Note"), which will bear interest at an interest rate of 15% per
annum and mature one year and one day prior to the Maturity Date (as
defined). Under the terms of the 15% ERLY Intercompany Note, ERLY will be
obligated to pay principal and interest annually by offsetting payments (the
"Tax Sharing Payments") due ERLY from ARI under the Tax Sharing Agreement
(as defined). Such offsets shall be applied first to reduce principal (up to
$500,000), then to pay interest accrued and payable, and then to further
reduce outstanding principal. ERLY will be responsible for paying cash to
pay principal to the extent such offsets are less than $500,000 and may
defer payment of interest to the extent such offsets are not available for
such payment. The terms of the 15% ERLY Intercompany Note may not be
modified without the consent of a majority of the holders of the Mortgage
Notes. As security for the payments due on the 15% ERLY Intercompany Note,
ERLY will issue a warrant equivalent to 7.5% of the then issued and
outstanding voting common stock of ERLY, exercisable at $0.01 per share
after any payment default, which warrant will be reduced proportionally by
the amount of all principal payments made on the 15% ERLY Intercompany Note
and cancelled automatically upon payment in full of the principal of the 15%
ERLY Intercompany Note. As a proportion to total costs, fees and expenses
attributable to the $10.5 million loan are approximately $670,000. ERLY
intends to use the proceeds of the loan from the Company primarily to repay
a loan with an outstanding balance of approximately $9.6 million (the "Juice
Debt") owed to Internationale Nederlanden (U.S.) Capital Corporation ("ING
Capital") by ERLY Juice Inc., a wholly owned subsidiary of ERLY that has
discontinued operations, which Juice Debt is guaranteed by ERLY. Partial
consideration for the Company's loan to ERLY is the pledge by ERLY of the
ARI capital stock owned by ERLY (other than certain shares of preferred
stock previously pledged). ERLY holds 81% of the voting power of the Company
and shares some common officers and directors with the Company. See "Certain
Relationships and Related Transactions -- Transactions with Affiliates" and
"Security Ownership of Certain Beneficial Owners and Management."
15
<PAGE> 22
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1995, and as adjusted to give pro forma effect to the sale
of the Mortgage Notes and the application of the net proceeds therefrom. See
"Use of Proceeds." This table should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1995
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS............................................. $ 2,742 $ 0
======== ========
CURRENT DEBT:
Revolving Credit Loan............................................... $ 26,634 $ 192
Short-term notes(1)................................................. 3,866 3,866
Current portion of long-term debt................................... 6,727 --
-------- --------
Total current debt.......................................... 37,227 4,058
-------- --------
LONG-TERM DEBT, LESS CURRENT MATURITIES:
13% Mortgage Notes due 2002......................................... -- 94,000
Term Loan........................................................... 46,285 --
Maxwell Mortgage.................................................... 788 --
-------- --------
Total long-term debt, less current maturities............... 47,073 94,000
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00 per share; 4,000,000 shares
authorized; 3,877,777 shares issued and outstanding.............. 3,878 3,878
Common stock, par value $1.00 per share; 10,000,000 shares
authorized; 2,443,892 shares issued and outstanding.............. 2,444 2,444
Additional paid-in capital.......................................... 25,286 25,286
Retained earnings................................................... 13,728 13,459
Cumulative foreign currency translation adjustments................. (748) (748)
-------- --------
Total stockholders' equity.................................. 44,588 44,319
-------- --------
TOTAL CAPITALIZATION.................................................. $ 128,888 $ 142,377
======== ========
</TABLE>
- ---------------
(1) Includes $3.8 million of short-term working capital loans payable by
ARI-Vinafood. See "Description of Certain Indebtedness -- ARI-Vinafood
Short-Term Notes."
16
<PAGE> 23
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data have been
prepared by the Company based upon certain adjustments to the Company's audited
financial statements for the year ended March 31, 1995. The pro forma condensed
consolidated operating data give effect to the Offering as if it had occurred on
April 1, 1994. The pro forma condensed consolidated balance sheet data give
effect to the Offering as if it had occurred on March 31, 1995. The pro forma
condensed consolidated financial data are not necessarily indicative of the
actual operating results or financial position that would have occurred or the
future operating results that will occur as a consequence of the Offering. This
information should be read in conjunction with "Capitalization," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and the notes thereto, included elsewhere in this Prospectus.
PRO FORMA CONDENSED CONSOLIDATED OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995
------------------------------------
OFFERING
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING DATA:
Net sales..................................................... $ 373,050 $ -- $ 373,050
Cost of sales................................................. 332,236 -- 332,236
-------- ------- --------
Gross profit................................................ 40,814 -- 40,814
Selling, general and administrative expenses.................. 23,235 -- 23,235
Interest expense(1)........................................... 12,344 3,414 15,758
Interest income(2)............................................ (727) (1,613) (2,340)
Other income.................................................. (153) -- (153)
-------- ------- --------
Pre-tax income.............................................. 6,115 (1,801) 4,314
Provision for income taxes(3)................................. 2,202 (648) 1,554
-------- ------- --------
Net earnings................................................ $ 3,913 $(1,153) $ 2,760
======== ======= ========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(1) The pro forma adjustment to interest expense is computed as follows (in
thousands):
$100.0 million of Mortgage Notes............................................... $13,000
$2.9 million of 15% short-term notes........................................... 441
Pro forma cash interest expense.............................................. 13,441
Contingent Interest on Mortgage Notes*......................................... 910
Less: interest expense related to existing debt................................ (12,344)
Amortization of $6.0 million of deferred financing costs related to the
Offering....................................................................... 857
Original issue discount........................................................ 550
Pro forma adjustment to interest expense..................................... $ 3,414
* Contingent Interest is computed based upon the Company's fiscal 1995 EBITDA
of $22.8 million and is not included in pro forma cash interest expense because
the Company's Adjusted Fixed Charge Coverage Ratio is less than 2.0x.
(2) The pro forma adjustment to interest income is computed as follows (in
thousands):
$10.5 million of 15% ERLY Intercompany Note.................................... $ 1,575
$11.9 million of 6% ERLY Intercompany Note (as defined)........................ 714
$1.0 million of 5.25% pro forma average cash balance........................... 51
Pro forma total interest income................................................ 2,340
Less: interest income related to existing ERLY Intercompany Notes and other
investments.................................................................... (727)
Pro forma adjustment to interest income...................................... $ 1,613
Pro forma cash interest expense, net of pro forma interest income on average
cash balance............................................................... $13,390
Pro forma cash interest expense, net of pro forma total interest income...... $11,101
(3) The pro forma income tax expense is computed based on an assumed effective tax rate of
36%.
</TABLE>
17
<PAGE> 24
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1995
----------------------------------------
OFFERING
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents................................. $ 1,864 $ (1,864) $ 0
Other current assets...................................... 87,872 -- 87,872
-------- -------- --------
Total current assets................................. 89,736 (1,864) 87,872
Property, plant and equipment, net........................ 41,386 -- 41,386
Other assets(1)........................................... 46,378 15,117 61,495
-------- -------- --------
Total assets......................................... $ 177,500 $ 13,253 $ 190,753
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Total debt(2)............................................. $ 89,237 $ 14,636 $ 103,873
Other liabilities(3)...................................... 44,051 (498) 43,553
Total stockholders' equity(3)............................. 44,212 (885) 43,327
-------- -------- --------
Total liabilities and stockholders' equity........... $ 177,500 $ 13,253 $ 190,753
======== ======== ========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C> <C>
(1) Reflects the following adjustments to other assets (in thousands):
Deferred financing costs related to the Offering............... $ 6,000
15% ERLY Intercompany Note..................................... 10,500
Debt issuance costs related to existing debt................... (1,383)
--------
Increase in other assets.................................... $ 15,117
========
(2) Reflects the following adjustments to total debt (in thousands):
Reduction of existing debt..................................... $ (79,364)
Issuance of the Mortgage Notes................................. 94,000
--------
Increase in total debt...................................... $ 14,636
========
(3) Reflects write-off of debt issuance costs on existing debt, net of related income
taxes.
</TABLE>
18
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth selected consolidated financial data of the
Company for the years ended March 31, 1991 to 1995, for the three-month periods
ended June 30, 1994 and 1995, and for Pre-Acquisition ARI for the years ended
March 31, 1991 to 1993 and the period from April 1, 1993 to May 26, 1993. The
selected consolidated financial data are derived from the audited financial
statements of the Company and of Pre-Acquisition ARI, except for the period from
April 1, 1993 to May 26, 1993, and the three-month periods ended June 30, 1994
and 1995 which are unaudited. The unaudited financial statements include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results of operations for the period, all of which are of a
normal, recurring nature. The Company's consummation of the Acquisition on May
26, 1993 was accounted for as a purchase by Comet of stock in Pre-Acquisition
ARI in exchange for all of the operating assets and liabilities of Comet, and
following the Acquisition Comet distributed its equity interest in ARI to ERLY.
As a result, the Company's consolidated financial data prior to the Acquisition
reflects the operations of Comet rather than Pre-Acquisition ARI. Accordingly,
consolidated financial data of the Company contained in this Prospectus are not
directly comparable between fiscal years. The Company's audited financial
statements for the years ended March 31, 1991 to 1993 and the period from April
1, 1993 to May 26, 1993, included in the audited financial statements for the
year ended March 31, 1994, represent the results of the Company, including the
Company's share of Pre-Acquisition ARI results, using the equity method due to
the Company's 48% interest in Pre-Acquisition ARI prior to the Acquisition. For
all periods after May 26, 1993, the Company's Consolidated Financial Statements
include the results of Pre-Acquisition ARI and Comet. The information in the
tables should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
COMET(1) ARI(1)
-------------------------------- --------------------------------------------
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
-------------------------------------------------------- --------------------
1991 1992(2) 1993(2) 1994 1995 1994 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND PER HUNDREDWEIGHT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................................. $218,919 $214,090 $169,617 $284,464 $373,050 $105,706 $ 86,392
Gross profit.............................. 17,767 11,684 8,363 36,418 40,814 11,323 9,537
Selling, general and administrative
expenses................................ 7,646 8,419 10,779 21,497 23,235 5,272 5,771
Earnings (loss) before extraordinary
items................................... 716 (5,638) (11,265) 3,465 3,913 2,010 376
Primary earnings (loss) per share before
extraordinary items(3).................. -- -- -- $ (0.45) $ (0.83) $ 0.16 $ (0.45)
OTHER FINANCIAL DATA:
EBITDA(4)................................. $ 14,889 $ 7,828 $ 1,497 $ 19,839 $ 22,751 $ 7,326 $ 5,031
EBIT...................................... 12,046 5,190 (316) 16,017 18,501 6,281 3,998
Management fees........................... 1,925 1,925 2,100 1,096 922 230 232
Gross profit margin....................... 8.1% 5.5% 4.9% 12.8% 10.9% 10.7% 11.0%
Depreciation and amortization(5).......... $ 2,843 $ 2,638 $ 1,813 $ 3,822 $ 4,250 $ 1,045 $ 1,033
Capital expenditures...................... 2,923 772 2,651 2,844 3,562 1,625 1,422
Hundredweight of rice sold(6)............. 15,114 14,463 12,918 17,114 22,304 6,155 5,098
Net sales per hundredweight............... $ 14.48 $ 14.80 $ 13.13 $ 16.62 $ 16.73 $ 17.17 $ 16.94
Ratio of earnings to fixed charges(7)..... 1.4x -- -- 1.5x 1.4x -- 1.1x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1995
-------- -------- -------- -------- -------- --------
(IN THOUSANDS) (IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 1,991 $ 1,057 $ 2,740 $ 1,721 $ 1,864 $ 2,742
Current assets............................ 76,661 76,335 32,681 86,448 89,736 75,449
Total assets.............................. 143,102 124,602 74,325 175,070 177,500 163,705
Total debt(8)............................. 88,709 81,160 47,953 95,084 89,237 84,300
Total stockholders' equity................ 25,596 19,304 12,699 40,299 44,212 44,588
</TABLE>
- ---------------
(Footnotes on following page)
19
<PAGE> 26
<TABLE>
<CAPTION>
PRE-ACQUISITION ARI(1)
---------------------------------------------------------
PERIOD FROM
YEAR ENDED MARCH 31, APRIL 1, 1993
------------------------------------ TO
1991 1992 1993 MAY 26, 1993(1)
-------- -------- -------- ---------------
(IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND PER
HUNDREDWEIGHT DATA)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net sales................................................... $198,462 $176,201 $176,619 $27,025
Gross profit................................................ 15,023 13,982 24,580 4,243
Selling, general and administrative expenses................ 14,776 13,104 14,163 2,380
Earnings (loss) before extraordinary items.................. (5,777) (5,432) 3,250 888
Primary earnings (loss) per share before extraordinary
items..................................................... $ (0.47) $ (0.44) $ 0.20 $ 0.06
OTHER FINANCIAL DATA:
EBITDA(4)................................................... $ 3,912 $ 4,308 $ 13,606 $ 2,356
EBIT........................................................ 547 1,178 10,536 1,863
Management fees............................................. 300 300 119 --
Gross profit margin......................................... 7.6% 7.9% 13.9% 15.7%
Depreciation and amortization(5)............................ $ 3,365 $ 3,130 $ 3,070 $ 493
Capital expenditures........................................ 830 517 762 31
Hundredweight of rice sold(6)............................... 14,058 12,026 12,645 1,361
Net sales per hundredweight................................. $ 14.12 $ 14.65 $ 13.97 $ 19.86
Ratio of earnings to fixed charges(9)....................... -- -- 1.4x 1.9x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------
1991 1992 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,864 $ 1,251 $ 1,926
Current assets.............................................. 44,916 36,983 46,050
Total assets................................................ 105,957 95,515 102,178
Total debt(8)............................................... 65,300 67,196 64,116
Total stockholders' equity.................................. 18,633 13,201 16,451
</TABLE>
- ---------------
(1) On May 26, 1993, the Company consummated the Acquisition, which was
accounted for as a purchase of ARI by Comet. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 1 to
the Company's Consolidated Financial Statements.
(2) For a discussion of the various factors affecting operating results during
the period indicated, such as the impact of the U.S. trade embargo of Iraq,
see "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Results of Operations."
(3) Represents primary earnings (loss) per share before extraordinary items
applicable to common stock after preferred stock dividend requirements.
Earnings per share are not presented for the years ended March 31, 1991 to
1993 because the data presented is that of Comet, which was a wholly owned
subsidiary of ERLY.
(4) EBITDA represents operating income before management fees, depreciation and
amortization. The Company has included EBITDA data (which are not a measure
of financial performance under generally accepted accounting principles)
because it understands such data are used by certain investors to determine
the Company's historical ability to service its indebtedness. EBITDA should
not be considered by an investor as an alternative to net income, as an
indicator of the Company's operating performance or as an alternative to
cash flow as a measure of liquidity. For the cash flows for each of the
Company and Pre-Acquisition ARI for the periods presented, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
(5) Excludes amortization of deferred financing costs included in interest
expense.
(6) A hundredweight is equivalent to 100 pounds. A metric ton is equivalent to
22.046 hundredweight.
(7) For purposes of calculating the ratio of earnings to fixed charges, earnings
are defined as earnings (loss) from continuing operations before income
taxes, plus fixed charges. Fixed charges consist of interest expense on all
indebtedness (including amortization of deferred debt issuance costs) and
the portion of operating lease rental expenses that is representative of the
interest factor (deemed to be one-third of the lease rentals). For the years
ended March 31, 1992 and 1993, earnings were inadequate to cover fixed
charges by $3.0 million and $9.6 million, respectively.
(8) Represents total of notes payable, current portion of long-term debt and
long-term debt.
(9) For purposes of calculating the ratio of earnings to fixed charges, earnings
are defined as earnings (loss) from continuing operations before income
taxes, plus fixed charges. Fixed charges consist of interest expense on all
indebtedness (including amortization of deferred debt issuance costs) and
the portion of operating lease rental expenses that is representative of the
interest factor (deemed to be one-third of the lease rentals). For the years
ended March 31, 1991 and 1992, earnings were inadequate to cover fixed
charges by $6.0 million and $5.4 million, respectively.
20
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Consolidated Financial Data" and the Company's Consolidated Financial Statements
and the notes thereto, included elsewhere in this Prospectus.
OVERVIEW
The Company purchases and processes rough rice into branded and commodity
rice for sale in both international and domestic markets. Demand for branded
rice products, which have accounted for approximately 70% of the Company's net
sales over the last two fiscal years, is relatively constant and margins are
typically higher than those for commodity rice products. Demand for commodity
rice products is relatively constant globally, but demand for U.S. grown
commodity rice is dependent upon supply and its cost relative to other sources
of supply. Supply and cost for both branded and commodity products depend on
many factors including governmental actions, crop yields and weather, and such
factors can persist through one or more fiscal years. An example of this
occurred in late 1993 when rough rice prices approximately doubled as a result
of shortages caused by poor weather conditions in Japan and the entry of Japan
into the world market as a net importer of rice. Following this significant
price increase, prices then fell from January 1994 to July 1994 by approximately
50% to September 1993 levels as supplies of rice in that country improved and
world markets stabilized.
The Company generally benefited from the price variability experienced in
the 1993 to 1994 period because the Company was able to increase sales prices in
some markets, the Company was able to sell rice inventories acquired at lower
prices at increased sales prices, and the Company participated in the Japanese
business through its California facilities. In general, management believes that
it is insulated from many of the effects of rough rice price fluctuations for
the following reasons: (i) the Company's net sales are proportionally weighted
towards relatively higher margin branded products, (ii) approximately one-half
of the Company's rough rice purchases, excluding rough rice milled under
contract for others, are made as spot market purchases and matched against
commodity orders at prices providing a favorable margin to costs, (iii) the
Company's high rice inventory turnover rate of approximately five times per year
reduces the Company's exposure to seasonal price fluctuations, and (iv) the
Company's diversity of rice sources and rice customers increases the ability of
the Company to take advantage of supply and demand imbalances.
21
<PAGE> 28
The Company competes in all major rice importing regions in the world,
including the Caribbean, Latin America, Middle East and Asia, as well as within
the United States and Canada. In fiscal 1995, the Company marketed rice in 44
foreign countries with no foreign country accounting for more than 13% of net
sales. The following tables summarize the regional concentrations of net sales
of the Company and Pre-Acquisition ARI during the past three years and for the
three months ended June 30, 1994 and June 30, 1995:
<TABLE>
<CAPTION>
COMET ARI
-------- -----------------------------------------
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
------------------------------ -------------------
1993 1994 1995 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES BY REGION:
Domestic sales:
United States and Canada............... $ 77,199 $102,624 $129,271 $ 32,658 $ 31,431
-------- -------- -------- -------- --------
Export sales:
Middle East............................ 46,209 89,782 91,449 13,323 33,842
Caribbean, Mexico, and South America... 32,744 38,935 84,806 20,926 16,800
Asia................................... 670 42,838 49,963 36,481 3,842
Europe................................. 10,593 6,260 13,632 2,306 467
Africa................................. 2,114 4,012 3,864 -- --
Other.................................. 88 13 65 12 10
-------- -------- -------- -------- --------
Total export sales................... 92,418 181,840 243,779 73,048 54,961
-------- -------- -------- -------- --------
Total net sales........................... $169,617 $284,464 $373,050 $105,706 $ 86,392
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION ARI
-------------------------
PERIOD FROM
YEAR ENDED APRIL 1, 1993
MARCH 31, TO MAY 26,
1993 1993
---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
NET SALES BY REGION:
Domestic sales:
United States and Canada................ $ 74,762 $ 9,438
---------- -------------
Export sales:
Middle East............................. 67,841 12,202
Caribbean, Mexico, and South America.... 24,388 818
Asia.................................... -- --
Europe.................................. 1,963 363
Africa.................................. 7,376 3,916
Other................................... 289 288
---------- -------------
Total export sales.................... 101,857 17,587
---------- -------------
Total net sales............................ $176,619 $ 27,025
======== =========
</TABLE>
ACQUISITION ACCOUNTING
Comet acquired a 48% voting interest in ARI on April 29, 1988 and an
additional 33% voting interest as a result of the Acquisition on May 26, 1993,
which was accounted for as a purchase by Comet of ARI. Because Comet was the
acquirer in the Acquisition for accounting purposes, the consolidated financial
data presented for periods prior to May 26, 1993 reflect only the operations of
Comet. As a result, historical operating results are not directly comparable
between fiscal years.
Management believes that an analysis of the Company's historical operating
results is more meaningful when combined with an understanding of the operating
results of Pre-Acquisition ARI for the period prior to the Acquisition and the
effects of the Acquisition on the Company's combined results. As shown by a
22
<PAGE> 29
comparison of the historical operating and financial data for the Company and
Pre-Acquisition ARI included in "Selected Consolidated Financial Data," the
Acquisition had a significant effect on the Company's results of operations and
financial position. In addition, understanding the historical operating results
of both ARI and Pre-Acquisition ARI is important because of the close
relationship between the companies that existed prior to the Acquisition, as
evidenced by, among other things, (i) a joint marketing agreement between the
ARI Cooperative and Comet that was implemented in 1986, (ii) Comet's ownership
of at least 48% of ARI's voting stock since 1988 and (iii) significant
intercompany transactions between Comet and ARI in periods prior to May 26,
1993.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1995 Compared with the Three Months Ended June 30,
1994
Net Sales. Net sales declined $19.3 million, or 18.3%, from $105.7 million
in the first quarter of fiscal 1995 to $86.4 million in the first quarter of
fiscal 1996. Of this decline, $18.0 million resulted from decreased export sales
and $1.2 million from decreased sales in the United States and Canada.
Export sales declined due to lower volume partially offset by higher
average prices. Total export sales volume declined approximately 2.5 million
equivalent rough rice hundredweight or 33%, accounting for a $24.0 million sales
decline. Average export prices increased approximately $2.00 per hundredweight
or 12%, accounting for $6.0 million in sales increases. Export volume was lower
primarily due to the lack of sales to Japan compared to the first quarter of the
prior year. It is expected that Japan will not be purchasing rice this year
until October, when it is anticipated it will begin purchasing rice pursuant to
its GATT (as defined) commitments of 379,000 metric tons (8.4 million
hundredweights) of rice for the twelve-month period beginning April 1, 1995 and
increasing to 758,000 metric tons (17.7 million hundredweights) annually by the
year 2000. ARI's sales to Asia totalled $42.8 million and $50.0 million in the
fiscal years ended March 31, 1994 and 1995, respectively. For the twelve-month
period ended August 1994, Japan imported 2.4 million metric tons of rice,
including approximately 500,000 metric tons from the United States. ARI
processed and milled approximately 62% of the tonnage from the United States.
Management believes that the United States has an excellent opportunity to
obtain more than half of the projected Japanese imports under GATT and that the
Company will have material involvement in supplying these requirements. See
"Business -- Brands and Markets -- Asia." This sales decline was partially
offset by higher sales to the Middle East. Domestic sales were lower as a result
of lower average prices partially offset by higher volume.
Gross Profit. Gross profit was 11% of net sales for both the first
quarters of fiscal 1995 and 1996. Gross profit declined $1.8 million, or 15.8%,
from $11.3 million in the first quarter of fiscal 1995 to $9.5 million in the
first quarter of fiscal 1996, due primarily to lower sales to Japan from the
Maxwell Facility partially offset by increases in gross profit from sales to the
United States, Canada and the Middle East.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.5 million, or 9.5%, from $5.3 million in
the first quarter of fiscal 1995 to $5.8 million in the first quarter of fiscal
1996. As a percentage of net sales, selling, general and administrative expenses
increased from 5.0% in the first quarter of fiscal 1995 to 6.7% in the first
quarter of fiscal 1996 due primarily to a higher proportion of branded sales in
the first quarter of fiscal 1996.
EBITDA. As a result of the foregoing, EBITDA declined $2.3 million, or
31.3%, from $7.3 million in the first quarter of fiscal 1995 to $5.0 million in
the first quarter of fiscal 1996. As a percentage of net sales, EBITDA declined
from 6.9% in the first quarter of fiscal 1995 to 5.8% in the first quarter of
fiscal 1996.
Interest Expense. Interest expense increased $0.5 million, or 17.3%, from
$2.9 million in the first quarter of fiscal 1995 to $3.4 million in the first
quarter of fiscal 1996 due to higher average interest rates partially offset by
lower average balances outstanding. Interest expense in both periods includes
amortization of capitalized debt issuance costs.
23
<PAGE> 30
Year Ended March 31, 1995 Compared with the Year Ended March 31, 1994
Net Sales. The Company's net sales increased $88.6 million, or 31.1%, from
$284.5 million in fiscal 1994 to $373.1 million in fiscal 1995. Export sales
increased by $61.9 million while domestic sales increased by $26.7 million.
Export sales improved primarily due to higher volume which increased by
approximately eight million equivalent rough rice hundredweight. Approximately
74% of this increase resulted from sales to the Caribbean, Mexico and South
America with the remaining improvements coming from the Asian and European
markets. Asian sales were primarily to Japan. Sales to Japan commenced in
January 1994 and continued through July 1994 at significant volumes. Sales to
Japan by the Company continued from August 1994 through the end of fiscal 1995,
but are inconsequential. Domestic sales benefited from higher average sales
prices which increased 14.5% primarily due to higher value-added retail sales
from ARI's existing customer base.
Pre-Acquisition ARI had net sales of $27.0 million during the period from
April 1, 1993 to May 26, 1993, which are not included in the Company's net sales
for fiscal 1994 of $284.5 million. On a combined basis, net sales of ARI and
Pre-Acquisition ARI (after eliminating intercompany sales of $0.2 million)
improved $61.8 million, or 19.9%, from fiscal 1994 to fiscal 1995 due to
increases in export sales, which accounted for $44.6 million, and increases in
domestic sales, which accounted for $17.2 million. Approximately 73% of this
increase in export sales resulted from greater sales to the Caribbean, Mexico
and South America, which was due in part to higher branded product sales in
Haiti and higher commodity sales in Brazil. Sales to Asia and Europe also
increased, but were partially offset by declines in sales to the Middle East and
Africa. Domestic sales increased by $17.2 million primarily due to higher volume
and an increase of 12.0% in average domestic prices attributable to generally
higher prices in the retail and food service markets and reduced quantities of
rough rice sales in fiscal 1995. Rough rice generally sells at a much lower
price per hundredweight than milled rice.
Gross Profit. Gross profit increased $4.4 million, or 12.1%, from $36.4
million in fiscal 1994 to $40.8 million in fiscal 1995, primarily due to higher
sales volume, partially offset by lower gross profit per hundredweight sold. As
a percentage of net sales, gross profit decreased from 12.8% in fiscal 1994 to
10.9% in fiscal 1995 as a result of reduced prices when Japanese demand abated
in August 1994 while the average cost of rough rice milled for markets in the
United States, the Caribbean, Mexico and South America increased.
Pre-Acquisition ARI had gross profit of $4.2 million during the period from
April 1, 1993 to May 26, 1993, which is not included in the Company's gross
profit for fiscal 1994 of $36.4 million. On a combined basis, after adjustments
of approximately $0.1 million to eliminate intercompany transactions, gross
profit increased $0.1 million, or 0.2%, from fiscal 1994 to fiscal 1995. As a
percentage of combined net sales, gross profit decreased from 13.1% in fiscal
1994 to 10.9% in fiscal 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.7 million, or 8.1%, from $21.5 million in
fiscal 1994 to $23.2 million in fiscal 1995. As a percentage of net sales,
selling, general and administrative expenses declined from 7.6% in fiscal 1994
to 6.2% in fiscal 1995 due to greater net sales without corresponding increases
in fixed selling and administrative expenses.
Pre-Acquisition ARI had selling, general and administrative expenses of
$2.4 million during the period from April 1, 1993 to May 26, 1993, which are not
included in the Company's selling, general and administrative expenses for
fiscal 1994 of $21.5 million. On a combined basis, after adjustments of
approximately $0.2 million to adjust management fees and amortization expenses
associated with the Acquisition, selling, general and administrative expenses
decreased $0.5 million, or 2.1%, from fiscal 1994 to fiscal 1995. As a
percentage of combined net sales, selling, general and administrative expenses
decreased from 7.6% in fiscal 1994 to 6.2% in fiscal 1995.
EBITDA. As a result of the foregoing, EBITDA increased $3.0 million, or
14.7%, from $19.8 million in fiscal 1994 to $22.8 million in fiscal 1995. As a
percentage of net sales, EBITDA decreased from 7.0% in fiscal 1994 to 6.1% in
fiscal 1995.
Pre-Acquisition ARI had EBITDA of $2.4 million during the period from April
1, 1993 to May 26, 1993, which is not included in the Company's EBITDA for
fiscal 1994 of $19.8 million. On a combined basis, after adjustments of
approximately $0.1 million to eliminate intercompany transactions, EBITDA
improved $0.5
24
<PAGE> 31
million, or 2.2%, from $22.3 million in fiscal 1994 to $22.8 million in fiscal
1995. As a percentage of combined net sales, EBITDA decreased from 7.2% in
fiscal 1994 to 6.1% in fiscal 1995.
Interest Expense. Despite lower average balances outstanding, interest
expense increased $2.5 million, or 24.9%, from fiscal 1994 to fiscal 1995 due to
higher average effective interest rates. Interest expense in both periods
includes amortization of capitalized debt issuance costs and other expenses
directly associated with the Company's debt.
Year Ended March 31, 1994 Compared with the Year Ended March 31, 1993
Net Sales. Net sales improved $114.9 million, or 67.7%, from $169.6
million in fiscal 1993 to $284.5 million in fiscal 1994. Of this increase, $89.4
million resulted from increased export sales and $25.5 million from increased
domestic sales, both primarily as a result of the Acquisition.
Pre-Acquisition ARI had net sales of $176.6 million in fiscal 1993 and
$27.0 million during the period from April 1, 1993 to May 26, 1993, which are
not included in the Company's net sales for fiscal 1993 of $169.6 million or
fiscal 1994 of $284.5 million. On a combined basis, net sales of ARI and
Pre-Acquisition ARI (after eliminating intercompany sales of $37.1 million and
$0.2 million for fiscal 1993 and fiscal 1994, respectively) improved $2.2
million, or 0.7%, from fiscal 1993 to fiscal 1994 due to increases of export
sales, which accounted for $13.5 million, while domestic sales fell by $11.3
million. Export sales increased primarily due to higher volume, which increased
approximately 4.3% or $8.1 million, and higher average prices, which improved
3.0% or $5.4 million. Volume increases resulted from exports to Japan and Haiti
and greater exports by the Company's 90%-owned subsidiary, Comet Ventures, Inc.
("CVI"). Total sales for CVI, a producer of specialty rice products and rice
ingredients, more than tripled in fiscal 1994 to $10.1 million due to increases
in customer demand. Domestic sales declined due to decreased volume caused by
redirecting rice sales to more profitable export markets such as Japan.
Gross Profit. Gross profit improved $28.0 million, or 335.5%, from $8.4
million in fiscal 1993 to $36.4 million in fiscal 1994. As a percentage of net
sales, gross profit increased from 4.9% in fiscal 1993 to 12.8% in fiscal 1994.
This increase in gross profit was primarily a result of additional sales to
customers acquired in the Acquisition and additional domestic and export sales.
Exports to Japan from the Maxwell Facility contributed to significant gross
profit increases, and the CVI, Haiti and Puerto Rico subsidiaries also reported
significant improvements in gross profits. The increase in gross profit as a
percentage of net sales was primarily due to higher value-added sales in the
U.S. and Middle East markets resulting from an expanded customer base due to the
Acquisition.
Pre-Acquisition ARI had gross profit of $24.6 million in fiscal 1993 and
$4.2 million during the period from April 1, 1993 to May 26, 1993, which is not
included in the Company's gross profit for fiscal 1993 of $8.4 million or fiscal
1994 of $36.4 million. On a combined basis, after adjustments of approximately
$1.0 million and $0.1 million for fiscal 1993 and fiscal 1994, respectively, to
eliminate intercompany transactions and conform inventory accounting methods,
gross profit increased $6.7 million, or 19.9%, from fiscal 1993 to fiscal 1994.
As a percentage of combined net sales, gross profit increased from 11.0% in
fiscal 1993 to 13.1% in fiscal 1994 as a result of increased exports to Japan
from ARI's California processing facilities and improvements in gross profit
from CVI and in the Haitian and Puerto Rican markets.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $10.7 million, or 99.4%, from $10.8 million in
fiscal 1993 to $21.5 million in fiscal 1994. As a percentage of net sales,
selling, general and administrative expenses increased from 6.4% in fiscal 1993
to 7.6% in fiscal 1994. This increase was primarily due to advertising and
selling expenses associated with greater sales of higher margin branded
products.
Pre-Acquisition ARI had selling, general and administrative expenses of
$14.2 million in fiscal 1993 and $2.4 million during the period from April 1,
1993 to May 26, 1993, which are not included in the Company's selling, general
and administrative expenses for fiscal 1993 of $10.8 million or fiscal 1994 of
$21.5 million. On a combined basis, selling, general and administrative expenses
remained relatively constant from fiscal 1993 to fiscal 1994, expressed both in
total dollars and as a percentage of net sales.
25
<PAGE> 32
EBITDA. As a result of the foregoing, EBITDA increased $18.3 million, or
1,225.3%, from $1.5 million in fiscal 1993 to $19.8 million in fiscal 1994, due
primarily to the Acquisition. As a percentage of net sales, EBITDA increased
from 0.9% in fiscal 1993 to 7.0% in fiscal 1994.
Pre-Acquisition ARI had EBITDA of $13.6 million in fiscal 1993 and $2.4
million during the period from April 1, 1993 to May 26, 1993, which is not
included in the Company's EBITDA for fiscal 1993 of $1.5 million or fiscal 1994
of $19.8 million. On a combined basis, after adjustments of approximately $1.0
million and $0.1 million for fiscal 1993 and fiscal 1994, respectively, to
eliminate intercompany transactions and conform inventory accounting methods,
EBITDA improved $6.2 million, or 38.1%, from $16.1 million in fiscal 1993 to
$22.3 million in fiscal 1994. As a percentage of combined net sales, EBITDA
increased from 5.2% in fiscal 1993 to 7.2% in fiscal 1994.
Interest Expense. Interest expense increased $4.7 million, or 88.9%, from
fiscal 1993 to fiscal 1994 due to higher average rates and balances. The higher
balances in fiscal 1994 were principally as a result of the Acquisition.
Interest expense in fiscal 1994 includes amortization of capitalized debt
issuance costs and other expenses directly associated with the Company's debt.
Year Ended March 31, 1993 Compared with the Year Ended March 31, 1992
Net Sales. Net sales decreased $44.5 million, or 20.8%, from $214.1
million in fiscal 1992 to $169.6 million in fiscal 1993. Export sales accounted
for a decrease of $54.0 million which was partially offset by increases in
domestic sales of $9.5 million. For the third consecutive year, net sales
declined due to the embargo of trade with Iraq imposed by the U.S. government in
August 1990 that caused export sales to decrease for the entire U.S. rice
industry. The Company was a major supplier to Iraq from its Greenville,
Mississippi, facility (the "Greenville Facility") and suffered a sales decline
of $93.0 million in fiscal 1991 and $21.5 million in fiscal 1992 due to the loss
of this customer. As a result of cost cutting measures implemented by the
Company and in anticipation of the Acquisition, disposition of the Greenville
Facility by foreclosure under a non-recourse obligation secured by the
Greenville Facility (the "Greenville Disposition") occurred in July 1992. The
Greenville Disposition allowed processing of rice for the most profitable export
business of both Comet and Pre-Acquisition ARI to be processed in the Freeport
Facility. This resulted in lower sales to all markets except the Middle East.
Opportunities for increased profit margins from sales to Turkey caused increased
sales from the Maxwell Facility. Sales to South America in fiscal 1992 were
primarily rough rice sales which became uneconomical in fiscal 1993 due to
changes in world supply and demand. Therefore, average sales price per
hundredweight for export rice declined by only 11.3%, while export volume
decreased by 28.7%. Domestic sales increased in fiscal 1993 by $9.5 million, or
14.1%, from fiscal 1992 primarily due to an increase in volume of 22.9%. Average
sales price per hundredweight for domestic rice decreased by 7.2% from fiscal
1992 to fiscal 1993.
Pre-Acquisition ARI had net sales of $176.2 million in fiscal 1992 and
$176.6 million in fiscal 1993, which are not included in the Company's net sales
for fiscal 1992 of $214.1 million and fiscal 1993 of $169.6 million. On a
combined basis, after adjustments to eliminate intercompany sales of
approximately $47.5 million and $37.1 million for fiscal 1992 and fiscal 1993,
respectively, net sales of ARI and Pre-Acquisition ARI decreased $33.7 million,
or 9.8%, from fiscal 1992 to fiscal 1993.
Gross Profit. Gross profit decreased $3.3 million, or 28.4%, from $11.7
million in fiscal 1992 to $8.4 million in fiscal 1993. As a percentage of net
sales, gross profit decreased from 5.5% in fiscal 1992 to 4.9% in fiscal 1993
primarily as a result of lower volume and fixed processing costs. Although lower
rough rice costs and reduced fixed expenses resulting from the disposition of
the Greenville Facility allowed cost of sales to decline, costs did not decline
proportionately with sales declines. The Puerto Rico operations did not
contribute gross profit due to expenses associated with the closure of the
Puerto Rico facility. However, in order to maintain a market presence in Puerto
Rico, the Company shipped bulk milled rice for packing under the Company's brand
names in Puerto Rico by a third party. Operations in Jamaica suffered losses due
to continued preferential tariffs imposed by the Jamaican government causing a
competitive disadvantage for commercial sales of U.S. grown rice.
26
<PAGE> 33
Pre-Acquisition ARI had gross profit of $14.0 million in fiscal 1992 and
$24.6 million in fiscal 1993, which is not included in the Company's gross
profit for fiscal 1992 of $11.7 million or fiscal 1993 of $8.4 million. On a
combined basis, after adjustments of approximately ($0.5) million and $1.0
million for fiscal 1992 and fiscal 1993, respectively, to eliminate intercompany
transactions and conform inventory accounting methods, gross profit increased
$8.9 million, or 35.1%, from fiscal 1992 to fiscal 1993. As a percentage of
combined net sales, gross profit increased from 7.3% in fiscal 1992 to 11.0% in
fiscal 1993.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.4 million, or 28.0%, from $8.4 million in
fiscal 1992 to $10.8 million in fiscal 1993. As a percentage of net sales,
selling, general and administrative expenses increased from 3.9% in fiscal 1992
to 6.4% in fiscal 1993 due to an increase in the allowance for doubtful
accounts.
Pre-Acquisition ARI had selling, general and administrative expenses of
$13.1 million in fiscal 1992 and $14.2 million in fiscal 1993, which are not
included in the Company's selling, general and administrative expenses for
fiscal 1992 of $8.4 million or fiscal 1993 of $10.8 million. On a combined
basis, selling, general and administrative expenses increased $3.4 million, or
16.8%, from fiscal 1992 to fiscal 1993. As a percentage of combined net sales,
selling, general and administrative expenses increased from 5.9% in fiscal 1992
to 7.7% in fiscal 1993.
EBITDA. As a result of the foregoing, EBITDA decreased $6.3 million, or
80.9%, from $7.8 million in fiscal 1992 to $1.5 million in fiscal 1993. As a
percentage of net sales, EBITDA decreased from 3.7% in fiscal 1992 to 0.9% in
fiscal 1993.
Pre-Acquisition ARI had EBITDA of $4.3 million in fiscal 1992 and $13.6
million in fiscal 1993, which is not included in the Company's EBITDA for fiscal
1992 of $7.8 million or fiscal 1993 of $1.5 million. On a combined basis, after
adjustments of approximately ($0.5) million and $1.0 million in fiscal 1992 and
fiscal 1993, respectively, to eliminate intercompany transactions and conform
inventory accounting methods, EBITDA improved $4.5 million, or 38.8%, from $11.6
million in fiscal 1992 to $16.1 million in fiscal 1993. As a percentage of
combined net sales, EBITDA increased from 3.4% in fiscal 1992 to 5.2% in fiscal
1993.
Interest Expense. Interest expense declined by $2.8 million, or 35.2%,
from fiscal 1992 to fiscal 1993 due to the elimination of the non-recourse
indebtedness related to the Greenville Facility, lower average borrowings due to
lower average inventories and lower average interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires liquidity and capital primarily for the purchase of
rough rice and to invest in property, plant and equipment necessary to support
operations. Historically, the Company has financed both working capital and
capital expenditure requirements through internally generated funds and by funds
provided by a line of credit.
The following table sets forth the Company's and Pre-Acquisition ARI's
sources (uses) of cash from operating, investing and financing activities for
the periods indicated:
<TABLE>
<CAPTION>
COMET ARI
-------------------------------- --------------------------------------------
THREE MONTHS
YEAR ENDED MARCH 31, ENDED JUNE 30,
-------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FROM:
Operating activities......... $ 9,544 $ 8,580 $ 19,781 $(12,361) $ 9,547 $ 14,941 $ 7,263
Investing activities......... (7,427) (548) (70) 12,687 (3,514) (1,624) (1,422)
Financing activities......... (1,206) (8,966) (18,028) (1,345) (5,890) (12,702) (4,963)
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION ARI
--------------------------------
YEAR ENDED MARCH 31,
--------------------------------
1991 1992 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FROM:
Operating activities......... $ 15,833 $ (2,173) $ 4,412
Investing activities......... (733) (440) (657)
Financing activities......... (11,450) -- (3,080)
</TABLE>
27
<PAGE> 34
The Company's Board of Directors has adopted a resolution authorizing
management to sell the Houston Property. Management believes that the net
realizable value of this property exceeds its current carrying value of
approximately $18.3 million. The Houston Property constitutes a portion of the
Collateral.
Capital expenditures for the three months ended June 30, 1995 were $1.4
million and in fiscal 1995 were approximately $3.6 million. Capital expenditures
are expected to average approximately $2.5 million per year from fiscal 1996 to
fiscal 2000 to maintain the existing level of operations. Management believes
this level of annual capital expenditures is reasonable given the extended life
of machinery and equipment used for the processing and milling of rice. In
addition, the Company's business strategy requires additional capital
expenditures of up to $3.0 million per year after fiscal 1995 to increase
manufacturing capacity. This increased capacity will be used primarily to allow
the Company to market additional product to growing markets such as Iran, Mexico
and Europe.
The Company executed an amendment to the Revolving Credit Loan, effective
as of June 30, 1995. The $47.5 million Revolving Credit Loan bears interest at
the prime rate of interest plus 0.5% and will mature on May 24, 1996. Funds
available for borrowing under the Revolving Credit Loan at any time may not
exceed 85% of eligible accounts receivable (or 90% of accounts receivable backed
by acceptable letters of credit from customers) and 70% of eligible inventory.
The outstanding loan balance on the Revolving Credit Loan at March 31, 1995 was
approximately $31.0 million and the availability for borrowing was approximately
$41.9 million. At June 30, 1995, the outstanding loan balance was approximately
$26.6 million. Management expects to reduce the balance outstanding under the
Revolving Credit Loan to zero with the proceeds of the Offering. The average
balance outstanding under the Revolving Credit Loan during fiscal 1995 was
approximately $23.1 million.
ARI is required by the terms of the Term Loan and the Revolving Credit Loan
to maintain a minimum net book value, working capital, and certain financial
ratios. ARI was not in compliance with all such financial ratio requirements as
of June 30, 1995, but ARI has requested and received waivers from its lenders
for ratios that were not in compliance. Proceeds from the sale of the Mortgage
Notes will be used to repay and retire the Term Loan and repay all amounts
outstanding under the Revolving Credit Loan. See "Use of Proceeds."
The Company intends to satisfy its obligations under the Mortgage Notes, as
well as its future capital expenditure and working capital requirements,
primarily with cash flow from operations. Management believes that cash flow
from operations and a line of credit available under the Revolving Credit Loan
will provide sufficient liquidity to enable it to meet its currently foreseeable
working capital and capital expenditure requirements.
28
<PAGE> 35
BUSINESS
COMPANY OVERVIEW
The Company is the largest U.S.-based and one of the world's leading
processors and marketers of branded rice products, with leading brand positions
in many U.S. markets as well as Saudi Arabia, Haiti, Puerto Rico and certain
other rice consuming markets. The Company annually markets approximately 15% of
the total U.S. rice crop and is the only marketer of rice in the world with
significant sources of rough rice and milling facilities in the two major rice
producing regions of the United States as well as certain strategic locations
overseas. This allows ARI to moderate the impact of regional trade imbalances
caused by climate and geopolitical factors on operating performance. The Company
is able to maximize its margins by purchasing rice grown domestically and abroad
to take advantage of regional cost and supply availabilities.
Approximately 70% of the Company's net sales over the last two fiscal years
has been attributable to sales of branded rice, which typically commands a
higher price and profit margin than commodity rice and is less susceptible to
decreases in sales volume due to increases in consumer prices. With leading
brand names that sustain the number one or two positions in many of the major
domestic rice markets, ARI typically is able to achieve high margins in these
branded markets. ARI markets white rice, instant rice, parboiled rice, brown
rice and rice mixes under proprietary, trademarked brand names such as Blue
Ribbon(R), Comet(R), Adolphus(R), AA(R), Cinta Azul(R), Wonder(R), Colusa
Rose(R) and Chopstick(R). ARI is a leading marketer of U.S. rice in many of the
world's major rice importing countries, including Saudi Arabia, Haiti and
Turkey. In Saudi Arabia, the third largest import rice market in the world, the
Chopstick(R) brand, known locally as Abu Bint(R), has been the number one brand
of U.S. grown rice sold in that country since 1979, and has consistently
represented over two-thirds of the U.S. grown rice sold in that country. ARI's
leading brand names and broad product lines have facilitated the Company's
penetration into new markets and introduction of new products in existing
markets.
ARI recently entered into the ARI-Vinafood joint venture with a company
owned by the Socialist Republic of Vietnam to process and market Vietnamese
grown rice. ARI's 55% ownership in ARI-Vinafood enables it to participate in the
world market for Asian origin rice, the largest market segment in the world rice
market. Management believes that this new product source will enable it to
increase its market share in certain key regions as well as provide a
competitive product under its existing brand names to major rice consuming
markets in Asia and South America. See "-- Brands and Markets -- Asia."
Consistent with its past history of growth, the Company may in the future
acquire other interests or other businesses related to agriculture or food.
The Company believes that the depth, experience and ability of its
management team represents a significant competitive advantage. The Company's
executive officers average over 17 years of industry experience and are led by
Douglas A. Murphy, President and Chief Executive Officer, who has been with the
Company since 1982.
BUSINESS STRATEGY
The Company's business strategy is to increase net sales and cash flow by
implementing the following:
BUILD UPON BRAND LEADERSHIP. Strengthen existing and build new premium,
high margin brands on a worldwide basis and utilize Company-owned or controlled
processing, distribution and marketing systems to ensure superior product
quality and customer service.
CONTINUE EXPANSION INTO NEW MARKETS. Continue to expand and diversify its
customer base and enter new domestic and international markets with its branded
products.
INCREASE DIVERSITY OF SOURCES. Continue to diversify sources of supply as
new opportunities arise to obtain the greatest variety of products on a cost
competitive basis.
IMPROVE SIZE AND SCALE EFFICIENCY. Capitalize on new industry technologies
as they develop and expand ARI's use of innovative bulk handling procedures to
realize increased margins from lower cost operations.
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<PAGE> 36
INDUSTRY OVERVIEW
Rice is the primary staple food consumed in most countries and is the
cereal grain with the highest level of human consumption in the world,
comprising approximately 40% of world cereal grain consumption. Primarily as a
result of population increases, world rice consumption has increased
approximately 125% during the last 30 years to approximately 350 million metric
tons in 1994. Domestic consumption of rice has more than doubled since 1984 and
currently exceeds 3.3 million metric tons annually. The increase in U.S. rice
consumption is primarily due to the substantial population growth of certain
ethnic groups and, to a lesser degree, increased awareness by the general
population of the impact of diet on health. Measured on a per capita basis,
average consumption of rice is estimated at 140 pounds per person on a worldwide
basis, with most Asian countries having per capita annual consumption in excess
of 200 pounds and the United States having one of the lowest at 23 pounds. Based
on statistics compiled by the United States Department of Agriculture
("U.S.D.A."), the following graph summarizes worldwide milled rice consumption
and demonstrates stable growth for the period indicated:
WORLDWIDE MILLED RICE CONSUMPTION
<TABLE>
<CAPTION>
TOTAL
POUNDS CONSUMPTION
PER (HUNDRED)
PERSON THOUSANDS TONS)
<S> <C> <C>
62 115.3 149200
63 111.4 151300
64 118.7 165200
65 126.4 179800
66 120.4 172600
67 122.3 178700
68 125.5 187000
69 126 191700
70 129.1 200200
71 133.5 210900
72 136.5 216800
73 137.5 214700
74 138.5 223200
75 134.7 226800
76 138.6 233300
77 141.4 238000
78 146 245800
79 150.6 253500
80 144 259200
81 153.4 276100
82 158.4 285000
83 159.7 287300
84 169.6 305200
85 141.7 310800
86 150.5 319700
87 151.7 322300
88 146.7 321800
89 150.3 329700
90 153.9 337700
91 141.3 347600
92 149.3 352200
93 154.3 370400
94 154.6 371000
</TABLE>
International Trade. While over 95% of the rice grown worldwide is
consumed in the country in which it is grown, international trade in rice has
expanded steadily over the last decade from approximately 11 million metric tons
in 1984 to nearly 16 million metric tons in 1994, representing an increase of
over 45%, and it is anticipated that such trade will expand to nearly 17 million
metric tons for the year ending 1995. The demand for rice over time has
increased proportionately with population increases, coupled with expansion in
per capita consumption, and has exceeded agricultural productive capacity in
some countries. In addition, due to the economic collapse of the former Soviet
bloc nations, certain foreign government agricultural support programs have been
reduced. This has reduced supply and increased international trade demand.
The world's major rice producing countries include China, India, Indonesia,
Bangladesh, Thailand, Vietnam and the United States, with China and India
accounting for over 50% of world rice production. Thailand is the largest
exporter of rice in the world, exporting approximately 32% of total world rice
exports, followed by the United States and Vietnam, whose exports account for
18% and 14%, respectively, of the world rice trade. The following graph shows
historical and projected exports for major rice producing countries for the
period indicated:
30
<PAGE> 37
EXPORTS BY MAJOR RICE PRODUCING COUNTRIES
<TABLE>
<CAPTION>
1993 1994 1995
<S> <C> <C> <C>
Thailand 4798000 4750000 4900000
U.S. 2644000 2794000 2800000
Vietnam 1765000 2000000 2000000
Pakistan 937000 1375000 1300000
Burma 223000 650000 1000000
India 625000 600000 1000000
China 1374000 1519000 500000
Australia 500000 600000 500000
Argentina 276000 225000 300000
</TABLE>
Historically, the largest rice importing nations have included Brazil, Iran
and Saudi Arabia with each nation importing in excess of 750,000 metric tons
annually. Recently, imports have begun to increase to the former Soviet bloc
nations due to reduced production levels in those countries. In addition, due to
the effects of adverse weather conditions in Japan in 1993, Japan was the
world's largest importer of rice, with imports estimated at 2.4 million metric
tons.
Rice produced in the United States is generally high quality and sells at
premium prices relative to Asian rice. Based on statistics compiled by the
U.S.D.A., exports of milled rice produced in the United States have sustained
consistent growth over the last 20 years, growing from an average of 1.8 million
metric tons per year in the years from 1972 to 1974 to an average of 2.6 million
metric tons per year in the years from 1993 to 1994. The U.S.D.A. forecasts that
the United States will export 2.7 million metric tons of rice in 1995.
In the future, international trade is expected to be impacted favorably by
the effects of the General Agreement on Tariff and Trade ("GATT"). The latest
round of amendments to GATT were approved on December 15, 1993 by the majority
of developed nations in the world, including the United States, the European
Union and Japan. Most signatory countries began implementation of their GATT
commitments on January 1, 1995, which required, with some exceptions, the
elimination of all import bans, and the reduction of all import tariffs. In the
case of Japan and South Korea, which were not required to eliminate rice import
bans, highly beneficial quotas were established through bilateral negotiations.
Japan has committed to import 379,000 metric tons of rice in 1995, increasing
each year to 758,000 metric tons by 2000. Commencing in the summer of 1995,
South Korea's quota is 51,000 metric tons, which they have agreed to double by
1999 and double again by 2004. In general, reductions on tariffs will make
imports more attractive to foreign buyers and consumers and more competitive
with domestic products. Under GATT, developed countries are committed to reduce
tariffs by an average of 36% over six years, with a minimum of a 15% reduction
on any individual item. Developing nations will reduce tariffs 24% over 10 years
and must meet a minimum 10% per item reduction. Management believes that the net
effect of GATT will be to stimulate additional rice production on additional
acreage in the United States and will increase the amount of rice traded
globally.
Domestic Trade. U.S. consumption of rice has more than doubled since 1984
and currently exceeds 3.3 million metric tons per year. U.S. per capita
consumption of rice has more than doubled since 1978 primarily due to increases
in the population of high rice-consuming Hispanic and Asian ethnic groups which
are projected by the U.S. Census Bureau to account for 23% of the U.S.
population by 2020. To a lesser extent, the growth in average per capita
consumption of rice has also been caused by increased awareness of the impact of
diet on health.
31
<PAGE> 38
During the past three years, approximately 50% to 60% of rice produced in
the United States has been consumed domestically. The following table shows
domestic milled rice consumption for the period indicated:
U.S. DOMESTIC MILLED RICE CONSUMPTION
<TABLE>
<CAPTION>
U.S. POUNDS TOTAL U.S.
PER PERSON CONSUMPTION
(Million wt.)
<S> <C> <C>
1982 15.2 34.5
1983 13.6 30.7
1984 14.6 33.1
1985 17.3 40.0
1986 19.9 45.8
1987 20.6 47.5
1988 20.6 49.3
1989 21.3 50.9
1990 22.9 52.9
1991 24.0 54.4
1992 22.8 56.8
1993 23.2 58.3
1994 23.3 60.1
</TABLE>
Rice Production. Over two-thirds of total U.S. rice production is the long
grain variety, which is produced almost entirely within Arkansas, Louisiana,
Mississippi, Texas and Missouri and is marketed worldwide. Medium grain rice,
which is grown in several rice producing states but is the dominant variety
grown in California, accounts for effectively all of the remaining one-third of
all rice grown in the United States. California medium grain, generically known
as Calrose, is preferred within certain segments of the global market, including
Japan, Korea, Turkey, Jordan and Lebanon. The difference between these rice
varieties is primarily reflected in the size and shape of the kernel as well as
amylose or starch content.
The rice growing cycle takes approximately 100 to 125 days from planting
until harvesting, depending on the variety of rice grown. Rice is typically
planted in flooded fields in the early spring and, after it matures, water is
drained from the fields and the crop is harvested. The harvested grain is
referred to as "paddy" or "rough rice." The rough rice is transported to storage
and drying facilities after it is harvested, where the moisture content is
slowly lowered to prepare the rice for milling. After the rice is dried, it is
conveyed to rice mills where it is processed into finished rice products.
The process of milling begins with the cleaning of the rough rice. Once
cleaned, the hull of the rice kernel is removed. The resulting product is known
as brown rice because of the brown color of the bran layer still attached to the
kernel. The hulls are often burned for energy generation and silicone production
or ground and mixed with bran for use as livestock feed. Although brown rice is
sometimes sold directly as a food product, it is usually further processed. The
bran layer is removed in the milling process and broken and imperfect grains are
eliminated, typically using electro-optical scanners. The resulting product is
the white or fancy rice most often seen on grocery store shelves.
Parboiled rice is rough rice that has been soaked, steamed under pressure,
dried and then hulled and milled. The process of parboiling involves soaking the
cleaned rough rice in water and then heating the kernels to specific
temperatures using steam. This process breaks down the starch in the rice and
allows splintered kernels to fuse together to form whole kernels. Once rice has
been parboiled, it changes color and maintains a golden brown hue as contrasted
to regular milled white rice. Parboiled rice retains more nutrients than regular
milled white rice and tends to be more fluffy after cooling.
32
<PAGE> 39
The finished rice products are then ready for packaging and shipping.
Packaging can occur at the rice processing plant or at the destination site
after bulk shipment. Transportation costs associated with bulk shipments are
typically less costly than those of packaged rice.
BRANDS AND MARKETS
The Company is one of the largest competitors in the global market for
rice. In 1994, ARI marketed over 4% of all rice traded worldwide and
approximately 12% of all rice marketed and consumed within the United States.
ARI competes in all major rice importing regions in the world including the
Caribbean, Latin America, Middle East and Asia as well as in domestic regions,
which ARI defines as the United States, Canada and the Bahamas. Over the last
two fiscal years, ARI's domestic and export branded rice has accounted for
approximately 70% of its net sales.
In fiscal 1995, ARI marketed rice in 44 foreign countries with no foreign
country accounting for more than 13% of net sales. The Company plans to continue
to expand into new markets and increase its share in certain of its existing
markets. The following table summarizes the regional concentrations of net sales
during the past three years:
NET SALES BY REGION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
<S> <C> <C> <C>
1993(1) 1994(2) 1995
United States and Canada.................... 40% 36% 35%
Middle East................................. 37 33 25
Caribbean, Mexico and South America......... 16 13 23
Asia........................................ -- 14 13
Europe...................................... 3 2 3
Africa...................................... 3 2 1
Other....................................... 1 -- --
--- --- ---
Total.................................. 100% 100% 100%
=== === ===
</TABLE>
- ---------------
(1) Represents net sales of the Company together with net sales of
Pre-Acquisition ARI for the year ended March 31, 1993, net of
intercompany sales.
(2) Represents net sales of the Company for the year ended March 31,
1994 together with net sales of Pre-Acquisition ARI for the period
from April 1, 1993 to May 26, 1993, net of intercompany sales.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for discussion concerning export sales for ARI and
Pre-Acquisition ARI by geographic region.
The Company's sales to foreign customers are priced in U.S. dollars and
payable, with the exception of a few long standing well established accounts
that are not material, by documentary letters of credit that are confirmed by
major banks before shipments are effected. Consequently, ARI's exposure to
foreign currency fluctuations are not material.
United States and Canada. ARI's domestic sales consist of branded rice
products sold to retail outlets, primarily grocery stores, branded bulk sales to
ethnic wholesale and retail outlets and sales to other industrial users and
major food processors. The United States and Canada together provided 35% and
29% of net sales and gross profits, respectively, in fiscal 1995. ARI has
targeted its domestic marketing programs to achieve regional brand prominence
with such efforts primarily being focused on the top 15 rice consumption
markets. These markets, located principally in New York, California, Texas and
Florida account for over 50% of the rice consumed in the United States. This
focused strategy allows ARI to maximize sales and achieve prominence as a
branded supplier while minimizing selling, general and administrative expenses.
The Company is the second largest seller by tonnage of retail branded long
grain white rice products in the United States with a market share of
approximately 16%. Domestic long grain white rice is the largest
33
<PAGE> 40
retail market category of rice, representing approximately 35% of all retail
rice sales, and is the fastest growing major segment of the U.S. rice market,
having grown 4% in 1994.
ARI's long grain rice brands have attained the number one or number two
market share in many of the regions in which they compete including Comet(R) in
North Carolina, Blue Ribbon(R) in South Carolina, Adolphus(R) in Texas, Comet(R)
in California, Texas and the Southeast and AA(R) in California. The following
table summarizes the Company's brand position in its major markets, which
markets represent approximately 56% of the branded long grain rice consumed in
the United States:
ARI'S U.S. BRAND POSITION BY RETAIL LONG GRAIN RICE MARKET
<TABLE>
<CAPTION>
ARI'S
U.S. MARKET MAJOR BRAND BRAND POSITION
------------------------------------------- -------------- --------------
<S> <C> <C>
Texas...................................... Adolphus(R) #1
New Mexico................................. Comet(R) #1
Oklahoma................................... Comet(R) #1
North Carolina............................. Comet(R) #1
South Carolina............................. Blue Ribbon(R) #1
Virginia................................... Comet(R) #1
Utah....................................... Wonder(R) #1
Ohio....................................... Comet(R) #1
California................................. Comet(R) #2
Florida.................................... Blue Ribbon(R) #2
Georgia.................................... Blue Ribbon(R) #2
</TABLE>
-----------------------
Source: Syndicated Market Data -- 52 weeks ended December 1994.
Certain ethnic groups represent some of the fastest growing segments of the
rice business in the United States. Management believes that AA(R) is the
leading brand of long grain rice among Asian-Americans and dominates sales in
the western region of the United States and certain other regions having large
Asian-American populations. Other ARI brands have strong consumer acceptance
with Hispanic-Americans in the Southwest. ARI's D'Aqui(TM) and Cinta Azul(R)
brands represent approximately 15% of the Puerto Rican retail rice market.
Puerto Rico consumes approximately 6% of the retail rice sold in the United
States and its territories and has a per capita consumption that is more than
four times the United States average.
In addition to its own branded retail products, ARI supplies long grain
white and parboiled rice, instant rice, rice mixes, brown rice and other rice
products to a full range of private label resellers including five of the top
fifteen supermarket chains in the United States and Canada as well as other food
retailers. ARI expanded its production capacity and marketing of rice flour,
bran and instant rice products to customers in the bakery and specialty food
industries in 1992. Management believes that the proportion of specialty product
sales to total sales will increase due to increased awareness by food producers
and consumers of the health benefits of rice.
Middle East. The Middle East accounted for 25% of both net sales and gross
profits in fiscal 1995. Saudi Arabia has been the largest market for U.S. grown
rice, annually importing an average of approximately 700,000 metric tons, and is
currently the largest branded parboiled rice market in the world. ARI's Abu
Bint(R) brand is considered to be one of the best recognized food products in
Saudi Arabia and has accounted for over 60% of all rice imported from the United
States in each of the last 16 years. Overall, Abu Bint(R) is the number one U.S.
brand with a market share of 16% of the total Saudi Arabian market.
Historically, the rice ARI sold in Saudi Arabia was processed and packed in
the United States and shipped to Saudi Arabia. In October 1994, ARI entered into
an agreement with Rice Milling & Trading Investments, Ltd. ("RMT"), an operator
of a receiving, processing, storage and bagging facility in Jeddah, Saudi
Arabia, to receive bulk rice from ARI and pack Abu Bint(R) on an exclusive basis
and under strict ARI quality supervision. By shipping rice in bulk to RMT, ARI
will reduce vessel loading and freight costs. ARI
34
<PAGE> 41
believes that this service agreement with RMT will reduce costs and improve
gross profit and market competitiveness, and will also provide even better
customer service and product freshness. Market shipments under this agreement
began in June 1995. See "Certain Relationships and Related
Transactions -- Transactions with Management."
Rice products exported to Saudi Arabia by ARI are marketed to various
wholesalers and retailers through a number of major distributors. No single
customer accounts for more than 5% of ARI's total net sales and the loss of any
one of these customers would not have a material adverse effect on ARI.
Historically, ARI has had significant sales in Turkey and Iran. Over the
last 24 months, ARI's rice products accounted for 65% of Turkey's rice imports.
Caribbean, Mexico and South America. This region accounted for 23% and 10%
of net sales and gross profit, respectively, in fiscal 1995. The Caribbean is
one of the highest per capita rice consumption markets in the world. ARI sells
branded products such as Comet(R), Blue Ribbon(R), and 4 Star(TM) throughout
this region, with substantial Company-controlled or owned assets in Jamaica,
Haiti and the Netherlands Antilles.
The Company is the largest processor and marketer of rice to Haiti, one of
the eight largest importers of U.S. grown rice, with annual imports averaging in
excess of 120,000 metric tons over the last five years. ARI and Pre-Acquisition
ARI recorded a combined branded market share of approximately 41% and 48% of all
U.S. grown rice imported in 1993 and 1994, respectively.
Within Aruba, Bonaire and Curacao, ARI has a long-term exclusive supply,
processing and marketing agreement with the Antillean Rice Mill, a local
marketing company. ARI ships rice on a cost efficient bulk basis as compared to
other more costly methods of shipment. The Antillean Rice Mill markets ARI's
Blue Ribbon(R) and Comet(R) labels within this region and has sustained a total
market share in excess of 75% in each of the last 10 years.
In Jamaica, ARI's subsidiary, Comet Rice of Jamaica Limited, is the second
largest processor and one of the largest branded retail and food service
marketers in the country.
Asia. Asia accounted for 13% and 31% of net sales and gross profit,
respectively, in fiscal 1995. Japan accounted for virtually all of ARI's sales
to Asia in fiscal 1994 and fiscal 1995. For the twelve-month period ended August
1994, Japan imported 2.4 million metric tons of rice, including approximately
500,000 metric tons from the United States. ARI processed and milled
approximately 62% of the tonnage from the United States. These rice imports, the
first in 25 years by Japan, were necessary due to adverse weather conditions
that materially reduced Japan's 1993 rice crop. Management believes that the
poor rice crop, combined with the fact that Japan's declining rice production
had fallen short of annual Japanese rice consumption for seven of the last 10
harvests, had depleted Japan's rice stock-pile requiring significant rice
imports. Although this was an unusual occurrence, as a participant in GATT,
Japan is contractually obligated to import 379,000 metric tons of rice for the
twelve-month period beginning April 1, 1995 increasing to 758,000 metric tons of
rice annually by the year 2000. Management believes that the Japanese prefer
California grown Calrose variety medium grain rice and that the United States
has an excellent opportunity to obtain more than half of these projected
Japanese imports. Because ARI has previously developed a reputation for high
quality rice and superior service through its prior trade experience with
Japanese importers, management believes it will have material involvement in
these anticipated Japanese imports.
On July 27, 1994, ARI formed ARI-Vinafood, a Vietnamese limited liability
company on a joint venture basis with a company owned by the government of the
Socialist Republic of Vietnam (the "Vietnam Partner") for the purpose of
producing white and parboiled rice and related products at rice processing
facilities in the Can Tho province of Vietnam. ARI owns 55% of ARI-Vinafood and
will be paid a royalty of 3.5% on all export sales from Vietnam by ARI-Vinafood,
which has contracted for export quotas to be issued by the Vietnamese
government. The quotas will allow annual exports of up to 300,000 metric tons of
white rice and 85,000 metric tons of parboiled rice. The term of ARI-Vinafood is
20 years and may be renewed by ARI for an additional 20 years. After the fifth
year of operation, the Vietnam Partner will have the option of acquiring ARI's
interest in ARI-Vinafood based on a valuation of ARI-Vinafood equal to the
greater of (a) eighty percent of ARI-Vinafood's most recent annual sales volume
or (b) twelve times the average pre-
35
<PAGE> 42
tax annual income of ARI-Vinafood over the last two years for which accounting
records are available. ARI-Vinafood began milling and processing operations in
December 1994.
ARI's participation in ARI-Vinafood will allow ARI to participate in the
world market for Asian origin rice. Asian rice varieties are preferred by many
customers in different countries due to a unique taste which is attributed to
different amylose or starch content. In addition, because of Asia's geographic
proximity to such high rice consumption markets as China and Indonesia, ARI's
participation in ARI-Vinafood will give it a freight cost advantage over any
Western or European grown rice in those markets.
PRODUCT SOURCING AND PRICING
The Company's market and source diversity enhances its ability to moderate
the impact of regional trade imbalances caused by climate and geopolitical
factors. ARI is the only marketer of rice in the world with growing sources and
milling capacity in each of the major rice producing regions of the United
States as well as overseas. As a result, the Company utilizes a variety of rice
products grown in the United States and is able to take advantage of regional
cost and supply availabilities. Each of ARI's milling facilities are
strategically located to minimize shipping costs and maximize the convenience to
the customer enabling ARI to capitalize on marketing opportunities as they
develop around the world.
ARI buys rough rice from a variety of farm sources. A large portion of
these rough rice purchases are made under pre-harvest agreements. Pre-harvest
agreements generally provide for delivery of rough rice from specified acreage
at a price per hundredweight determined by the terms of the agreements.
Generally, the price per hundredweight is determined based on local market
conditions occurring between the time of harvest and on or after delivery to the
buyers. For crop year 1993, ARI had pre-harvest agreements to purchase
approximately 5.0 million hundredweight of rough rice in the Southern rice
states and approximately 3.6 million hundredweight from farmers in California,
which represented 37% and 58% of purchases, respectively, for the crop year in
each such region. ARI also obtains domestic rough rice through competitive
bidding in all rice producing states, with California and the Southern rice
states providing approximately 13% and 43%, respectively, of the total rough
rice purchased in crop year 1993. No single supplier of rough rice provides more
than 8% of ARI's rough rice purchases. In addition to purchasing domestic rough
rice, ARI obtains milled rice from other U.S. and foreign rice suppliers on an
as needed basis.
The Chicago Board of Trade maintains a futures and options market in rough
rice. ARI from time to time buys and sells futures and options contracts as a
means to manage a portion of its rough rice requirements. Gains or losses, if
any, are recognized in the period that the market value of the futures contract
changes. Rice futures transactions represent a volume of less than 2% of 1994
combined sales tonnage.
36
<PAGE> 43
The Company sources rice from a variety of locations, including five of the
six significant U.S. rice growing states. The following chart sets forth the
Company's sources of rice shown as a proportion of purchases during fiscal 1995:
SOURCES OF RICE BY REGION
<TABLE>
<S> <C>
California 39%
Texas 23%
Mississippi 13%
Arkansas 11%
Vietnam 10%
Louisiana 4%
</TABLE>
Southern Facilities. ARI operates two rice processing facilities in the
Southern rice growing region of the United States. ARI's Freeport Facility is a
20-acre integrated processing complex with an annual milling capacity of over
600,000 metric tons located directly on a deep water port in the Gulf of Mexico.
The facility is the only rice facility in the United States capable of handling
large ocean-going vessels directly at the facility. The facility has a parboiled
processing plant and separate milling facilities for both white and parboiled
rice. Unlike many rice processing facilities, the Freeport Facility adds water
polishing and electro-optical sorting to ensure that ARI's exacting quality
standards are consistently met. The facility also has a rice flour mill that
markets and meets the stringent quality standards of baby food processors and
Japanese food ingredient purchasers. ARI also processes instant rice for retail
and industrial markets.
During fiscal 1994 and fiscal 1995, ARI invested approximately $1.5 million
to upgrade the Freeport Facility. ARI installed state-of-the-art equipment which
increased the production capacity of the mill by approximately 1.2 million
hundredweight per year and substantially reduced ARI's production cost per
hundredweight.
ARI also operates a rice processing facility in Stuttgart, Arkansas that
has an annual rough rice milling capacity of over 200,000 metric tons. The
Stuttgart Facility is conveniently located in the largest rice producing region
in the United States and provides flexibility in scheduling rice shipments from
the larger Freeport Facility by absorbing capacity overflow. The facility also
generates drying and storage sales and is a delivery point for rice sold on the
Chicago Board of Trade.
California Facilities. ARI operates two rice processing facilities in
Maxwell and Biggs, California and has one of the state's largest single rice
drying operations. The Maxwell Facility is the largest capacity single rice mill
operating in California. The Biggs, California facility (the "Biggs Facility"),
which was leased by Comet in 1991, is an older milling facility which provides
additional milling capacity to supplement ARI's domestic milling requirements.
The combined capacity of the Maxwell Facility and the Biggs Facility exceeds the
multi-mill capacities of ARI's largest California competitors.
37
<PAGE> 44
Other Facilities. ARI also operates packaging facilities in Kingston,
Jamaica and Port-au-Prince, Haiti that receive bulk rice from ARI's Southern
facilities and process and package the bulk rice into local retail branded rice
products. ARI's Haitian facility is located on a self-contained deep water port
25 kilometers outside the capital city and principal market, Port-au-Prince. ARI
recently formed BargeCarib, Inc. to acquire an ocean-going barge to service the
Caribbean area facilities primarily from the Freeport Facility. The barge
acquisition is scheduled to be completed by July 31, 1995. These facilities
provide ARI with competitive advantages in loading, transportation and labor
costs as well as in customer service and product freshness.
COMPETITION
Competition is based upon brand name recognition, quality, product
availability, product innovation and price. On a global basis, management
believes that ARI competes with approximately 14 entities that together trade or
market over 50% of world trade in rice. These competitors are from the United
States and other exporting countries such as Thailand, Pakistan and Vietnam. The
Company's U.S. competitors in the domestic and export milled rice markets
include Riviana Foods Inc., Riceland Foods, Inc., Producers Rice Mills, Inc.,
Continental Grain Company, Cargill Inc. and Farmers Rice Cooperative. There are
other competitors in certain specialized marketing areas, such as Mars, Inc.
(Uncle Ben's), Philip Morris Companies, Inc. (Minute) and the Quaker Oats
Company (Rice-a-Roni) who typically have greater financial and other resources
than the Company and may devote substantially greater resources to increase the
amount of direct competition with the Company. Management estimates that no
single competitor has more than 6.0% global market share while ARI's estimated
share of the global market is 3.8%.
Within the United States, competition exists both for procuring and
processing rough rice, and for marketing milled rice products. Competitors in
the rice milling business include both private commercial mills, such as ARI,
and mills operated by agricultural cooperatives. Management believes that ARI's
principal competitors in milling are Riceland Foods, Inc., Farmers Rice
Cooperative and Cargill Inc. with estimated shares of operating domestic milling
capacity of approximately 19%, 8% and 7%, respectively. ARI's share of estimated
operating domestic milling capacity is approximately 20%.
Domestic competitors of ARI in the marketing of retail branded milled rice
on a national basis principally consist of Riviana Foods Inc. and Riceland
Foods, Inc., and, in the food service markets, Farmers Rice Cooperative.
According to syndicated market data, no company currently controls more than 25%
of the domestic branded markets. There are a number of small regional
competitors in the branded segment of the rice industry and approximately 15 to
20 rice millers who compete in the commodity rice markets.
BRAND NAMES AND TRADEMARKS
Because consumer recognition of branded products adds significant value to
basic commodities such as rice, the Company's trademarks, copyrights and brand
names are important to its business. The trademarks, copyrights and brand names
used by ARI are registered in the countries in which they are used and have
varying renewal dates. ARI believes that such registrations are currently
adequate to protect the rights to use
38
<PAGE> 45
of the trademarks, copyrights and brand names significant to the business of
ARI. The following table summarizes the Company's significant registered U.S.
trademarks and the trademark renewal years:
ARI'S SIGNIFICANT REGISTERED U.S. TRADEMARKS
<TABLE>
<CAPTION>
TRADEMARK RENEWAL YEAR
--------------------------------------------------------- ------------
<S> <C>
AA(R).................................................... 2003
Abu Bint(R).............................................. 2002
Adolphus(R).............................................. 1998
Blue Ribbon(R)........................................... 1995
Cinta Azul(R)............................................ 1997
Colusa Rose(R)........................................... 1999
Comet(R)................................................. 1997
Chopstick(R)............................................. 1999
Dragon(R)................................................ 1999
Golden Sail(R)........................................... 1997
Green Peacock(R)......................................... 2000
Wonder(R)................................................ 2006
</TABLE>
REGULATION
Although ARI is not involved in rice farming, certain government
regulations affecting U.S. rice farmers have an impact on ARI's cost of rough
rice. Approximately 98% of U.S. rice is grown under a U.S.D.A. price support and
acreage control program under the Food, Agriculture, Conservation and Trade Act
of 1990 ("Farm Bill"), which provides price support and production adjustments
for rice producers.
The minimum target price for rice is currently set by the U.S.D.A. at
$10.71 per hundredweight. When the world market price of rice declines below the
minimum target price, rice growers participating in the program are entitled to
receive deficiency payments from the U.S.D.A. To participate in the program,
producers must comply with any acreage reduction program announced by the
Secretary of Agriculture. The amount of acreage controlled or restricted is
reviewed annually by the U.S.D.A. and is determined by projecting ending rice
inventories as a percentage of historical domestic and export usage.
The United States Congress is currently considering legislation to extend,
amend or replace the Farm Bill, which is effective through the crop year ending
July 31, 1996. There can be no assurance that the currently favorable provisions
of such legislation will be extended into future periods or will not be amended
due to budgeting or other governmental constraints. Proposals to significantly
limit or eliminate altogether federal farm price support programs have been
introduced in the United States Congress and if such legislation is enacted,
there could be a significant impact on the supply and price of U.S. grown rice.
Management believes that, should such a change occur, any adverse effect would
be of limited duration because (i) domestic prices would adjust to a point of
economic equilibrium with imports, which would justify adequate production by
U.S. growers using alternate or fallow acreage and employing additional
economies of scale and (ii) any shortage of U.S. grown rice due to termination
of price supports could be offset by imports from other countries using ARI's
cost efficient bulk handling equipment at the Freeport Facility located on a
deep water port and ARI's strategically located packaging facilities.
EMPLOYEES
At March 31, 1995, the Company had 546 employees in domestic operations and
approximately 600 employees in foreign operations. The Company is not a party to
any collective bargaining agreements. There have been no significant labor
disputes in the past several years and the Company considers its employee
relations to be excellent.
39
<PAGE> 46
PROPERTIES
The following table summarizes the principal properties owned and/or
occupied by the Company and its subsidiaries:
<TABLE>
<CAPTION>
FLOOR SPACE OWNED OR LEASED -
LOCATION TYPE OF FACILITY SQUARE FOOTAGE EXPIRATION DATE OF LEASE
- -------------------------------------------- ---------------- -------------- ------------------------
<S> <C> <C> <C>
ADMINISTRATIVE OFFICES:
Houston, Texas............................ Office 46,400 Leased 1997
Los Angeles, California................... Office 4,000 Leased 1996
WAREHOUSING, PROCESSING AND SHIPPING:
Freeport, Texas........................... Plant/Warehouse 272,400 Leased 2022
Stuttgart, Arkansas....................... Plant/Warehouse 142,900 Owned
Maxwell, California(1).................... Plant/Warehouse 261,000 Owned and Leased 2034
Biggs, California......................... Plant/Warehouse 95,000 Leased 1996
Laffiteau, Haiti.......................... Plant/Warehouse 30,024 Leased 2001
Spanish Town, Jamaica..................... Plant/Warehouse 29,000 Leased 1998
Can Tho, Vietnam(2)....................... Plant/Warehouse 1,300,000 Leased 2014
</TABLE>
- ---------------
(1) Most of the storage facilities and approximately half of the land is leased.
(2) Subject to an option to purchase by the Vietnam Partner commencing 1999.
All properties owned or leased by the Company are maintained in good
repair, and management believes them to be adequate for their respective
purposes. All machinery and equipment are considered to be in sound and
efficient operating condition.
The Company has obtained appraisals dated as of May 31, 1995 and June 1,
1995, from American Appraisal Associates, Inc. and Jack K. Mann, Inc.,
respectively, of the Freeport Facility and the Maxwell Facility, respectively.
The Freeport Facility and the Maxwell Facility were appraised, together with the
Company's registered U.S. trademarks used by each facility, on a going concern
basis, at approximately $91.0 million and $45.0 million, respectively.
ENVIRONMENTAL MATTERS
ARI is subject to various federal, state and local environmental laws and
regulations governing, among other things, air quality, water quality and the
generation, use and disposal of materials related to plant operations and the
processing, storage and shipment of rice. ARI believes it is in substantial
compliance with all existing laws and regulations and has obtained or applied
for the necessary permits to conduct its business and is in substantial
compliance with all existing laws and regulations with respect to those of its
properties held for sale. To date, and in management's belief for the
foreseeable future, compliance with applicable environmental laws has not had
and will not have a material adverse effect on ARI's financial or competitive
positions. See "Risk Factors -- Environmental Matters."
LEGAL PROCEEDINGS
The Company is involved in legal proceedings that arise in the ordinary
course of its business, all of which are routine in nature except for the matter
noted below. Management believes that the resolution of such legal proceedings,
including the matter noted below, will not have a material adverse effect on the
consolidated financial position or consolidated results of operations of ARI.
The U.S.D.A. has conducted a series of investigations of several companies,
including Comet, concerning alleged abuses of federal regulations governing U.S.
government guarantees of payments on shipments of agricultural products to Iraq.
The current investigation, which began in February 1994, is continuing as a
joint investigation with the Department of Justice. In connection with its sales
of rice to Iraq prior to the August 1990 embargo, Comet is alleged to have
failed to adequately apprise the U.S.D.A. that Comet included foreign bagging of
rice as a contract cost in certain financing guaranteed by the U.S. government.
A regulation specifying that foreign bagging may not be included as a financed
contract cost in such financing
40
<PAGE> 47
was not passed until June 1991, a year after Comet's last shipment to Iraq. The
Company is cooperating with the investigation; there have been no civil
enforcement actions and no indictments or charges filed against ARI or any of
its affiliates or agents concerning such allegations. Management does not
believe that any laws were violated or that ARI or any of its affiliates or
agents will be subject to liability.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to each of the
executive officers and directors of ARI:
<TABLE>
<CAPTION>
YEARS OF
NAME AGE SERVICE(1) POSITIONS HELD
- ------------------------------ --- ---------- -------------------------------------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS:
Gerald D. Murphy............ 67 31 Chairman of the Board of Directors
Douglas A. Murphy........... 39 13 President, Chief Executive Officer and
Director
Richard N. McCombs.......... 49 11 Executive Vice President of Finance and
Administration; Treasurer, Secretary and
Director
Lee Adams................... 54 28 Senior Vice President of International
Marketing
Bill J. McFarland........... 58 20 Senior Vice President and President of
Comet American Marketing Division
John S. Poole............... 49 25 Senior Vice President and President of
Comet Rice Division
C. Bronson Schultz.......... 53 21 Vice President of Finance and Data
Processing
Joseph E. Westover.......... 50 18 Vice President and Controller
DIRECTORS:
Gerald D. Murphy............ 67 31 Chairman of the Board of Directors
Douglas A. Murphy........... 39 13 President, Chief Executive Officer and
Director
Richard N. McCombs.......... 49 11 Executive Vice President of Finance and
Administration; Treasurer, Secretary and
Director
S.C. Bain, Jr. ............. 46 7 Director
William H. Burgess.......... 78 19 Director
John M. Howland............. 47 12 Director
George E. Prchal............ 52 13 Director
</TABLE>
- ---------------
(1) Years with ARI, including past and currently affiliated companies.
Gerald D. Murphy has served as Chairman of the Board of the Company since
October 1993 and as a director since 1988. He served as Chairman and Chief
Executive Officer of Comet from 1986 until the Acquisition in 1993 and has
served as President, Chief Executive Officer and Chairman of the Board of ERLY
since 1964. He also serves as a director of Pinkerton's, Inc., a security and
investigation services firm, and High Resolution Sciences, Inc., a technological
corporation. He previously served as a director of Wynn's International, Inc.
and Sizzler Restaurants International, Inc. Gerald D. Murphy is the father of
Douglas A. Murphy.
Douglas A. Murphy has served as President and Chief Executive Officer of
the Company since June 1993 and as a director since 1990. He was President of
Comet American Marketing, now a division of ARI, from 1986 to 1990 and has
served in various other capacities with Comet since 1982. He has served as
President and as a director of ERLY since 1990. He is also a director advisor of
Compass Bank Houston.
Richard N. McCombs has served as Executive Vice President of Finance and
Administration; Treasurer, Secretary and a director of the Company since 1993.
In addition, he has served as Managing Director of the
41
<PAGE> 48
ARI-Vinafood joint venture since September 1994 and as Vice President and Chief
Financial Officer of ERLY since 1990.
Lee Adams has served as Senior Vice President of International Marketing of
ARI since June 1993. In addition, he served as Group Vice President of
International Marketing of Pre-Acquisition ARI from October 1987 to June 1993.
He served in various capacities with the ARI Cooperative from 1975 until its
dissolution in 1991 and in various capacities with Comet from 1963 until 1972.
Bill J. McFarland has served as Senior Vice President of ARI and President
of the Comet American Marketing division of ARI since 1993. Mr. McFarland has
served as a director of ERLY since 1986 and Vice President of ERLY since 1976.
He served as President of ERLY Food Group from 1990 to 1993 and as President of
Early California Foods Inc., a division of ERLY, and in various other capacities
with ERLY from 1972 to 1990.
John S. Poole has served as Senior Vice President and President of the
Comet Rice division of ARI since June 1993 and served as President of Comet from
August 1990 until its liquidation after the Acquisition. He served in various
capacities with Comet from 1970 to 1990.
C. Bronson Schultz has served as Vice President of Finance and Data
Processing of ARI since January 1994. He served as Vice President and Chief
Financial Officer of ERLY Juice Inc. from 1988 through 1993, as Vice President
of Finance of Comet from 1974 to 1986 and as Vice President of Finance of Comet
American Marketing from 1986 to 1988.
Joseph E. Westover has served as Vice President and Controller of ARI since
January 1994. From 1983 through 1993, he served as Assistant Vice President of
Finance with ARI and the ARI Cooperative and from 1977 to 1983 in various
positions with the ARI Cooperative.
S.C. Bain, Jr. has served as a director of ARI since 1987. He has served as
President of Bain, Inc., a farming corporation, since 1985 and has been a
partner at Bain Farms since April 1988.
William H. Burgess has been a director of ARI since 1988 and a director of
ERLY since 1976. In addition, he has been a private business consultant and the
Chairman of CMS Digital, Inc., a privately held company since 1986. From 1978 to
1986 Mr. Burgess was Chairman of International Controls Corp., an
internationally diversified manufacturing company.
John M. Howland has served as a director of ARI since June 1993 and a
consultant to ARI since October 1993. He served as Chairman of the Board of
Directors from June 1993 until October 1993 when he resigned to become President
and Chief Executive Officer of Rice Milling & Trading Investments, Ltd., a
foreign corporation in the business of rice trading and processing. He served as
Chairman of the Board and the Chief Executive Officer and President of
Pre-Acquisition ARI from its inception in 1988 until June 1993 and served in
various capacities with the ARI Cooperative from 1983 until its dissolution in
1991.
George E. Prchal has served as a director of ARI since June 1993 and a
consultant to ARI since October 1993 and is presently the Executive Vice
President of Rice Milling & Trading Investments, Ltd. He served as Executive
Vice President of ARI from August 1988 to October 1993 and in various capacities
with the ARI Cooperative from February 1986 until its dissolution in 1991. From
July 1982 to February 1986 he served as Vice President of Marketing and Sales
and then as President of Comet.
42
<PAGE> 49
EXECUTIVE COMPENSATION
The following table sets forth information for the years ended March 31,
1993 to 1995, for the Chief Executive Officer of ARI and the four other most
highly compensated executive officers of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
--------------------------------------------------------
ALL
OTHER RESTRICTED OTHER
YEAR ENDED COMPEN- STOCK COMPEN-
NAME AND PRINCIPAL POSITION MARCH 31, SALARY BONUS(2) SATION(3) AWARDS(4) SATION(5)
- ------------------------------- ---------- -------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Murphy.............. 1995 $207,000 $69,552 $5,791 $ 17,890 $ 8,914
President, Chief Executive 1994 173,654 50,000 2,000 75,000 15,855
Officer and Director 1993(6) -- -- -- -- --
Gerald D. Murphy............... 1995 $170,500 $57,288 $7,233 $ 14,736 $ 9,060
Chairman of the Board 1994 179,167 50,000 -- 75,000 196,645
of Directors 1993 280,000 -- 3,284 -- 5,627
Bill J. McFarland.............. 1995 $198,000 $55,400 $4,075 $ 14,263 $ 7,500
Senior Vice President 1994 135,192 5,000 -- 5,000 --
President, CAM Division 1993(6) -- -- -- -- --
John S. Poole.................. 1995 $165,000 $46,200 $6,509 $ 11,886 $ 7,500
Senior Vice President 1994 155,000 15,000 1,736 15,000 12,034
President, Comet Rice
Division 1993 155,000 8,000 4,940 12,750 2,700
Lee Adams...................... 1995 $160,000 $44,800 $9,100 $ 11,524 $ 6,017
Senior Vice President 1994 155,000 5,000 6,390 5,000 8,633
International Marketing 1993 150,000 -- 4,702 -- 11,699
</TABLE>
- ---------------
(1) Amounts earned for services performed for ERLY and its other subsidiaries,
not included in the table above, are as follows:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------------
ALL
OTHER RESTRICTED OTHER
YEAR ENDED COMPEN- STOCK COMPEN-
NAME MARCH 31, SALARY BONUS SATION(3) AWARDS(4) SATION(5)
------------------------------- ---------- -------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Murphy.............. 1995 $ 23,000 $23,728 $ -- $ 18,968 $ --
1994 36,346 -- 2,975 -- 100,000
1993 195,000 -- 3,675 -- 5,216
Gerald D. Murphy............... 1995 $139,500 $62,872 $ -- $ 29,038 $ --
1994 110,833 -- 588 -- 100,000
1993 -- -- -- -- --
Bill J. McFarland.............. 1995 $ -- $ -- $ -- $ -- $ --
1994 54,808 -- 1,815 -- 11,743
1993 185,000 -- 1,650 -- 3,700
</TABLE>
(2) In fiscal 1995 bonuses were paid to certain officers of the Company under an
incentive compensation plan based, subject to approval by the shareholders,
on the Return on Equity (as defined in such plan) earned annually by the
Company. Such bonuses are payable 80% in cash and 20% in common stock of
ERLY over a two-year period subject to continuing performance requirements.
See " -- Incentive Compensation Plan."
(3) Amounts included in this column reflect: (i) the cost of company provided
automobiles relating to personal use, and (ii) reimbursements under the
Executive Medical Plan. Under this Plan, key executive officers are
reimbursed for expenses incurred by them and their dependents for medical
and dental care not covered by other sources.
43
<PAGE> 50
(4) Amounts include awards of restricted ERLY common stock. The number of shares
of this stock held and market value at March 31, 1995, were as follows:
<TABLE>
<CAPTION>
NAME SHARES MARKET VALUE
------------------------------------- ------ ------------
<S> <C> <C>
Douglas A. Murphy.................... 20,379 $229,264
Gerald D. Murphy..................... 20,990 236,137
Bill J. McFarland.................... 2,402 27,022
John S. Poole........................ 8,470 95,287
Lee Adams............................ 2,160 24,300
</TABLE>
Such shares are restricted for a two-year period from date of issuance.
(5) Substantially all employees are covered by the ERLY Employees Profit Sharing
Retirement Plan, a defined contribution plan. ARI and ERLY make a mandatory
1% matching contribution to the plan on a monthly basis and an annual
contribution at the discretion of their respective Boards of Directors. The
basis for contributions for executive officers is the same as for other
employees. Amounts listed include company contributions under this plan. In
1994, Douglas A. Murphy and Gerald D. Murphy were each paid a fee of
$100,000 for their personal guarantees of $5 million of bank debt under an
agreement between ING Capital, ERLY and ERLY Juice Inc. In 1994, Gerald D.
Murphy was also paid a fee of $180,000 for a personal guarantee of an $8
million bank line of credit to Comet.
(6) Noted individuals were not paid by ARI or Comet in 1993.
The following table presents information on ERLY common stock options held
by the executive officers named in the Summary Compensation Table at the end of
fiscal 1995. During fiscal 1995, Mr. McFarland exercised options granted in 1985
for the purchase of 8,053 shares of ERLY common stock at a price of $3.73 per
share. No other officers exercised any stock options during the year.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1995
AND MARCH 31, 1995 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT MARCH 31, 1995 AT MARCH 31, 1995(2)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas A. Murphy...... -- -- 66,550 -- $ 448,547 --
Gerald D. Murphy....... -- -- -- -- -- --
Bill J. McFarland...... 8,053 $60,559 26,620 -- 179,419 --
John S. Poole.......... -- -- 16,638 -- 112,140 --
Lee Adams.............. -- -- -- -- -- --
</TABLE>
- ---------------
(1) Market value of underlying ERLY securities at the exercise date ($11.25),
less the exercise price ($3.73).
(2) Market value of underlying ERLY securities at March 31, 1995 ($11.25), less
the exercise price ($4.51).
EMPLOYMENT AGREEMENT
In connection with the ARI Cooperative's reorganization as Pre-Acquisition
ARI, Pre-Acquisition ARI entered into several employment agreements with certain
Pre-Acquisition ARI employees. Lee Adams' employment agreement provides that, as
an employee, he shall be entitled to certain benefits for a five-year term
commencing (i) on the date of termination, if termination is by notice of ARI
and there has been no Change of Control (as defined in such employment
agreement), (ii) on the occurrence of a Benefits Event (as defined in such
employment agreement) following a Change of Control, if termination is at the
option of the employee, or (iii) on the occurrence of the last Change of Control
preceding the date of termination, if termination is by notice of ARI. Under the
terms of the employment agreement, such benefits are provided unless termination
is both, at the option of the employee and in the absence of a Change of
Control. A Change of Control is deemed to occur if any person becomes beneficial
owner of 25% or more of the voting power of ARI or during any consecutive years,
the individuals comprising a majority of the Board of Directors at the beginning
of such period shall cease to constitute a majority. Generally, benefits payable
under the employment agreement include continuation of the employee's base
salary, continuation of the employee's participation in profit sharing, pension
and other executive compensation plans and various health care and
44
<PAGE> 51
disability plans, the right to a cash bonus in the amount of the bonus last
received if ARI awards a cash bonus to any member of the Executive Group (as
defined in such employment agreement) during such five-year period, and
indemnification for judgments, fines and expenses incurred by the employee by
reason of his serving as an officer. In consideration of these benefits, Mr.
Adams has agreed not to compete with ARI or to disclose any confidential
information of ARI during the five-year period during which he is to receive
such benefits. If ARI or its successor fails to make timely payments as required
by the employment agreement, liquidated damages are set at treble the amount of
such untimely payments. Certain amounts that may be paid under the employment
agreement upon Mr. Adams' termination may be deemed to be "excess parachute
payments" within the meaning of Section 280G of the Internal Revenue Code and,
as such, would not be deductible by ARI for federal income tax purposes.
COMPENSATION OF DIRECTORS
Directors who are not executive officers of the Company are paid $2,000 per
quarter plus $1,000 for each board meeting attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions on the compensation of the Company's executive officers are made
by the Compensation Committee of the Board of Directors. The Compensation
Committee consists of Gerald D. Murphy, who acts as chairman of the committee,
William H. Burgess and S.C. Bain, Jr. Mr. Murphy is Chairman of the Board of the
Company and is the direct and indirect record and beneficial owner of 37.4% of
ERLY common stock. Mr. Burgess is a private business consultant, Chairman of CMS
Digital, Inc. and a director of ERLY. He is the beneficial owner of 7.6% of ERLY
common stock.
All decisions by the Compensation Committee were reviewed and approved
without change by the full Board of Directors of the Company. Mr. Murphy did not
participate in any Compensation Committee or Board of Directors discussions or
decisions concerning his own compensation. Except for Mr. Murphy, no other
member of the Compensation Committee is now or ever has been an officer or
employee of the Company or its subsidiaries.
Mr. Murphy and Mr. Burgess are also directors of ERLY. Both serve on ERLY's
Compensation Committee of the Board of Directors, with Mr. Burgess serving as
chairman. Mr. Bain is President of Bain, Inc. and a partner at Bain Farms.
INCENTIVE COMPENSATION PLAN
In fiscal 1995, ARI's Board of Directors adopted, subject to shareholder
approval, an Incentive Compensation Plan (the "Incentive Plan"), pursuant to
which certain key officers of the Company are entitled to receive bonuses, in
addition to other compensation they may receive from the Company, of 80% cash
and 20% ERLY common stock if Return on Equity (as defined therein) of ARI are
achieved. Bonuses under the Incentive Plan are 70% earned in the year the Return
on Equity is 15% or greater and the remaining 30% will be earned in the
following fiscal year if the Company achieves a Return on Equity of 15% or
greater in such subsequent fiscal year. Unvested bonuses awarded that would
otherwise be available under the Incentive Plan in the subsequent fiscal year
will be forfeited upon a participant's voluntary termination of employment.
Furthermore, no shares of stock issued under the Incentive Plan can be
transferred for two years following issuance. The Incentive Plan is not subject
to any provisions of ERISA.
45
<PAGE> 52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the share ownership of the Company's Common
Stock (as defined), the Series A Preferred Stock (as defined), and the Series B
Preferred Stock at March 31, 1995 (i) owned by ERLY, the only person or entity
known to own more than 5% of the outstanding voting shares of any of the voting
capital stock of the Company; (ii) each director of the Company; (iii) each
executive officer named in the Summary Compensation Table; (iv) all directors
and executive officers of the Company and its subsidiaries as a group; and (v)
all other owners of 5% or more of ERLY common stock. Except as indicated, each
of the stockholders has sole voting power and investment power with respect to
the shares beneficially owned by such stockholder.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------------------- -------------------------- -------------------- ----------------
<S> <C> <C> <C>
ERLY Industries Inc.............................. Common Stock 777,777(7) 32%
10990 Wilshire Blvd. Series A Preferred Stock 777,777(7) 100
Los Angeles, CA 90024 Series B Preferred Stock 2,800,000(7)(8) 100
Gerald D. Murphy(1).............................. Common Stock 777,777(7) 32%
10990 Wilshire Blvd. Series A Preferred Stock 777,777(7) 100
Los Angeles, CA 90024 Series B Preferred Stock 2,800,000(7)(8) 100
Douglas A. Murphy(2)............................. Common Stock 777,777(7) 32%
10990 Wilshire Blvd. Series A Preferred Stock 777,777(7) 100
Los Angeles, CA 90024 Series B Preferred Stock 2,800,000(7)(8) 100
William H. Burgess(3)............................ Common Stock 777,777(7) 32%
550 Palisades Drive Series A Preferred Stock 777,777(7) 100
Palm Springs, CA 92262 Series B Preferred Stock 2,800,000(7)(8) 100
State Treasurer of the State of Michigan(4)...... Common Stock 777,777(7) 32%
301 W. Allegan Street Series A Preferred Stock 777,777(7) 100
Lansing, MI 48922 Series B Preferred Stock 2,800,000(7)(8) 100
Gentleness(5).................................... Common Stock 777,777(7) 32%
P.O. Box N7776 Series A Preferred Stock 777,777(7) 100
Lyford Cay Series B Preferred Stock 2,800,000(7)(8) 100
Nassau, Bahamas
Internationale Nederlanden (U.S.) Capital
Corporation(6)................................. Common Stock 777,777(7) 32%
135 E. 57th Street Series A Preferred Stock 777,777(7) 100
New York, NY 10022-2101 Series B Preferred Stock 2,800,000(7)(8) 100
S.C. Bain, Jr.................................... Common Stock * *
P.O. Box 250
Bunkie, LA 71322
John M. Howland.................................. -- -- --
16825 Northchase Drive
Suite 1600
Houston, TX 77060
Richard N. McCombs............................... -- -- --
16825 Northchase Drive
Suite 1600
Houston, TX 77060
- ---------------
(Footnotes on following page)
</TABLE>
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<PAGE> 53
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------------------- -------------------------- -------------------- ----------------
<S> <C> <C> <C>
George E. Prchal................................. -- -- --
16825 Northchase Drive
Suite 1600
Houston, TX 77060
Lee Adams........................................ Common Stock * *
16825 Northchase Drive
Suite 1600
Houston, TX 77060
Bill J. McFarland................................ -- -- --
16825 Northchase Drive
Suite 1600
Houston, TX 77060
John S. Poole.................................... -- -- --
16825 Northchase Drive
Suite 1600
Houston, TX 77060
All directors and executive officers as
a group (12 persons)........................... Common Stock 782,290 32%
</TABLE>
- ---------------
* Less than one percent.
(1) Gerald D. Murphy, Chairman of the Board of ERLY, is the direct and indirect
record and beneficial owner of 1,517,191 shares of ERLY common stock,
representing approximately 37.4% of the outstanding shares of ERLY common
stock.
(2) Douglas A. Murphy, President and a director of ERLY, is the beneficial owner
of 506,502 shares of ERLY common stock, representing approximately 12.5% of
the outstanding shares of ERLY common stock.
(3) William H. Burgess, a director of ERLY, beneficially owns 283,000 shares of
ERLY common stock, representing approximately 7.6% of the outstanding shares
of ERLY common stock.
(4) The State of Michigan Retirement System beneficially owns 372,368 shares of
ERLY common stock, representing approximately 10.0% of the outstanding
shares of ERLY common stock.
(5) Gentleness beneficially owns 220,000 shares of ERLY common stock,
representing 5.9% of the outstanding shares of ERLY common stock.
(6) Internationale Nederlanden (U.S.) Capital Corporation owns warrants to
purchase approximately 725,000 shares of ERLY common stock, representing 15%
of ERLY common stock on a fully diluted basis.
(7) ERLY has sole voting and dispositive power over such shares.
(8) ERLY has pledged 2,600,000 of these shares to secure the payment of ARI's
term debt, which is to be repaid with a portion of the proceeds of this
Offering. 200,000 of these shares are pledged to former lenders of ARI to
secure the obligation of ERLY on promissory notes aggregating $3.0 million
incurred in connection with financing the Acquisition. The Series B
Preferred Stock has two votes per share and is convertible into Common Stock
on the same basis.
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<PAGE> 54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
In October 1994, ARI entered into an agreement with Rice Milling & Trading
Investments, Ltd. ("RMT"), a company which operates a receiving, processing,
storage and bagging facility in Saudi Arabia to receive and pack ARI products on
an exclusive basis and under ARI supervision. Market shipments under this
agreement began in June 1995 and, although no payments have yet been made to
RMT, management expects that RMT annually will receive, process, store and bag
rice shipped by ARI valued in excess of $20 million, of which RMT will retain in
excess of $1 million as compensation for its services. Two directors of ARI,
John M. Howland and George E. Prchal, are executive officers of RMT and are
consultants to ARI. During fiscal 1995 the Company paid $100,000 to each of Mr.
Howland and Mr. Prchal for consulting services. The terms of the agreement with
RMT were determined by arms-length negotiations between the Company and RMT.
S.C. Bain, Jr., a director of ARI, sells rough rice to ARI under grower
agreements which contain the same terms or options as ARI's agreements with
other growers. The amount of rice provided by Mr. Bain has not, during any of
the last years, exceeded one percent of the total volume of rough rice purchased
by ARI.
TRANSACTIONS WITH AFFILIATES
As a result of the Acquisition, ERLY increased its ownership in the
combined voting rights of ARI stock outstanding from 48% to 81%. Because of
their positions as directors and significant stockholders of ERLY, Gerald D.
Murphy, Douglas A. Murphy, and William H. Burgess can be deemed to be the
beneficial owners of the ARI stock owned by ERLY. Additionally, Gerald D.
Murphy, Douglas A. Murphy and William H. Burgess also serve as directors of ARI.
Gerald D. Murphy is Chairman of the Board of ARI and Douglas A. Murphy is the
President and Chief Executive Officer of ARI.
In connection with the Acquisition, the intercompany payables and
receivables were netted and resulted in an obligation owed to ARI by ERLY that
is reflected in the 6% ERLY Intercompany Note. The 6% ERLY Intercompany Note
will be amended on or before the Closing Date to provide that it will mature one
day after the Maturity Date (as defined), will have a principal amount of $10.0
million and will be payable out of half of any dividends received on the Series
B Preferred Stock until the 15% ERLY Intercompany Note is paid in full, at which
time the 6% ERLY Intercompany Note will be payable by offsets against Tax
Sharing Payments and half of any dividends received on the Series B Preferred
Stock. This note bears interest at the rate of 6% per annum and the balance due
pursuant to the 6% ERLY Intercompany Note was approximately $11.9 million at
March 31, 1995.
ARI files a consolidated federal income tax return with ERLY. ARI and ERLY
entered into a Tax Sharing Agreement on May 25, 1993, which will be amended on
or before the Closing Date (as amended, the "Tax Sharing Agreement") and
pursuant to which ARI will pay to or receive from ERLY the amount of income
taxes currently payable or refundable computed as if ARI filed its annual tax
return as a separate company. ARI intends to pay approximately $1.0 million to
ERLY in satisfaction of ARI's current obligation under the Tax Sharing Agreement
on or before the Closing Date. All payments owed by ARI under the Tax Sharing
Agreement shall be offset against ERLY's principal and interest payment
obligations under the 15% ERLY Intercompany Note. See "Use of Proceeds."
ARI entered into a Management Agreement with ERLY on May 25, 1993, which
will be amended on or before the Closing Date, pursuant to which ERLY provides
to ARI certain marketing, operating and management services, including global
business planning, new product supply development, new market development
services and assistance in insurance, human resources, finance and employee
benefits. Other than Gerald D. Murphy, none of the employees, officers or
directors of ERLY rendering such services are officers or directors of ARI. Mr.
Murphy provides services under this Management Agreement to ARI for which ERLY
is compensated. In exchange for such services, ARI pays ERLY a monthly
management fee of $80,000. Payment of the management fees will be permitted
under the Indenture only if the Company has paid all payments of principal,
premium, if any, and interest due on the Mortgage Notes at the time payment of
such fees is made and ARI has Consolidated Cash Flow in excess of $19.0 million
for the four fiscal
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<PAGE> 55
quarters last completed prior to such payment. Any management fees not paid will
be deferred until such time as the described events prohibiting payment no
longer exist. The term of the Management Agreement is two years with an
automatic two-year renewal unless one party notifies the other that it wishes to
terminate the Management Agreement. During fiscal 1995 and fiscal 1994, ARI paid
ERLY $0.9 million and $1.1 million, respectively, in management fees pursuant to
the Management Agreement. During fiscal 1993, fiscal 1992 and fiscal 1991, Comet
paid ERLY management fees of $2.1 million, $1.9 million and $1.9 million,
respectively.
The Company will lend ERLY $10.5 million in exchange for the 15% ERLY
Intercompany Note, maturing one year and one day prior to the Maturity Date, the
proceeds of which will be applied by ERLY on the Closing Date in satisfaction of
$9.6 million of indebtedness owed by ERLY Juice Inc. and guaranteed by ERLY to
ING Capital and to facilitate the repurchase of ERLY common stock warrants held
by ING Capital. Currently, ING Capital beneficially owns warrants to acquire 15%
of the outstanding voting capital stock of ERLY (on a common stock equivalent
basis). In addition, ING Capital is a participant in the Term Loan and, in
connection with the repayment of the Term Loan, ING Capital will receive
approximately $23.8 million. See "Use of Proceeds."
DESCRIPTION OF CAPITAL STOCK
Under ARI's Articles of Incorporation, as amended through September 9, 1994
(the "Articles of Incorporation"), ARI has the authority to issue 14,000,000
shares divided into the following: 10,000,000 shares of Common Stock, par value
$1.00 per share (the "Common Stock"), 4,000,000 shares of preferred stock, par
value $1.00 per share, of which 777,777 shares were designated as Series A
Preferred Stock (the "Series A Preferred Stock"); 2,800,000 shares were
designated as Series B Preferred Stock (the "Series B Preferred Stock"); and
300,000 shares were designated as Series C Preferred Stock (the "Series C
Preferred Stock," and collectively with the Series A Preferred Stock and the
Series B Preferred Stock, the "Preferred Stock"). At March 31, 1995, the Company
had 2,443,892 shares of Common Stock, 777,777 shares of Series A Preferred
Stock, 2,800,000 shares of Series B Preferred Stock and 300,000 shares of Series
C Preferred Stock issued and outstanding. The Revolving Credit Loan and the
Indenture restrict the payment of any dividends on the capital stock of ARI.
COMMON STOCK
ERLY owns 777,777 shares of ARI's Common Stock, representing 32% of ARI's
total issued and outstanding Common Stock and 9% of the total voting shares.
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by stockholders and are entitled to one vote per share on all
matters to be voted on by stockholders and are entitled, subject to any
preferential rights of holders of Preferred Stock, to receive dividends, if any,
as may be declared from time to time by the Board of Directors of ARI. Upon any
liquidation or dissolution of ARI, the holders of Common Stock are entitled,
subject to any preferential rights of holders of Preferred Stock, to receive a
pro rata share of all the assets remaining available for distribution to
stockholders after payment of all liabilities.
The Common Stock is traded on the Nasdaq Small Capitalization Market under
the symbol "RICE." The transfer agent and registrar for the Common Stock is
Society National Bank.
SERIES A PREFERRED STOCK
ERLY owns 777,777 shares, or 100%, of the issued and outstanding Series A
Preferred Stock, representing 9% of the total voting shares.
Each share of Series A Preferred Stock is convertible into one share of
Common Stock at the election of the holder of such share.
The Series A Preferred Stock has no rights of redemption or sinking fund
provisions, but upon any liquidation of ARI, the holders of Series A Preferred
Stock must be paid $25.70 per share, for a total of $19,989,000, before any
amounts may be paid to the holders of the Series B Preferred Stock, the Series C
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<PAGE> 56
Preferred Stock or the Common Stock. The holders of Series A Preferred Stock are
entitled to one vote per share on all matters upon which the holders of Common
Stock have the right to vote and are generally entitled to vote as a class on
only matters adversely affecting their rights as holders of Series A Preferred
Stock.
Holders of shares of Series A Preferred Stock are entitled to receive
dividends, when and if declared by the Board of Directors of ARI, on the same
terms and in the same amounts as dividends payable to holders of the Common
Stock.
SERIES B PREFERRED STOCK
ERLY owns 2,800,000 shares, or 100%, of the issued and outstanding Series B
Preferred Stock, representing 63% of the total voting shares.
Each share of Series B Preferred Stock is convertible into two shares of
Common Stock at the election of the holder of such share. ERLY has pledged
2,600,000 shares of Series B Preferred Stock to ARI's current lenders and
200,000 shares of Series B Preferred Stock is pledged to certain of ARI's former
lenders. Pursuant to the two agreements pledging all 2,800,000 shares of Series
B Preferred Stock, ERLY may exercise its conversion rights only with the consent
of the secured party. The Series B Preferred Stock provides for annual,
cumulative, non-participating dividends of approximately $5.2 million. No
dividends have been declared or paid as of March 31, 1995, at which date the
accumulated, undeclared dividends totaled $9.5 million.
The Series B Preferred Stock has no rights of redemption or sinking fund
provisions, but upon any liquidation of ARI, ARI must pay the holders of Series
B Preferred Stock $5.00 per share, for a total of $14,000,000, pari passu with
any liquidation payments made in respect of the Series C Preferred Stock before
any amounts may be paid to the holders of the Common Stock. Each share of Series
B Preferred Stock provides for annual cumulative, non-participating dividends of
$1.85, the first $0.27 of which is to be paid at the same time as and pari passu
with dividends declared and paid on the Series C Preferred Stock. The holders of
Series B Preferred Stock are entitled to two votes per share on all matters upon
which the holders of Common Stock have the right to vote and are entitled to
vote as a class only on any matters adversely affecting their rights as holders
of Series B Preferred Stock.
SERIES C PREFERRED STOCK
The Series C Preferred Stock was issued to certain former lenders of ARI in
connection with the Acquisition in partial satisfaction of certain indebtedness
owed to them. In the aggregate, these former lenders own 300,000 shares, or
100%, of the Series C Preferred Stock.
The Series C Preferred Stock has no rights of redemption or sinking fund
provisions, but upon any liquidation of ARI, ARI must pay the holders of Series
C Preferred Stock $5.00 per share, for a total amount of $1,500,000, pari passu
with any liquidation payments made in respect of the Series B Preferred Stock
before any amounts may be paid to the holders of Common Stock. The Series C
Preferred Stock provides for annual cumulative, non-participating dividends of
$2.50 per share, or $750,000 in total, is non-convertible and non-voting.
Further, the Series C Preferred Stock is callable by ARI at any time at a price
of $26.35 per share less aggregate dividend payments per share. No dividends
have been declared or paid as of March 31, 1995, at which date the accumulated,
undeclared dividends totaled $1.4 million.
The Articles of Incorporation provide that, so long as any shares of Series
B Preferred Stock or Series C Preferred Stock are outstanding, ARI will not,
with respect to the Series B Preferred Stock and the Series C Preferred Stock,
alter the Articles of Incorporation so as to adversely affect the rights of such
stock, authorize or create any class or series of stock ranking prior to such
stock in payment of dividends or distribution of assets or increase the
authorized amount of any Preferred Stock or any other series or class of capital
stock ranking prior to or on a parity with such stock without the consent of at
least two-thirds of the shares of Series B Preferred Stock or Series C Preferred
Stock, as applicable.
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<PAGE> 57
DESCRIPTION OF MORTGAGE NOTES
GENERAL
The Mortgage Notes will be issued pursuant to an Indenture (the
"Indenture") between the Company and U.S. Trust Company of Texas, N.A., as
trustee (the "Trustee"). The terms of the Mortgage Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Mortgage
Notes are subject to all such terms, and holders of Mortgage Notes are referred
to the Indenture and the Trust Indenture Act for a statement thereof. The
following summary of the material provisions of the Indenture does not purport
to be exhaustive of all terms of the Indenture and is qualified in its entirety
by reference to the Indenture, including the definitions therein of certain
terms used below. A copy of the proposed form of Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
definitions of certain terms used in the following summary are set forth below
under "-- Certain Definitions."
The Mortgage Notes will rank senior in right of payment to all subordinated
Indebtedness and pari passu in right of payment with all existing and future
senior Indebtedness of the Company, including borrowings under the Revolving
Credit Loan. The Mortgage Notes will be secured by certain assets of the Company
in the manner and to the extent summarized below under "-- Security."
For U.S. federal income tax purposes, holders of the Mortgage Notes will be
required to recognize interest income in respect of the Mortgage Notes in
advance of the receipt of cash payments attributable to interest income on such
Mortgage Notes. See "Material Federal Income Tax Consequences" for important
information concerning the U.S. federal income tax considerations associated
with the Mortgage Notes.
PRINCIPAL, MATURITY AND INTEREST
The Mortgage Notes will be limited in aggregate principal amount to $100.0
million and will mature on July 31, 2002. Fixed Interest on the Mortgage Notes
will accrue at the rate of 13% per annum and will be payable semiannually in
cash in arrears on February 28 and August 31 of each year (each, an "Interest
Payment Date"), commencing on February 28, 1996, to holders of record on the
immediately preceding February 15 and August 15 (each, a "Record Date"). Fixed
Interest on the Mortgage Notes will accrue from the most recent date to which
Fixed Interest has been paid or, if no Fixed Interest has been paid, from the
date of original issuance. Fixed Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Additionally, installments of
accrued and unpaid Fixed Interest will become due and payable with respect to
any principal amount of the Mortgage Notes upon the maturity of such principal
amount of Mortgage Notes (whether at stated maturity, upon acceleration, upon
maturity of repurchase obligation or otherwise). Each installment of Fixed
Interest will be calculated to accrue from and including the most recent date to
which Fixed Interest has been paid or provided for (or from and including the
Closing Date if no installment of Fixed Interest has been paid), but not
including, the date of payment.
In addition to regular semiannual payments of Fixed Interest, the Mortgage
Notes will bear Contingent Interest, calculated as described below, from the
Closing Date to the date of payment of the Mortgage Notes. Installments of
accrued Contingent Interest will become due and payable semiannually on the
Interest Payment Date immediately following the Semiannual Period after the
Semiannual Period in which such Contingent Interest is accrued (e.g. Contingent
Interest for the Semiannual Periods ending June 30 and December 31 will be
payable on the following February 28 and August 31, respectively), unless such
installment of Contingent Interest is permitted to be deferred on such payment
date. Installments of deferred Contingent Interest will become due and payable
semiannually on each Interest Payment Date unless such installment of deferred
Contingent Interest is permitted to be deferred again on such payment date. All
payments of Contingent Interest that are not deferred will be payable on the
applicable Interest Payment Dates to the holders of record at the close of
business on the immediately preceding Record Date. Additionally, all
installments of accrued or deferred Contingent Interest will become due and
payable (and may not be further deferred) with respect to any principal amount
of the Mortgage Notes upon the maturity of such principal amount of Mortgage
Notes (whether at stated maturity, upon acceleration, upon maturity of
repurchase obligation or otherwise).
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<PAGE> 58
The Company, at its option, may defer payment of all or a portion of any
installment of Contingent Interest then otherwise due if, and only to the extent
that, (a) the payment of such portion of Contingent Interest will cause the
Company's Adjusted Fixed Charge Coverage Ratio for the two consecutive
Semiannual Periods immediately preceding the Semiannual Period last completed
prior to such Interest Payment Date to be less than 2.0:1 on a pro forma basis
after giving effect to the assumed payment of such Contingent Interest but
before giving effect to the payment of any interest on the Mortgage Notes which
is then not payable and (b) the principal of the Mortgage Notes corresponding to
such Contingent Interest has not then matured and become due and payable
(whether at stated maturity, upon acceleration, upon maturity of repurchase
obligation or otherwise). Contingent Interest that is deferred shall become due
and payable on the earlier of (i) the next succeeding Interest Payment Date on
which such Contingent Interest is not permitted to be deferred, and (ii) upon
the maturity of the corresponding principal of the Mortgage Notes (whether at
stated maturity, upon acceleration, upon maturity of repurchase obligation or
otherwise). No interest will accrue on any Contingent Interest deferred and
which does not become due and payable. The aggregate amount of Contingent
Interest payable in any Semiannual Period will be reduced pro rata for
reductions in the outstanding principal amount of the Mortgage Notes prior to
the close of business on the record date immediately preceding such payment of
Contingent Interest.
Each installment of Contingent Interest will be calculated to accrue (an
"Accrual Period") from, but not including, the most recent date to which
Contingent Interest has been paid or provided for, the date through which
Contingent Interest had been calculated and deferred or, if no installment of
Contingent Interest has been paid or deferred, from and including the Closing
Date to, and including, either (a) the last day of the Semiannual Period
preceding the Semiannual Period last completed prior to such Interest Payment
Date if the corresponding principal of the Mortgage Notes has not become due and
payable or (b) the date of payment if the corresponding principal of the
Mortgage Notes has become due and payable (whether at stated maturity, upon
acceleration, upon maturity of repurchase obligation or otherwise); provided
that, in either case, Contingent Interest should be deemed not to accrue during
any Semiannual Period at the end of which the Company's Consolidated Cash Flow
during such Semiannual Period and the immediately preceding Semiannual Period is
less than $20.0 million. With respect to each Accrual Period, Contingent
Interest will accrue daily on the principal of each Mortgage Note outstanding
during such period as follows: (i) for any portion of an Accrual Period which
consists of all or part of a Semiannual Period that ends during such Accrual
Period, 1/180 of the Base Contingent Interest with respect to such principal
amount for such Semiannual Period until fully accrued and (ii) for any other
portion of an Accrual Period, 1/180 of the Base Contingent Interest with respect
to such principal amount for the Semiannual Period that began and last ended
after the Closing Date.
"Base Contingent Interest" means the interest payable on each Interest
Payment Date with respect to any principal amount of outstanding Mortgage Notes
in an amount equal to the product of (i) 4% of the Consolidated Cash Flow for
the Semiannual Period immediately preceding the Semiannual Period most recently
completed prior to such Interest Payment Date, up to a limit of the Contingent
Interest on $40.0 million of the Company's Consolidated Cash Flow during the
fiscal year in which such interest is accrued and (ii) a fraction, the numerator
of which is the aggregate principal amount of Mortgage Notes outstanding on the
close of business on the Record Date corresponding to such Interest Payment Date
and the denominator of which is $100.0 million.
Any reference in this Prospectus to "accrued and unpaid interest" includes
the amount of unpaid Contingent Interest due and payable.
Principal, premium, if any, and interest (including Contingent Interest, if
any) on the Mortgage Notes will be payable at the office or agency of the
Company maintained for such purpose within the City and State of New York. Until
otherwise designated by the Company, the Company's office or agency in New York
will be the office of the Trustee maintained for such purpose. The Mortgage
Notes will be issued in denominations of $1,000 and integral multiples thereof.
SECURITY
The Obligations of the Company under the Indenture and the Mortgage Notes
will be secured by delivery to the Trustee, as collateral agent, for the benefit
of the holders of the Mortgage Notes, of (i) the Freeport
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<PAGE> 59
Deed of Trust creating a second priority security interest in the Company's
leasehold interests in the Freeport Facility (including the Company's interests
in furniture, fixtures and equipment); (ii) the Maxwell Deed of Trust creating a
first priority security interest in the Company's fee and leasehold interests in
the Maxwell Facility (including the Company's interests in furniture, fixtures
and equipment); (iii) the Stuttgart Mortgage creating a first priority security
interest in the Company's fee interest in the Stuttgart Facility (including the
Company's interests in furniture, fixtures and equipment); (iv) the Houston Deed
of Trust creating a first priority security interest in the Company's fee
interest in the Houston Property (including the Company's interests in
furniture, fixtures and equipment); (v) pledge agreements creating first
priority security interests in the Capital Stock of the Company held by ERLY
(other than 200,000 shares of the Company's Series B Preferred Stock pledged to
the holders of the Company's Series C Preferred Stock), the Capital Stock of the
Company's Subsidiaries held by the Company, the ERLY Intercompany Notes and the
Subsidiary Intercompany Notes; (vi) a security agreement creating a first
priority security interest in all registered U.S. trademarks, and a security
interest in all other registered trademarks, owned or licensed by the Company;
(vii) a pledge agreement creating a first priority security interest in the
Freeport IRBs until such time as the Freeport IRBs are remarketed by the
Company; and (viii) a pledge of all proceeds of the foregoing (including
insurance) (collectively, the "Collateral"). The Collateral will not include any
equipment subject to a purchase money lien that is a Permitted Lien to the
extent that a Lien in favor of the Trustee would breach the agreement governing
such purchase money lien or any assets in which the lender under the Revolving
Credit Loan (the "Revolving Credit Lender") has a priority Lien under the
Intercreditor Agreement.
The Company's lease of the Freeport Facility is for a primary term of 35
years commencing June 6, 1987, renewable at the option of the Company for seven
additional terms of five years each, and currently requires an annual lease
payment of approximately $150,000, which amount will increase annually by 2%. In
addition, the Company pays dockage, mooring, wharfage and other fees for
services provided by the lessor to the Company at rates established by the
harbor authority. The Company's lease of the Maxwell Facility, which covers
approximately half of the property of the Maxwell Facility, is for a primary
term of 60 years commencing October 1, 1974, renewable at the Company's option
for an additional term of 39 years, and requires monthly lease payments of $0.10
per hundredweight of rough rice processed at the facility up to a maximum of
$360,000 per year, or $90,000 per calendar quarter, for the initial term of the
lease. The leases for both facilities, as clarified by landlord estoppel
agreements to be entered into or before the Closing Date, will permit a mortgage
lien in favor of the Trustee to be placed on such leasehold interests and permit
the assignment of such leasehold interests by the Trustee following an Event of
Default.
The Collateral will secure the payment and performance when due of all of
the Obligations of the Company under the Indenture and the Mortgage Notes as
provided in the Collateral Documents. The Indenture will prohibit the Company
from creating or otherwise causing or suffering to exist any new direct
Subsidiary unless the Capital Stock of such Subsidiary owned by the Company and
any Subsidiary Intercompany Note to which such Subsidiary becomes a party are
pledged as Collateral pursuant to the Collateral Documents. Any claim of the
Company or the Trustee against the assets of any of the Company's Subsidiaries
will rank pari passu in right of payment against all Indebtedness of each such
Subsidiary to the extent of the Intercompany Notes to which such Subsidiary is a
party and effectively subordinate in right of payment against all other
Indebtedness of such Subsidiary. The Indenture also will prohibit the Company
from allowing any Subsidiary of the Company to create or otherwise suffer to
exist any Subsidiary of such Subsidiary.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Collateral
Documents, the Company and its Subsidiaries will be entitled to use the
Collateral in a manner consistent with normal business practices and the Company
and ERLY will be entitled to receive all cash dividends, interest and other
payments made upon or with respect to, and to exercise any voting and other
consensual rights pertaining to, the Capital Stock pledged by them and to
receive all payments with respect to the ERLY Intercompany Notes and the
Subsidiary Intercompany Notes pledged by them. Upon the occurrence and during
the continuance of an Event of Default, (a) (i) all rights of the Company and
ERLY to exercise voting or other consensual rights in connection with the
pledged Capital Stock shall cease, and all such rights shall become vested in
the Trustee, which, to the extent permitted by law
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<PAGE> 60
and the Intercreditor Agreement, as described in the next paragraph, shall have
the sole right to exercise such voting and other consensual rights and (ii) all
rights of the Company and ERLY to receive all cash dividends, interest and other
payments made upon or with respect to the pledged Capital Stock and to receive
all payments with respect to the ERLY Intercompany Notes and the Subsidiary
Intercompany Notes pledged by them shall cease and such cash dividends, interest
and other payments shall be paid to the Trustee; and (b) the Trustee may sell
the Collateral or any part thereof in accordance with the terms of the
Collateral Documents, subject to the terms of the Intercreditor Agreement.
The rights of the Trustee under the Collateral Documents will be subject to
the terms of the Intercreditor Agreement between the Trustee and the Revolving
Credit Lender. Pursuant to the Intercreditor Agreement, the Revolving Credit
Lender will expressly agree that the Liens against the Collateral in favor of
the Trustee are, except as described below in this paragraph, senior, superior,
and prior in all respects to any Lien such lender may have against any assets
constituting Collateral. The Intercreditor Agreement provides that the Revolving
Credit Loan (i) may be secured by a first priority Lien on the Company's
accounts receivable, inventory (and the proceeds therefrom) and related
collateral, Liens on other assets of the Company that are not Collateral and
Liens on the Collateral that are junior to the Liens in favor of the Trustee,
(ii) may be guaranteed on a senior basis by certain of the Company's
Subsidiaries, which guarantees may be secured by such Subsidiaries' accounts
receivable, inventory (and the proceeds therefrom) and related collateral, and
(iii) may not be guaranteed by ERLY. The Intercreditor Agreement also will
provide that (a) the Revolving Credit Lender may not foreclose on any of the
Company's assets that constitute Collateral or, except as described in clause
(b) of this paragraph, exercise remedies with respect to the Collateral until
the Company's Obligations under the Indenture and the Mortgage Notes have been
satisfied in full; (b) in order to realize upon or liquidate the Revolving
Credit Lender's inventory collateral, following any default under and
acceleration of the Revolving Credit Loan, the Revolving Credit Lender will
have, for a period of up to 90 days from the earlier of (1) the date on which
the Revolving Credit Lender first takes possession of the inventory collateral
securing its Lien and (2) the date on which the Revolving Credit Lender receives
written notice from the Trustee after it first takes possession of the
Collateral, the right to obtain access to and utilize the Company's rice
processing facilities and affix the Company's trademarks to inventory in or
processed in such facilities, and the continuing right to use such trademarks in
connection with the Revolving Credit Lender's disposition of inventory that was
contained in or processed in such facilities during such 90-day period, provided
that such lender will pay to the Trustee for the benefit of the holders of the
Mortgage Notes all depreciation expenses related to equipment used by such
lender in connection therewith during any period after the first 45 days of such
90-day period and, provided further, that such 90-day period, in either case,
will be tolled if and for so long as the Company's inventory and trademarks are
subject to an automatic stay in connection with a bankruptcy proceeding
involving the Company; and (c) except as provided in clause (b) of this
paragraph, the Revolving Credit Lender will be obligated to release its Liens
on, and will have no claim against, the Collateral in connection with any
exercise of remedies by the Trustee. The Revolving Credit Lender will waive any
rights it may have to direct the order or manner of any sale of any assets which
constitute Collateral. Except to the extent otherwise required by law, proceeds
of any of the Collateral will be applied first to pay expenses of sale, then,
subject to the Company's right to reinvest the proceeds pursuant to the
provisions under the caption "-- Repurchase at the Option of Holders -- Asset
Sales," to amounts payable to the Trustee under the Indenture and the Collateral
Documents, and then to pay amounts due under the Mortgage Notes. After the
Mortgage Notes are paid in full, any proceeds of Collateral in which the
Revolving Credit Lender has a Lien will be paid to such lender. The rights of
the Revolving Credit Lender could delay the exercise of remedies by the Trustee,
and there can be no assurance that such rights will not adversely affect the
ability to sell any or all of the Collateral or the amount realized on such
sale.
Under the terms of the Collateral Documents, the Trustee will determine the
circumstances and manner in which the Collateral shall be disposed of,
including, but not limited to, the determination of whether to release all or
any portion of the Collateral from the Liens created by the Collateral Documents
and whether to foreclose on the Collateral following an Event of Default.
Moreover, upon the full and final payment and performance of all Obligations of
the Company under the Indenture and the Mortgage Notes, the Collateral Documents
shall terminate and the Collateral shall be released. In addition, in the event
that any of the Collateral is sold as permitted under the Indenture and the Net
Cash Proceeds are pledged and/or applied in
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accordance with the terms of the provisions under "-- Repurchase at the Option
of Holders -- Asset Sales," the Trustee shall release the Liens in favor of the
Trustee in the assets sold; provided, that such Net Cash Proceeds are deposited
into a segregated bank account and pledged to the Trustee on or before the date
of such Asset Sale and the Trustee shall have received from the Company on or
before the date of such Asset Sale an Officers' Certificate and an Opinion of
Counsel that a valid Lien in such Net Cash Proceeds has been perfected in favor
of the Trustee. Such pledged Net Cash Proceeds may be reinvested, and the
Trustee will release or reduce the amount of the Net Cash Proceeds subject to
the Trustee's Lien on such Net Cash Proceeds to the extent of such reinvestment,
in accordance with the terms of the provisions under "-- Repurchase at the
Option of Holders -- Asset Sales," provided that the Trustee shall have received
from the Company on or before the date such Net Cash Proceeds are so applied an
Officers' Certificate and an Opinion of Counsel that such Net Cash Proceeds have
been or will be so applied and that a valid Lien in the assets in which such Net
Cash Proceeds are reinvested has been perfected in favor of the Trustee.
The value of the Collateral in the event of a liquidation will depend on
market and economic conditions, the availability of buyers and similar factors.
It is possible that the net proceeds realized from any sale of the Collateral
would not be sufficient to pay the Indebtedness represented by the Mortgage
Notes. As a result of the foregoing, holders of the Mortgage Notes may receive
only limited benefits from their security interest in the Collateral. The rights
of any holder of the Mortgage Notes to take any action to enforce the Company's
Obligations under the Mortgage Notes will be limited by the terms of the
Indenture so as to avoid impairment or loss of the Liens on the Collateral in
favor of the Trustee pursuant to applicable state laws.
The release of any Collateral from the terms of the Collateral Documents
will not be deemed to impair the security under the Indenture in contravention
of the provisions thereof and of the Collateral Documents if and to the extent
the Collateral is released pursuant to the terms of the Indenture and the
Collateral Documents. To the extent applicable, the Company shall comply with
Section 314(d) of the Trust Indenture Act.
OPTIONAL REDEMPTION
The Mortgage Notes will not be redeemable at the Company's option prior to
July 31, 1999. Thereafter, the Mortgage Notes will be subject to redemption at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
aggregate principal amount) set forth below, plus accrued and unpaid interest
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on July 31 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------ ----------
<S> <C>
1999.............................................................. 107.0%
2000.............................................................. 104.0
2001 and thereafter............................................... 100.0
</TABLE>
Notwithstanding the foregoing, until August 31, 1998, the Company may
redeem at its option up to one-third of the initial aggregate principal amount
of the Mortgage Notes at a redemption price of 107% of the aggregate principal
amount thereof, plus accrued and unpaid interest to the date of redemption, with
the net proceeds received by the Company from a public offering of common stock
of the Company; provided that at least two-thirds of the initial aggregate
principal amount of the Mortgage Notes remains outstanding immediately after the
occurrence of such redemption and such redemption shall occur within 60 days of
the date of the closing of such public offering.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Mortgage Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of Mortgage Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 in principal amount or an integral multiple
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thereof) of such holder's Mortgage Notes pursuant to the offer described below
(the "Change of Control Offer") at an offer price in cash equal to 101% (or 100%
if such Change of Control occurs on or after July 31, 2001) of the Accreted
Value thereof, plus accrued and unpaid interest thereon to the date of
repurchase (the "Change of Control Payment"). Within ten days following any
Change of Control, the Company will mail a notice to each holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Mortgage Notes pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Mortgage Notes as a result
of a Change of Control.
On the date of the Change of Control Payment, the Company will, to the
extent lawful, (1) accept for payment all Mortgage Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit with the
paying agent an amount equal to the Change of Control Payment in respect of all
Mortgage Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Mortgage Notes so accepted together with an
Officers' Certificate stating the aggregate Accreted Value of the Mortgage Notes
being purchased by the Company. The paying agent will promptly mail to each
holder of Mortgage Notes so tendered the Change of Control Payment for such
Mortgage Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each holder a new Mortgage Note equal in
principal amount to any unpurchased portion of the Mortgage Notes surrendered,
if any; provided that each such new Mortgage Note will be in a principal amount
of $1,000 or an integral multiple thereof. The Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the date of the Change of Control Payment.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Mortgage
Notes to require that the Company repurchase or redeem the Mortgage Notes in the
event of a takeover, recapitalization or similar restructuring.
The exercise by the holders of Mortgage Notes of their right to require the
Company to repurchase the Mortgage Notes could cause a default under the
Company's other senior Indebtedness, even if the Change of Control itself does
not, due to the financial effect of such repurchases on the Company. Although
the obligations of the Company with respect to the Mortgage Notes are secured by
the Collateral, there can be no assurance that the proceeds of a sale of such
Collateral will be sufficient to satisfy payments due on the Mortgage Notes upon
a Change of Control. Finally, the Company's ability to pay cash to the holders
of Mortgage Notes upon a repurchase may be limited by the Company's then
existing financial resources.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), (ii) the adoption of a plan relating to the liquidation or dissolution of
the Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than Douglas A. Murphy or Gerald D. Murphy,
acquires a direct or indirect interest in more than 50% of the voting power of
the Voting Stock of the Company or (iv) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
For purposes of this definition, any transfer of an equity interest of an entity
that was formed for the purpose of acquiring Voting Stock of the Company will be
deemed to be a transfer of such portion of such Voting Stock as corresponds to
the portion of the equity of such entity that has been so transferred.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of Mortgage Notes to require the
Company to repurchase such Mortgage Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
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Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, engage in an Asset Sale unless (i) the Company (or
the Subsidiary, as the case may be) receives consideration at the time of such
Asset Sale at least equal to the fair market value (evidenced by a resolution of
the Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of; (ii) at least 85% of the Net Proceeds therefor received by the Company or
such Subsidiary is in the form of cash or Cash Equivalents, provided that, with
respect to the Houston Property, at least 50% of the Net Proceeds therefor
received by the Company must be in the form of cash or Cash Equivalents, and
provided further that any notes or other obligations received by the Company or
any Subsidiary as consideration in connection with an Asset Sale shall be
counted as "Net Proceeds" only to the extent such notes or other obligations are
immediately converted by the Company or such Subsidiary into cash (and then only
to the extent of the cash received); and (iii) if such Asset Sales involve
Collateral, the Company obtains a release of the Lien from the Trustee on such
Collateral on or before the date such Asset Sale occurs.
The Indenture also will provide that the Company will sell the Houston
Property to a third party that is not an Affiliate of the Company or ERLY within
18 months following the Closing Date in accordance with the provisions hereof
relating to Asset Sales. If the Company fails to sell the Houston Property by
such date, then the Company will become obligated to pay liquidated damages
("Liquidated Damages") to each holder of Mortgage Notes in an amount equal to
$0.048 per week per $1,000 principal amount of Mortgage Notes held by such
holder for each week or portion thereof that the sale of the Houston Property
has not been effected. All accrued Liquidated Damages will be deemed to be
interest for purposes of the Indenture and will be paid by the Company on the
same dates and in the same manner as regular interest payments on the Mortgage
Notes.
Within one year after the receipt of any Net Cash Proceeds from an Asset
Sale, the Company (or the Subsidiary, as the case may be) may apply such Net
Cash Proceeds to an investment in another business, the making of a capital
expenditure or the acquisition of other tangible assets, in each case, in a
Related Business; provided, that if any Collateral is sold, (a) any Net Proceeds
received from such Asset Sale that are not in the form of cash or Cash
Equivalents will be pledged to the Trustee to secure the Company's Obligations
under the Mortgage Notes and the Indenture; (b) if the Net Cash Proceeds from
such sales (either individually or when combined with the Excess Proceeds (as
defined below) from sales of Collateral during such one year period) exceed $1.0
million, then such Net Cash Proceeds shall be held in a segregated account
(which may, at the Company's option, be invested in Cash Equivalents) that will
be pledged to the Trustee to secure the Company's Obligations under the Mortgage
Notes and the Indenture until such Net Cash Proceeds are either reinvested or
applied to redeem the Mortgage Notes as described below; and (c) if any such Net
Cash Proceeds are reinvested, such Net Cash Proceeds shall only be reinvested in
the type of assets of the Company defined as Collateral under the Collateral
Documents and similar in character to the assets sold, and only if the assets
acquired by such reinvestment are subject to a perfected Lien in favor of the
Trustee (with the same priority as the Lien on the Collateral that was the
subject of the Asset Sale); and provided further that if any such Net Cash
Proceeds consist of proceeds of insurance paid on account of the loss or damage
to any property, or compensation or other proceeds for any property taken by
condemnation, eminent domain or similar proceedings, such proceeds may be
applied to reimburse the Company or any of its Subsidiaries, as applicable, for
expenditures made, and cost incurred, to repair, rebuild, replace or restore the
property subject to such loss, damage or taking so long as the Company utilizes
such Net Cash Proceeds in accordance with clauses (a), (b) and (c) of this
paragraph.
Any Net Cash Proceeds from any Asset Sales that are not applied or
reinvested as provided above will be deemed to constitute "Excess Proceeds."
Pending the final application of any such Net Cash Proceeds (other than proceeds
from an Asset Sale of assets constituting Collateral), the Company or such
Subsidiary may temporarily reduce the Revolving Credit Loan or otherwise invest
such Net Cash Proceeds in any manner that is not prohibited by the Indenture.
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company
will be required to make an offer to all holders of Mortgage Notes (an "Asset
Sale Offer") to purchase up to a maximum aggregate principal amount (expressed
as an integral multiple of $1,000) of Mortgage Notes equal to the Excess
Proceeds at an offer price in cash equal to 100% of the Accreted Value
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thereof, plus accrued and unpaid interest thereon to the date of repurchase, in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate Accreted Value of the Mortgage Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate Accreted Value
of the Mortgage Notes surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Mortgage Notes in accordance with
the provisions under the caption "-- Selection and Notice." Upon completion of
such offer to purchase, the amount of Excess Proceeds shall be reset at zero.
Freeport IRBs
The Indenture will provide that upon the remarketing by the Company of the
Freeport IRBs in accordance with the provisions described under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock," the Company will be required to make an offer to all holders of the
Mortgage Notes to purchase the maximum aggregate principal amount (expressed as
an integral multiple of $1,000) of Mortgage Notes that may be purchased out of
the net proceeds of such remarketing at an offer price in cash equal to 100% of
the Accreted Value of the Mortgage Notes, plus accrued and unpaid interest
thereon to the date of repurchase, in accordance with the procedures set forth
in the Indenture. To the extent that the aggregate amount of Mortgage Notes
tendered pursuant to such offer is less than the net proceeds of such
remarketing, the Company may use any remaining net proceeds for general
corporate purposes. If the aggregate Accreted Value of the Mortgage Notes
surrendered by holders thereof exceeds the amount of net proceeds, the Trustee
will select the Mortgage Notes in accordance with the provisions under the
caption "-- Selection and Notice."
SELECTION AND NOTICE
If less than all of the Mortgage Notes are to be redeemed at any time,
selection of Mortgage Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Mortgage Notes are listed, or, if the Mortgage Notes are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that no Mortgage Notes of $1,000 in
principal amount or less shall be redeemed in part. Notices of redemption shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of Mortgage Notes to be redeemed at its
registered address. If any Mortgage Note is to be redeemed in part only, the
notice of redemption that relates to such Mortgage Note shall state the portion
of the principal amount thereof to be redeemed. A new Mortgage Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original Mortgage Note. On and after the
redemption date, interest ceases to accrue on Mortgage Notes or portions of them
called for redemption.
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any distribution on account of the Company's or any of its
Subsidiaries' Equity Interests (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or dividends or
distributions payable to the Company or any Wholly Owned Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent of the Company
or other Affiliate of the Company (other than any such Equity Interests owned by
the Company or any Wholly Owned Subsidiary of the Company); (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated in right of payment to
the Mortgage Notes; or (iv) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Event of Default shall have occurred and be continuing or would
occur as a consequence thereof;
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(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock";
(c) after giving effect to such Restricted Payment and the incurrence
of any Indebtedness the net proceeds of which are used to finance such
Restricted Payment, the Company's Indebtedness to Cash Flow Ratio would not
have exceeded 3.0 to 1;
(d) immediately after such Restricted Payment (the value of any such
payment, of other than cash, being determined by the Board of Directors and
evidenced by a resolution set forth in an Officers' Certificate delivered
to the Trustee) and after giving effect thereto on a pro forma basis, the
Consolidated Net Worth of the Company would be more than $50.0 million; and
(e) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted by clauses (ii)
and (iii) in the next succeeding paragraph), is less than the sum of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or convertible
debt securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost
of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) $2.0 million.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock),
provided, that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (c)(ii) of the preceding paragraph; (iii) the defeasance,
redemption or repurchase of subordinated Indebtedness with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock), provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (iv) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Subsidiary of
the Company held by any member of the Company's (or any of its Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement in effect as of the date of the Indenture, provided that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed $250,000 in any twelve-month period plus the
aggregate cash proceeds received by the Company during such twelve-month period
from any reissuance of Equity Interests by the Company to members of management
of the Company and its Subsidiaries, and no Default or Event of Default shall
have occurred and be continuing immediately after such transaction; (v) any
payment or other distribution pursuant to the terms of the Management Agreement
and the Tax Sharing Agreement, as such agreements exist on the date of the
Indenture, provided that payments made pursuant to the Management Agreement will
be permitted only if (a) the Company has paid all payments of principal,
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premium, if any, and interest (including all Contingent Interest accrued or
deferred) due on the Mortgage Notes at the time payment of such fees is made and
(b) the Company's Consolidated Cash Flow for the four fiscal quarters last
completed prior to such payment is at least $19.0 million; (vi) any payments of
dividends or distributions on account of the Equity Interests in ARI-Vinafood
held by Central Food Corporation II, a company organized under the laws of the
Socialist Republic of Vietnam ("Central Food Corporation II"), provided that,
concurrently with such payments ARI-Vinafood pays to the Company a dividend or
distribution on account of the Company's Equity Interests in ARI-Vinafood
proportionate to the Company's ownership interest in ARI-Vinafood; (vii) capital
contributions (in any form) by the Company to ARI-Vinafood pursuant to that
certain Joint Venture Contract dated July 27, 1994 between Central Food
Corporation II and the Company in an aggregate amount not to exceed $1.0
million; (viii) a loan of $10.5 million in aggregate principal amount to ERLY
that is evidenced by the 15% ERLY Intercompany Note and pledged to the Trustee
as Collateral for the Mortgage Notes; (ix) any intercompany loan by the Company
to any Subsidiary that is not a Wholly Owned Subsidiary of up to $2.0 million
and which is evidenced by a Subsidiary Intercompany Note that is pledged to the
Trustee as Collateral for the Mortgage Notes, provided that the aggregate amount
of all such loans may not exceed $10.0 million at any one time, provided further
that (a) any subsequent issuance or transfer of Equity Interests that results in
the Obligations under any such intercompany loan being owed by a Person other
than a Subsidiary of the Company and (b) any sale or other transfer of the
Obligations under any such intercompany loan to a Person that is not either the
Company or a Subsidiary shall be deemed, in each case, to constitute a
Restricted Payment by the Company or such Subsidiary, as the case may be; or (x)
any payments of principal and interest on account of the Freeport IRBs made to
any Person other than an Affiliate of the Company after the Company remarkets
the Freeport IRBs.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, which calculations may be
based upon the Company's latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guaranty or otherwise become directly or indirectly liable, contingently
or otherwise, with respect to (collectively, "incur") any Indebtedness
(including Acquired Debt) and that the Company will not issue any Disqualified
Stock and will not permit any of its Subsidiaries to issue any shares of
Preferred Stock; provided, however, that the Company and its Subsidiaries may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.25:1 from the
Closing Date through July 31, 1996, at least 2.5:1 from August 1, 1996 through
July 31, 1997, at least 2.75:1 from August 1, 1997 through July 31, 1998 and at
least 3.0:1 from August 1, 1998 and thereafter, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company of revolving credit Indebtedness and
letters of credit pursuant to the Revolving Credit Loan for working capital
purposes (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company thereunder) in an
aggregate principal amount not to exceed the amount of the Borrowing Base;
(ii) the incurrence by the Company of Indebtedness represented by the
Mortgage Notes;
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(iii) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of the Company or such
Subsidiary, in an aggregate principal amount not to exceed $10.0 million at
any time outstanding; provided that none of the Company or the Subsidiaries
shall incur any Indebtedness pursuant to this clause (iv) that creates a
security interest in, causes a Lien (other than a Permitted Lien) to be
placed against or otherwise encumbers the Collateral;
(v) the incurrence by the Company or any of its Wholly Owned
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly Owned Subsidiaries; provided, however, that, except to
the extent that such Indebtedness may be incurred pursuant to the next
paragraph, (a) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than a Wholly
Owned Subsidiary and (b) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Subsidiary shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Wholly Owned Subsidiary, as the
case may be;
(vi) the incurrence by any Subsidiary of the Company that is not a
Wholly Owned Subsidiary of intercompany Indebtedness between the Company
and such Subsidiary in an aggregate principal amount not to exceed $2.0
million at any time with respect to such Subsidiary; provided that the
aggregate amount of Indebtedness incurred by the Company's Subsidiaries
pursuant to this paragraph (vi) shall not exceed $10.0 million at any one
time;
(vii) the incurrence by the Company of Indebtedness under a letter of
credit in such amount and to the extent necessary to remarket the Freeport
IRBs; provided that the Fixed Charge Coverage Ratio, as determined above,
would have been at least 2.5:1;
(viii) the incurrence by ARI-Vinafood of Non-Recourse Debt; and
(ix) the incurrence by the Company or any of its Subsidiaries of
Indebtedness not otherwise permitted to be incurred pursuant to the
provisions described above in an aggregate principal amount not to exceed
$2.0 million at any one time outstanding.
Limitation on Operating Lease Obligations
The Indenture will provide that the Company shall not, and shall cause each
of its Subsidiaries not to, directly or indirectly create or otherwise suffer to
exist additional Operating Lease Obligations not in existence on the Closing
Date, unless the amount of additional minimum rental payments (determined in
accordance with GAAP) incurred as a result of such additional Operating Lease
Obligations does not exceed $2.5 million in the aggregate on a pro forma basis
for the 12 months preceding and including the date such proposed additional
Operating Lease Obligation is incurred; provided, however, that this restriction
will not apply to (i) any renewal or extension by the Company of an Operating
Lease Obligation existing on the Closing Date on substantially similar terms,
allowing for adjustment of rental payments to reflect market prices and
customary extensions and rate adjustments on the same assets previously leased,
or (ii) Operating Lease Obligations with a term of less than one year.
Limitation on Rice Contract Policies and Procedures
The Indenture will provide that the Company may not, without first
obtaining the consent of the holders of a majority in aggregate principal amount
of the Mortgage Notes then outstanding, modify or revoke the Company's policies
and procedures with respect to the trading of rice futures contracts adopted by
the Company's Board of Directors on September 22, 1994 (other than modifications
necessary to reflect changes
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in the terms of employment of the employees identified in such policies and
procedures), which policies and procedures are attached as an exhibit to the
Indenture.
Limitation on Capital Expenditures
The Indenture will provide that, if the Consolidated Cash Flow of the
Company for a fiscal year does not exceed $30.0 million, then the Capital
Expenditures for the Company and its Subsidiaries for the next succeeding fiscal
year may not exceed the sum of (a) $5.5 million and (b) the Carryover Amount
determined with respect to such prior fiscal year.
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) existing agreements evidencing Indebtedness as in
effect on the date of the Indenture, including the Revolving Credit Loan, and
restrictions against intersubsidiary loans, advances or transfers contained in
the Revolving Credit Loan, (b) the Indenture and the Mortgage Notes, (c)
applicable law, (d) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Subsidiaries as in effect at the
time of such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that the Consolidated Cash Flow of such Person is not taken
into account in determining whether such acquisition was permitted by the terms
of the Indenture, (e) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, or (g) Permitted Refinancing
Indebtedness, provided that the restrictions of the nature described in clauses
(i), (ii) and (iii) above contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
Person unless (i) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the Mortgage Notes, the Indenture and the Collateral
Documents pursuant to a supplemental indenture or other documents or instruments
in form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default
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or Event of Default exists; (iv) the owner of the Capital Stock of the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made shall have pledged to the Trustee
all of the issued and outstanding Capital Stock of the surviving corporation or
the Company, as the case may be (with the same priority as the Lien on the
Capital Stock of the Company owned by ERLY); (v) the perfection and priority of
the Liens in the Collateral in favor of the Trustee are not impaired, except for
the Lien on the Capital Stock of the Company owned by ERLY, which Lien may be
released upon such merger, consolidation or sale of assets if the other
conditions herein are satisfied; and (vi) the Company or the Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made, (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock."
Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person and (ii) the Company delivers to the Trustee (a) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $5.0 million, an opinion as to the fairness to the Company or such Subsidiary
of such Affiliate Transaction from a financial point of view issued by an
investment banking firm of national standing; provided that (x) any employment
agreement entered into by the Company or any of its Subsidiaries in the ordinary
course of business and consistent with the past practice of the Company or such
Subsidiary, (y) transactions between or among the Company and/or its
Subsidiaries and (z) transactions permitted by the provisions of the Indenture
described above under the caption "-- Restricted Payments," in each case, shall
not be deemed Affiliate Transactions.
Advances to Subsidiaries
The Indenture will provide that all advances to Subsidiaries made by the
Company from time to time after the date of the Indenture will be evidenced by
unsecured Subsidiary Intercompany Notes in favor of the Company that will be
pledged to the Trustee as Collateral to secure the Mortgage Notes. The Indenture
also will provide that all advances by the Company to any Subsidiary of the
Company outstanding on the date of the Indenture will be evidenced by an
unsecured Subsidiary Intercompany Note that will be pledged to the Trustee as
Collateral for the Mortgage Notes. Each Subsidiary Intercompany Note will be
payable upon demand, will bear interest at the same rate as the Mortgage Notes,
will be pari passu in right of payment with all present and future senior
Indebtedness of the Subsidiary to which such loan is made and senior to all
future subordinated Indebtedness of such Subsidiary. A form of Subsidiary
Intercompany Note will be attached as an annex to the Company Pledge Agreement
(as such term is defined in the Indenture).
Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries
The Indenture will provide that the Company (i) will not, and will not
permit any Wholly Owned Subsidiary of the Company to, transfer, convey, sell or
otherwise dispose of any Capital Stock of any Wholly
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Owned Subsidiary of the Company to any Person (other than the Company), unless
(a) such transfer, conveyance, sale or other disposition is of all the Capital
Stock of such Wholly Owned Subsidiary and (b) the Net Cash Proceeds from such
transfer, conveyance, sale or other disposition are applied in accordance with
the covenant described above under the caption "-- Asset Sales," and (ii) will
not permit any Wholly Owned Subsidiary of the Company to issue any of its Equity
Interests (other than, if necessary, shares of its Capital Stock constituting
directors' qualifying shares) to any Person other than to the Company.
Limitations on Issuances of Guarantees of Indebtedness
The Indenture will provide that the Company will not permit any Subsidiary,
directly or indirectly, to Guarantee the payment of any Indebtedness other than
such Indebtedness represented by the Mortgage Notes and the Revolving Credit
Loan or secure the payment of any Indebtedness, other than with accounts
receivable, inventory (and the proceeds therefrom) and related collateral,
unless such Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for the (i) Guarantee of the payment of the
Mortgage Notes by such Subsidiary, which Guarantee shall be senior to or pari
passu with such Subsidiary's Guarantee of or pledge to secure such other
Indebtedness, and (ii) a security interest (other than on accounts receivable,
inventory (and the proceeds therefrom) and related collateral) securing such
Guarantee on the Mortgage Notes that ranks pari passu with the Liens securing
such Indebtedness. Notwithstanding the foregoing, any such guarantee by a
Subsidiary of the Mortgage Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon either (a) the
release or discharge of such Guarantee of such Indebtedness, except a discharge
by or as a result of payment under such Guarantee, or (b) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
stock in, or all or substantially all the assets of, such Subsidiary, which
sale, exchange or transfer is made in compliance with the applicable provisions
of the Indenture.
Insurance
The Indenture will provide that, until the Mortgage Notes have been paid in
full, the Company will, and will cause its Subsidiaries to, maintain insurance
with responsible carriers against such risks and in such amounts as is
customarily carried by similar businesses with such deductibles, retentions,
self insured amounts and coinsurance provisions as are customarily carried by
similar businesses of similar size, including, without limitation, property and
casualty, and shall have provided insurance certificates evidencing such
insurance to the Trustee prior to the date of the Indenture and shall thereafter
provide evidence of such insurance within 30 days of the anniversary or renewal
date of each such policy, which certificate shall expressly state the expiration
date for each policy listed. Notwithstanding the foregoing, customary insurance
coverage for the purposes of the Indenture will include the following: (i)
workers' compensation insurance to the extent required to comply with all
applicable state, territorial, or United States laws and regulations or the laws
and regulations of any other applicable jurisdiction, (ii) comprehensive general
liability insurance with minimum limits of $1.0 million, (iii) umbrella or
excess liability insurance providing liability limits over and above the
foregoing insurance up to a minimum limit of $25.0 million, (iv) property
insurance protecting the property against such risks and hazards (other than
earthquakes) as are from time to time covered by an "all-risk" policy or a
property policy covering "special" causes of loss (such insurance shall provide
coverage in not less than the lesser of 120% of the outstanding principal amount
of Mortgage Notes plus accrued and unpaid interest and 100% of actual
replacement value (as determined at each policy renewal based on the F.W. Dodge
Building Index or some other recognized means) of any fixtures, equipment or
improvements and with a deductible no greater than $250,000 (other than flood
insurance, for which the deductible may be up to 10% of such replacement value
or such greater amount as is available on reasonably commercial terms)); and (v)
such insurance of any leased real or personal property as is required by the
terms of the applicable lease. All insurance required under the Indenture
(except worker's compensation) shall name the Trustee as an additional insured
or loss payee, as applicable. All such insurance policies will be issued by
carriers having an A.M. Best & Company, Inc. rating of A- or higher, or if such
carrier is not rated by A.M. Best & Company, Inc., having the financial
stability and size deemed appropriate by an opinion from a reputable insurance
broker.
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Further Assurances
The Indenture will provide that the Company will (and will cause each of
its Subsidiaries to) do, execute, acknowledge, deliver, record, re-record, file,
re-file, register and re-register, any and all such further acts, deeds,
conveyances, security agreements, mortgages, assignments, estoppel certificates,
financing statements and continuations thereof, termination statements, notices
of assignment, transfers, certificates, assurances and other instruments as may
be required from time to time or as the Trustee may reasonably request in order
(i) to carry out more effectively the purposes of the Collateral Documents, (ii)
to subject to the Liens created by any of the Collateral Documents any of the
properties, rights or interests required to be encumbered thereby, (iii) to
perfect and maintain the validity, effectiveness and priority of any of the
Collateral Documents and the Liens intended to be created thereby, and (iv) to
better assure, convey, grant, assign, transfer, preserve, protect and confirm to
the Trustee any of the rights granted or now or hereafter intended by the
parties thereto to be granted to the Trustee or under any other instrument
executed in connection therewith or granted by the Company under the Collateral
Documents or under any other instrument executed in connection therewith.
Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the Commission, so long as any Mortgage Notes are outstanding,
the Company will furnish to the holders of Mortgage Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, a report thereon by the Company's certified independent accountants and
(ii) all current reports that would be required to be filed with the Commission
on Form 8-K if the Company were required to file such reports. The Company also
shall include, in the case of such quarterly reports, the Contingent Interest
paid, the Contingent Interest Accrual amount and Consolidated Cash Flow with
respect to the most recently ended fiscal quarter of the Company, and in the
case of annual reports, the audited Contingent Interest paid, the Contingent
Interest Accrual amount and audited Consolidated Cash Flow for the most recently
ended fiscal year and for each of the fiscal quarters in such fiscal year. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. The Company also will comply with the
other provisions of Sections 314(a) and 314(b) of the Trust Indenture Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest
(including Contingent Interest) on the Mortgage Notes, provided that payments of
Contingent Interest that are permitted to be deferred as provided in the
Indenture shall not become due for this purpose until such payment is required
to be made pursuant to the terms of the Indenture; (ii) default in payment when
due of the principal of or premium, if any, on the Mortgage Notes; (iii) failure
by the Company for 15 days after notice to observe or perform any covenant,
condition or agreement described under the captions "-- Repurchase at the Option
of Holders -- Change of Control," "-- Repurchase at the Option of
Holders -- Asset Sales," "-- Certain Covenants -- Restricted Payments" or
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock"; (iv) failure by the Company for 60 days after notice to comply with any
of its other agreements in the Indenture, the Collateral Documents or the
Mortgage Notes; (v) an "Event of Default" under and as defined in either of the
lease agreements relating to real property leased by the Company at the Freeport
Facility and the Maxwell Facility; (vi) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to pay
principal of
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or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more or is secured by a Lien that is
prior to the Lien in favor of the Trustee; (vii) any Collateral Document shall
be held to be unenforceable or otherwise invalid (except as expressly set forth
therein or in the Indenture) or the Lien created by any Collateral Document in
any asset or assets with a fair market value in excess of $5.0 million ceases to
be a valid and perfected Lien with the same priority as the Lien specified in
such Collateral Document, subject only to Permitted Liens; (viii) failure by the
Company or any of its Subsidiaries to pay final judgments aggregating in excess
of $5.0 million, which judgments are not paid, discharged or stayed for a period
of 60 days; and (ix) certain events of bankruptcy or insolvency with respect to
the Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Mortgage
Notes may declare the principal, premium, if any, interest (including all
Contingent Interest accrued or deferred) and any other monetary obligations on
all the Mortgage Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Mortgage Notes will become due and
payable without further action or notice. Holders of the Mortgage Notes may not
enforce the Indenture or the Mortgage Notes except as provided in the Indenture.
Subject to certain limitations, holders of a majority in principal amount of the
then outstanding Mortgage Notes may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from holders of the Mortgage Notes
notice of any continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal or interest) if it determines
that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Mortgage Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Mortgage Notes. If an Event of Default occurs prior
to July 31, 1999 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Mortgage Notes, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Mortgage Notes.
The holders of a majority in aggregate principal amount of the Mortgage
Notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the Mortgage Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest (including Contingent Interest) on, or the principal
of, the Mortgage Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Mortgage Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of Mortgage Notes by
accepting a Mortgage Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Mortgage Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Mortgage Notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding Mortgage Notes
to receive payments in respect of the principal of, and premium, if any, and
interest (including Contingent Interest, if any) on such Mortgage Notes when
such payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Mortgage Notes concerning issuing temporary
Mortgage Notes, registration of Mortgage Notes, mutilated, destroyed, lost or
stolen Mortgage Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Mortgage Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Mortgage Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Mortgage Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest (including
the maximum amount payable as Contingent Interest, if any) due on the
outstanding Mortgage Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
Mortgage Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of the outstanding Mortgage Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the holders of the
outstanding Mortgage Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the holders of Mortgage Notes over the
other creditors of the Company with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A holder may transfer or exchange Mortgage Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Mortgage Note selected for redemption. Also, the Company is not required to
transfer or exchange any Mortgage Note for a period of 15 days before a
selection of Mortgage Notes to be redeemed.
The registered holder of a Mortgage Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Mortgage Notes and the Collateral Documents may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the Mortgage Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for Mortgage Notes), and any existing
default or compliance with any provision of the Indenture, the Mortgage Notes or
the Collateral Documents may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Mortgage Notes (including
consents obtained in connection with a tender offer or exchange offer for
Mortgage Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Mortgage Notes held by a non-consenting holder): (i) reduce
the principal amount of Mortgage Notes whose holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Mortgage Note or alter the provisions with respect to the
redemption of the Mortgage Notes (other than provisions relating to the
covenants described above under the caption "-- Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
(including Contingent Interest) on any Mortgage Note, (iv) waive an Event of
Default in the payment of principal of or premium, if any, or interest
(including Contingent Interest) on the Mortgage Notes (except a rescission of
acceleration of the Mortgage Notes by the holders of at least a majority in
aggregate principal amount of the Mortgage Notes and a waiver of the payment
default that resulted from such acceleration), (v) make any Mortgage Note
payable in money other than that stated in the Mortgage Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of holders of Mortgage Notes to receive payments of principal of
or premium, if any, or interest (including Contingent Interest) on the Mortgage
Notes, (vii) waive a redemption payment with respect to any Mortgage Note (other
than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (viii) directly or indirectly
release Liens on all or substantially all of the Collateral except in connection
with a permitted merger, consolidation or disposition of assets or (ix) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Mortgage Notes, the Company and the Trustee may amend or supplement the
Indenture, the Mortgage Note or the Collateral Documents to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Mortgage Notes in
addition to or in place of certificated Mortgage Notes, to provide for the
assumption of the Company's obligations to holders of Mortgage Notes in the case
of a merger or consolidation, to provide for certain amendments to the
Collateral Documents expressly called for therein in the case of a merger or
consolidation, to execute and deliver any documents necessary or appropriate to
release Liens on any Collateral as provided for in the Indenture, to make any
change that would provide any additional rights or benefits or Collateral to or
for the benefit of the holders of Mortgage Notes or that does not adversely
affect the legal rights under the Indenture and the Collateral Documents of any
such holder, or to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of
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any such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding
Mortgage Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Mortgage Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain copies of the Indenture
without charge by writing to American Rice, Inc., 16825 Northchase Drive, Suite
1600, Houston, Texas 77060, Attention: Vice President of Finance.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accreted Value" means the price at which a Mortgage Note is originally
issued plus any accrued original issue discount.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person to the extent such
Indebtedness is not satisfied and such Lien released at the time of such
acquisition.
"Adjusted Fixed Charge Coverage Ratio" means with respect to any Person at
any time the Fixed Charge Coverage Ratio of such Person on such date adjusted as
follows: (a) Fixed Charges shall be adjusted to include (rather than exclude)
Contingent Interest, whether paid or accrued, and (b) the amount of Contingent
Interest on a pro forma basis shall equal the Contingent Interest accrued and
reflected in the financial statements for the last two Semiannual Periods with
respect to which Contingent Interest was accruable or payable.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"ARI-Vinafood" means American Rice-Vinafood Co., Ltd., a limited liability
company organized under the laws of the Socialist Republic of Vietnam.
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"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback) other
than sales in the ordinary course of business consistent with past practices or
sales of accounts receivable, inventory and related collateral to the extent
that the lender under the Revolving Credit Loan has a Lien on such assets
(including the receipt of proceeds of insurance paid on account of the loss of
or damages to any asset, other than inventory, and awards of compensation for
any asset taken by condemnation, eminent domain or similar proceeding), provided
that the sale, lease, conveyance or other disposition of all or substantially
all of the assets of the Company and its Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the caption
"-- Repurchase at the Option of Holders -- Change of Control" and/or the
provisions described above under the caption "-- Certain Covenants -- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant, and (ii) the issue or sale by the Company or any of its Subsidiaries
of Equity Interests of any of the Company's Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $5.0 million or (b)
for net proceeds in excess of $5.0 million. Notwithstanding the foregoing: (i) a
transfer of assets by the Company to a Wholly Owned Subsidiary or by a Wholly
Owned Subsidiary to the Company or to another Wholly Owned Subsidiary, (ii) an
issuance of Equity Interests by a Wholly Owned Subsidiary to the Company or to
another Wholly Owned Subsidiary, and (iii) a Restricted Payment that is
permitted by the provisions described above under the caption "-- Certain
Covenants -- Restricted Payments" will not be deemed to be Asset Sales.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
85% of the face amount of all accounts receivable owned by the Company and its
Subsidiaries as of such date that are not more than 90 days past due (or 90% of
such accounts receivable that are backed by letters of credit), (b) 75% of the
lower of the book value (calculated on a FIFO basis) or fair market value of all
inventory owned by the Company and its Subsidiaries as of such date and (c)
temporary overadvances in excess of the sum of (a) and (b) as permitted by the
lender under the Revolving Credit Loan, each of (a) and (b) calculated on a
consolidated basis and in accordance with GAAP. To the extent that information
is not available as to the amount of accounts receivable or inventory as of a
specific date, the Company may utilize the most recent available information for
purposes of calculating the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Expenditures" of a Person means expenditures (whether paid in cash
or accrued as a liability) by such Person or any of its Subsidiaries that, in
conformity with GAAP, are or would be included in "capital expenditures,"
"additions to property, plant or equipment" or comparable items in the
consolidated financial statements of such Person consistent with prior
accounting practices.
"Capital Stock" means (i) in the case of a corporation, corporate stock
(whether common or preferred), (ii) in the case of an association or business
entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, (iii) in the case of a
partnership, partnership interests (whether general or limited) and (iv) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
"Carryover Amount" means (i) with respect to the fiscal year of the Company
ended March 31, 1995, zero dollars, and (ii) with respect to each succeeding
fiscal year of the Company, the amount by which (x) the sum of (1) the Carryover
Amount with respect to the immediately prior fiscal year of the Company plus (2)
$5.5 million exceeds (y) the amount of Capital Expenditures paid or incurred
during the fiscal year of the Company with respect to which such determination
is being made; provided, however, that for any fiscal year of the Company ending
on or after March 31, 1997 that immediately follows a fiscal year in which the
Consolidated Cash Flow of the Company exceeds $30.0 million, then the Carryover
Amount for such fiscal year shall be deemed to be the Carryover Amount for the
next preceding fiscal year of the Company that followed a fiscal year of the
Company in which such Consolidated Cash Flow was less than or equal to $30.0
million.
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"Cash Equivalents" means (i) U.S. dollars, (ii) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (iii) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above and (v) commercial paper having the highest rating
obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation
and in each case maturing within six months after the date of acquisition.
"Collateral Documents" means, collectively, the Freeport Deed of Trust, the
Houston Deed of Trust, the Maxwell Deed of Trust, the Stuttgart Mortgage, the
Company Pledge Agreement, the ERLY Pledge Agreement, the Trademark Security
Agreement, the Intercreditor Agreement and any other pledges, agreements,
instruments, financing statements, filings or other documents that evidence, set
forth or limit the Lien of the Trustee in the Collateral (as such terms are
defined in the Indenture).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary gain (or loss) plus any net gain (or loss) realized
in connection with an Asset Sale (to the extent such gains or losses were
included or deducted in computing such Consolidated Net Income), plus (ii)
provision for taxes based on income or profits of such Person and its
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing such
Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such depreciation, amortization
and other non-cash charges were deducted in computing such Consolidated Net
Income, plus (v) for purposes of making calculations with respect to Contingent
Interest only, fees related to management services pursuant to the Management
Agreement, plus (vi) interest income and other income and expense in each case,
on a consolidated basis and determined in accordance with GAAP. Notwithstanding
the foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of
the referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person, (ii) the Net Income of any Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions by
that Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
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agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Subsidiary shall be excluded to the extent and in proportion to
the outstanding Voting Stock of such Subsidiary not held of record by such
referent Person, (iv) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (v) the cumulative effect of a change in accounting principles
shall be excluded, and (vi) the Net Income of ARI-Vinafood shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the consolidated equity of such Person and its consolidated Subsidiaries as of
such date less (x) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business)
subsequent to the date of the Indenture in the book value of any asset owned by
such Person or a consolidated Subsidiary of such Person and (y) all investments
as of such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, Permitted Investments).
"Contingent Interest" means Base Contingent Interest on the Mortgage Notes
then accrued and any Base Contingent Interest previously accrued and the payment
of which has been permitted to be deferred.
"Contingent Interest Accrual" means, at any time, the total amount of
Contingent Interest on the Mortgage Notes accrued and unpaid through and as of
such time.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election or (iii) was nominated for election, elected or appointed
to such Board to fill a vacancy caused by the death of a member of the Board of
Directors.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is one year after the Maturity Date.
"ERLY" means ERLY Industries Inc., a California corporation.
"ERLY Intercompany Notes" means collectively (i) that certain intercompany
note in favor of the Company, dated the date of the Indenture, in aggregate
principal amount of $10.5 million, bearing interest at the rate of 15% per annum
and maturing one year and one day prior to the Maturity Date, which ranks senior
in right of payment to all existing and future subordinated Indebtedness and
pari passu in right of payment with all future senior Indebtedness of ERLY,
together with that certain Warrant Certificate, in the form attached to such
note, issued to the Company and exercisable into 7 1/2% of the then issued and
outstanding voting common stock of ERLY (the "15% ERLY Intercompany Note"), and
(ii) that certain Promissory Note in favor of the Company, dated May 25, 1993,
as amended as of the date of the Indenture, in aggregate principal amount of
$10.0 million, bearing interest at the rate of 6% per annum and maturing one day
after the Maturity Date (the "6% ERLY Intercompany Note").
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense (excluding, solely for purposes of this
definition, Contingent Interest paid or accrued) of such Person and its
Subsidiaries (in proportion to the Company's ownership interest in each such
Subsidiary) for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letters
of credit or bankers' acceptance financings, and net payments, if any, pursuant
to Hedging Obligations, but net of any amounts included in interest expense
related to the
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amortization of financing costs) and (ii) the consolidated interest expense of
such Person and its Subsidiaries (in proportion to the Company's ownership
interest in each such Subsidiary) that was capitalized during such period, and
(iii) any interest expense on Indebtedness of another Person that is Guaranteed
by such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries to the extent of such Guarantee or Lien
(whether or not such Guarantee or Lien is called upon), and (iv) the product of
(a) all cash dividend payments (and non-cash dividend payments in the case of a
Person that is a Subsidiary) actually declared on any series of preferred stock
of such Person, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings and scheduled payments) or
issues or redeems preferred stock subsequent to the commencement of the period
for which the Fixed Charge Coverage Ratio is being calculated but prior to the
date on which the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
Guarantee or redemption of Indebtedness, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the applicable
four-quarter reference period. For purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period, and (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Subsidiaries following the Calculation Date.
"Fixed Interest" means the interest payable with respect to any principal
amount of Mortgage Notes in an amount equal to 13% of such principal amount.
"Freeport IRBs" means those certain $13,300,000 Variable Rate Demand Marine
Terminal Revenue Bonds, Series 1985 (American Rice, Inc. Project) issued by
Brazos Harbor Industrial Development Corporation on December 16, 1985.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging
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Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all indebtedness of others secured
by a Lien on any asset of such Person (whether or not such indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person; provided that such
indebtedness shall not include indebtedness represented by standby letters of
credit to the extent that a Person's payment obligation in respect of such
standby letter of credit secures an underlying obligation that otherwise is
included as indebtedness of such Person or its Subsidiaries.
"Indebtedness to Cash Flow Ratio" means, with respect to any Person, the
ratio of (a) the Indebtedness of such Person and its Subsidiaries as of the end
of the most recently ended fiscal quarter, plus the amount of any Indebtedness
incurred subsequent to the end of such fiscal quarter, to (b) such Person's
Consolidated Cash Flow for the most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
on which such event for which such calculation is being made shall occur (the
"Measurement Period"); provided, however, that (i) in making such computation,
Indebtedness shall include the total amount of funds outstanding and available
under any revolving credit facility and (ii) in the event that the Company or
any of its Subsidiaries consummates a material acquisition or an Asset Sale or
other disposition of material assets subsequent to the commencement of the
Measurement Period but prior to the event for which the calculation of the
Indebtedness to Cash Flow Ratio is made, then the Indebtedness to Cash Flow
Ratio shall be calculated giving pro forma effect to such material acquisition
or Asset Sale or other disposition of material assets, as if the same had
occurred at the beginning of the applicable period.
"Intercreditor Agreement" means that certain Intercreditor Agreement
entered into by and between the Trustee and the lender under the Revolving
Credit Loan on or before the date of the Indenture, as thereafter amended,
supplemented, modified, or replaced (including such agreement entered into by
the lender under an agreement constituting Permitted Refinancing Indebtedness
with respect to the Revolving Credit Loan), in each case substantially in the
form attached to the Indenture.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Management Agreement" means that certain Management Agreement dated as of
May 25, 1993 by and between ERLY and the Company.
"Maturity Date" means July 31, 2002.
"Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in
the form of cash or Cash Equivalents.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (or
loss), together with any related provision for taxes on such gain (or loss),
realized in connection with (a) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (b) the disposition
of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or
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nonrecurring gain (or loss), together with any related provision for taxes on
such extraordinary or nonrecurring gain (or loss).
"Net Proceeds" means the aggregate cash and non-cash consideration received
by the Company or any of its Subsidiaries in respect of any Asset Sale,
including, without limitation, any liabilities (as shown on the Company's or
such Subsidiary's most recent balance sheet or in the notes thereto) of the
Company or any Subsidiary assumed by the transferee in such Asset Sale or
otherwise satisfied in connection with such Asset Sale, net of (i) direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), (ii) amounts applied to the repayment of Indebtedness (other than
the Mortgage Notes), and the value of the Indebtedness assumed by the transferee
in such Asset Sale, in each case, to the extent required by the terms of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale (whether or not, in the case of repayment of Indebtedness
incurred under the Revolving Credit Loan to the extent of the proceeds of assets
not constituting Collateral, such assets are re-lent) and (iii) any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Subsidiaries (other than ARI-Vinafood) (a) provides credit
support of any kind (including any undertaking, agreement or instrument that
would constitute Indebtedness of the Company or any of its Subsidiaries), or
(b) is directly or indirectly liable (as a guarantor or otherwise) and (ii) no
default with respect to which (including any rights that the holders thereof may
have to take enforcement action against ARI-Vinafood) would permit (upon notice,
lapse of time or both) any holder of any other Indebtedness of the Company or
any of its Subsidiaries (other than ARI-Vinafood) to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating Lease Obligations" means a Person's operating leases determined
in accordance with GAAP.
"Permitted Investments" means (i) any Investments in the Company or in a
Wholly Owned Subsidiary of the Company that are evidenced by Capital Stock or
Subsidiary Intercompany Notes which are pledged to the Trustee as Collateral for
the Mortgage Notes; (ii) any Investments in Cash Equivalents; (iii) any
Investments by the Company or any Subsidiary of the Company in a Person engaged
in a Related Business that are evidenced by Capital Stock or Subsidiary
Intercompany Notes that are pledged to the Trustee as Collateral for the
Mortgage Notes, if as a result of such Investment (a) such Person becomes a
Wholly Owned Subsidiary of the Company that is engaged in a Related Business or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Subsidiary of the Company that is engaged in a
Related Business; (iv) Restricted Investments made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "-- Repurchase at
the Option of Holders -- Asset Sales"; and (v) other Investments in any Person
that do not exceed $1.0 million in the aggregate at any time outstanding.
"Permitted Liens" means (i) Liens securing Indebtedness pursuant to the
Revolving Credit Loan for working capital purposes and other corporate purposes
not prohibited by the Revolving Credit Loan, in an aggregate principal amount
not to exceed the Borrowing Base, plus interest, fees, charges, costs and
expenses pursuant to the Revolving Credit Loan, provided that any Liens on
Collateral in favor of the Revolving Credit Lender shall be junior and
subordinate to the Liens in favor of the Trustee under the Collateral Documents
and shall be subject to the Intercreditor Agreement; (ii) Liens in favor of the
Company or created in favor of
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the Trustee pursuant to the Indenture or the Collateral Documents; (iii) Liens
on property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company; provided that
such Liens were in existence prior to the consummation and not made in
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company;
(iv) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business; (vi) Liens existing on the date of the Indenture, including renewals
and extensions thereof in connection with Permitted Refinancing Indebtedness
(other than Liens securing Indebtedness to be repaid with the proceeds from the
sale of the Mortgage Notes and Liens securing the Revolving Credit Loan),
provided that any Liens on Collateral in favor of the Lenders under such
Permitted Refinancing Indebtedness shall be junior and subordinate to the Liens
in favor of the Trustee under the Collateral Documents; (vii) Liens on the
Collateral securing obligations in respect of the Indenture and the Mortgage
Notes; (viii) ground leases under which the Company is the lessee in respect of
the real property on which facilities owned or leased by the Company or any of
its Subsidiaries are located; (ix) (1) Liens for taxes, assessments or
governmental charges or claims or (2) statutory Liens of landlords, carriers,
warehousemen, mechanics, suppliers, materialmen and repairmen or other similar
Liens arising in the ordinary course of business, in the case of each of (1) and
(2), with respect to amounts that either (A) are not yet delinquent or (B) are
being contested in good faith by appropriate proceedings as to which appropriate
reserves or other provisions have been made in accordance with GAAP; (x)
easements, rights-of-way, restrictions, covenants, mineral reservations, minor
defects or irregularities in title and other similar charges or encumbrances
which do not interfere in any material respect with the ordinary conduct of
business of the Company and its Subsidiaries; (xi) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by clause (iv) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness; (xii)
Liens on the Freeport Facility securing the Freeport IRBs and any letter of
credit obtained by the Company if and to the extent required for the Company to
remarket the Freeport IRBs; and (xiii) Liens incurred in the ordinary course of
business of the Company or any Subsidiary of the Company with respect to
obligations that do not exceed $2.5 million at any one time outstanding and that
(a) are not incurred in connection with the borrowing of money or the obtaining
of advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of business
by the Company or such Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed (a)
the principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded, (b) if such Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded was issued at an original
issue discount, the original issue price, plus amortization of the original
issue discount to the time the Permitted Refinancing Debt is incurred, or (c) if
such Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is Indebtedness represented by the Revolving Credit Loan and such
Permitted Refinancing Indebtedness also is a revolving credit facility, the
amount of the Borrowing Base (in each case, plus interest, fees, charges, costs
and the amount of reasonable expenses incurred in connection therewith); (ii)
such Permitted Refinancing Indebtedness does not require payments of principal
prior to the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Mortgage Notes, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the Mortgage Notes on terms at least as favorable to the holders of
Mortgage Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iv) such Indebtedness is incurred either by the
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Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (v) any
Permitted Refinancing Indebtedness relating to the Revolving Credit Loan will be
subject to the Intercreditor Agreement.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether outstanding on the date hereof
or issued after the date of the Indenture, and including, without limitation,
all classes and series of preferred or preference stock of such Person.
"Related Business" means the business of purchasing, processing, bagging,
transporting, trading and marketing agricultural products and such business
activities as are incidental or related thereto.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Semiannual Period" means each period that begins on January 1 and ends on
the next succeeding June 30 or each period that begins on July 1 and ends on the
next succeeding December 31.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Intercompany Notes" means the intercompany promissory notes
issued by the Company's Subsidiaries in favor of the Company to evidence loans
by the Company, in each case in the form attached to the Company Pledge
Agreement.
"Tax Sharing Agreement" means that certain Tax Agreement dated May 25, 1993
by and between ERLY and the Company.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of provisions of the Company's other debt that
will remain outstanding after application of the proceeds of this Offering. This
summary provides only the significant terms of each Indebtedness and is
qualified in its entirety by the actual terms and conditions of each individual
debt instrument. Such debt instruments are available for inspection at the
Company's executive offices.
REVOLVING CREDIT LOAN
The Revolving Credit Loan, amended as of June 30, 1995 and to be amended
concurrently with the issuance of the Mortgage Notes, provides for loans to the
Company of up to $47.5 million, subject to availability based on a borrowing
base of 85% of eligible accounts receivable, 90% of accounts receivable backed
by acceptable letters of credit from customers, and 70% of eligible inventory.
Available collateral will be limited to $2.0 million for Comet Rice of Puerto
Rico, Inc. and $2.0 million for CVI and will be reduced by 50% plus freight and
delivery costs in the case of documentary letters of credit used to purchase
eligible inventory by the Company and 100% in the case of standby and other
documentary letters of credit issued for obligations of the Company. In addition
to interest, an annual fee of $120,000 will be payable plus 0.5% on the amount
of the difference between the average usage of the line and 80% of the $47.5
million credit facility limit. The term of the Revolving Credit Loan is from
June 30, 1995 to May 24, 1996, and from year-to-year thereafter, unless sooner
terminated. Termination of the Revolving Credit Loan during the initial term of
the Revolving Credit Loan or any renewal thereof requires the payment of a
$475,000 fee, unless the termination occurs on May 24, 1996 or on any subsequent
renewal date. Payments under the Tax Sharing Agreement to ERLY, previously
prohibited, now are allowed to the extent ARI has a current liability computed
on a separate return basis, subject to permissive offsets for amounts due under
the 15% ERLY Intercompany Note.
Borrowings under the Revolving Credit Loan are secured by a first priority
lien on the accounts receivable, inventory (and proceeds therefrom) and related
collateral, other assets of the Company that are not Collateral and by Liens
that are junior to Liens on the Collateral, guaranteed on a senior basis by
certain of the Company's Subsidiaries, which guarantees may be secured by such
Subsidiaries' accounts receivable, inventory (and proceeds therefrom) and
related collateral.
The funds borrowed under the Revolving Credit Loan bear interest, as of
June 1, 1995, at the prime rate of interest plus 0.5%. The Revolving Credit Loan
has an option to borrow at the Eurodollar Rate (as defined in the Revolving
Credit Loan) plus 3.0%.
Covenants and provisions contained in the Revolving Credit Loan restrict,
with certain exceptions, among other things, the ability of the Company and its
Subsidiaries: (i) to prepay the Mortgage Notes, except pursuant to the mandatory
prepayment provisions as in effect on the Closing Date, (ii) to incur additional
indebtedness, (iii) to engage in mergers, acquisitions, divestitures, sales and
leasebacks, changes of business or creation of subsidiaries or joint ventures,
(iv) to sell assets outside the ordinary course of business, (v) to guarantee or
invest in, or make loans or advances to, other persons or entities, including
Subsidiaries, (vi) to engage in certain transactions with affiliates and holders
of equity interests, (vii) with respect to the Company only, to declare or pay
dividends or make other distributions with respect to equity interests and
(viii) to modify, amend or supplement the Mortgage Notes, the Indenture or any
of the Collateral Documents without the Revolving Credit Lender's prior written
consent. The Revolving Credit Loan also requires the Company to maintain
specified financial ratios.
Events of default under the Revolving Credit Loan include, among other
things: (i) any failure of the Company to pay principal thereunder when due, or
to pay interest or other amounts when due, (ii) default under certain other
indebtedness (including capitalized leases) or agreements, (iii) breach of
certain covenants and agreements contained in the Revolving Credit Loan by the
Company, (iv) material inaccuracy of any representation or warranty given by the
Company in the Revolving Credit Loan, (v) the continuance of a default by the
Company in the performance of or compliance with other covenants and agreements,
(vi) certain changes of control, including a Change of Control, and acts of
bankruptcy, insolvency or dissolution and (vii) the occurrence of an event
constituting a material adverse change.
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FREEPORT IRBS
In connection with the development of the Company's rice processing
facilities in Freeport, Texas, certain Industrial Development Variable Rate
Demand Marine Terminal Revenue Bonds (the "Freeport IRBs") were issued on
December 16, 1985 pursuant to a trust indenture by and between the Brazos Harbor
Industrial Development Corporation (the "Corporation") and Texas Commerce Bank
National Association, as Trustee (the "Trustee"), as amended by that certain
First Supplemental Trust Indenture by and between the same parties
(collectively, the "IRB Indenture"). The proceeds of the Freeport IRBs were
loaned to ARI pursuant to a loan agreement by and between the Corporation and
ARI, as amended. The Freeport IRBs are secured by a deed of trust on the
Freeport Facility and other collateral and by payments to be made under an
irrevocable letter of credit (the "Letter of Credit") issued by the New York
branch of the Cooperative Centrale Raiffeisen-Boerenleenbank B.A. ("Rabobank").
Pursuant to the IRB Indenture, the Freeport IRBs were mandatorily tendered prior
to the expiration of the Letter of Credit because no alternate letter of credit
was delivered to replace the Letter of Credit prior to its expiration. The
Company purchased the outstanding Freeport IRBs using funds drawn under the
Letter of Credit, upon which the Freeport IRBs became "Pledged Bonds" purchased
on ARI's account. Such Pledged Bonds were registered in ARI's name, pledged and
delivered to Rabobank and then released at the time of the Acquisition to be
pledged to Chase Manhattan Bank to secure the Term Loans, which are being repaid
with the proceeds from the sale of the Mortgage Notes. The Company continues to
pay debt service on the Freeport IRBs as though they were held by a third party
and, if and when the Company obtains a new letter of credit, the Company may
remarket the Freeport IRBs.
ARI-VINAFOOD SHORT-TERM NOTES
ARI-Vinafood recently has begun utilizing short-term working capital loans
to finance ARI-Vinafood's purchases of rough rice from Vietnamese rice farmers.
At June 30, 1995, ARI-Vinafood had obtained such loans from foreign lenders in
the amount of $3.8 million. These notes are unsecured and are payable in part in
U.S. dollars and in part in Vietnamese dong.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain of the expected federal
income tax consequences applicable to holders of the Mortgage Notes who purchase
the Mortgage Notes pursuant to the Offering. In the opinion of Vial, Hamilton,
Koch & Knox, L.L.P., tax counsel to the Company, the material federal income tax
consequences to original purchasers expected to result from the purchase,
ownership and sale or other taxable disposition of the Mortgage Notes, under
currently applicable law, are as described herein. Such opinion is based upon
the current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable Treasury regulations, judicial authority and administrative
rulings and practice. There can be no assurance that the Internal Revenue
Service (the "IRS") will not take a contrary view, and no ruling from the IRS
has been or will be sought. Legislative, judicial or administrative changes or
interpretations may occur that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to the Mortgage Note
holders.
The following summary is for general information only. The tax treatment of
a Mortgage Note holder may vary depending upon its particular situation. Certain
Mortgage Note holders (including insurance companies, tax-exempt organizations,
financial institutions or broker-dealers, foreign corporations and persons who
are not citizens or residents of the United States) may be subject to special
rules not discussed below.
On December 16, 1994, the IRS issued proposed regulations (the "Proposed
Contingent Payment Regulations") regarding the inclusion of original issue
discount in income by holders of debt instruments which provide for contingent
payments. The Proposed Contingent Payment Regulations repealed and superseded
the prior proposed regulations relating to debt instruments providing for
contingent payments. The Proposed Contingent Payment Regulations will be
effective 60 days following the promulgation of such regulations in final form.
Since the prior proposed regulations never came into effect and the Proposed
Contingent Payment Regulations only apply prospectively, there is no final or
proposed treasury regulation that is currently applicable to contingent debt
obligations (such as the Mortgage Notes). In the absence of any regulatory
guidance, counsel has advised the Company that contingent debt obligations
issued prior to the effective date of the final treasury regulations will be
treated under general principles of tax law, and the following discussion is
based on the assumption that such treatment is respected. However, there can be
no assurance that final treasury regulations regarding contingent payments will
not differ materially from the approach adopted by the Company, or that the
Proposed Contingent Payment Regulations will not apply retroactively.
Accordingly, the ultimate federal income tax treatment of the Mortgage Notes may
differ significantly from that described herein. EACH PROSPECTIVE PURCHASER OF
THE MORTGAGE NOTES IS URGED TO CONSULT ITS TAX ADVISOR WITH RESPECT TO THE
APPLICATION OF THE FINAL REGULATIONS AND THE PROPOSED CONTINGENT PAYMENT
REGULATIONS (OR SUBSEQUENT VERSIONS THEREOF) TO AN INVESTMENT IN THE MORTGAGE
NOTES.
TAX CHARACTERIZATION OF THE MORTGAGE NOTES
The Mortgage Notes provide for both Fixed Interest payments and Contingent
Interest payments for certain periods based on the Company's operating results
and calculated as a percentage of the Company's Consolidated Cash Flow. The
Mortgage Notes have legal and other economic terms typically associated with
indebtedness and have been intended to create a debtor-creditor relationship
between the Company and the Mortgage Note holders. Based upon certain
representations by the Company with respect to the level of Contingent Interest
payments expected to be made and current market yields on comparable publicly
traded indebtedness, and after review of the terms of the Mortgage Notes and
current legal precedent and authorities, counsel to the Company has advised the
Company to treat the Mortgage Notes as indebtedness for federal income tax
purposes. Such advice, however, is not binding on the IRS (or the courts), and
there can be no assurance that the IRS would not argue (or that a court would
not hold) that the Mortgage Notes should be characterized, in whole or in part,
as equity for federal income tax purposes. Nevertheless, it is counsel's opinion
that, if litigated, the Company's treatment of the Mortgage Notes as
indebtedness for federal income tax purposes should be upheld. If the Company's
treatment of the Mortgage Notes were not upheld, some or all of the interest
payments on the Mortgage Notes would be recharacterized, and the Mortgage Note
holders
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may face other adverse tax consequences not described herein. Each prospective
purchaser of the Mortgage Notes is urged to consult its tax advisor with respect
to the potential impact of the recharacterization of the Mortgage Notes. The
following discussion assumes that the Mortgage Notes are properly treated as
indebtedness.
STATED INTEREST AND ORIGINAL ISSUE DISCOUNT
Fixed Interest of 13% per annum on the Mortgage Notes will be taken into
income as interest by the Mortgage Note holders in accordance with their regular
method of accounting for federal income tax purposes. The Mortgage Notes will be
issued with original issue discount ("OID") in an amount equal to the excess of
the "stated redemption price at maturity" over the "issue price" of the Mortgage
Notes.
Under the Code and the Treasury regulations dealing with OID, Mortgage
Notes with an "issue price" (generally, the first price paid for a substantial
amount of the Mortgage Notes) that is less than their "stated redemption price"
at maturity (the sum of all payments to be made on the Mortgage Notes other than
"qualified stated interest") will be issued with original issue discount if such
difference is at least 0.25% of the stated redemption price at maturity
multiplied by the number of complete years to maturity (the "de minimus
amount"). The term "qualified stated interest" means stated interest that is
unconditionally payable in cash or in property (other than debt instruments of
the issuer) at least annually at a single fixed rate or, subject to certain
conditions, based on one or more interest indices. Interest is payable at a
single fixed rate only if the rate appropriately takes into account the length
of the interval between payments. Because the issue price of the Mortgage Notes
will be less than their stated redemption price at maturity by more than the de
minimus amount, holders of Mortgage Notes will be required to include OID in
income in accordance with the rules set forth below.
Holders of Mortgage Notes with a maturity upon issuance of more than one
year must, in general, include OID in income in advance of the receipt of some
or all of the related cash payments. The amount of OID includible in income by
an initial holder of Mortgage Notes is the sum of the "daily portions" of OID
with respect to such Mortgage Notes for each day during the taxable year or
portion of the taxable year in which such holder held such Mortgage Notes
("accrued OID"). The daily portion is determined by allocating to each day in
any "accrual period" a pro rata portion of the OID allocable to that accrual
period. The "accrual period" for the Mortgage Notes may be of any length and may
vary in length over the term of the Mortgage Notes, provided that each accrual
period is no longer than one year and each scheduled payment of principal or
interest occurs on the first day or the final day of an accrual period. The
amount of OID allocable to any accrual period is an amount equal to the excess,
if any, of (a) the product of the adjusted issue price of the Mortgage Notes at
the beginning of such accrual period and its yield to maturity (determined on
the basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period) over (b) the sum of any qualified
stated interest allocable to the accrual period. OID allocable to a final
accrual period is the difference between the amount payable at maturity (other
than a payment of qualified stated interest) and the adjusted issue price at the
beginning of the final accrual period. Special rules will apply for calculating
OID for an initial short accrual period. The "adjusted issue price" of the
Mortgage Notes at the beginning of any accrual period is equal to its issue
price increased by the accrued OID for each prior accrual period (determined
without regard to the amortization of any acquisition or bond premium) and
reduced by any payments made on such Mortgage Notes (other than qualified stated
interest) on or before the first day of the accrual period. Under these rules,
the holders of the Mortgage Notes will have to include in income increasingly
greater amounts of OID in successive accrual periods. The Company is required to
provide information returns stating the amount of OID accrued on the Mortgage
Notes held of record by persons other than corporations and other exempt
holders.
Any holders of the Mortgage Notes may elect to treat all interest on such
Mortgage Notes as OID and calculate the amount includible in gross income under
the constant yield method described above. For the purposes of this election,
interest includes stated interest, acquisition discount, OID, de minimis OID,
market discount, de minimis market discount and unstated interest, all as
adjusted by any amortizable bond premium or acquisition premium. The election is
to be made for the taxable year in which the holder acquired the Mortgage Notes,
and may not be revoked without the consent of the IRS. Holders of the Mortgage
Notes should consult with their own tax advisors about this election.
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CONTINGENT PAYMENTS ON THE MORTGAGE NOTES
Because the Mortgage Notes provide for certain Contingent Interest
payments, if the Proposed Contingent Payment Regulations were to apply, the
Mortgage Note holders would be required to include certain amounts in ordinary
income as interest for federal income tax purposes before receiving the actual
cash payment attributable thereto. However, because the Proposed Contingent
Payment Regulations by their terms will not apply to the Mortgage Notes, counsel
has advised the Company to apply general principles of tax law to analyze the
tax consequences of the Contingent Interest payment to be made on the Mortgage
Notes.
All Contingent Interest payments will be treated as interest on the
Mortgage Notes and will be included in income by the Mortgage Note holders when
the amount of each payment becomes fixed. It appears that each Contingent
Interest payment will be treated as fixed on the last day of the Company's
fiscal period with respect to which such payment is calculated, even though the
exact Consolidated Cash Flow calculation would not yet be complete and the
actual Contingent Interest payment would be made later. This could cause
Mortgage Note holders using a fiscal year other than the calendar year to
recognize ordinary interest income in one fiscal year, while receiving the
Contingent Interest payment in cash in the following year. Also, if a Mortgage
Note were sold after the amount of the Contingent Interest payment became fixed
but before the record date for the payment, the selling Mortgage Note holder
would recognize ordinary interest income with respect to such payment but would
not receive the actual Contingent Interest payment when made. Although it is not
free from doubt, if a Contingent Interest payment is deferred, it appears that
only the discounted present value of the sum of the deferred Contingent Interest
plus any interest thereon would be taken into income as interest when such
payment becomes fixed, and the difference between such discounted present value
and the deferred Contingent Interest payment plus any interest thereon (the
"Deferred Payment Discount") should be taken into income as interest, on a
constant interest rate basis, from the date when such payment becomes fixed
through the Maturity Date. If the deferred Contingent Interest payment were made
prior to the Maturity Date, the Mortgage Note holder would include in income the
unamortized portion of the Deferred Payment Discount on the date of receipt.
MARKET DISCOUNT
If a holder of the Mortgage Notes purchases Mortgage Notes for an amount
that is less than the adjusted issue price for such Mortgage Notes, the amount
of the difference will be treated as "market discount" for federal income tax
purposes, unless such difference is less than a specified de minimis amount.
Under the market discount rules, a holder of the Mortgage Notes will be required
to treat any principal payment on, or any gain on the sale, exchange, retirement
or other disposition of the Mortgage Notes as ordinary income to the extent of
the market discount that has not previously been included in income and is
treated as having accrued on such Mortgage Notes at the time of such payment or
disposition. In addition, a holder of the Mortgage Notes may be required to
defer, until the maturity of the Mortgage Notes or its earlier disposition in a
taxable transaction, the deduction of all or a portion of the interest expense
on any indebtedness incurred or continued to purchase or carry such Mortgage
Notes.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Mortgage Notes, unless
the holder of the Mortgage Notes elects to accrue on a constant interest method.
A holder of Mortgage Notes may elect to include market discount in income
currently as it accrues (on either a ratable or constant interest method), in
which case the rule described above regarding deferral of interest deductions
will not apply. This election to include market discount in income currently,
once made, applies to all market discount obligations acquired on or after the
first taxable year to which the election applies and may not be revoked without
the consent of the IRS.
ACQUISITION PREMIUM
A holder who purchases Mortgage Notes for an amount that is greater than
the adjusted issue price of the Mortgage Notes but equal to or less than the sum
of all amounts payable on the Mortgage Notes after the purchase date other than
payments of qualified stated interest will be considered to have purchased such
Mortgage Notes at an "acquisition premium." Under the acquisition premium rules,
the amount of OID that
82
<PAGE> 89
such holder of the Mortgage Notes must include in its gross income with respect
to such Mortgage Notes for any taxable year will be reduced by the portion of
such acquisition premium properly allocable to such year.
DISPOSITION OF A MORTGAGE NOTE
In general, a Mortgage Note holder will recognize gain or loss upon the
sale, exchange, redemption, retirement or other taxable disposition of the
Mortgage Note measured by the difference between: (i) the amount of cash and the
fair market value of property received (other than amounts attributable to, and
taxable as, accrued qualified stated interest); and (ii) the Mortgage Note
holder's tax basis in the Mortgage Note (as increased by any original issue
discount, market discount and unpaid Contingent Interest previously included in
income by the Mortgage Note holder and decreased by any payment on the Mortgage
Note received by the Mortgage Note holder other than qualified stated interest
and any amortized premium). Any such gain or loss (except with respect to market
discount) generally will be long-term capital gain or loss, provided that the
Mortgage Note was a capital asset in the Mortgage Note holder's hands and had
been held for more than one year. The deductibility of capital losses is subject
to limitation.
Original purchasers should also note that the federal income tax treatment
of subsequent purchasers may be affected by the original issue discount, market
discount and amortizable bond premium provisions of the Code.
BACKUP WITHHOLDING
A Mortgage Note holder may be subject to backup withholding at the rate of
31% with respect to interest paid or deemed paid on, and gross proceeds of a
sale of, the Mortgage Notes, unless such Mortgage Note holder: (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact; or (b) provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules.
A Mortgage Note holder who does not provide the Company with its correct
taxpayer identification number may be subject to penalties imposed by the IRS.
Any amount withheld under these rules will be creditable against the Mortgage
Note holder's federal income tax liability.
The Company will report to the Mortgage Note holders and the IRS the amount
of any "reportable payments" (including interest paid or deemed paid on the
Mortgage Notes) and any amount withheld with respect to the Mortgage Notes
during each calendar year.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PROSPECTIVE
PURCHASER OF MORTGAGE NOTES SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE
TAX CONSEQUENCES TO IT OF THE ACQUISITION, OWNERSHIPS AND DISPOSITION OF THE
MORTGAGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
83
<PAGE> 90
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement (the
"Underwriting Agreement") by and between Jefferies & Company, Inc. (the
"Underwriter") and the Company, the Underwriter has agreed to purchase from the
Company, and the Company has agreed to sell to the Underwriter, an aggregate of
$100.0 million principal amount of Mortgage Notes.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent. The Company has agreed in the
Underwriting Agreement to indemnify the Underwriter and its controlling persons,
officers, directors and agents against certain liabilities in connection with
the offer and sale of the Mortgage Notes, including liabilities under the
Securities Act, and to contribute to payments that the Underwriter may be
required to make in respect thereof. The nature of the Underwriter's obligation
under the Underwriting Agreement is such that it is required to purchase all of
the Mortgage Notes if the Underwriter purchases any of the Mortgage Notes.
The Company has been advised by the Underwriter that the Underwriter
proposes initially to offer the Mortgage Notes to the public at the price set
forth on the cover page of this Prospectus. After the Mortgage Notes are
released for sale to the public, the price at which the Mortgage Notes are being
offered and any other offering terms may be changed at any time without notice.
The Underwriter does not intend to confirm sales to any accounts over which it
exercises discretionary authority.
In connection with the Offering, Ambient Capital Group, Inc. ("Ambient")
has rendered certain financial advisory services to the Company, for which it
will receive $400,000. Ambient is not an underwriter with respect to the
Offering.
The Mortgage Notes will constitute a new class of securities with no
established trading market. The Company does not intend to apply for the listing
of the Mortgage Notes on any national securities exchange and no assurance can
be given that an active public market for the Mortgage Notes will develop. The
Company has been advised by the Underwriter that it currently intends to make a
market in the Mortgage Notes; however, the Underwriter is not obligated to do so
and any market-making activities with respect to the Mortgage Notes may be
discontinued at any time without notice. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and no assurance can be given as to the liquidity of or the trading
market for the Mortgage Notes. See "Risk Factors -- Absence of Public Market for
the Mortgage Notes."
LEGAL MATTERS
Certain legal matters in connection with the Mortgage Notes offered hereby
will be passed upon for the Company by Vial, Hamilton, Koch & Knox, L.L.P.,
Dallas, Texas. Certain legal matters in connection with the Mortgage Notes will
be passed upon for the Underwriter by Latham & Watkins, Los Angeles, California.
EXPERTS
The Consolidated Financial Statements of the Company at March 31, 1995 and
1994 and for each of the three years in the period ended March 31, 1995 included
in this Prospectus and the related financial statement schedule included
elsewhere in the Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
84
<PAGE> 91
INDEX TO FINANCIAL STATEMENTS
AMERICAN RICE, INC.:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets at March 31, 1994 and 1995.............................. F-3
Consolidated Statements of Operations for the Three Years Ended March 31, 1995...... F-4
Consolidated Statements of Cash Flows for the Three Years Ended March 31, 1995...... F-5
Consolidated Statements of Stockholders' Equity for the Three Years Ended March 31,
1995.............................................................................. F-7
Notes to Consolidated Financial Statements.......................................... F-8
Consolidated Balance Sheets at March 31, 1995 and June 30, 1995 (unaudited)......... F-18
Consolidated Statements of Operations for the Three Months Ended June 30, 1994
(unaudited) and June 30, 1995 (unaudited)......................................... F-19
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 1994
(unaudited) and June 30, 1995 (unaudited)......................................... F-20
Consolidated Statements of Stockholders' Equity for the Three Months Ended June 30,
1995 (unaudited).................................................................. F-21
Notes to Consolidated Financial Statements (unaudited).............................. F-22
</TABLE>
F-1
<PAGE> 92
INDEPENDENT AUDITORS' REPORT
American Rice, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of American Rice,
Inc. and subsidiaries ("ARI") at March 31, 1995 and 1994 and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended March 31, 1995. These financial
statements are the responsibility of ARI'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 our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of ARI at March 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 1 of Notes to Consolidated Financial Statements, in May
1993 ARI consummated a transaction to acquire substantially all the assets and
assume all the liabilities of Comet Rice, Inc. ("Comet"), a wholly owned
subsidiary of ERLY Industries Inc. ("ERLY"). After the acquisition, ERLY holds
81 percent of the voting power of ARI's stock. The acquisition has been
accounted for as a reverse step acquisition of ARI by Comet.
DELOITTE & TOUCHE LLP
Houston, Texas
May 26, 1995
F-2
<PAGE> 93
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 1,864 $ 1,721
Accounts receivable, net............................................. 33,423 22,222
Inventories:
Finished goods.................................................... 17,108 31,935
Raw materials..................................................... 33,097 26,273
Prepaid expenses..................................................... 793 606
Deferred income taxes................................................ 3,451 3,691
-------- --------
Total current assets......................................... 89,736 86,448
Net assets of Houston properties held for sale......................... 18,767 18,764
Other assets........................................................... 15,710 17,635
Receivable from ERLY................................................... 11,901 10,499
Property, plant and equipment, net..................................... 41,386 41,724
-------- --------
Total assets................................................. $177,500 $175,070
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................................................ $ 33,937 $ 32,876
Accounts payable..................................................... 23,535 23,734
Accrued expenses..................................................... 10,837 7,558
Income taxes payable to ERLY......................................... 1,037 1,456
Current portion of long-term debt.................................... 6,727 6,060
-------- --------
Total current liabilities.................................... 76,073 71,684
Long-term debt......................................................... 48,573 56,148
Deferred income taxes.................................................. 8,616 6,870
Minority interest...................................................... 26 69
Commitments and contingencies (Note 7)
Stockholders' equity (Note 4):
Preferred stock, $1.00 par value; 4,000,000 shares authorized;
Series A -- 777,777 convertible shares issued and outstanding,
liquidation preference of $19,989................................. 778 3,889
Series B -- 2,800,000 convertible shares issued and outstanding,
liquidation preference of $14,000................................. 2,800 14,000
Series C -- 300,000 shares issued and outstanding, liquidation
preference of $1,500.............................................. 300 1,500
Common stock, $1.00 par value; 10,000,000 shares authorized;
2,443,892 shares issued and outstanding........................... 2,444 12,219
Additional paid-in capital........................................... 25,286 --
Retained earnings.................................................... 13,352 9,439
Cumulative foreign currency translation adjustments.................. (748) (748)
-------- --------
Total stockholders' equity........................................... 44,212 40,299
-------- --------
Total liabilities and stockholders' equity................... $177,500 $175,070
======== ========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 94
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net sales.................................................. $373,050 $284,464 $169,617
Cost of sales.............................................. 332,236 248,046 161,254
-------- -------- --------
Gross profit..................................... 40,814 36,418 8,363
Selling, general and administrative expenses............... 23,235 21,497 10,779
-------- -------- --------
Operating income (loss).................................... 17,579 14,921 (2,416)
Interest expense........................................... 12,344 9,884 5,232
Interest income............................................ (727) (818) (1,753)
Other (income) expense..................................... (153) 560 (260)
(Earnings) loss on equity investment....................... -- (426) 1,630
Write-down of plant facility............................... -- -- 4,000
-------- -------- --------
Earnings (loss) before income taxes and extraordinary
items.................................................... 6,115 5,721 (11,265)
Provision for income taxes................................. 2,202 2,256 --
-------- -------- --------
Earnings (loss) before extraordinary items................. 3,913 3,465 (11,265)
Extraordinary items -- Gain on debt restructuring, net of
income taxes............................................. -- 9,318 4,726
-------- -------- --------
Net earnings (loss)........................................ 3,913 12,783 $ (6,539)
========
Preferred stock dividend requirements...................... (5,930) (4,942)
-------- --------
Net earnings (loss) applicable to common stock............. $ (2,017) $ 7,841
======== ========
Primary earnings (loss) per applicable common and common
equivalent share (Note 2):
Loss before extraordinary item........................... $ (0.83) $ (0.45)
Extraordinary item....................................... -- 2.90
-------- --------
Net earnings (loss)...................................... $ (0.83) $ 2.45
======== ========
Fully diluted earnings (loss) per applicable common and
common equivalent share (Note 2):
Earnings (loss) before extraordinary item................ $ (0.83) $ 0.35
Extraordinary item....................................... -- 1.15
-------- --------
Net earnings (loss)...................................... $ (0.83) $ 1.50
======== ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 95
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)........................................ $ 3,913 $ 12,783 $ (6,539)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) in operating activities:
Depreciation............................................. 3,894 3,621 1,991
Amortization of debt issuance costs and trademarks....... 2,511 1,462 --
Loss on sales of property................................ 48 1,211 --
Extraordinary items -- gain on debt restructuring, net of
income taxes.......................................... -- (9,318) (4,726)
(Earnings) loss on equity investment..................... -- (426) 1,630
Write-down of plant facility............................. -- -- 4,000
Deferred tax provision................................... 1,986 651 --
Provision for loss on accounts receivable................ -- 3,245 2,400
Changes in assets and liabilities that provided (used)
cash:
Accounts receivable................................... (11,201) (2,665) 9,128
Inventories........................................... 8,003 (23,712) 19,354
Prepaid expenses...................................... (187) (706) 424
Income taxes payable to ERLY.......................... (419) 1,456 --
Other assets.......................................... (679) (1,572) (1,162)
Accounts payable...................................... (199) 4,770 (11,890)
Accrued expenses...................................... 3,279 (2,642) 937
Receivable from ERLY.................................. (1,402) (519) 4,234
-------- -------- --------
Net cash provided (used in) operating
activities..................................... 9,547 (12,361) 19,781
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions.................... (3,562) (2,844) (2,651)
Proceeds from sales of assets.............................. 48 2,923 2,581
Cash acquired in acquisition of American Rice, Inc. ....... -- 12,608 --
-------- -------- --------
Net cash provided by (used in) investing
activities..................................... (3,514) 12,687 (70)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable....................... 1,061 (7,596) (14,870)
Proceeds from issuance of long-term debt................... -- 65,300 --
Repayment of long-term debt................................ (6,908) (58,955) (2,586)
Increase (decrease) in subordinated debt................... -- (106) 303
Other, net................................................. (43) 12 (875)
-------- -------- --------
Net cash used in financing activities............ (5,890) (1,345) (18,028)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 143 (1,019) 1,683
CASH AND CASH EQUIVALENTS:
Beginning of the period.................................. 1,721 2,740 1,057
-------- -------- --------
End of the period........................................ $ 1,864 $ 1,721 $ 2,740
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 96
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL SCHEDULE OF INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1994
--------------
(IN THOUSANDS)
<S> <C>
Preferred Stock Series B was issued to ERLY.................................... $ 14,000
=======
As part of financing activities, Preferred Stock Series C was issued to
ARI's former lenders......................................................... $ 1,500
=======
As part of financing activities, ERLY issued notes payable to ARI's former
lenders and the benefit received was offset against receivables owed to ARI
by ERLY...................................................................... $ 3,000
=======
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 97
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN TOTAL
ADDITIONAL RETAINED CURRENCY STOCK-
PREFERRED COMMON PAID-IN EARNINGS TRANSLATION HOLDERS'
STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENTS EQUITY
--------- ------- ---------- --------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance April 1, 1992...................... $ -- $ 10 $ 13,597 $ 6,351 $ (654) $19,304
Net loss................................... -- -- -- (6,539) -- (6,539)
Foreign currency translation adjustments... -- -- -- -- (66) (66)
--------- ------- ---------- --------- ------------ ---------
Balance March 31, 1993..................... -- 10 13,597 (188) (720) 12,699
Net earnings............................... -- -- 12,783 -- 12,783
Foreign currency translation adjustments... -- -- -- (28) (28)
Issue Series C Preferred Stock............. 1,500 -- -- (1,500) -- --
American Rice, Inc. acquisition............ 17,889 12,209 (13,597) (1,656) -- 14,845
--------- ------- ---------- --------- ------------ ---------
Balance March 31, 1994..................... 19,389 12,219 -- 9,439 (748) 40,299
Reverse stock split (Note 4)............... (15,511) (9,775 ) 25,286 -- -- --
Net earnings............................... -- -- -- 3,913 -- 3,913
--------- ------- ---------- --------- ------------ ---------
Balance March 31, 1995..................... $ 3,878 $2,444 $ 25,286 $13,352 $ (748) $44,212
========= ======== ========= ========= ============ ========
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE> 98
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On May 26, 1993, American Rice, Inc. ("ARI") consummated a transaction to
acquire substantially all of the assets of Comet Rice, Inc. ("Comet"), other
than the ARI capital stock owned by Comet, and assume all of Comet's liabilities
(the "Acquisition") in exchange for 14 million shares (before the reverse stock
split -- see Note 4) of a newly created Series B $1 par value preferred stock.
Comet was a wholly owned subsidiary of ERLY Industries Inc. ("ERLY").
Comet's combined holdings of ARI Common Stock and Series A Preferred Stock,
prior to the Acquisition, represented approximately 48 percent of the voting
power of the outstanding ARI stock. As a result of the Acquisition, Comet held
81 percent of the combined voting power of ARI stock outstanding after the
Acquisition. In connection with the Acquisition, ERLY has succeeded to the ARI
stock held by Comet by the liquidation of Comet.
Since ERLY, the sole shareholder of Comet at the time of the Acquisition,
owned the larger portion of the voting rights in the surviving corporation, the
Acquisition was accounted for as a reverse step acquisition of ARI by ERLY
through its subsidiary, Comet, reflecting the change of control which occurred.
The fair value of ARI was estimated to be approximately $35 million based upon a
valuation study done by an investment banker. The accounting consists of two
steps: Step one consists of a recognition by ARI of ERLY's historical cost of
its original 48 percent interest. When ERLY purchased 48 percent of ARI in 1988
for $20 million and Comet's 50% interest in Comet American Marketing ("CAM"),
the purchase price was greater than 48 percent of ARI's stockholders' equity.
ERLY attributed the excess to ARI's 39 acres of land in Houston and thus the
excess ($5.2 million) was added to the book value of the Houston property with a
corresponding increase in equity. Step two recognizes the acquisition by ERLY of
an additional equity interest in ARI of approximately 33 percent, in exchange
for substantially all of the assets of Comet and all of Comet's liabilities.
ARI's assets and liabilities are valued at fair market value to the extent
acquired. The assets and liabilities of Comet have not been revalued in ARI's
financial statements.
Because Comet is the acquirer for accounting purposes, the consolidated
financial statements presented at March 31, 1993 and for the year ended March
31, 1993 are those of Comet, not ARI. In addition, the operating results for the
period April 1, 1993 through the date of the Acquisition, May 26, 1993, are
those of Comet, not ARI. Operating results thereafter reflect the combined
operations of Comet and ARI. For convenience purposes, unless otherwise
specifically indicated, the entity is hereafter referred to as ARI for all
periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations -- ARI is involved in all phases of rice processing (including
the processing of parboiled rice, regular milled rice, instant rice and rice
by-products), packaging and marketing. These rice products are sold in the
international and domestic markets directly by ARI through many distribution
channels under a variety of brands. Distribution channels in the international
market vary from country to country and include sales to government agencies and
commercial importers, as well as through wholesalers and international brokers.
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of ARI and its majority-owned subsidiaries and
joint ventures. All significant intercompany accounts, intercompany profits and
intercompany transactions are eliminated.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
F-8
<PAGE> 99
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Cash Flows -- For purposes of reporting cash flows, cash and
cash equivalents include cash on hand and highly liquid debt instruments
purchased with a maturity of three months or less. Borrowings and repayments on
revolving notes, payments for income taxes, and payments for interest and
financing fees are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revolving Notes (in millions):
Borrowings............................................. $355.3 $289.9 $ 6.7
Repayments............................................. 354.2 297.5 21.6
Payments for interest and financing fees (in millions)... $ 9.2 $ 9.8 $ 5.2
Payments for federal and state income taxes (in
thousands)............................................. $ 635 $ 344 $ 56
</TABLE>
Inventories -- Inventories are accounted for by the first-in, first-out
cost method (FIFO), or market, if lower.
ARI, from time to time, buys and sells futures and options contracts on
rice as an operational tool to manage its inventory position. Gains and losses
on contracts that meet defined criteria are recognized upon completion of the
transaction, while gains and losses from all other contracts are recognized in
the period in which the market value of the contracts change.
Property, Plant and Equipment -- Property, plant and equipment are stated
at cost. Depreciation is provided by the straight-line method based on the
estimated useful lives of the various classes of property, which range from 10
to 45 years for buildings and improvements and 3 to 25 years for machinery and
equipment.
Expenditures for maintenance and repairs are charged to expense as
incurred.
Properties Held for Sale -- Properties held for sale consist primarily of
39 acres of land in Houston, Texas. Management believes that the net realizable
value of properties held for sale exceed their carrying value.
Trademarks -- Trademarks are being amortized on a straight-line basis over
40 years. ARI utilizes estimated future undiscounted cash flows of related
product sales to evaluate any possible impairments.
Debt Issuance Costs -- Debt issuance costs are stated at cost and amortized
over the life of the related debt using the effective interest method.
Amortization of debt issuance costs is included in interest expense in the
consolidated statements of operations.
Federal Income Taxes -- Subsequent to the Acquisition, ARI's current
taxable income and loss is included in the consolidated federal income tax
return filed by ERLY. Under the terms of the tax sharing agreement between ARI
and ERLY, ARI will pay to or receive from ERLY the amount of income taxes
currently payable or refundable computed as if ARI filed its annual tax return
on a separate company basis. The tax sharing agreement provides that ERLY will
receive the benefit of any pre-Acquisition tax net operating loss carryforwards
generated by Comet.
ARI's provision for income taxes is computed as if the Company files its
annual tax return on a separate company basis. Deferred taxes are established
for the temporary differences between the financial reporting basis and the tax
basis of ARI's assets and liabilities at enacted rates.
Earnings Per Share -- The computation of earnings per common share is based
on the earnings available to holders of common shares and the weighted average
number of common and common equivalent shares outstanding during the periods
presented. Common stock equivalents and contingent common stock issues are not
included in the computation of earnings per share when their inclusion would
increase earnings per share
F-9
<PAGE> 100
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or decrease the loss per share ("antidilution"). Earnings per share is not
presented for the year ended March 31, 1993 because Comet was a wholly owned
subsidiary of ERLY.
Earnings applicable to common stock reflect dividends in the amount of
$5.930 million and $4.942 million for the year ended March 31, 1995 and for the
period from May 27, 1993 to March 31, 1994, respectively, on the Series B
Preferred Stock and the Series C Preferred Stock. These dividends are cumulative
and have not been declared by ARI. The annual cumulative dividend on the Series
B Preferred Stock is $1.85 per share, or $5.18 million and the annual cumulative
dividend on the Series C Preferred Stock is $2.50 per share or $750,000. Various
lending agreements prohibit the payment of any dividends.
The weighted average number of shares included in the earnings per share
calculation are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------
1995 1994
------------------------------- -------------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Common stock............................. 2,444 2,444 2,444 2,444
Preferred stock -- Series A.............. -- -- 778 778
Preferred stock -- Series B.............. -- -- -- 4,741
----- ----- ----- -----
Total.......................... 2,444 2,444 3,222 7,963
===== ===== ===== =====
</TABLE>
Fair Value of Financial Instruments -- ARI's financial instruments consist
primarily of cash, trade accounts and notes receivable, accounts payable and
debt instruments. The book values of cash, trade receivables and accounts
payable are representative of their respective fair values due to the short-term
maturity of these instruments. The book value of ARI's debt instruments is
considered to approximate the fair value as the interest rates of such
instruments are based on the prime rate. It is not practicable to estimate the
fair value of the note receivable from ERLY (Note 13) because of its related
party nature.
Reverse Stock Split -- On September 1, 1994, ARI's shareholders approved a
one-for-five reverse stock split for all issues of preferred and common stock.
All per share information in the financial statements has been adjusted for this
reverse stock split.
Reclassifications -- Certain reclassifications have been made to the prior
period consolidated financial statements to conform to the consolidated
financial statement presentation at March 31, 1995 and for the year then ended.
3. NOTES PAYABLE AND LONG-TERM DEBT
At May 26, 1995, ARI had a $47.5 million revolving credit line with
Congress Financial Corporation ("Congress") which was renewed on May 24, 1995
through May 23, 1996. This revolver carried an interest rate of prime (9% at
March 31, 1995) plus two percent. This facility requires that all ARI cash
receipts be paid to Congress as payment on the loan, requires that collateral
and borrowing base reports be prepared frequently by ARI to support requests for
borrowings, and is collateralized by receivables, inventory, a $2 million key
man life insurance policy on Gerald D. Murphy, and junior liens on ARI assets
pledged to the term lenders. At March 31, 1995 and 1994, approximately $31
million and $33 million, respectively, were outstanding under the Congress
revolving line of credit.
During 1995, approximately $2.9 million in short-term notes were obtained
from various foreign lenders to finance inventory. These notes will mature on or
before June 30, 1995, bear interest at rates ranging from 8.75% to 25.2% per
year and are non-recourse to ARI.
F-10
<PAGE> 101
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Chase Manhattan Bank............................................. $23,755 $26,567
Internationale Nederlanden Bank N.V.............................. 23,755 26,567
Texas Commerce Bank.............................................. 6,842 7,966
Other notes...................................................... 948 1,108
------- -------
Total debt.................................................. 55,300 62,208
Less current maturities.......................................... 6,727 6,060
------- -------
Total long-term debt........................................ $48,573 $56,148
======= =======
</TABLE>
ARI's long-term debt maturities are as follows:
<TABLE>
<CAPTION>
AMOUNT
YEAR ENDING MARCH 31, --------------
----------------------------------------------- (IN THOUSANDS)
<S> <C>
1996........................................... $ 6,727
1997........................................... 17,845
1998........................................... 30,260
1999........................................... 160
2000........................................... 160
Thereafter..................................... 148
</TABLE>
Interest rates on the long-term debt range from prime plus 3 percent to
prime plus 5 percent through May 31, 1995, increasing to a range of prime plus 6
percent to prime plus 8 percent by June 1997. At March 31, 1995, the weighted
average interest rate on the term debt was 12.3%. These loans are collateralized
by substantially all of ARI's fixed assets and trademarks, and have junior liens
on collateral of the revolving credit line. In addition, 2.6 million shares of
Series B Preferred Stock have been pledged by ERLY as collateral. Terms of the
loans preclude dividend payments, restrict investments and capital expenditures
and require the maintenance of certain financial covenants. At March 31, 1995,
ARI was not in compliance with certain of these provisions; however, the term
lenders have waived such non-compliance.
ARI's term and revolving debt agreements require ERLY to guarantee the debt
of ARI even though ARI's management believes that ERLY will not be a source of
additional financing to ARI. These agreements contain certain cross-default
provisions with ERLY debt agreements which provide the lenders with the option
of accelerating repayment of the ARI debt and terminating the agreements under
certain conditions related to ERLY's ability to meet its obligations as they
come due and to remain in compliance with its debt covenants.
4. STOCKHOLDERS' EQUITY
At a special meeting on September 1, 1994, ARI's shareholders approved a
one-for-five reverse stock split for all issues of preferred and common stock.
Trading on the new basis was effective on September 8, 1994.
Holders of the common stock are entitled to one vote per share on all
matters to be voted on by shareholders and are entitled, subject to any
preferential rights of holders of preferred stock, to receive dividends, if any,
as may be declared from time to time by the Board of Directors of ARI. Upon any
liquidation or dissolution of ARI, the holders of the common stock are entitled,
subject to any preferential
F-11
<PAGE> 102
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rights of holders of preferred stock, to receive a pro rata share of all the
assets remaining available for distribution to shareholders after payment of all
liabilities.
The Board of Directors of ARI, without further action by the shareholders,
is authorized to issue shares of preferred stock in one or more series, and with
respect to each series, to determine the rate of dividends, terms of redemption,
amount payable upon liquidation, sinking fund provisions, terms of conversion
and voting rights. Rights with respect to dividends and liquidation may be more
favorable than those of the holders of the common stock.
At March 31, 1995, ARI had three series of preferred stock: Series A,
Series B and Series C. Series A Preferred Stock and Series B Preferred Stock are
owned by ERLY and Series C Preferred Stock is owned by a group of former ARI
lenders.
The Series A Preferred Stock has no rights of redemption or sinking fund
provisions, but upon any liquidation of ARI, ARI must pay the holders of this
series of preferred stock $25.70 per share (aggregate of $19.989 million) before
any amounts may be paid to the holders of the common stock. The holders of this
series of preferred stock are entitled to one vote per share on all matters upon
which the holders of common stock have the right to vote and are generally
entitled to vote as a class on any matters adversely affecting their rights as
holders of this series of preferred stock. Each share of this series of
preferred stock is convertible into one share of common stock upon the election
of the holder of this preferred stock.
The Series B Preferred Stock has no rights of redemption or sinking fund
provisions, but upon any liquidation of ARI, ARI must pay the holders of this
series of preferred stock $5.00 per share (aggregate of $14.0 million) before
any amounts may be paid to the holders of the common stock. Each share of this
series of preferred stock provides for annual cumulative, non-participating
dividends of $1.85. Cumulative dividends in arrears on Series B Preferred Stock
were $9.497 million at March 31, 1995 (Note 2). The holders of this series of
preferred stock are entitled to two votes per share on all matters upon which
the holders of common stock have the right to vote and are generally entitled to
vote as a class on any matters adversely affecting their rights as holders of
this series of preferred stock. Each share of this series of preferred stock is
convertible into two shares of common stock upon the election of the holder of
this preferred stock. ERLY has pledged the preferred stock to current and former
term lenders (see Notes 3 and 6).
The Series C Preferred Stock was issued to certain former lenders of ARI in
partial satisfaction of ARI's indebtedness to them. The Series C Preferred Stock
has no rights of redemption or sinking fund provisions, but upon any liquidation
of ARI, ARI must pay the holders of the Series C Preferred Stock $5.00 per share
(aggregate of $1.5 million) before any amounts may be paid to the holders of the
common stock. The Series C Preferred Stock is callable by ARI at any time at a
price of $26.35 per share less aggregate dividend payments per share. The Series
C Preferred Stock provides for annual cumulative, non-participating dividends of
$2.50 per share, is non-convertible and non-voting. Cumulative dividends in
arrears on Series C Preferred Stock were $1.375 million at March 31, 1995 (Note
2).
The Series B Preferred Stock and Series C Preferred Stock rank pari passu
with respect to liquidation preference rights and dividend declarations (up to
$.27 per share of Series B Preferred Stock). ARI's articles of incorporation
also provide that, so long as any shares of Series B Preferred Stock or Series C
Preferred Stock are outstanding, ARI will not authorize or create any class or
series of stock, or increase the authorized amount of preferred stock, ranking
(either as to payment of dividends or distribution of assets) prior to such
preferred stock.
ARI's current debt agreements prohibit the payment of any dividends and do
not provide any basis on which the lenders will approve a dividend payment.
ARI issued warrants to the term lenders to purchase up to 155,000 shares of
ARI Common Stock at $5.00 per share. The warrants expire May 26, 2001.
F-12
<PAGE> 103
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. TAXES ON INCOME
As a result of the net operating losses incurred during the year ended
March 31, 1993, no provision for income taxes was allocated to Comet by ERLY for
this period. The provision for taxes on income consist of:
<TABLE>
<CAPTION>
YEAR ENDED MARCH
31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
U. S. taxes currently payable............ $ 94 $ 1,456
Deferred U. S. taxes..................... 1,986 651
State income taxes....................... 122 149
------ ------
Total.................................. $ 2,202 $ 2,256
====== ======
</TABLE>
As discussed in Note 1, Comet was a wholly owned subsidiary of ERLY for the
year ended March 31, 1993. The primary differences at March 31, 1993 between the
financial statement and tax bases of assets and liabilities were related to
fixed assets, property held for sale, and the allowance for doubtful accounts.
Net deferred taxes arising from these temporary differences were offset by
existing net operating loss carryforwards of Comet on a stand-alone basis.
Temporary differences which give rise to deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------
1995 DEFERRED TAX 1994 DEFERRED TAX
--------------------- ---------------------
ASSET LIABILITY ASSET LIABILITY
------- --------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Property, plant and equipment....................... $ -- $ 10,113 $ -- $ 10,057
Allowance for doubtful accounts and other
reserves.......................................... 1,085 -- 2,318 --
Change in tax accounting principles................. 1,779 -- 2,588 --
Alternative minimum tax credit...................... 1,683 -- 1,456 --
Net operating loss carryovers....................... 221 -- 508 --
Other............................................... 180 -- 180 172
------ ------- ------ -------
Total............................................. $ 4,948 $ 10,113 $ 7,050 $ 10,229
====== ======= ====== =======
</TABLE>
In fiscal 1994, the tax expense attributable to the extraordinary item
(gain on debt restructuring) was reduced by approximately $2.8 million to
reflect the tax benefit of utilization of operating loss carryforwards.
A comparison of income tax expense at the federal statutory rate to ARI's
provision in lieu of taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH
31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Earnings before income taxes and extraordinary items............. $ 6,115 $ 5,721
====== ======
Statutory taxes.................................................. $ 2,079 $ 2,002
Amortization of trademarks....................................... 135 90
Non-deductible entertainment and other........................... (134) 15
State income taxes............................................... 122 149
------ ------
Provision for taxes on income.................................... $ 2,202 $ 2,256
====== ======
Effective tax rate............................................... 36.0% 39.4%
====== ======
</TABLE>
F-13
<PAGE> 104
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under federal tax laws, tax operating losses occur when deductions are
greater than taxable income. These losses may be carried back to offset taxable
income in earlier years before being carried forward to offset taxable income in
future years. At March 31, 1995, operating loss carryforwards for federal tax
return purposes totaled approximately $600,000. These loss carryforwards are not
available for carryback to prior years for a refund. If they do not offset
future years' taxable income, these losses will expire in 2007.
6. EXTRAORDINARY ITEMS
Operating results for the year ended March 31, 1994 include a gain on debt
restructuring arising from ARI's May 1993 refinancing of the combined
indebtedness of ARI and Comet. ARI's former lenders agreed to a debt discount in
the approximate amount of $10.3 million ($9.3 million, net of tax). As
additional consideration for the satisfaction of the existing indebtedness of
ARI, 200,000 shares of Series B Preferred Stock were pledged by ERLY and ERLY
issued $3 million of notes for the benefit of the former lenders. This $3
million is reflected in the ARI financial statements as a reduction in the
receivable from ERLY.
Due to continuing operating losses resulting from low margins, ARI
suspended payments on a $16 million non-recourse obligation secured by its rice
plant in Greenville, Mississippi. In July 1992, the facility was sold through a
foreclosure sale and in conjunction therewith, debt in the amount of $16 million
and the related property, plant and equipment was eliminated. Prior to the
disposition, the plant was written down by $4 million to its estimated fair
market value. This writedown is included in the results of operations before
income taxes and extraordinary items for the year ended March 31, 1993. The
difference between the estimated fair market value of the facility and the
amount of debt extinguished resulted in a gain of $4.726 million (net of
estimated shut-down and relocation expenses) on the extinguishment of debt which
was recorded as extraordinary income for the year ended March 31, 1993.
7. COMMITMENTS AND CONTINGENCIES
ARI has a commitment for an operating lease relating to the land for its
milling facility in Freeport, Texas. The initial term of the lease expires in
2022 and may be renewed at ARI's option in five-year increments through 2057. In
addition, ARI and its subsidiaries are obligated under operating leases for
other plant facilities, office space in Houston, Texas, and various machinery,
equipment and automobiles. Aggregate minimum rental commitments under operating
leases with noncancellable terms of more than one year are as follows:
<TABLE>
<CAPTION>
AMOUNT
YEAR ENDING MARCH 31, --------------
----------------------------------------------- (IN THOUSANDS)
<S> <C>
1996........................................... $ 2,425
1997........................................... 2,034
1998........................................... 1,162
1999........................................... 857
2000........................................... 679
Thereafter..................................... 16,500
</TABLE>
ARI incurred total rental expense of approximately $4.0 million, $2.4
million and $1.3 million for the years ended March 31, 1995, 1994 and 1993,
respectively.
ARI is involved in litigation in the ordinary course of business. It is the
opinion of management that resolution of such litigation will not have a
material adverse effect on the consolidated financial position or the
consolidated results of operations of ARI.
F-14
<PAGE> 105
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. BENEFIT PLANS
ARI had a defined contribution plan which covered substantially all
employees. On January 1, 1994, the ARI plan was merged into the ERLY defined
contribution plan, which is essentially similar in its operations. The ERLY plan
provides for a mandatory 1% matching contribution to the plan on a monthly basis
and an annual contribution solely at the discretion of the Board of Directors.
ARI contributions to the plan for the years ended March 31, 1995, 1994 and 1993
were $1.021 million, $167,000 and $125,000, respectively.
9. EXPORT SALES
Net sales include export sales as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Middle East......................... $ 91,449 $ 89,782 $46,209
Caribbean, Mexico and South
America........................... 84,806 38,935 32,744
Asia................................ 49,963 42,838 670
Europe.............................. 13,632 6,260 10,593
Africa.............................. 3,864 4,012 2,114
Other............................... 65 13 88
-------- -------- -------
Total............................. $243,779 $181,840 $92,418
======== ======== =======
Percent of total revenues......... 65% 64% 54%
======== ======== =======
</TABLE>
10. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Trademarks....................................... $12,562 $12,971
Investments...................................... 368 163
Debt issuance costs.............................. 1,383 3,234
Notes receivable................................. 662 773
Other............................................ 735 494
------- -------
Total.......................................... $15,710 $17,635
======= =======
</TABLE>
Accumulated amortization of trademarks was $1.799 million and $1.390
million at March 31, 1995 and 1994, respectively.
F-15
<PAGE> 106
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land................................................... $ 275 $ 187
Buildings and improvements............................. 23,222 22,653
Machinery and equipment................................ 35,782 33,172
-------- --------
Total............................................. 59,279 56,012
Less accumulated depreciation.......................... (17,893) (14,288)
-------- --------
Property, plant and equipment, net................ $ 41,386 $ 41,724
======== ========
</TABLE>
12. ACCOUNTS RECEIVABLE
Accounts receivable and allowance for doubtful accounts consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable -- trade........................... $ 35,134 $ 24,020
Less allowance for doubtful accounts................... (1,711) (1,798)
-------- --------
Net............................................... $ 33,423 $ 22,222
======== ========
Accounts receivable -- non current..................... $ 471 $ 4,387
Less allowance for doubtful accounts................... (471) (4,387)
-------- --------
Net............................................... $ -- $ --
======== ========
</TABLE>
13. TRANSACTIONS WITH RELATED PARTIES
ARI has entered into a number of transactions in the ordinary course of
business with ERLY and its affiliates, including Pre-Acquisition ARI which was
48 percent owned by Comet.
As a result of the Acquisition, ARI entered into a management agreement
between ERLY and ARI whereby ERLY acts as ARI's agent for the purpose of
providing certain marketing, operating and management services to ARI. In
exchange for such services ARI pays ERLY a monthly management fee of $77,000,
which is adjusted annually based on the most recent published Consumer Price
Index. The agreement is for a period of two years with two-year automatic
renewals unless one party notifies the other that it wishes to terminate the
agreement. Prior to the Acquisition, Comet had a similar management agreement
with ERLY. During the year ended March 31, 1994 and 1993, Comet incurred and
paid $1.1 million and $2.1 million, respectively, in management fees under its
agreement with ERLY.
ARI has a note receivable from ERLY bearing an interest rate of 6 percent.
The note is payable out of dividends received by ERLY on the Series B Preferred
Stock. The balance of the note was $11.9 million and $10.5 million at March 31,
1995 and 1994, respectively. At March 31, 1993, there were several notes which
totaled $12.1 million. During 1993, the notes bore interest at rates between
prime plus 1.5 percent and 22 percent.
Comet also purchased milled and rough rice from Pre-Acquisition ARI, and
sold milled and rough rice to Pre-Acquisition ARI. Such transactions with ARI
were conducted at prices that approximated market rates or were based on
production cost formulas. During the two months ended May 26, 1993, Comet
purchases amounted to $222,000 from ARI and sales to ARI amounted to $3,000.
Total sales to ARI and purchases
F-16
<PAGE> 107
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from ARI amounted to $23.8 million and $13.3 million, respectively, during the
year ended March 31, 1993. Comet had a net receivable from ARI of $4.2 million
at March 31, 1993.
As a result of the Acquisition, ARI assumed an agreement between
Pre-Acquisition ARI and ERLY Juice, Inc. ("Juice"), a wholly-owned subsidiary of
ERLY, whereby Juice acted as ARI's agent for the purpose of providing certain
marketing, sales, credit and general management services to ARI's CAM Division
operations. Pursuant to the agreement, ARI paid Juice a monthly fee for its
services and provided office space. The agreement was terminated in November
1993, as Juice operations were ceased and nearly all remaining Juice employees
became employees of ARI. ARI incurred and paid agency fees under the agreement
of $890,000 during the year ended March 31, 1994.
14. CONDENSED STATEMENT OF OPERATIONS FOR AMERICAN RICE, INC.
(ACQUIRED ENTITY) FOR THE YEAR ENDED MARCH 31, 1993
As discussed in Note 1, prior to the Acquisition in May 1993 Comet's
combined holdings of Common Stock and Series A Preferred Stock represented
approximately 48 percent of the voting power of the outstanding ARI stock. Comet
accounted for the investment in ARI using the equity method of accounting.
ARI's condensed statement of operations for the year ended March 31, 1993
follows (in thousands):
<TABLE>
<S> <C>
Net sales...................................................... $176,619
Cost of sales.................................................. 147,245
--------
Gross profit.............................................. 29,374
Selling, general and administrative expenses................... 18,957
Interest expense............................................... 7,167
--------
Earnings before taxes.......................................... 3,250
Income tax expense............................................. --
--------
Net earnings.............................................. $ 3,250
========
</TABLE>
F-17
<PAGE> 108
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1995 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
ASSETS
Current assets:
Cash.............................................................. $ 2,742 $ 1,864
Accounts receivable, net.......................................... 22,167 33,423
Inventories
Finished goods................................................. 21,108 17,108
Raw materials.................................................. 24,920 33,097
Prepaid expenses.................................................. 1,061 793
Deferred income taxes............................................. 3,451 3,451
-------- --------
Total current assets...................................... 75,449 89,736
Net assets of Houston properties held for sale...................... 18,767 18,767
Other assets........................................................ 15,447 15,710
Receivable from ERLY................................................ 12,157 11,901
Property, plant and equipment, net.................................. 41,885 41,386
-------- --------
Total assets.............................................. $ 163,705 $ 177,500
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable..................................................... $ 30,500 $ 33,937
Accounts payable and accrued expenses............................. 25,264 34,372
Income taxes payable to ERLY...................................... 937 1,037
Current portion of long-term debt................................. 6,727 6,727
-------- --------
Total current liabilities................................. 63,428 76,073
Long-term debt...................................................... 47,073 48,573
Deferred income taxes............................................... 8,616 8,616
Minority interest................................................... -- 26
Stockholders' equity (Note 3):
Preferred stock, $1.00 par value; 4,000,000 shares authorized;
Series A -- 777,777 convertible shares issued and outstanding,
liquidation preference of $19,989............................ 778 778
Series B -- 2,800,000 convertible shares issued and
outstanding,
liquidation preference of $14,000............................ 2,800 2,800
Series C -- 300,000 shares issued and outstanding, liquidation
preference of $1,500......................................... 300 300
Common stock, $1.00 par value; 10,000,000 shares authorized;
2,443,892 shares issued and outstanding........................ 2,444 2,444
Paid-in capital................................................... 25,286 25,286
Retained earnings................................................. 13,728 13,352
Cumulative foreign currency translation adjustments............... (748) (748)
-------- --------
Total stockholders' equity........................................ 44,588 44,212
-------- --------
Total liabilities and stockholders' equity................ $ 163,705 $ 177,500
======== ========
</TABLE>
See notes to consolidated financial statements
F-18
<PAGE> 109
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
---------------------
1995 1994
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.............................................................. $ 86,392 $105,706
Cost of sales.......................................................... 76,855 94,383
------- --------
Gross profit......................................................... 9,537 11,323
Selling, general and administrative expenses........................... 5,771 5,272
------- --------
Operating income..................................................... 3,766 6,051
Interest expense....................................................... 3,398 2,898
Interest income........................................................ (175) (171)
Minority interest...................................................... (135) 61
Other income and expense............................................... 91 73
------- --------
Earnings before income taxes........................................... 587 3,190
Provision for income taxes............................................. 211 1,180
------- --------
Net earnings........................................................... $ 376 $ 2,010
======= ========
Preferred stock dividend requirements.................................. 1,483 1,483
------- --------
Net earnings (loss) applicable to common stock......................... $ (1,107) $ 527
======= ========
Earnings (loss) per applicable common and common equivalent share (Note 3):
Primary.............................................................. $ (.45) $ .16
======= ========
Fully diluted........................................................ $ (.45) $ .16
======= ========
</TABLE>
See notes to consolidated financial statements
F-19
<PAGE> 110
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings......................................................... $ 376 $ 2,010
Adjustments to reconcile net earnings to net cash provided by (used
in) in operating activities:
Depreciation and amortization..................................... 1,398 1,424
Loss on sales of property......................................... -- 6
Deferred income taxes, net........................................ -- 983
Changes in assets and liabilities that provided (used) cash:
Accounts receivable............................................. 11,256 1,310
Inventories..................................................... 4,177 21,517
Prepaid expenses................................................ (268) (213)
Other assets.................................................... (212) 2
Receivable from ERLY............................................ (256) (158)
Accounts payable and accrued expenses........................... (9,108) (11,784)
Income taxes payable to ERLY.................................... (100) (156)
------- --------
Net cash provided by operating activities............................ 7,263 14,941
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions.............................. (1,422) (1,625)
Proceeds from sales of assets........................................ -- 1
------- --------
Net cash used in investing activities................................ (1,422) (1,624)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable............................................ (3,437) (11,362)
Repayment of long-term debt.......................................... (1,500) (1,400)
Other, net........................................................... (26) 60
------- --------
Net cash used in financing activities................................ (4,963) (12,702)
------- --------
NET INCREASE IN CASH................................................... 878 615
CASH:
Beginning of the period.............................................. 1,864 1,721
------- --------
End of the period.................................................... $ 2,742 $ 2,336
======= ========
</TABLE>
See notes to consolidated financial statements
F-20
<PAGE> 111
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY TOTAL
PREFERRED COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS EQUITY
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance April 1, 1995....... $ 3,878 $ 2,444 $25,286 $13,352 $ (748) $44,212
Net earnings................ -- -- -- 376 -- 376
------ ------ ------- ------- ----- -------
Balance June 30, 1995....... $ 3,878 $ 2,444 $25,286 $13,728 $ (748) $44,588
====== ====== ======= ======= ===== =======
</TABLE>
See notes to consolidated financial statements
F-21
<PAGE> 112
AMERICAN RICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements presented herein at June 30, 1995 and
for the three month periods ended June 30, 1995 and 1994 are unaudited; however,
all adjustments which are, in the opinion of management necessary for a fair
presentation of the financial position, results of operations and cash flows for
the periods covered have been made and are of a normal, recurring nature. The
results of the interim periods are not necessarily indicative of results for the
full year. The consolidated balance sheet at March 31, 1995 is derived from the
March 31, 1995 audited consolidated financial statements but does not include
all disclosures required by generally accepted accounting principles. Although
management believes the disclosures are adequate, certain information and
disclosures normally included in the notes to the financial statements has been
condensed or omitted as permitted by the rules and regulations of the Securities
and Exchange Commission. These financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
American Rice, Inc.'s ("ARI") Annual Report on Form 10-K for the fiscal year
ended March 31, 1995.
2. NOTES PAYABLE AND LONG-TERM DEBT
ARI executed an amendment to its $47.5 million revolving credit loan,
effective June 30, 1995. The loan bears interest at the prime rate of interest
plus 0.5% and will mature on May 24, 1996. Funds available for borrowing under
this loan at any time may not exceed 85% of eligible accounts receivable (or 90%
of accounts receivable backed by acceptable letters of credit from customers)
and 70% of eligible inventory. Previously, the interest rate of the loan was
prime plus 2.0% and funds available were limited to 85% of eligible accounts
receivable and 60% of eligible inventory. The outstanding balance on this loan
at June 30, 1995 was $26.6 million. At July 2, 1995, the borrowing base under
the line of credit was $32.1 million. During the three months ended June 30,
1995, ARI's maximum borrowing under its $47.5 million line of credit was $32.4
million.
In fiscal 1997, approximately $17.8 million of ARI's term debt is due to be
repaid, of which $13.3 million is due September 27, 1996. ARI is currently
pursuing various options to refinance this term debt.
ARI is required by its lenders to maintain a minimum net book value,
working capital, and certain financial ratios. ARI was not in compliance with
all such financial ratio requirements as of June 30, 1995. ARI has requested and
received waivers from its lenders for ratios that were not in compliance.
3. STATEMENT OF CASH FLOWS
Borrowings under revolving notes in the three months ended June 30, 1995
and 1994 totaled $94.4 and $89.1 million, respectively, and repayments during
the same periods totaled $97.8 and $100.5 million, respectively. ARI made cash
payments for interest and financing fees of approximately $3.2 million and $2.3
million during the three months ended June 30, 1995 and 1994, respectively. ARI
paid $311 thousand and $300 thousand for federal and state income taxes during
the three months ended June 30, 1995 and 1994, respectively.
4. REVERSE STOCK SPLIT
At a special meeting on September 1, 1994, ARI's shareholders approved a
one-for-five reverse stock split for all issues of preferred and common stock.
Trading on the new basis was effective on September 8, 1994. All per share
information in the financial statements has been adjusted for this reverse stock
split.
F-22
<PAGE> 113
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE MORTGAGE NOTES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 8
The Company........................... 14
Use of Proceeds....................... 15
Capitalization........................ 16
Pro Forma Consolidated Financial
Data................................ 17
Selected Consolidated Financial
Data................................ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 29
Management............................ 41
Executive Compensation................ 43
Security Ownership of Certain
Beneficial Owners and Management.... 46
Certain Relationships and Related
Transactions........................ 48
Description of Capital Stock.......... 49
Description of Mortgage Notes......... 51
Description of Certain Indebtedness... 78
Material Federal Income Tax
Consequences........................ 80
Underwriting.......................... 84
Legal Matters......................... 84
Experts............................... 84
Index to Financial Statements......... F-1
</TABLE>
$100,000,000
LOGO
AMERICAN RICE, INC.
13% MORTGAGE NOTES DUE 2002
WITH CONTINGENT INTEREST
PROSPECTUS
JEFFERIES & COMPANY, INC.
AUGUST 21, 1995
<PAGE> 114
CHART APPENDIX
Inside Front Cover
The illustration consists of three photographs of the Company's branded rice
products and the Company's corporate logo set on a background photograph of
rough and milled rice. The corporate logo is centered on the page. The
uppermost photograph shows various packages of the Company's Comet(R),
Adolphus(R), Blue Ribbon(R) and Wonder(R) products. The photograph in the lower
righthand corner shows various packages of the Company's Colusa Rose(R), Green
Peacock(R), and Pear Blossom(R) products. The photograph in the lower lefthand
corner shows packages of the Company's Chopstick(R) brand of parboiled rice.
Inside Back Cover
The illustration consist of four photographs of the Company's U.S. rice
processing facilities and the Company's corporate logo set on a background
photograph of rough and milled rice. The corporate logo is centered on the
page. Clockwise from the upper righthand corner of the page are photographs of
the Company's rice processing facilities in Stuttgart, Arkansas, Biggs,
California, Maxwell, California, and Freeport, Texas.
<PAGE> 115
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses to be incurred in connection with the issuance and
distribution of the Securities covered by this Registration Statement, all of
which will be paid by the Registrant, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 34,483.00
NASD Filing Fee............................................... 10,500.00
Printing and Engraving Expenses............................... 200,000.00
Legal Fees and Expenses....................................... 650,000.00
Accounting Fees and Expenses.................................. 600,000.00
Financial Advisor Fee......................................... 400,000.00
Transfer Agent and Registrar.................................. 20,000.00
Blue Sky Fees and Expenses.................................... 40,000.00
Miscellaneous................................................. 45,017.00
--------
Total.................................................... $2,000,000.00
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 6 of the Form of Underwriting Agreement
contained as Exhibit 1.1, which provides for indemnification of the directors
and officers of the Registrant signing the Registration Statement and certain
controlling persons of the Registrant against certain liabilities, including
those arising under the Securities Act in certain instances by the Underwriter.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
1.1 Underwriting Agreement, dated August 20, 1995, between the Registrant and
Jefferies & Company, Inc.(2)
3.1 Articles of Incorporation of the Registrant, as amended (incorporated by
reference to Exhibit No. 3.1 to the Registrant's Form 8-K filed June 22,
1993).(1)
3.2 Bylaws of ARI, as amended (incorporated by reference to Exhibit No. 4.3 to
ARI's Annual Report on Form 10-K for the fiscal year ended March 31, 1990).(1)
4.1 Form of Indenture by and among the Registrant, and U.S. Trust Company of
Texas, N.A., as Trustee, with respect to the 13% Mortgage Notes due 2002 of
the Registrant.(2)
4.2 Articles of Incorporation of the Registrant, as amended (included as Exhibit
3.1 above).(1)
4.3 Bylaws of the Registrant, as amended (included as Exhibit No. 3.2 above).(1)
4.6 Loan Agreement, dated December 1, 1985, between Brazos Harbor Industrial
Development Corporation and the ARI Cooperative (incorporated by reference to
Exhibit No. 4.4 to the Registrant's Registration Statement on Form S-1,
Registration No. 33-18105).(1)
</TABLE>
II-1
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
4.7 Trust Indenture, dated December 1, 1985, between Brazos Harbor Industrial
Development Corporation and Texas Commerce Bank, N.A. ("TCB") governing the
issuance of Variable Rate Demand Marine Terminal Revenue Bonds (incorporated
by reference to Exhibit No. 4.5 to the Registrant's Registration Statement on
Form S-1, Registration No. 33-18105).(1)
4.8 Form of Deed of Trust from the Registrant for the benefit of U.S. Trust
Company of Texas, N.A., Trustee, as collateral agent creating a second lien
security interest in the Registrant's leasehold interests in the Freeport,
Texas facility (filed with Registrant's Registration Statement on Form S-1,
Registration No. 33-60539 dated June 23, 1995).(1)
4.9 Form of Deed of Trust from the Registrant for the benefit of U.S. Trust
Company of Texas, N.A., Trustee, as collateral agent creating a first lien
security interest in the Registrant's fee and leasehold interests in the
Maxwell, California facility (filed with Registrant's Registration Statement
on Form S-1, Registration No. 33-60539 dated June 23, 1995).(1)
4.10 Form of Mortgage between the Registrant and U.S. Trust Company of Texas, N.A.,
Trustee, as collateral agent creating a first lien security interest in the
Registrant's fee interest in the Registrant's Stuttgart, Arkansas facility
(filed with Registrant's Registration Statement on Form S-1, Registration No.
33-60539 dated June 23, 1995).(1)
4.11 Form of Pledge between the Registrant and U.S. Trust Company of Texas, N.A.,
Trustee, as collateral agent creating a first lien security interest in shares
of the capital stock of the Registrant's subsidiaries held by the Registrant,
the Subsidiary Intercompany Notes, the ERLY Intercompany Notes and the
Registrant's Freeport IRB's.(2)
4.12 Form of Pledge between ERLY Industries Inc. and U.S. Trust Company of Texas,
N.A., Trustee, as collateral agent creating a first lien security interest in
certain shares of the Registrant's capital stock held by ERLY Industries
Inc.(2)
4.13 Form of Trademark Security Agreement between the Registrant and U.S. Trust
Company of Texas, N.A., Trustee, as collateral agent creating a first security
interest in all registered U.S. trademarks and a security interest in all
other registered trademarks, owned or licensed by the Registrant (filed with
Registrant's Registration Statement on Form S-1, Registration No. 33-60539
dated June 23, 1995).(1)
4.14 Form of Intercreditor Agreement between the U.S. Trust Company of Texas, N.A.,
Trustee, and the Revolving Credit Lender.(2)
4.15 Form of Environmental Indemnity from the Registrant for the benefit of U.S.
Trust Company of Texas, N.A., Trustee.(1)
5.1 Opinion of Vial, Hamilton, Koch & Knox, L.L.P. regarding the validity of the
Mortgage Notes, including consent.(1)
10.1 Ground Lease, dated June 6, 1985, between Brazos River Harbor Navigation
District and the ARI Cooperative, as amended (incorporated by reference to
Exhibit No. 10.1 to the Registrant's Registration Statement on Form S-1,
Registration No. 33-18105).(1)
10.2 Lease Agreement, dated March 12, 1987, between Friendswood Development Company
and the ARI Cooperative, as amended (incorporated by reference to Exhibit No.
10.2 to the Registrant's Registration Statement on Form S-1, Registration No.
33-18105).(1)
10.3 Agreement for Construction of Facilities at Freeport, Texas, dated August 1,
1985, between Borton, Incorporated and the ARI Cooperative, as amended
(incorporated by reference to Exhibit No. 10.3 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-18105).(1)
</TABLE>
II-2
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
<S> <C>
10.4 Forms of Employment Agreement between the ARI Cooperative and certain senior
officers (incorporated by reference to Exhibit No. 10.4 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-18105).(1)
10.15 Asset Purchase Agreement, dated March 23, 1993, as amended between the
Registrant, ERLY and Comet (incorporated by reference to Exhibit No. 2.1 to
the Registrant's Form 8-K filed June 22, 1993).(1)
10.16 Management Agreement, dated May 25, 1993, between ERLY and the Registrant
(incorporated by reference to Exhibit No. 4.1 to ARI's Form 8-K filed June 22,
1993).(1)
10.17 Tax Sharing Agreement, dated May 25, 1993, among the Registrant, ERLY and
Comet (incorporated by reference to Exhibit No. 4.2 to the Registrant's Form
8-K filed June 22, 1993).(1)
10.18 Credit Guarantee Agreement dated March 24, 1993, among the Registrant, ERLY,
the Subsidiary Guarantors (as defined therein) and The Chase Manhattan Bank
National Association ("Chase") as Administrative Agent (incorporated by
reference to Exhibit No. 4.3 to the Registrant's Form 8-K filed June 22,
1993).(1)
10.19 Warrant Agreement, dated May 24, 1993, between Chase and the Registrant
(incorporated by reference to Exhibit No. 4.4 to ARI's Form 8-K filed June 22,
1993).(1)
10.20 Warrant Agreement, dated May 24, 1993, between TCB and the Registrant
(incorporated by reference to Exhibit No. 4.5 to ARI's Form 8-K filed June 22,
1993).(1)
10.21 Accounts Financing Agreement, dated May 24, 1993, between the Registrant and
Congress Financial Corporation (incorporated by reference to Exhibit No. 4.6
to ARI's Form 8-K filed June 22, 1993).(1)
10.22 Lease, dated October 1, 1974, as amended April 9, 1979, by and between
Colusa-Glenn Drier Company and Comet (incorporated by reference to Exhibit No.
4.7 to ARI's Form 8-K filed June 22, 1993).(1)
10.23 Amendment No. 1 to Financing Agreement, dated effective as of June 30, 1995
(filed with Registrant's Registration Statement on Form S-1, Registration No.
33-60539 dated June 23, 1995).(1)
10.24 Form of 15% ERLY Intercompany Note between the Registrant as payee and ERLY as
maker (attached to Exhibit 4.11 above).(1)
10.25 Form of Subsidiary Intercompany Note (attached to Exhibit 4.11 above).(1)
10.26 Form of the 6% ERLY Intercompany Note between the Registrant as payee and ERLY
as maker (filed with Registrant's Registration Statement on Form S-1,
Registration No. 33-60539 dated June 23, 1995).(1)
10.27 Joint Venture Contract between the Registrant and Central Food Corporation II
(filed with Registrant's Registration Statement on Form S-1, Registration No.
33-60539 dated July 31, 1995).(1)
10.28 Services Agreement between the Registrant and Rice Milling & Trading
Investments, Ltd., dated October 21, 1994 (filed with Registrant's
Registration Statement on Form S-1, Registration No. 33-60539 dated July 31,
1995).(1)(4)
11.1 Computation of Earnings per Share.(2)
12.1 Computation of Ratio of Earnings to Fixed Charges (filed with Registrant's
Registration Statement on Form S-1.(2)
</TABLE>
II-3
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
21.1 List of Subsidiaries of the Registrant (filed with Registrant's Registration
Statement on Form S-1, Registration No. 33-60539 dated June 23, 1995).(1)
23.1 Consent of Deloitte & Touche LLP, independent auditors.(2)
23.2 Consent of Vial, Hamilton, Koch & Knox, L.L.P., (included in the opinion filed
as Exhibit 5.1 above) (filed with Registrant's Registration Statement on Form
S-1, Registration No. 33-60539 dated June 23, 1995).(1)
23.3 Consent of Jack K. Mann (filed with Registrant's Registration Statement on
Form S-1, Registration No. 33-60539 dated August 14, 1995).(1)
23.4 Consent of American Appraisal Associates, Inc. (filed with Registrant's
Registration Statement on Form S-1, Registration No. 33-60539 dated June 23,
1995).(1)
25.1 Statement of Eligibility of Trustee (filed with Registrant's Registration
Statement on Form S-1, Registration No. 33-60539 dated July 31, 1995).(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
(4) Confidential treatment requested.
(b) Financial Statement Schedules and Independent Auditors' Report
PAGE
<TABLE>
<S> <C>
Independent Auditors' Report on Schedule...................................... S-1
Schedule II. -- Valuation and Qualifying Accounts............................. S-2
</TABLE>
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant or expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, American Rice,
Inc. has duly caused this Registration Statement or Amendment thereto to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on the 20th day of August, 1995.
AMERICAN RICE, INC.
By: /s/ DOUGLAS A. MURPHY
------------------------------------
Douglas A. Murphy,
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendment thereto has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<S> <C> <C>
/s/ GERALD D. MURPHY Director, Chairman of the August 20, 1995
- --------------------------------------------- Board of Directors
Gerald D. Murphy
/s/ DOUGLAS A. MURPHY President, Chief Executive August 20, 1995
- --------------------------------------------- Officer and Director
Douglas A. Murphy
/s/ RICHARD N. MCCOMBS Executive Vice President of August 20, 1995
- --------------------------------------------- Finance and Administration,
Richard N. McCombs Treasurer, Secretary and
Director (principal
financial
officer)
/s/ S.C. BAIN, Director August 20, 1995
JR.
- ---------------------------------------------
S.C. Bain, Jr.
/s/ WILLIAM H. BURGESS Director August 20, 1995
- ---------------------------------------------
William H. Burgess
/s/ JOHN M. HOWLAND Director August 20, 1995
- ---------------------------------------------
John M. Howland
/s/ GEORGE E. PRCHAL Director August 20, 1995
- ---------------------------------------------
George E. Prchal
/s/ LEE Senior Vice President of August 20, 1995
ADAMS International Marketing
- ---------------------------------------------
Lee Adams
/s/ BILL J. MCFARLAND Senior Vice President of August 20, 1995
- --------------------------------------------- Comet
Bill J. McFarland American Marketing Division
/s/ JOHN S. POOLE Senior Vice President of August 20, 1995
- --------------------------------------------- Comet Rice Division
John S. Poole
/s/ C. BRONSON SCHULTZ Vice President of Finance August 20, 1995
- --------------------------------------------- and
C. Bronson Schultz Data Processing
/s/ JOSEPH E. WESTOVER Vice President and August 20, 1995
- --------------------------------------------- Controller
Joseph E. Westover (principal accounting
officer)
</TABLE>
II-5
<PAGE> 120
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
American Rice, Inc.
Houston, Texas
Our audits of the consolidated financial statements of American Rice, Inc.
("ARI") at March 31, 1994 and 1995, and for each of the three years in the
period ended March 31, 1995, also included the consolidated financial statement
schedule of ARI, listed in Item 16. This consolidated financial statement
schedule is the responsibility of ARI's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
Houston, Texas
May 26, 1995
S-1
<PAGE> 121
FINANCIAL STATEMENT SCHEDULE II
AMERICAN RICE, INC.
VALUATION AND QUALIFYING ACCOUNTS
AS OF MARCH 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS CHANGES OF YEAR
- -------------------------------- ---------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1995.......................... $1,798 $ -- $ -- $ (87)(a) $ 1,711
1994.......................... 2,940 1,245 (2,387)(b) -- 1,798
1993.......................... 540 2,400 -- -- 2,940
Allowance for doubtful
noncurrent receivables:
1995.......................... $4,387 $ -- $ -- $(3,916)(a) $ 471
1994.......................... -- 2,000 2,387(b) -- 4,387
1993.......................... -- -- -- -- --
</TABLE>
- ---------------
(a) Reductions related to accounts receivable written off.
(b) Amounts reclassified between allowances for doubtful accounts and allowance
for doubtful noncurrent receivables.
S-2
<PAGE> 122
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT DESCRIPTION PAGE
------ -------------------------------------------------------------------------------
<S> <C> <C>
1.1 Underwriting Agreement, dated August 20, 1995, between the
Registrant and Jefferies & Company, Inc.(2)
3.1 Articles of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit No. 3.1 to the Registrant's
Form 8-K filed June 22, 1993).(1)
3.2 Bylaws of ARI, as amended (incorporated by reference to Exhibit
No. 4.3 to ARI's Annual Report on Form 10-K for the fiscal year
ended March 31, 1990).(1)
4.1 Form of Indenture by and among the Registrant, and U.S. Trust
Company of Texas, N.A., as Trustee, with respect to the 13%
Mortgage Notes due 2002 of the Registrant.(2)
4.2 Articles of Incorporation of the Registrant, as amended (included
as Exhibit 3.1 above).(1)
4.3 Bylaws of the Registrant, as amended (included as Exhibit No. 3.2
above).(1)
4.6 Loan Agreement, dated December 1, 1985, between Brazos Harbor
Industrial Development Corporation and the ARI Cooperative
(incorporated by reference to Exhibit No. 4.4 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-18105).(1)
4.7 Trust Indenture, dated December 1, 1985, between Brazos Harbor
Industrial Development Corporation and Texas Commerce Bank, N.A.
("TCB") governing the issuance of Variable Rate Demand Marine
Terminal Revenue Bonds (incorporated by reference to Exhibit No.
4.5 to the Registrant's Registration Statement on Form S-1,
Registration No. 33-18105).(1)
4.8 Form of Deed of Trust from the Registrant for the benefit of U.S.
Trust Company of Texas, N.A., Trustee, as collateral agent
creating a second lien security interest in the Registrant's
leasehold interests in the Freeport, Texas facility (filed with
Registrant's Registration Statement on Form S-1, Registration No.
33-60539 dated June 23, 1995).(1)
4.9 Form of Deed of Trust from the Registrant for the benefit of U.S.
Trust Company of Texas, N.A., Trustee, as collateral agent
creating a first lien security interest in the Registrant's fee
and leasehold interests in the Maxwell, California facility (filed
with Registrant's Registration Statement on Form S-1, Registration
No. 33-60539 dated June 23, 1995).(1)
4.10 Form of Mortgage between the Registrant and U.S. Trust Company of
Texas, N.A., Trustee, as collateral agent creating a first lien
security interest in the Registrant's fee interest in the
Registrant's Stuttgart, Arkansas facility (filed with Registrant's
Registration Statement on Form S-1, Registration No. 33-60539
dated June 23, 1995).(1)
4.11 Form of Pledge between the Registrant and U.S. Trust Company of
Texas, N.A., Trustee, as collateral agent creating a first lien
security interest in shares of the capital stock of the
Registrant's subsidiaries held by the Registrant, the Subsidiary
Intercompany Notes, the ERLY Intercompany Notes and the
Registrant's Freeport IRB's.(2)
4.12 Form of Pledge between ERLY Industries Inc. and U.S. Trust Company
of Texas, N.A., Trustee, as collateral agent creating a first lien
security interest in certain shares of the Registrant's capital
stock held by ERLY Industries Inc.(2)
</TABLE>
<PAGE> 123
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT DESCRIPTION PAGE
------ -------------------------------------------------------------------------------
<S> <C> <C>
4.13 Form of Trademark Security Agreement between the Registrant and
U.S. Trust Company of Texas, N.A., Trustee, as collateral agent
creating a first security interest in all registered U.S.
trademarks and a security interest in all other registered
trademarks, owned or licensed by the Registrant (filed with
Registrant's Registration Statement on Form S-1, Registration No.
33-60539 dated June 23, 1995).(1)
4.14 Form of Intercreditor Agreement between the U.S. Trust Company of
Texas, N.A., Trustee, and the Revolving Credit Lender.(2)
4.15 Form of Environmental Indemnity from the Registrant for the
benefit of U.S. Trust Company of Texas, N.A., Trustee.(1)
5.1 Opinion of Vial, Hamilton, Koch & Knox, L.L.P. regarding the
validity of the Mortgage Notes, including consent.(1)
10.1 Ground Lease, dated June 6, 1985, between Brazos River Harbor
Navigation District and the ARI Cooperative, as amended
(incorporated by reference to Exhibit No. 10.1 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-18105).(1)
10.2 Lease Agreement, dated March 12, 1987, between Friendswood
Development Company and the ARI Cooperative, as amended
(incorporated by reference to Exhibit No. 10.2 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-18105).(1)
10.3 Agreement for Construction of Facilities at Freeport, Texas, dated
August 1, 1985, between Borton, Incorporated and the ARI
Cooperative, as amended (incorporated by reference to Exhibit No.
10.3 to the Registrant's Registration Statement on Form S-1,
Registration No. 33-18105).(1)
10.4 Forms of Employment Agreement between the ARI Cooperative and
certain senior officers (incorporated by reference to Exhibit No.
10.4 to the Registrant's Registration Statement on Form S-1,
Registration No. 33-18105).(1)
10.15 Asset Purchase Agreement, dated March 23, 1993, as amended between
the Registrant, ERLY and Comet (incorporated by reference to
Exhibit No. 2.1 to the Registrant's Form 8-K filed June 22,
1993).(1)
10.16 Management Agreement, dated May 25, 1993, between ERLY and the
Registrant (incorporated by reference to Exhibit No. 4.1 to ARI's
Form 8-K filed June 22, 1993).(1)
10.17 Tax Sharing Agreement, dated May 25, 1993, among the Registrant,
ERLY and Comet (incorporated by reference to Exhibit No. 4.2 to
the Registrant's Form 8-K filed June 22, 1993).(1)
10.18 Credit Guarantee Agreement dated March 24, 1993, among the
Registrant, ERLY, the Subsidiary Guarantors (as defined therein)
and The Chase Manhattan Bank National Association ("Chase") as
Administrative Agent (incorporated by reference to Exhibit No. 4.3
to the Registrant's Form 8-K filed June 22, 1993).(1)
10.19 Warrant Agreement, dated May 24, 1993, between Chase and the
Registrant (incorporated by reference to Exhibit No. 4.4 to ARI's
Form 8-K filed June 22, 1993).(1)
10.20 Warrant Agreement, dated May 24, 1993, between TCB and the
Registrant (incorporated by reference to Exhibit No. 4.5 to ARI's
Form 8-K filed June 22, 1993).(1)
10.21 Accounts Financing Agreement, dated May 24, 1993, between the
Registrant and Congress Financial Corporation (incorporated by
reference to Exhibit No. 4.6 to ARI's Form 8-K filed June 22,
1993).(1)
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT DESCRIPTION PAGE
------ ------------------- ------------
<S> <C> <C>
10.22 Lease, dated October 1, 1974, as amended April 9, 1979, by and
between Colusa-Glenn Drier Company and Comet (incorporated by
reference to Exhibit No. 4.7 to ARI's Form 8-K filed June 22,
1993).(1)
10.23 Amendment No. 1 to Financing Agreement, dated effective as of June
30, 1995 (filed with Registrant's Registration Statement on Form
S-1, Registration No. 33-60539 dated June 23, 1995).(1)
10.24 Form of 15% ERLY Intercompany Note between the Registrant as payee
and ERLY as maker (attached to Exhibit 4.11 above).(1)
10.25 Form of Subsidiary Intercompany Note (attached to Exhibit 4.11
above).(1)
10.26 Form of the 6% ERLY Intercompany Note between the Registrant as
payee and ERLY as maker (filed with Registrant's Registration
Statement on Form S-1, Registration No. 33-60539 dated June 23,
1995).(1)
10.27 Joint Venture Contract between the Registrant and Central Food
Corporation II (filed with Registrant's Registration Statement on
Form S-1, Registration No. 33-60539 dated July 31, 1995).(1)
10.28 Services Agreement between the Registrant and Rice Milling &
Trading Investments, Ltd., dated October 21, 1994 (filed with
Registrant's Registration Statement on Form S-1, Registration No.
33-60539 dated July 31, 1995).(1)(4)
11.1 Computation of Earnings per Share.(2)
12.1 Computation of Ratio of Earnings to Fixed Charges (filed with
Registrant's Registration Statement on Form S-1.(2)
21.1 List of Subsidiaries of the Registrant (filed with Registrant's
Registration Statement on Form S-1, Registration No. 33-60539
dated June 23, 1995).(1)
23.1 Consent of Deloitte & Touche LLP, independent auditors.(2)
23.2 Consent of Vial, Hamilton, Koch & Knox, L.L.P., (included in the
opinion filed as Exhibit 5.1 above) (filed with Registrant's
Registration Statement on Form S-1, Registration No. 33-60539
dated June 23, 1995).(1)
23.3 Consent of Jack K. Mann (filed with Registrant's Registration
Statement on Form S-1, Registration No. 33-60539 dated August 14,
1995).(1)
23.4 Consent of American Appraisal Associates, Inc. (filed with
Registrant's Registration Statement on Form S-1, Registration No.
33-60539 dated June 23, 1995).(1)
25.1 Statement of Eligibility of Trustee (filed with Registrant's
Registration Statement on Form S-1, Registration No. 33-60539
dated July 31, 1995).(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
(4) Confidential treatment requested.
<PAGE> 1
Exhibit 1.1
AMERICAN RICE, INC.
$100,000,000
13% Mortgage Notes due 2002
With Contingent Interest
UNDERWRITING AGREEMENT
August 20, 1995
JEFFERIES & COMPANY, INC.
11100 Santa Monica Blvd.
10th Floor
Los Angeles, California 90025
Ladies and Gentlemen:
American Rice, Inc., a Texas corporation (the "Company"),
hereby confirms its agreement with you (the "Underwriter") with respect to the
sale by the Company and the purchase by the Underwriter of $100,000,000
aggregate principal amount of the Company's 13% Mortgage Notes due 2002 With
Contingent Interest (the "Securities").
The Securities are to be issued pursuant to an indenture (the
"Indenture") between the Company and U.S. Trust Company of Texas, N.A., as
Trustee (the "Trustee"). You have advised us that you desire to purchase the
Securities and that you propose to make a public offering of the Securities as
soon as you deem advisable after the Registration Statement referred to below
becomes effective and the Indenture has been qualified under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act").
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively called the "Act"), a registration statement
on Form S-1 including a prospectus relating to the Securities, which may be
amended. The registration statement as amended at the time when it becomes
effective, including information, if any, deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the Act, is
hereinafter referred to as the "Registration Statement"; and the prospectus in
the form first used to confirm sales of Securities is hereinafter referred as
the "Prospectus." Capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Prospectus.
SECTION 1. Representations and Warranties. The Company
represents and warrants to the Underwriter as of the date hereof (such date
being referred to as the "Representation Date") and as of the Closing Date (as
defined below), as follows:
(a) The Registration Statement has become effective;
no stop order suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for such purpose are pending
before or threatened by the Commission.
<PAGE> 2
(b) (i) Each part of the Registration Statement, when
such part became effective, did not contain and each such part, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Act and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph (b)
do not apply to statements or omissions in the Registration Statement
or the Prospectus based upon information relating to you and furnished
to the Company in writing by you expressly for use therein.
(c) Each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, complied when so
filed in all material respects with the Act, and did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(d) Each of the Company and its subsidiaries (each a
"Subsidiary" and, collectively, the "Subsidiaries") has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its business as it
is currently being conducted and to own, lease and operate its
properties, except, in the case of Subsidiaries, where the failure to
be in good standing and have such power and authority would not have a
material adverse effect on the properties, business, results of
operations, condition (financial or otherwise), affairs or prospects of
the Company and its Subsidiaries, taken as a whole (a "Material Adverse
Effect"); and each is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction
where the operation, ownership or leasing of property or the conduct of
its business requires such qualification, except where the failure to
be so qualified would not have a Material Adverse Effect.
(e) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement, the Indenture and the Collateral Documents to which the
Company is a party and to consummate the transactions contemplated
hereby and thereby, including, without limitation, the corporate power
and authority to issue, sell and deliver the Securities as provided
herein and therein.
(f) ERLY has been duly incorporated, is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
ERLY Pledge Agreement, the 15% ERLY Intercompany Note and the Warrant
Agreement attached as Attachment 1 to Exhibit B to the Company Pledge
Agreement (including the issuance of the warrants contemplated
therein).
(g) (i) All of the issued and outstanding shares of
capital stock of, or other ownership interests in, the Company and each
of its Subsidiaries have been duly and validly authorized and issued;
(ii) ERLY owns 81% of the voting power in capital stock of the
2
<PAGE> 3
Company; and, except as set forth on Schedule I hereto, the Company
owns all of the capital stock of all of its Subsidiaries; (iii) all
such shares of capital stock described in the foregoing subsection (ii)
are fully paid and nonassessable and, at the Closing Date, will be
owned free and clear of any security interest, mortgage, pledge, claim,
lien or encumbrance (each, a "Lien"), except for such Liens permitted
under the Indenture and certain Liens on capital stock owned by ERLY
described in the Prospectus, and all such capital stock was not issued
in violation of any preemptive or similar rights; (iv) except for the
ownership interests described in the subsection (ii) of this paragraph,
the Company has no other direct or indirect subsidiaries; and (v)
except as set forth in Schedule II hereto, there are no outstanding
subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or Liens related to or entitling any
person to purchase or otherwise to acquire any shares of the capital
stock of, or other ownership interest in, the Company or any of its
Subsidiaries.
(h) This Agreement has been duly and validly
authorized, executed and delivered by the Company and (assuming the due
execution and delivery hereof by the Underwriter) constitutes a valid
and legally binding agreement of the Company, enforceable against it in
accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditor's rights generally, by general
equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and, as to rights of
indemnification, by principles of public policy or federal or state
securities laws relating thereto.
(i) The Indenture has been duly and validly
authorized by the Company and, when duly executed and delivered in
accordance with its terms (assuming due authorization, execution and
delivery by the Trustee), will constitute a valid and legally binding
agreement of the Company, enforceable against it in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating
to or affecting creditor's rights generally, by general equitable
principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and, as to rights of indemnification,
by principles of public policy or federal or state securities laws
relating thereto.
(j) The Securities have been duly and validly
authorized for issuance and sale to the Underwriter by the Company
pursuant to this Agreement and, when issued and authenticated in
accordance with the terms of the Indenture and delivered against
payment therefor in accordance with the terms hereof, will constitute
valid and binding obligations of the Company, enforceable against it in
accordance with their terms and entitled to the benefits of the
Indenture, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating
to or affecting creditor's rights generally, by general equitable
principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and, as to rights of indemnification,
by principles of public policy or federal or state securities laws
relating thereto.
(k) Each of the Collateral Documents has been duly
and validly authorized by each of the Company and ERLY that is a party
thereto, and, when duly executed and delivered by such party, will
constitute a legally valid and binding obligation of such party,
enforceable against it in accordance with the terms of such Collateral
Document, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization,
3
<PAGE> 4
moratorium and other similar laws relating to or affecting creditor's
rights generally, by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or
at law) and, as to rights of indemnification, by principles of public
policy or federal or state securities laws relating thereto.
(l) The pledge of the Collateral by the Company
pursuant to the terms of the Collateral Documents creates valid
security interests in the Collateral in favor of the Trustee for the
benefit of the holders of the Securities securing the Company's
obligations under the Securities and the Indenture in accordance with,
and subject to, the terms of the Collateral Documents; such security
interests having priority as to the Collateral as set forth in the
Prospectus under the caption "Description of Mortgage Notes --
Security;" and, at the Closing Date, the Collateral will be free and
clear of all Liens, defects, encumbrances, charges, claims and security
interests, except for those permitted by the Indenture. Upon recording
of the Freeport Deed of Trust, the Houston Deed of Trust, the Maxwell
Deed of Trust and the Stuttgart Mortgage, filing of the Trademark
Security Agreement and financing statements relating to the Collateral
in the appropriate filing offices, and delivery to the Trustee of the
pledged stock of the Company and the Company's Subsidiaries, the ERLY
Intercompany Notes and the Subsidiary Intercompany Notes, duly endorsed
in blank, the Trustee will have a fully perfected Lien on such
Collateral (to the extent such a lien may be perfected by such
recordations, filings and deliveries) with the same priority with
respect to such Collateral as described in the Prospectus, except, in
the case of priority, for Liens permitted under the Indenture.
(m) The Securities, the Indenture and the Collateral
Documents conform in all material respects to the respective
descriptions thereof in the Prospectus.
(n) None of the Company, its Subsidiaries or, to the
best knowledge of the Company, ERLY is in violation of its respective
charter or bylaws or in default in the performance of any bond,
debenture, note or any other evidence of indebtedness or any
indenture, mortgage, deed of trust or other contract, lease or other
instrument to which it is a party or by which it is bound, or to which
any of its properties or assets is subject, or is in violation of any
law, statute, rule, regulation, judgment or court decree applicable to
the Company, its Subsidiaries or, to the best knowledge of the
Company, ERLY or their respective assets or properties, and there
exists no condition that, with notice, the passage of time or
otherwise, would constitute any such default under any such document
or instrument, except any such default, violation or condition which
could not reasonably be expected, singly or in the aggregate, to
result in a Material Adverse Effect.
(o) The execution, delivery and performance by the
Company of this Agreement and the Indenture, and by each of the Company
and ERLY of the Collateral Documents to which it is a party, and the
consummation of the transactions contemplated hereby and thereby and
the issuance and sale of the Securities, will not violate, conflict
with or result in a breach or violation of any of the respective
charters or bylaws of any of the Company, its Subsidiaries or ERLY or
any of the terms or provisions of, or constitute a default or cause an
acceleration of any obligation under or result in the imposition or
creation of (or the obligation to create or impose) a Lien with respect
to the charter or bylaws of any of the Company, its Subsidiaries or
ERLY, any bond, note, debenture or other evidence of indebtedness or
any indenture, mortgage, deed of trust or other agreement or instrument
to which any of the Company, its Subsidiaries or ERLY is a party or by
which it or any of them is bound, or to which any properties of the
Company, its Subsidiaries or ERLY are or may be
4
<PAGE> 5
subject, or contravene any order of any court or governmental agency or
body having jurisdiction over any of the Company, its Subsidiaries or
ERLY or any of their properties, or violate or conflict with any
statute, rule or regulation or administrative or court decree
applicable to any of the Company, its Subsidiaries or ERLY, or any of
their respective properties, except for any such violations, conflicts,
breaches or defaults which, singly or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
(p) Except as described in the Prospectus, there is
(i) no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, pending or, to the
knowledge of the Company, threatened against or affecting the Company
or any of its Subsidiaries, or any of their respective properties, (ii)
no statute, rule, regulation or order that has been enacted, adopted or
issued by any governmental agency or that has been proposed by any
governmental body, and (iii) no injunction, restraining order or order
of any nature by a federal or state court or foreign court of competent
jurisdiction to which the Company or any of its Subsidiaries is
subject, that would, in the case of (i), (ii) and (iii), reasonably be
expected, either singly or in the aggregate, to have a Material Adverse
Effect.
(q) No consent, waiver, approval, authorization or
order of, or filing, registration, qualification, license or permit of
or with, any court or governmental agency, body or administrative
agency or other person is required for the execution, delivery and
performance by the Company of this Agreement and the Indenture, or by
either of the Company or ERLY of the Collateral Documents to which each
is a party, the issuance and sale of the Securities by the Company and
the consummation of the transactions contemplated hereby and thereby,
except (i) such as have been obtained and made under the Securities
Act, the Trust Indenture Act, and state securities or Blue Sky laws and
regulations, (ii) such as have been obtained or made to perfect the
Liens created by the Collateral Documents, (iii) such as have been
obtained from the lender under the Revolving Credit Loan, (iv) may be
required by the National Association of Securities Dealers, Inc. and
(v) such as to which the failure to be obtained or made would not
reasonably be expected, either individually or in the aggregate, to
have a Material Adverse Effect.
(r) Except as otherwise set forth in the Prospectus
or such as are not material to the assets, properties, business,
results of operations, condition (financial or otherwise) or business
prospects of the Company and its Subsidiaries, taken as a whole, each
of the Company and its Subsidiaries has good and marketable title (or
indefeasible title with respect to fee property in the State of Texas),
free and clear of all liens, claims, encumbrances and restrictions,
except liens securing the Revolving Credit Loan, to be released on the
Closing Date, that certain Amended and Restated Lease Agreement
effective as of September 1, 1992 by and between the Company, as
lessor, and Jay Dee Contractors, Inc., as lessee, or liens for taxes
not yet due and payable, to all property and assets described in the
Prospectus as being owned by it. All leases to which the Company or any
of its Subsidiaries is a party are valid and binding, no default has
occurred or is continuing thereunder and the Company and its
Subsidiaries enjoy peaceful and undisturbed possession under all such
leases to which any of them is a party as lessee, except to the extent
that such failure to be binding, default or failure to enjoy peaceful
and undisturbed possession would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
(s) In the ordinary course of its business, the
Company has conducted or arranged for periodic reviews of the effect of
Environmental Laws (as defined herein) and the disposal of hazardous or
toxic substances, wastes, pollutants and contaminants on the business,
operations and properties of the Company and its Subsidiaries, in the
course of
5
<PAGE> 6
which it identifies and estimates associated costs and liabilities
(including, without limitation, all capital or operating expenditures)
required for clean-up, closure of properties or compliance with
Environmental Laws, all permits, licenses and approvals, all related
constraints on operating activities and all potential liabilities to
third parties. On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly
or in the aggregate, result in a Material Adverse Effect on the Company
and its Subsidiaries, taken as a whole. Neither the Company nor any of
its Subsidiaries has violated any environmental, safety or similar law
or regulation applicable to its business or property relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), lacks any permits, licenses or other approvals required of them
under applicable Environmental Laws or is violating any term condition
of any such permit, license or approval, which could in such
circumstance reasonably be expected to have a Material Adverse Effect.
(t) Except as described in the Prospectus, there is
(i) no significant unfair labor practice complaint pending against the
Company or any of its Subsidiaries nor, to the best knowledge of the
Company, threatened against any of them, before the National Labor
Relations Board, any state or local labor relations board or any
foreign labor relations board, and no significant grievance or
significant arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against the Company or
any of its Subsidiaries or, to the best knowledge of the Company,
threatened against any of them, (ii) no significant strike, labor
dispute, slowdown or stoppage pending against the Company or any of its
Subsidiaries or, to the best knowledge of the Company, threatened
against the Company or any of the Subsidiaries, and (iii) to the best
knowledge of the Company, no union representation question existing
with respect to the employees of the Company or any of its Subsidiaries
and, to the best knowledge of the Company, no union organizing
activities are taking place, except (with respect to any matter
specified in clause (i), (ii) or (iii) above, singly or in the
aggregate) such as would not have a Material Adverse Effect. Except as
described in the Prospectus, neither the Company nor any of the
Subsidiaries has violated any Federal, state, local or foreign law
relating to discrimination in the hiring, promotion or pay of employees
nor any applicable wage or hour laws, nor any provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") or the rules
and regulations promulgated thereunder, nor has the Company nor any of
its Subsidiaries engaged in any unfair labor practice, which in each
case might result, singly or in the aggregate, in a Material Adverse
Effect.
(u) Each of the Company and its Subsidiaries
maintains insurance covering its properties, operations, personnel and
businesses. Such insurance insures against such losses and risks as are
adequate in accordance with customary industry practice to protect the
Company and its Subsidiaries and their businesses. Neither the Company
nor any of its Subsidiaries has received notice from any insurer or
agent of such insurer that substantial capital improvements or other
expenditures will have to be made in order to continue such insurance.
All such insurance is outstanding and duly in force on the date hereof
and will be outstanding and duly in force on the Closing Date.
(v) (i) Each of the Company and its Subsidiaries has
all certificates, consents, exemptions, orders, permits, licenses,
authorizations, or other approvals (each, an "Authorization") of and
from, and has made all declarations and filings with, all Federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts
6
<PAGE> 7
and other tribunals, necessary or required to engage in its business
currently conducted by it in the manner described in the Prospectus,
except to the extent that the failure to obtain and hold such
Authorizations would not have a Material Adverse Effect, (ii) all such
Authorizations are valid and in full force and effect and (iii) the
Company and its Subsidiaries are in compliance in all material respects
with the terms and conditions of all such Authorizations and with the
rules and regulations of the regulatory authorities and governing
bodies having jurisdiction with respect thereto.
(w) Each of the Company and its Subsidiaries own or
possess the patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names (collectively,
the "Intellectual Property") presently employed by them in connection
with the businesses now operated by them, and neither the Company nor
any of the Subsidiaries has received any notice of infringement of or
conflict with asserted rights of others with respect to the foregoing
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material Adverse Effect.
The use of such Intellectual Property in connection with the business
and operations of the Company and its Subsidiaries does not, infringe
on the rights of any person, except infringements which would not
reasonably be expected, either individually or in the aggregate, to
have a Material Adverse Effect.
(x) All tax returns required to be filed by the
Company or any of its Subsidiaries in any jurisdiction have been timely
and duly filed, other than those filings being contested in good faith,
except where the failure to so file any such returns could, singly or
in the aggregate, reasonably be expected to have a Material Adverse
Effect, and all material taxes, including withholding taxes, penalties
and interest, assessments, fees and other charges due or claimed to be
due from such entities have been paid, other than those being contested
in good faith and for which adequate reserves have been provided or
those currently payable without penalty or interest. The Company does
not know of any material proposed additional tax assessments against
the Company or any of its Subsidiaries.
(y) Neither the Company nor any of its Subsidiaries
is (a) an "investment company" or a company "controlled" by an
investment company within the meaning of the Investment Company Act of
1940, as amended, or (b) a "holding company" or a "subsidiary company"
or an "affiliate" of a holding Company within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
(z) No holder of any security of the Company has or
will have any right to request or demand the registration of such
security under the Act or analogous foreign laws and regulations by
virtue of any transaction contemplated by this Agreement, the Indenture
or any of the Collateral Documents.
(aa) Deloitte & Touche LLP are independent public
accountants with respect to the Company as required by the Securities
Act. The consolidated historical financial statements, together with
related schedules and notes, set forth in the Registration Statement
and the Prospectus fairly present the consolidated financial position
and condition of the Company at the dates indicated and the results of
the Company's operations and their cash flows for the respective
periods indicated, in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout such periods,
except as stated therein.
7
<PAGE> 8
The pro forma financial data set forth in the Registration Statement
and the Prospectus has been prepared on a basis consistent with such
historical statements, except for the pro forma adjustments specified
therein, and gives effect to assumptions made on a reasonable basis and
presents fairly the historical and proposed transactions contemplated
by this Agreement, the Indenture and the Collateral Documents. The
other financial and statistical information and data included in the
Registration Statement and the Prospectus, historical and pro forma,
are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and
records of the Company.
(ab) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that:
(1) transactions are executed in accordance with management's general
or specific authorizations; (2) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP
and to maintain asset accountability; (3) access to assets is permitted
only in accordance with management's general or specific authorization;
and (4) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(ac) The Indenture is, or shall have been, qualified
under the Trust Indenture Act of 1939, as amended, at the time the
Registration Statement is declared effective.
(ad) Subsequent to the respective dates as of which
information is given in the Prospectus and up to the Closing Date,
except as set forth in the Prospectus, neither the Company nor any of
its Subsidiaries has incurred any liabilities or obligations, direct or
contingent, which are material to the Company and its Subsidiaries
taken as a whole, nor entered into any transaction not in the ordinary
course of business and there has not been, singly or in the aggregate,
any material adverse change, or any development which may reasonably be
expected to involve a material adverse change, in the properties,
business, results of operations, condition (financial or otherwise),
affairs or prospects of the Company and its Subsidiaries taken as a
whole (a "Material Adverse Change").
(ae) Each certificate signed by any officer of the
Company and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and warranty by the
Company to the Underwriters as to the matters covered thereby.
(af) The present fair saleable value of the assets of
the Company and its Subsidiaries, taken as a whole, exceeds the amount
that will be required to be paid on or in respect of the existing debts
and other liabilities (including the maximum amount of liability that
may reasonably be expected to result from contingent liabilities) of
the Company and its Subsidiaries as they become absolute and matured.
The assets of the Company and its Subsidiaries, taken as a whole, do
not constitute unreasonably small capital to carry out their business
as conducted or as proposed to be conducted. The Company does not
intend to, or believe that it will, incur debts beyond its ability to
pay such debts as they mature. The Company does not intend to permit
any of its other Subsidiaries to incur debts beyond their respective
ability to pay such debts as they mature. Upon the issuance of the
Securities, the present fair saleable value of the assets of the
Company and its Subsidiaries, taken as a whole, will exceed the amount
that will be required to be paid on or in respect of their existing
debts and other liabilities (including the maximum amount of liability
that may reasonably be
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<PAGE> 9
expected to result from contingent liabilities) as they become absolute
and matured, the assets of the Company and its Subsidiaries, taken as a
whole, will not constitute unreasonably small capital to carry out
their business as now conducted or as proposed to be conducted,
including the capital needs of the Company and each of its
Subsidiaries, taking into account the projected capital requirements
and capital availability of the Company and each of its Subsidiaries.
(ag) Neither the Company nor any agent thereof acting
on the behalf of the Company has taken, and none of them will take, any
action that might cause this Agreement or the issuance or sale of the
Securities to violate Regulation G (12 C.F.R. Part 207), Regulation T
(12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X
(12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve
System, in each case as in effect now or as the same may hereafter be
in effect on the Closing Date.
(ah) The Company has not (i) taken, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company or any of its Subsidiaries to facilitate the sale or resale of
the Securities or (ii) since the date of the preliminary prospectus (A)
sold, bid for, purchased, or paid any person any compensation for
soliciting purchases of, the Securities or (B) paid or agreed to pay to
any person any compensation for soliciting another to purchase any
other securities of the Company or any of its Subsidiaries.
(ai) The Company has complied with all provisions of
Florida H.B. 1771, codified as Section 517.075 of the Florida Statutes,
and all regulations promulgated thereunder relating to issues doing
business with the Government of Cuba or with any person or any
affiliate located in Cuba.
SECTION 2. Sale and Delivery to the Underwriter.
(a) Subject to the terms and conditions set forth
herein, the Company agrees to sell to the Underwriter and, on the basis
of the representations and warranties contained herein and subject to
the terms and conditions set forth herein, the Underwriter agrees to
purchase $100,000,000 aggregate principal amount of the Securities from
the Company at a purchase price of the initial purchase price to the
public for such Securities less 4% of the aggregate principal amount of
such Securities. The Company will have no obligation to sell to the
Underwriter any of the Securities hereunder unless the Underwriter
purchases all of the Securities hereunder.
(b) Payment of the purchase price for, and delivery
of, the Securities to be purchased by the Underwriter shall be made at
the offices of Latham & Watkins, 885 Third Avenue, Suite 1000, New
York, New York, 10022, at 10:00 A.M., New York time, on August 24,
1995, or at such other time or place as the Underwriter and the Company
shall designate (such time and date of payment and delivery being
herein called the "Closing Date").
(c) Payment shall be made to the Company in next day
funds by wire transfer payable to the order of the Company against
delivery to the Underwriter of the Securities to be purchased by it.
Alternatively, the Company may, at its option, require the Underwriter
to deliver payment for such Securities by wire transfer of immediately
available
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<PAGE> 10
funds to an account designated by the Company, provided that the
Company reimburses the Underwriter for the cost of providing such
immediately available funds at a rate of interest per annum equal to
the published Federal Funds rate in effect on August 24, 1995 plus 3/8%
(computed on a 360-day year) with respect to each day during which use
of such funds is lost. The Securities shall be in such denominations
and registered in such names as the Underwriter may request in writing
at least two business days before the Closing Date. The Securities will
be made available for examination and packaging by the Underwriter not
later than 1:00 P.M. on the last business day prior to the Closing Date
at the offices of the Trustee in New York, New York.
SECTION 3. Covenants of the Company. The Company covenants
with the Underwriter as follows:
(a) The Company will use its best efforts to cause
the Registration Statement, if not effective at the date of this
Agreement, and any amendment thereof, to become effective as promptly
as possible after the filing thereof. The Company will not file any
amendment to the Registration Statement or amendment or supplement to
the Prospectus (including any document required to be filed under the
Exchange Act that upon filing is deemed to be incorporated by reference
therein) to which the Underwriter shall reasonably object in writing
after a reasonable opportunity to review such amendment or supplement.
Subject to the foregoing sentences in this clause (a), if the
Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus or supplement to the Prospectus is
otherwise required under Rule 424(b), the Company will cause the
Prospectus, properly completed, or such supplement thereto to be filed
with the Commission pursuant to the applicable paragraph of Rule 424(b)
within the time period prescribed and will provide evidence
satisfactory to the Underwriter of such timely filing. The Company will
promptly advise the Underwriter (A) when the Registration Statement, if
not effective at the date of this Agreement, and any amendment thereto,
shall have become effective, (B) when the Prospectus, and any
supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b), (C) when any amendment to the
Registration Statement shall have been filed or become effective, (D)
of any request by the Commission for any amendment of or supplement to
the Registration Statement or any Prospectus or for any additional
information, (E) of the receipt by the Company of any notification of,
or if the Company otherwise has knowledge of, the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any
proceeding for that purpose and (F) of the receipt by the Company of
any notification with respect to the suspension of the qualification of
the Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The Company will use
its best efforts to prevent the issuance of any such stop order and, if
issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which the Prospectus as then amended or supplemented
would include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein in the light
of the circumstances under which they were made not misleading, or if
it shall be necessary to amend the Registration Statement or amend or
supplement the Prospectus to comply with the Act or the Act
Regulations, the Company promptly will prepare and file with the
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<PAGE> 11
Commission, subject to the second sentence of Section 3(a), an
amendment or supplement which will correct such statement or omission
or effect such compliance.
(c) The Company consents to the use of the Prospectus
in accordance with the provisions of the Act and with the securities or
blue sky laws of the jurisdictions in which the Securities are offered
by the Underwriter and by all dealers to whom Securities may be sold,
both in connection with the offering and sale of the Securities and for
such period of time thereafter as the Prospectus is required by the Act
to be delivered in connection with the sales by any Underwriter or
dealer. The Company will comply so far as it is able, with all
requirements imposed upon them by the Act, as now and hereafter
amended, so far as necessary to permit the continuance of sales of or
dealing in the Securities in accordance with the provisions hereof and
the Prospectus.
(d) As soon as practicable, the Company will make
generally available to its security holders and to the Underwriter an
earnings statement or statements of the Company and its Subsidiaries
covering a twelve-month period beginning after the Effective Date which
will satisfy the provisions of Section 11(a) of the Act and Rule 158
thereunder.
(e) The Company will furnish to the Underwriter,
without charge, two signed copies of the Registration Statement
(including exhibits thereto and all documents incorporated by reference
therein) and, so long as delivery of a prospectus by an Underwriter or
dealer may be required by the Act, as many copies of each preliminary
prospectus and the Prospectus and all amendments and supplements
thereto as the Underwriter may reasonably request.
(f) The Company will apply the net proceeds from the
sale of the Securities to be sold hereunder in accordance with the
description set forth in the "Use of Proceeds" section of the
Prospectus.
(g) The Company will not voluntarily claim, and will
actively resist any attempts to claim, the benefit of any usury law
against the holders of the Securities, to the extent it may lawfully do
so.
(h) The Company will cooperate with the Underwriter
and its counsel in connection with endeavoring to obtain and maintain
the qualification or registration, or exemption from qualification, of
the Securities for offer and sale under the applicable securities laws
of such states and other jurisdictions of the United States as the
Underwriter may designate; provided, that in no event shall the Company
be obligated to qualify to do business in any jurisdiction where it is
not now so qualified or to take any action which would subject it to
taxation or general service of process in any jurisdiction where it is
not now so subject.
(i) So long as any of the Securities are outstanding,
the Company will supply to the Underwriter, promptly upon their
becoming available, copies of all current, regular and periodic reports
and other publicly available information filed by the Company with the
Commission or any securities exchange or with any governmental
authority succeeding to any of the Commission's functions and other
such publicly available information concerning the Company as the
Underwriter shall reasonably request.
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<PAGE> 12
(j) The Company will use its best efforts to do and
perform all things required or necessary to be done and performed under
this Agreement by the Company prior to or after the Closing Date and to
satisfy all conditions precedent on its part to the delivery of the
Securities.
SECTION 4. Payment of Expenses. Whether or not the
transactions contemplated by this Agreement are consummated or this Agreement is
terminated, the Company will pay all costs, expenses, fees and taxes incident to
and in connection with this Agreement and the transactions contemplated hereby,
including all costs, expenses, fees and taxes relating to: (i) the preparation,
printing, duplicating, filing and distributing of the Registration Statement, as
originally filed and all amendments thereof (including all exhibits thereto),
any preliminary prospectus, the Prospectus and any amendments thereof or
supplements thereto, the Indenture, the underwriting documents (including this
Agreement and all other documents related to the public offering of the
Securities (including those supplied to the Underwriter in quantities as
hereinabove stated); (ii) the issuance, transfer and delivery by the Company of
the Securities to the Underwriter; (iii) the registration or qualification of
the Securities for offer and sale under the securities or Blue Sky laws of the
several states (including, without limitation, the reasonable fees and
disbursements of counsel to the Underwriter relating to such registration or
qualification; (iv) the review of the terms of the public offering of the
Securities by the National Association of Securities Dealers, Inc.; (v) the
preparation of certificates for the Securities (including, without limitation,
printing and engraving thereof); (vi) the fees, disbursements and expenses of
counsel to the Company, counsel to the Underwriter and the accountants, provided
that the Company shall not be responsible for paying the fees, disbursements and
expenses of counsel to the Underwriter in excess of $350,000; (vii) all
out-of-pocket expenses actually incurred by the Underwriter in connection with
the offering of the Securities to prospective investors (including costs
expenses of preparing slide shows and color presentation books, meals with
prospective investors, limousines, and facsimile, telephone, delivery and
messenger charges, but excluding all expenses related to air travel and hotel
accommodations; and (viii) the performance by the Company of its other
obligations under this Agreement not specifically set forth in this paragraph.
SECTION 5. Conditions of the Underwriter's Obligations. The
obligation of the Underwriter to purchase the Securities under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the
Company contained in this Agreement shall be true and correct on the
Closing Date with the same force and effect as if made on and as of the
Closing Date. The Company shall have performed or complied with all of
its obligations and agreements herein contained and required to be
performed or complied with by it at or prior to the Closing Date.
(b) The Registration Statement shall have become
effective not later than 5:00 p.m., New York City time, on the date of
this Agreement or at such later date and time as you may approve in
writing, and at the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been commenced or shall be
pending before or contemplated by the Commission.
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, there shall not have been any
downgrading, nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
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<PAGE> 13
that does not indicate the direction of the possible change, in the
rating accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act.
(d) Since the dates as of which information is given
in the Registration Statement and the Prospectus (i) there shall not
have been any Material Adverse Change, (ii) since the date of the
latest balance sheet included in the Registration Statement and the
Prospectus, there shall not have been any material change in the
capital stock or long-term debt, or material increase in short-term
debt, of the Company or any of its Subsidiaries from that set forth in
the Registration Statement and the Prospectus and (iii) the Company and
its Subsidiaries shall have incurred no liability or obligation, direct
or contingent, that is material individually or in the aggregate, to
the Company and its Subsidiaries taken as a whole and is required to be
disclosed on a balance sheet in accordance with GAAP and is not
disclosed on the latest balance sheet included in the Registration
Statement and the Prospectus.
(e) The Underwriter shall have received (i)
certificates of the Company, dated the Closing Date, executed on behalf
of the Company, by (A) the President or any Vice President and (B) a
principal financial or accounting officer of the Company, confirming,
as of the Closing Date, the matters set forth in paragraphs (a), (b),
(c), and (d) of this Section 5; (ii) certificates of each of the
Company, ERLY and the Company's Subsidiaries, dated the Closing Date,
executed by the Secretary of each such entity, certifying as true,
accurate and complete for each such entity, the bylaws and corporate
resolutions with respect to approval of the transactions contemplated
hereon involving such entity, the incumbency of certain officers, and
as to such other matters as the Underwriter may reasonably request;
(iii) certificates or articles of incorporation for each the Company,
ERLY and the Company's Subsidiaries issued as of a recent date by the
Secretary of State (or similar official in foreign jurisdictions) of
the jurisdiction in which each such entity is incorporated; and (iv)
appropriate certificates of qualification to do business and of good
standing for each of the Company and its Subsidiaries issued on a
recent date by the Secretary of State of each jurisdiction in which the
failure of the Company or its Subsidiaries, as the case may be, to be
qualified to do business could have a Material Adverse Effect.
(f) On the Closing Date, the Underwriter shall have
received an opinion (satisfactory to the Underwriter and its counsel),
dated the Closing Date, of Vial, Hamilton, Koch and Knox, L.L.P.,
counsel for the Company, to the effect that:
(1) Each of the Company and its Subsidiaries
has been duly incorporated and is a validly existing
corporation in good standing under the laws of its respective
jurisdiction of incorporation and has the requisite corporate
power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration
Statement and the Prospectus, except, in the case of
Subsidiaries, where the failure to be in good standing and
have such power and authority would not have a Material
Adverse Effect; and each is duly qualified as a foreign
corporation and in good standing in each jurisdiction where
the ownership, leasing or operation of property or the conduct
of its business requires such qualification, except where the
failure to be so qualified would not have a Material Adverse
Effect.
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<PAGE> 14
(2) (A) The Registration Statement has
become effective under the Act; (B) any required filing of the
Prospectus, and any supplements thereto, pursuant to Rule
424(b) has been made in the manner and within the time period
required by Rule 424(b); and (C) to the knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or threatened.
(3) The Company has filed the Registration
Statement on the proper form under the Act.
(4) The Registration Statement and the
Prospectus (except for (A) the financial statements and
schedules contained therein (including the notes thereto, the
auditors' report thereon and the related summary of accounting
policies), (B) financial and statistical data included
therein, and (C) the exhibits thereto, as to which no opinion
need be expressed) comply as to form in all material respects
with the applicable requirements of the Act.
(5) The Company has full corporate power and
authority to execute, deliver and perform its obligations
under this Agreement, the Indenture and the Collateral
Documents to which the Company is a party, including the
corporate power and authority to issue, sell and deliver the
Securities as provided herein and therein.
(6) ERLY has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to execute, deliver
and perform its obligations under the ERLY Pledge Agreement,
the 15% ERLY Intercompany Note and the Warrant Agreement
attached as Attachment 1 to Exhibit B to the Company Pledge
Agreement (including the issuance of the warrants contemplated
therein).
(7) (i) All of the issued and outstanding
shares of capital stock of, or other ownership interests in,
the Company and each of its Subsidiaries have been duly and
validly authorized and issued; (ii) ERLY owns 81% of the
voting power in capital stock of the Company; and except as
set forth on Schedule I hereto, the Company owns all of the
capital stock of all of its Subsidiaries; (iii) all such
shares of capital stock described in the foregoing subsection
(ii) are fully paid and nonassessable and are owned free and
clear of any Lien, except for Liens permitted under the
Indenture and certain Liens on capital stock owned by ERLY
described in the Prospectus, and all such capital stock was
not issued in violation of any preemptive or similar rights;
(iv) except for the ownership interests described in the
subsection (ii) of this paragraph, the Company has no other
direct or indirect subsidiaries; and (v) except as set forth
in Schedule II hereto, there are no outstanding subscriptions,
rights, warrants, options, calls, convertible securities,
commitments of sale or Liens related to or entitling any
person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company
or any of its Subsidiaries.
(8) Each of this Agreement, the Indenture,
the Securities and the Collateral Documents has been duly
authorized, executed and delivered by each of the Company and
ERLY that is a party thereto.
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<PAGE> 15
(9) The Indenture has been duly qualified
under the Trust Indenture Act and, assuming due
authorization, execution and delivery thereof by the Trustee,
constitutes a valid and legally binding obligation of the
Company, enforceable against it is accordance with its terms.
(10) When issued and authenticated in
accordance with the terms of the Indenture and delivered to
and paid for by the Underwriter in accordance with the terms
of this Agreement, the Securities will constitute valid and
legally binding obligations of the Company, enforceable
against it in accordance with their respective terms and
entitled to the benefits of the Indenture.
(11) Each of the Collateral Documents
constitutes a valid and legally binding agreement of each of
the Company and ERLY that is a party thereto, enforceable
against such party in accordance with its terms.
(12) The statements under the captions
"Business--Brand Names and Trademarks,"
"Business--Regulations," "Business--Legal Proceedings,"
"Description of Mortgage Notes" and "Underwriting" in the
Prospectus, as amended or supplemented, and Items 14 and 15 of
Part II of the Registration Statement insofar as such
statements constitute a summary of legal matters, documents or
proceedings referred to therein, fairly present the
information called for with respect to such legal matters,
documents and proceedings.
(13) No consent, waiver, approval,
authorization or order of, or filing, registration,
qualification, license or permit of or with, any court or
governmental agency, body or administrative agency or other
person is required for the execution, delivery and performance
by the Company of this Agreement and the Indenture, or by
either of the Company or ERLY of the Indenture and the
Collateral Documents to which each is a party, the issuance
and sale of the Securities by the Company and the consummation
of the transactions contemplated hereby and thereby, except
(i) such as have been obtained and made under the Securities
Act, the Trust Indenture Act and state securities or Blue Sky
laws and regulations, (ii) such as needed to perfect Liens
created by the Collateral Documents, (iii) such as have been
obtained from the Lender under the Revolving Credit Loan,
(iv) such as may be required by the National Association of
Securities Dealers, Inc. and (v) such as to which the failure
to be obtained or made would not reasonably be expected,
either individually or in the aggregate, to have a Material
Adverse Effect.
(14) The Company Pledge Agreement and the
ERLY Pledge Agreement represent legal, valid and binding
obligations of the Company and ERLY, enforceable against them
in accordance with their terms, create valid Liens in favor of
the Trustee on, with respect to the Company Pledge Agreement,
the capital stock of the Company's Subsidiaries owned by the
Company, the Subsidiary Intercompany Notes and the ERLY
Intercompany Notes and, with respect to the ERLY Pledge
Agreement, on the capital stock of the Company owned by ERLY
(excluding certain shares previously pledged by ERLY as
described on the Prospectus), and, when all such capital stock
and intercompany notes are delivered to the Trustee, such
Liens will be perfected and free of any adverse claim.
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<PAGE> 16
(15) The financing statements required to be
filed pursuant to the Collateral Documents are sufficient to
perfect the security interests of Trustee granted by the
Company and ERLY, in their respective right, title and
interest in the Collateral to the extent that a security
interest in such Collateral can be perfected by the filing of
a financing statement under the laws of the state in which
such financing statement is required to be filed, and, with
respect to security interests perfected by filing, no other
filings, registrations, recordings or other actions are
required in order to perfect such security interests.
(16) The Freeport Deed of Trust, the Houston
Deed of Trust, the Maxwell Deed of Trust and the Stuttgart
Mortgage represent legal, valid and binding obligations of the
Company, enforceable against it in accordance with their
terms, create valid Liens in favor of the Trustee on the
Freeport Facility, the Houston Property, the Maxwell Facility
and the Stuttgart Facility, respectively, including the
furniture, fixtures and equipment located thereon, are in
appropriate form for recording in the states where such
Collateral is located and, when duly acknowledged and recorded
in the appropriate office in such states, such Liens will be
perfected.
(17) The Trademark Security Agreement
represents a legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms,
creates a valid Lien in favor of the Trustee on the Company's
registered trademarks, is in appropriate form for filing with
the United States Patent and Trademark Office and, when the
financing statements referred to in paragraph (14) above are
filed in the states in which such financing statements are
required to be filed and such Trademark Security Agreement is
duly acknowledged and recorded in the Patent and Trademark
Office, will create perfected Liens in the Company's U.S.
registered trademarks.
(18) None of the Securities, the Indenture
or the Collateral Documents violate any applicable law with
respect to usury of the states governing the Securities and
the Indenture or in which the Collateral is located.
(19) The provisions of the Indenture and of
the Collateral Documents stating that they shall be governed
by, and construed in accordance with the laws of the State of
New York will be enforced, recognized and in all respects
deemed controlling under the law of the states in which such
Collateral is located, except as to validity, creation and
perfection of Liens on the Collateral and matters of procedure
and remedies with respect to the Collateral, as to which the
Collateral Documents will be governed by and construed in
accordance with the laws of such states.
(20) The Securities, the Indenture and the
Collateral Documents conform in all material respects to the
descriptions thereof contained in the Prospectus.
(21) Neither the Company nor any of its
Subsidiaries is (a) an "investment company" or a company
"controlled" by an investment company within the meaning of
the Investment Company Act of 1940, as amended, or (b) a
"holding
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<PAGE> 17
company" or a "subsidiary company" of a holding company, or an
"affiliate" thereof within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
(22) The descriptions in the Registration
Statement and the Prospectus of statutes, legal and
governmental proceedings and contracts and other documents are
accurate in all material respects and fairly present the
information required to be shown; and such counsel does not
know of any legal or governmental proceedings required to be
described in the Registration statement and the Prospectus
which are not described as required or of any contracts or
documents of a character required to be described in the
Registration and the Prospectus which are not described as
required; it being understood that such counsel need express
no opinion as to the financial statements, notes or schedules
or other financial data included therein.
(23) The execution, delivery and performance
by the Company of this Agreement and the Indenture, and by
each of the Company and ERLY of the Collateral Documents to
which it is a party, and consummation of the transaction
contemplated hereby and thereby and the issuance and sale of
the Securities, will not violate, conflict with or constitute
a breach of any of the terms or provisions of, or a default
under (or an event that with notice or the lapse of time, or
both, would constitute a default) or require consent under, or
result in the imposition of a Lien on any properties of any of
the Company, its Subsidiaries or ERLY (except as contemplated
by the Collateral Documents), or an acceleration of
indebtedness pursuant to (i) the charter or bylaws of any of
the Company, its Subsidiaries or ERLY, (ii) any material bond,
debenture, note, indenture, mortgage, deed of trust or other
agreement or instrument identified as such to such counsel to
which any of the Company, its Subsidiaries or ERLY is a party
or by which any of them or their property is bound, (iii) to
the best of such counsel's knowledge, any statute, rule or
regulation applicable to any of the Company, its Subsidiaries
or ERLY, or (iv) any judgment, order or decree known to such
counsel of any court or governmental agency or authority
having jurisdiction over any of the Company, its Subsidiaries
or ERLY. To the best of such counsel's knowledge, no consent,
approval, authorization or order of, or filing, registration,
qualification, license or permit of or with, any court or
governmental agency, body or administrative agency is required
for the execution, delivery and performance of this Agreement,
the Indenture and the Collateral Documents, except such as may
be required under the Act, the Trust Indenture Act and state
securities or Blue Sky laws and regulations or such as may be
required by the NASD.
(24) The Company and its Subsidiaries own or
possess the Intellectual Property presently employed by them
in connection with the businesses now operated by them, and,
to the knowledge of such counsel, neither the Company nor any
of its Subsidiaries has received any notice of infringement of
or conflict with asserted rights of others with respect to the
foregoing which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would result in a
Material Adverse Change. The use of such Intellectual Property
in connection with the business and operations of the Company
and its Subsidiaries does not, to the knowledge of such
counsel, infringe on the rights of any person.
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<PAGE> 18
(25) To the best knowledge of such counsel,
there are no holders of securities of the Company who, by
reason of the execution by the Company of this Agreement, the
Indenture or any of the Collateral Document to which it is a
party, or the consummation of the transactions contemplated
hereby and thereby, have the right to request or demand that
the Company register under the Act securities held by them.
(26) To the best knowledge of such counsel,
neither the Company nor any agent thereof acting on the behalf
of the Company has taken, and neither of them will take, any
action that might cause this Agreement or the issuance or sale
of the Securities to violate Regulation G (12 C.F.R. Part
207), Regulation T (12 C.F.R. Part 220), Regulation U (12
C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the
Board of Governors of the Federal Reserve System, in each case
as in effect now or as the same may hereafter be in effect on
the Closing Date.
Counsel will be permitted to except from its opinions
with respect to enforceability: (A) the effect of bankruptcy,
insolvency, reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting the rights and remedies of
creditors; (B) the effect of general equitable principles, whether such
enforceability is considered in a proceeding in equity or at law, and
the discretion of the court before which any proceeding therefor may be
brought; (C) the unenforceability under certain circumstances under law
or court decisions of provisions providing for the indemnification of
or contribution to a party with respect to a liability where such
indemnification or contribution is contrary to public policy; and (D)
the unenforceability of any provision requiring the payment of
attorney's fees, except to the extent that a court determines such fees
to be reasonable; and (E) other normal and appropriate exceptions
(acceptable to the Underwriter and its counsel in their sole
discretion).
In addition, counsel for the Company shall state that
such counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent
certified public accountants for the Company, and representatives of
and counsel to the Underwriter in connection with the preparation of
the Registration Statement and the Prospectus and any amendment thereof
or supplement thereto and has considered the matters required to be
stated therein and the statements contained therein, although such
counsel has not independently verified the accuracy, completeness or
fairness of such statements and does not assume any responsibility for
the accuracy, completeness or fairness of the statement contained in
the Registration Statement and the Prospectus and any amendment thereof
or supplement thereto; and such counsel advises the Underwriter that,
on the basis of the foregoing, no facts came to such counsel's
attention that caused such counsel to believe that the Registration
Statement or the Prospectus at the time each became effective or at the
Representation Date and the Closing Date, as of the date thereof or on
the Closing Date, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (it being
understood that counsel for the Company need express no belief or
opinion with respect to the Form T-1, the financial statements, notes
and schedules thereto and other financial and statistical data included
therein).
(g) The Underwriter shall have received an opinion,
dated the Closing Date, of Latham & Watkins ("Latham"), counsel for the
Underwriter, in form and substance reasonably satisfactory to the
Underwriter.
18
<PAGE> 19
(h) The Underwriter shall have received letters on
and as of the date hereof as well as on and as of the Closing Date in
form and substance satisfactory to the Underwriter, from Deloitte &
Touche, LLP, independent public accountants for the Company, with
respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus.
(i) Counsel for the Underwriter shall have been
furnished with such documents and opinions, in addition to those set
forth above, as they may reasonably require for the purpose of enabling
them to review or pass upon the matters referred to in this Section 5
and in order to evidence the accuracy, completeness or satisfaction in
all material respects of any of the representations, warranties or
conditions herein contained.
(j) The Company shall have amended or entered into
all agreements and other documents that the Prospectus indicates will
be amended or entered into on or before the Closing Date, in each case
to the reasonable satisfaction of the Underwriter.
All opinions, certificates, letters and other documents
required to be delivered by the Company will be in compliance with the
provisions hereof only if they are reasonably satisfactory in form and substance
to the Underwriter. The Company will furnish the Underwriter with such conformed
copies of such opinions, certificates, letters and other documents as the
Underwriter shall reasonably request.
SECTION 6. Indemnification and Contribution.
(a) The Company agrees to indemnify, defend and hold
harmless (i) the Underwriter, (ii) each person, if any, who controls
(within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Underwriter (any of the persons referred to in this
clause (ii) being hereinafter referred to as a "controlling person"),
and (iii) the respective officers, shareholders, directors, partners,
employees, representatives and agents of the Underwriter or any
controlling person (any person referred to in clause (i), (ii) or (iii)
may hereinafter be referred to as an "Indemnified Person"), to the
fullest extent lawful, from and against any and all losses, claims,
damages, liabilities, judgments, actions and expenses (including
without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or
action, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, including the reasonable fees and
expenses of counsel to any Indemnified Person) directly or indirectly
caused by, related to, based upon, arising out of or in connection with
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or in the Registration
Statement as amended by any post-effective amendment thereof) or in a
Prospectus (the term "Prospectus" for the purpose of this section 6
being deemed to include any preliminary prospectus, the Prospectus and
the Prospectus as amended or supplemented), or any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses are
caused by an untrue statement or omission or alleged untrue statement
or omission that is made in reliance upon and in conformity with
information furnished in writing to the Company by any of the
Underwriter expressly for use therein. The Company shall notify the
Underwriter promptly of the institution, threat or assertion of any
claim, proceeding (including any governmental investigation) or
litigation in
19
<PAGE> 20
connection with the matters addressed by this Agreement which involves
the Company or an Indemnified Person.
(b) In case any action or proceeding (including any
governmental or regulatory investigation proceeding) shall be brought
or asserted against any of the Indemnified Persons with respect to
which indemnity may be sought against the Company, such Indemnified
Person shall promptly notify the Company in writing (provided, that the
failure to give such notice shall not relieve the Company of its
obligations pursuant to this Agreement except to the extent that the
Company has been prejudiced in any material respect by such failure).
Such Indemnified Person shall have the right to employ its own counsel
in any such action and the fees and expenses of such counsel shall be
paid, as incurred, by the Company (regardless of whether it is
ultimately determined that an Indemnified Person is not entitled to
Indemnification hereunder). The Company shall not, in connection with
any one such action or proceeding or separate but substantially similar
or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of
attorneys (in addition to any local counsel) at any time for such
Indemnified Persons, which firm shall be designated by the Underwriter.
The Company shall be liable for any settlement of any such action or
proceeding effected with the Company's prior written consent, which
consent shall not be withheld unreasonably, and the Company agrees to
indemnify and hold harmless any Indemnified Person from and against any
loss, claim, damage, liability or expense by reason of any settlement
of any action effected with the written consent of the Company.
Notwithstanding the immediately preceding sentence, if at any time an
Indemnified Person shall have requested an indemnifying party to
reimburse the Indemnified Person for fees and expenses of counsel as
contemplated by the second sentence of this paragraph, the indemnifying
party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement
is entered into more than twenty business days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the Indemnified Person in accordance
with such request prior to the date of such settlement. The Company
shall not, without the prior written consent of each Indemnified
Person, settle or compromise or consent to the entry of judgment in or
otherwise seek to terminate any pending or threatened action, claim,
litigation or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not any Indemnified
Person is a party thereto), unless such settlement, compromise, consent
or termination includes an unconditional release of each Indemnified
Person from all liability arising out of such action, claim, litigation
or proceeding.
(c) The Underwriter agrees to indemnify and hold
harmless the Company and its respective directors, officers, and any
person controlling (within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) the Company and the respective
officers, directors, partners, employees, representatives and agents of
each such person, to the same extent as the foregoing indemnity from
the Company to each of the Indemnified Persons, but only with respect
to claims and actions based on information relating to the Underwriter
furnished in writing by the Underwriter expressly for use in the
Registration Statement and the Prospectus.
(d) The statements contained in the Registration
Statement and the Prospectus in the section entitled the "Underwriting"
constitute the only information
20
<PAGE> 21
heretofore furnished to the Company in writing by the Underwriter
expressly for use in the Registration Statement and the Prospectus, or
any amendment or supplement thereto.
(e) If the indemnification provided for in this
Section 6 is unavailable to an indemnified party in respect of any
losses, claims, damages, liabilities or expenses referred to herein,
then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages,
liabilities and expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying party on the
one hand and the indemnified party on the other hand from the offering
of the Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying
parties and the indemnified party, as well as any other relevant
equitable considerations. The relative benefits received by the
Company, on the one hand, and the Underwriter, on the other hand, shall
be deemed to be in the same proportion as the total proceeds from the
offering of the Securities (net of underwriting discounts and
commissions but before deducting expenses) received by the Company bear
to the total underwriting discounts and commissions received by the
Underwriter. The relative fault of the Company, on the one hand, and
the Underwriter, on the other hand, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriter agree that it would
not be just and equitable if contribution pursuant to this Section 6(e)
were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or
payable by an Indemnified Person as a result of the losses, claims,
damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably
incurred by such Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Section 6, none of the Underwriter and its related Indemnified
Persons shall be required to contribute, in the aggregate, any amount
in excess of the amount by which the total discounts and commissions
applicable to the Securities purchased by the Underwriter exceeds the
amount of any damages which the Underwriter has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution obligations of the
Company set forth herein shall be in addition to any liability or
obligation the Company may otherwise have to any Indemnified Person.
SECTION 7. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties, and agreements contained in
this Agreement, or contained in certificates of officers of the Company
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter or any
of its
21
<PAGE> 22
respective officers, employees, directors, shareholders or person who controls
any Underwriter, or by or on behalf of the Company, and shall survive delivery
of the Securities to and payment for the Securities by the Underwriters.
SECTION 8. Termination of Agreement.
(a) The Underwriter may terminate this Agreement, by
notice to the Company prior to the Closing Date (i) if there shall
occur any default or breach by the Company hereunder or the failure to
satisfy any of the conditions contained in Section 5 hereof, (ii) if
there has been, since the date of this Agreement or since the
respective dates as of which information is provided in the
Registration Statement and prior to the Closing Date, any Material
Adverse Change or any downgrading of any of the Company's securities or
the placement of any such securities on a so-called "credit watch" or
similar list by any major credit rating agency, or (iii) if, since the
date of this Agreement and prior to the Closing Date, (A) there has
occurred any material adverse change in the financial markets of the
United States or any outbreak of hostilities or other calamity or
crisis, the effect of which on the financial securities markets of the
United States is such as to make it, in the reasonable good faith
judgment of the Underwriter, impracticable to market the Securities or
to enforce contracts for the sale of the Securities, or (B) trading in
any of the securities of the Company has been suspended by the
Commission, or trading generally on the New York Stock Exchange, the
American Stock Exchange or the NASDAQ National Market System has been
suspended (other than by limitation on hours or number of days of
trading), or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required, by such
exchange or by order of the Commission or any other governmental
authority or (C) a banking moratorium has been declared by either
federal or New York State authorities.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to
any other party except as provided in Section 4.
SECTION 9. Notices. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (a) if to the Company, to it at
16825 Northchase Drive Suite 1600, Houston, Texas 77060, Attention: Bronson
Schultz, and (b) if to the Underwriter, to Jefferies & Company, Inc., 11100
Santa Monica Blvd., 10th Floor, Los Angeles, California 90025, Attention:
Syndicate Department, and, in each case, with a copy to Latham & Watkins, 633
West Fifth Street, Suite 4000, Los Angeles, California 90071, Attention: Paul D.
Tosetti, Esq., or in any case to such other address as the person to be notified
may have requested in writing.
SECTION 10. Parties. This Agreement shall inure to the benefit
of and be binding upon the Underwriter, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to provide any person, firm or
corporation, other than the Underwriter, the Company and their respective
successors and legal representatives and the controlling persons and officers,
employees, directors and shareholders referred to in Sections 6 and 7 and their
respective heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein or
therein contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Underwriter, the
Company and their respective successors
22
<PAGE> 23
and legal representatives, and said controlling persons, shareholders, officers
and directors and their respective heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
the Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 11. Governing Law. This Agreement SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS
APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument. Please confirm that the
foregoing correctly sets forth the agreement among the Company and the
Underwriter.
Very truly yours,
AMERICAN RICE, INC.
By:________________________________________________
Name: Douglas A. Murphy
Title: President and Chief Executive Officer
The foregoing Agreement
is hereby confirmed and accepted as of
the date first above written.
JEFFERIES & COMPANY, INC.
By:____________________________________
Name: Chris M. Kanoff
Title: Executive Vice President and
Director of Corporate Finance
23
<PAGE> 24
SCHEDULE I
THE COMPANY'S OWNERSHIP OF SUBSIDIARY STOCK
<TABLE>
<CAPTION>
JURISDICTION OF COMPANY'S
INCORPORATION OR PERCENTAGE
NAME FORMATION OWNERSHIP
---- ---------------- ----------
<S> <C> <C>
Comet Ventures, Inc.(1) California 90%
Comet Rice of Puerto Rico, Inc. Delaware 100%
Comet Rice of Jamica, Inc. Jamaica 100%
Rice Corporation of Haiti, SA Haiti 100%
BargeCarib, Inc. Texas 100%
VINAFOOD II Vietnam(2) 55%(3)
</TABLE>
- -----------------
[FN]
(1) Owns 50% of Calbran Partnership, California partnership, with
California Rice Bran, Inc.
(2) Joint venture interest, subject of first refusal prior to foreclosure.
(3) Represents percentage of joint venture interest.
24
<PAGE> 25
SCHEDULE II
OUTSTANDING SUBSCRIPTIONS, RIGHTS, WARRANTS, ETC.
1. Any subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or Liens related to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of, or other
ownership interest in, the Compny or any of its Subsidiaries set forth in the
following:
a. that certain Warrant Agreement dated as of May 24, 1993, between
American Rice, Inc., a Texas corporation, and The Chase Manhattan Bank
(national association); and
b. that certain Warrant Agreement dated as of May 24, 1993, between
American Rice, Inc., a Texas corporation, and Texas Commerce Bank
National Association; and
c. the ARI Incentive Compensation Plan.
25
<PAGE> 1
Exhibit 4.1
===============================================================================
AMERICAN RICE, INC.
AND
U.S. TRUST COMPANY OF TEXAS, N.A.
AS TRUSTEE
__________________
INDENTURE
Dated as of August 24, 1995
------------------
$100,000,000
13% Mortgage Notes due 2002
With Contingent Interest
===============================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03; 11.02
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.02
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . 10.03, 10.04,
10.05
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05, 11.02
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . . . 2.09
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . 6.04
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.07
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.04
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04
318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
N.A. means not applicable.
</TABLE>
- -------------------
* This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.03. Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 2
THE MORTGAGE NOTES
Section 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.05. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.07. Replacement Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.08. Outstanding Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.09. Treasury Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.10. Temporary Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.02. Selection of Mortgage Notes to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.06. Mortgage Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.07. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.08. Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.09. Offer to Purchase by Application of Excess Proceeds . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 4
COVENANTS
Section 4.01. Payment of Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.02. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.03. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.04. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.05. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.06. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.07. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . . . . . 30
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock . . . . . . . . . . . . . . . . . . . 31
Section 4.10. Repurchase at Option of Holders Upon Asset Sales 32
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
Section 4.11. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.12. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.13. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.14. Repurchase at Option of Holders Upon Change of Control . . . . . . . . . . . . . . . . . . . . . 34
Section 4.15. Loans to Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.16. Limitations on Issuance and Sales of Capital Stock of Wholly Owned Subsidiaries . . . . . . . . . 35
Section 4.17. Limitations on Issuances of Guarantees of Indebtedness . . . . . . . . . . . . . . . . . . . . . 35
Section 4.18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.19. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.20. New Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.21. Limitation on Operating Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.22. Limitation on Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.23. Sale of Houston Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 4.24. Limitation on Rice Contract Policies and Procedures . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 5.02. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.05. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.07. Rights of Holders of Mortgage Notes to Receive Payment . . . . . . . . . . . . . . . . . . . . . 43
Section 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.06. Reports by Trustee to Holders of the Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.09. Successor Trustee by Merger, etc 49
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
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<PAGE> 5
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
<TABLE>
<S> <C> <C>
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 50
Section 8.02. Legal Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.03. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.04. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous
Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 8.06. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.07. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.02. With Consent of Holders of Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.03. Compliance with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.04. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.05. Notation on or Exchange of Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.06. Trustee to Sign Amendments, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 10
COLLATERAL AND SECURITY
Section 10.01. Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 10.02. Recording and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 10.03. Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.04. Certificates of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 10.05. Certificates of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10.06. Authorization of Actions to Be Taken by the Trustee Under the Collateral Documents Including
the Intercreditor Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10.07. Authorization of Receipt of Funds by the Trustee Under the Collateral Documents . . . . . . . . . 60
Section 10.08. Termination of Security Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.03. Communication by Holders of Mortgage Notes with Other Holders of Mortgage Notes . . . . . . . . . 62
Section 11.04. Certificate and Opinion as to Conditions Precedent 62
Section 11.05. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 11.06. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.07. No Personal Liability of Directors, Officers, Employees and Stockholders . . . . . . . . . . . . 63
Section 11.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.09. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.10. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.12. Counterpart Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.13. Table of Contents, Headings, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
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<PAGE> 6
EXHIBITS
<TABLE>
<S> <C>
Exhibit A FORM OF MORTGAGE NOTES
Exhibit B ENVIRONMENTAL INDEMNITY
Exhibit C COMPANY PLEDGE AGREEMENT
Exhibit D ERLY PLEDGE AGREEMENT
Exhibit E FREEPORT DEED OF TRUST
Exhibit F HOUSTON DEED OF TRUST
Exhibit G INTERCREDITOR AGREEMENT
Exhibit H MAXWELL DEED OF TRUST
Exhibit J STUTTGART MORTGAGE
Exhibit K TRADEMARK SECURITY AGREEMENT
Exhibit L RICE CONTRACT POLICIES AND PROCEDURES
</TABLE>
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<PAGE> 7
INDENTURE dated as of August 24, 1995 between American Rice, Inc., a Texas
corporation (the "Company"), and U.S. Trust Company of Texas, N.A., a national
banking association as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the 13% Mortgage
Notes due 2002 With Contingent Interest (the "Mortgage Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Accreted Value" means the price at which a Mortgage Note is
originally issued plus any accrued original issue discount.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person to the extent such
Indebtedness is not satisfied and such Lien released at the time of such
acquisition.
"Adjusted Fixed Charge Coverage Ratio" means with respect to any
Person at any time the Fixed Charge Coverage Ratio of such Person on such date
adjusted as follows: (a) Fixed Charges shall be adjusted to include (rather
than exclude) Contingent Interest, whether paid or accrued, and (b) the amount
of Contingent Interest on a pro forma basis shall equal the Contingent Interest
accrued and reflected in the financial statements for the last two Semiannual
Periods with respect to which Contingent Interest was accruable or payable.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
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"ARI-Vinafood" means American Rice-Vinafood Co., Ltd., a limited
liability company organized under the laws of the Socialist Republic of
Vietnam.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback) other than sales in the ordinary course of business consistent with
past practices or sales of accounts receivable, inventory and related
collateral to the extent that the lender under the Revolving Credit Loan has a
Lien on such assets (including the receipt of proceeds of insurance paid on
account of the loss of or damages to any asset, other than inventory, and
awards of compensation for any asset taken by condemnation, eminent domain or
similar proceeding), provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole shall be governed by Section 4.14 or Section 5.01
hereof and not by Section 4.10, and (ii) the issue or sale by the Company or
any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $5.0 million or (b) for net proceeds in excess of $5.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the
Company to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the
Company or to another Wholly Owned Subsidiary, (ii) an issuance of Equity
Interests by a Wholly Owned Subsidiary to the Company or to another Wholly
Owned Subsidiary, and (iii) a Restricted Payment that is permitted under
Section 4.07 shall not be deemed to be an Asset Sale.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.
"Borrowing Base" means, as of any date, an amount equal to the sum of
(a) 85% of the face amount of all accounts receivable owned by the Company and
its Subsidiaries as of such date that are not more than 90 days past due (or
90% of such accounts receivable that are backed by letters of credit) and (b)
75% of the lower of the book value (calculated on a FIFO basis) or fair market
value of all inventory owned by the Company and its Subsidiaries as of such
date and (c) temporary overadvances in excess of the sum of (a) and (b) as
permitted by the lender under the Revolving Credit Loan, each of (a) and (b)
calculated on a consolidated basis and in accordance with GAAP. To the extent
that information is not available as to the amount of accounts receivable or
inventory as of a specific date, the Company may utilize the most recent
available information for purposes of calculating the Borrowing Base.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
"Capital Expenditures" of a Person means expenditures (whether paid
in cash or accrued as a liability) by such Person or any of its Subsidiaries
that, in conformity with GAAP, are or would be included in "capital
expenditures," "additions to property, plant or equipment" or comparable items
in the consolidated financial statements of such Person consistent with prior
accounting practices.
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"Capital Stock" means (i) in the case of a corporation, corporate
stock (whether common or preferred), (ii) in the case of an association or
business entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, (iii) in the case of a
partnership, partnership interests (whether general or limited) and (iv) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
"Carryover Amount" means (i) with respect to the fiscal year of the
Company ended March 31, 1995, zero dollars, and (ii) with respect to each
succeeding fiscal year of the Company, the amount by which (x) the sum of (1)
the Carryover Amount with respect to the immediately prior fiscal year of the
Company plus (2) $5.5 million exceeds (y) the amount of Capital Expenditures
paid or incurred during the fiscal year of the Company with respect to which
such determination is being made; provided, however, that for any fiscal year
of the Company ending on or after March 31, 1997 that immediately follows a
fiscal year in which the Consolidated Cash Flow of the Company exceeds $30.0
million, then the Carryover Amount for such fiscal year shall be deemed to be
the Carryover Amount for the next preceding fiscal year of the Company that
followed a fiscal year of the Company in which such Consolidated Cash Flow was
less than or equal to $30.0 million.
"Cash Equivalents" means (i) U.S. dollars, (ii) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency
or instrumentality thereof having maturities of not more than six months from
the date of acquisition, (iii) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight
bank deposits, in each case with any domestic commercial bank having capital
and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications
specified in clause (iii) above and (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within six months after the date of
acquisition.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of
which is that any "person" (as defined above), other than Douglas A. Murphy or
Gerald D. Murphy, acquires a direct or indirect interest in more than 50% of
the voting power of the Voting Stock of the Company or (iv) the first day on
which a majority of the members of the Board of Directors of the Company are
not Continuing Directors. For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring
Voting Stock of the Company shall be deemed to be a transfer of such portion of
such Voting Stock as corresponds to the portion of the equity of such entity
that has been so transferred.
"Collateral" means, collectively, all assets defined as "Collateral",
"Pledged Collateral", "Mortgaged Property" or "Trust Property" in any of the
Collateral Documents, or any other assets at any time securing the Obligations
of the Company under this Indenture and the Mortgage Notes.
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<PAGE> 10
"Collateral Account" means an account established by the Trustee for
its benefit and the ratable benefit of the Holders of the Mortgage Notes into
which shall be deposited Net Cash Proceeds of sales or other dispositions of
Collateral.
"Collateral Agent" shall mean the Trustee.
"Collateral Documents" means, collectively, the Freeport Deed of
Trust, the Houston Deed of Trust, the Maxwell Deed of Trust, the Stuttgart
Mortgage, the Environmental Indemnity, the Company Pledge Agreement, the ERLY
Pledge Agreement, the Trademark Security Agreement, the Intercreditor Agreement
and any other pledges, agreements, instruments, financing statements, filings
or other documents that evidence, set forth or limit the Lien of the Trustee in
the Collateral.
"Company" means American Rice, Inc., a Texas corporation.
"Company Pledge Agreement" means the Pledge Agreement executed by the
Company in favor of the Trustee for its benefit and the ratable benefit of the
Holders, dated as of the date of this Indenture and substantially in the form
attached as Exhibit C hereto, as such agreement may be amended, modified or
supplemented from time to time.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary gain (or loss) plus any net gain (or loss)
realized in connection with an Asset Sale (to the extent such gains or losses
were included or deducted in computing such Consolidated Net Income), plus (ii)
provision for taxes based on income or profits of such Person and its
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing
such Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period or amortization of
a prepaid cash expense that was paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such depreciation, amortization
and other non-cash charges were deducted in computing such Consolidated Net
Income, plus (v) for purposes of making calculations with respect to Contingent
Interest only, fees related to management services pursuant to the Management
Agreement, in each case, on a consolidated basis and determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes on the
income or profits of, and the depreciation and amortization and other non-cash
charges of, a Subsidiary of the referent Person shall be added to Consolidated
Net Income to compute Consolidated Cash Flow only to the extent (and in the
same proportion) that the Net Income of such Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all
4
<PAGE> 11
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person, (ii) the Net Income of any Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (which has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Subsidiary shall be excluded to the extent and in
proportion to the outstanding Voting Stock of such Subsidiary not held of
record by such referent Person, (iv) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (v) the cumulative effect of a change in
accounting principles shall be excluded, and (vi) the Net Income of
ARI-Vinafood shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the consolidated equity of such Person and its consolidated Subsidiaries
as of such date, less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write- ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the date of this Indenture in the book value of any asset owned
by such Person or a consolidated Subsidiary of such Person, and (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments).
"Contingent Interest" means Base Contingent Interest (as defined in
the form of Mortgage Note attached as Exhibit A hereto) on the Mortgage Notes
then accrued and any Base Contingent Interest previously accrued and the
payment of which has been permitted to be deferred.
"Contingent Interest Accrual" means, at any time, the total amount of
Contingent Interest on the Mortgage Notes accrued and unpaid through and as of
such time.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of this Indenture, (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election or (iii) was nominated for election, elected or
appointed to such Board to fill a vacancy caused by the death of a member of
the Board of Directors.
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<PAGE> 12
"Corporate Trust Office of the Trustee" shall be at 770 Broadway #7B,
New York, NY 10003 or such other address as to which the Trustee may give
notice to the Company.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is one year after the Maturity Date.
"Environmental Indemnity" means that certain Environmental Indemnity
Agreement executed by the Company for the benefit of the Trustee and the
ratable benefit of the Holders of the Mortgage Notes, dated as of the date of
this Indenture and substantially in the form of Exhibit B hereto, as it may be
amended, supplemented or otherwise modified from time to time.
"ERLY" means ERLY Industries Inc., a California corporation.
"ERLY Intercompany Notes" means collectively (i) that certain
intercompany note in favor of the Company, dated the date of this Indenture, in
the aggregate principal amount of $10.5 million, bearing interest at the rate
of 15% per annum and maturing on July 30, 2001, which ranks senior in right of
payment to all existing and future subordinated Indebtedness and pari passu in
right of payment with all future senior Indebtedness of ERLY, together with
that certain Warrant Certificate issued to the Company securing the payment of
such note, exercisable into 256,370 shares of common stock of ERLY, and
substantially in the form attached to such note (the "15% ERLY Intercompany
Note") and (ii) that certain Promissory Note in favor of the Company, dated May
25, 1993, as amended as of the date of this Indenture, in the aggregate
principal amount of $10.0 million, bearing interest at the rate of 6% per annum
and maturing on August 1, 2002 (the "6% ERLY Intercompany Note").
"ERLY Pledge Agreement" means the Pledge Agreement executed by ERLY
in favor of the Trustee for its benefit and the ratable benefit of the Holders
of the Mortgage Notes, dated as of the date of this Indenture and substantially
in the form attached as Exhibit D hereto, as such agreement may be amended,
supplemented or otherwise modified from time to time.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fixed Charges" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense (excluding, solely for purposes of
this definition, Contingent Interest paid or accrued) of such Person and its
Subsidiaries (in proportion to the Company's ownership interest in each such
Subsidiary) for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
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<PAGE> 13
Obligations, commissions, discounts and other fees and charges incurred in
respect of letters of credit or bankers' acceptance financings, and net
payments, if any, pursuant to Hedging Obligations, but net of any amounts
included in interest expense related to the amortization of financing costs)
and (ii) the consolidated interest expense of such Person and its Subsidiaries
(in proportion to the Company's ownership interest in each such Subsidiary)
that was capitalized during such period, and (iii) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person or one of its
Subsidiaries or secured by a Lien on assets of such Person or one of its
Subsidiaries to the extent of such Guarantee or Lien (whether or not such
Guarantee or Lien is called upon), and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Subsidiary) actually declared on any series of preferred stock of such
Person, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems
any Indebtedness (other than revolving credit borrowings and scheduled
payments) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. For purposes of making the
computation referred to above, (i) acquisitions that have been made by the
Company or any of its Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
four-quarter reference period, and (ii) the Consolidated Cash Flow attributable
to discontinued operations, as determined in accordance with GAAP, and
operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges shall not be obligations of
the referent Person or any of its Subsidiaries following the Calculation Date.
"Fixed Interest" means the interest payable with respect to any
principal amount of Mortgage Notes in an amount equal to 13% of such principal
amount.
"Freeport Deed of Trust" means that certain Leasehold Deed of Trust,
Fixtures Financing Statement, Mortgage and Assignment of Rents, Leases and
Leasehold Interests executed by the Company for the benefit of the Trustee and
the ratable benefit of the Holders of the Mortgage Notes, dated as of the date
of this Indenture and substantially in the form of Exhibit E hereto, as it may
be amended, supplemented or otherwise modified from time to time.
"Freeport Facility" means the Company's rice processing and related
facilities in Freeport, Texas.
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<PAGE> 14
"Freeport IRBs" means those certain $13,300,000 Variable Rate Demand
Marine Terminal Revenue Bonds, Series 1985 (American Rice, Inc. Project)
issued by Brazos Harbor Industrial Development Corporation on December 16,
1985.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" means a Person in whose name a Mortgage Note is registered.
"Houston Deed of Trust" means that certain Deed of Trust, Fixtures
Financing Statement, Mortgage and Assignment of Rents, Leases and Leasehold
Interests executed by the Company for the benefit of the Trustee and the
ratable benefit of the Holders of the Mortgage Notes, dated as of the date of
this Indenture and substantially in the form of Exhibit F hereto, as it may be
amended, supplemented or otherwise modified from time to time.
"Houston Property" means the 39 acres of land owned by the Company in
Houston, Texas.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether
or not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person; provided that such indebtedness shall not include indebtedness
represented by standby letters of credit to the extent that a Person's payment
obligation in respect of such standby letter of credit secures an underlying
obligation that otherwise is included as indebtedness of such Person or its
Subsidiaries.
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<PAGE> 15
"Indebtedness to Cash Flow Ratio" means, with respect to any Person,
the ratio of (a) the Indebtedness of such Person and its Subsidiaries as of the
end of the most recently ended fiscal quarter, plus the amount of any
Indebtedness incurred subsequent to the end of such fiscal quarter, to (b) such
Person's Consolidated Cash Flow for the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such event for which such calculation is being made
shall occur (the "Measurement Period"); provided, however, that (i) in making
such computation, Indebtedness shall include the total amount of funding
outstanding and available under any revolving credit facility and (ii) in the
event that the Company or any of its Subsidiaries consummates a material
acquisition or an Asset Sale or other disposition of material assets subsequent
to the commencement of the Measurement Period but prior to the event for which
the calculation of the Indebtedness to Cash Flow Ratio is made, then the
Indebtedness to Cash Flow Ratio shall be calculated giving pro forma effect to
such material acquisition or Asset Sale or other disposition of material
assets, as if the same had occurred at the beginning of the applicable period.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Intercreditor Agreement" means that certain Intercreditor Agreement
entered into by and between the Trustee and the lender under the Revolving
Credit Loan on or before the date of this Indenture, as thereafter amended,
supplemented, modified, or replaced (including such agreements entered into by
the lender under an agreement constituting Permitted Refinancing Indebtedness,
as determined upon and as of the closing of any refinancing or replacement
financing, with respect to the Revolving Credit Loan), in each case
substantially in the form attached hereto as Exhibit G.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other Obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
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<PAGE> 16
"Management Agreement" means that certain Management Agreement, dated
as of May 25, 1993 and amended as of the date hereof, by and between ERLY and
the Company.
"Maturity Date" means July 31, 2002.
"Maxwell Deed of Trust" means that certain Deed of Trust, Leasehold
Deed of Trust, Security Agreement, Fixture Filing and Assignment of Rents,
Leases and Leasehold Interests executed by the Company for the benefit of the
Trustee and the ratable benefit of the Holders of the Mortgage Notes, dated as
of the date of this Indenture and substantially in the form of Exhibit H
hereto, as it may be amended, supplemented or otherwise modified from time to
time.
"Maxwell Facility" means the Company's rice processing and related
facilities in Maxwell, California.
"Mortgage Notes" means the Company's 13% Mortgage Notes due 2002 With
Contingent Interest, as amended or supplemented from time to time in accordance
with the terms hereof, that are issued pursuant to this Indenture.
"Net Cash Proceeds" means the Net Proceeds of any Asset Sale received
in the form of cash or Cash Equivalents.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (or
loss), together with any related provision for taxes on such gain (or loss),
realized in connection with (a) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries
and (ii) any extraordinary or nonrecurring gain (or loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (or
loss).
"Net Proceeds" means the aggregate cash and non-cash consideration
received by the Company or any of its Subsidiaries in respect of any Asset
Sale, including, without limitation, any liabilities (as shown on the Company's
or such Subsidiary's most recent balance sheet or in the notes thereto) of the
Company or any Subsidiary assumed by the transferee in such Asset Sale or
otherwise satisfied in connection with such Asset Sale, net of (i) direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), (ii) amounts applied to the repayment of Indebtedness (other
than the Mortgage Notes), and the value of the Indebtedness assumed by the
transferee in such Asset Sale, in each case, to the extent required by the
terms of Indebtedness secured by a Lien on the asset or assets that were the
subject of such Asset Sale (whether or not, in the case of repayment of
Indebtedness incurred under the Revolving Credit Loan to the extent of the
proceeds of assets not constituting Collateral, such amounts are re-lent), and
(iii) any reserve for adjustment in respect of the sale price of such asset or
assets established in accordance with GAAP.
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<PAGE> 17
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Subsidiaries (other than ARI-Vinafood) (a) provides
credit support of any kind (including any undertaking, agreement or instrument
that would constitute Indebtedness of the Company or any of its Subsidiaries),
or (b) is directly or indirectly liable (as a guarantor or otherwise) and (ii)
no default with respect to which (including any rights that the holders thereof
may have to take enforcement action against ARI-Vinafood) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Subsidiaries (other than ARI-Vinafood) to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof, and is in form and substance satisfactory to the Trustee. The
counsel may be an employee of or counsel to the Company, any Subsidiary of the
Company or the Trustee.
"Operating Lease Obligations" means a Person's operating leases
determined in accordance with GAAP.
"Permitted Investments" means (i) any Investments in the Company or
in a Wholly Owned Subsidiary of the Company that are evidenced by Capital Stock
or Subsidiary Intercompany Notes which are pledged to the Trustee as Collateral
for the Mortgage Notes; (ii) any Investments in Cash Equivalents; (iii) any
Investments by the Company or any Subsidiary of the Company in a Person engaged
in a Related Business that are evidenced by Capital Stock or Subsidiary
Intercompany Notes that are pledged to the Trustee as Collateral for the
Mortgage Notes, if as a result of such Investment (a) such Person becomes a
Wholly Owned Subsidiary of the Company that is engaged in a Related Business or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Subsidiary of the Company that is engaged in a
Related Business; (iv) Restricted Investments made as a result of the receipt
of non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with Section 4.10; and (v) other Investments in any Person that do
not exceed $1.0 million in the aggregate at any time outstanding.
"Permitted Liens" means (i) Liens securing Indebtedness pursuant to
the Revolving Credit Loan for working capital purposes and other proper
corporate purposes not prohibited by the Revolving Credit Loan, in an aggregate
principal amount not to exceed the Borrowing Base, plus interest, fees,
charges, costs and expenses pursuant to the Revolving Credit Loan, provided
that any Liens on
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<PAGE> 18
Collateral in favor of the lender under the Revolving Credit Loan shall be
junior and subordinate to the Liens in favor of the Trustee under the
Collateral Documents and shall be subject to the Intercreditor Agreement; (ii)
Liens in favor of the Company or created in favor of the Trustee pursuant to
this Indenture or the Collateral Documents; (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the
Company or any Subsidiary of the Company; provided that such Liens were in
existence prior to the consummation and not made in contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company; (iv) Liens on property
existing at the time of acquisition thereof by the Company or any Subsidiary of
the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens existing on the date of this Indenture, including renewals and extensions
thereof in connection with Permitted Refinancing Indebtedness (other than Liens
securing Indebtedness to be repaid with the proceeds from the sale of the
Mortgage Notes and Liens securing the Revolving Credit Loan), provided that any
Liens on Collateral in favor of the lenders under such Permitted Refinancing
Indebtedness shall be junior and subordinate to the Liens in favor of the
Trustee under the Collateral Documents; (vii) Liens on the Collateral securing
obligations in respect of this Indenture and the Mortgage Notes; (viii) ground
leases under which the Company is the lessee in respect of the real property on
which facilities owned or leased by the Company or any of its Subsidiaries are
located; (ix) (1) Liens for taxes, assessments or governmental charges or
claims or (2) statutory Liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen and repairmen or other similar Liens arising in the
ordinary course of business, in the case of each of (1) and (2), with respect
to amounts that either (A) are not yet delinquent or (B) are being contested in
good faith by appropriate proceedings as to which appropriate reserves or other
provisions have been made in accordance with GAAP; (x) easements,
rights-of-way, restrictions, covenants, mineral reservations, minor defects or
irregularities in title and other similar charges or encumbrances which do not
interfere in any material respect with the ordinary conduct of business of the
Company and its Subsidiaries; (xi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (iv) of Section 4.09 covering
only the assets acquired with such Indebtedness; (xii) Liens on the Freeport
Facility securing the Freeport IRBs and any letter of credit obtained by the
Company if and to the extent required for the Company to remarket the Freeport
IRBs; and (xiii) Liens incurred in the ordinary course of business of the
Company or any Subsidiary of the Company with respect to obligations that do
not exceed $2.5 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of advances
or credit (other than trade credit in the ordinary course of business) and (b)
do not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company
or such Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries permitted hereunder;
provided that: (i) the principal amount of such Permitted Refinancing
Indebtedness does not exceed (a) the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded or (b) if such
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded was issued at an original issue discount, the original issue price,
plus amortization of the original issue discount to the time the Permitted
Refinancing Debt is incurred, or (c) if such Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is Indebtedness represented
by the Revolving Credit Loan and such Permitted Refinancing Indebtedness also
is a revolving credit facility,
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<PAGE> 19
the amount of the Borrowing Base (in each case, plus interest, fees, charges,
costs and the amount of reasonable expenses incurred in connection therewith);
(ii) such Permitted Refinancing Indebtedness does not require payments of
principal prior to the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Mortgage Notes, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the Mortgage Notes on terms at least as favorable to the Holders of
Mortgage Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iv) such Indebtedness is incurred either by the Company or by the
Subsidiary who is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (v) any Permitted Refinancing
Indebtedness relating to the Revolving Credit Loan will be subject to the
Intercreditor Agreement.
"Person" means any individual, corporation, partnership, joint
venture, incorporated or unincorporated association, joint stock company,
trust, unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Pledged Collateral" means any assets defined as Pledged Collateral
in the Company Pledge Agreement or the ERLY Pledge Agreement.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether outstanding on the date
hereof or issued after the date of this Indenture, and including, without
limitation, all classes and series of preferred or preference stock of such
Person.
"Related Business" means the business of purchasing, processing,
bagging, transporting, trading and marketing agricultural products and such
business activities as are incidental or related thereto.
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Revolving Credit Loan" means Indebtedness of the Company and its
Subsidiaries under that certain Accounts Financing Agreement [Security
Agreement] by and between the Company and Congress Financial Corporation, as
amended as of June 30, 1995 and as of the date hereof and as may be amended,
extended, renewed, restated, supplemented or replaced from time to time in
accordance with this Indenture, together with all supplements thereto and all
other "Financing Agreements" as defined therein, as the same may hereafter be
amended, modified, supplemented, renewed, extended, restated or replaced, and,
if the outstanding Indebtedness under any revolving credit facility that
refinances, refunds or replaces such Indebtedness constitutes Permitted
Refinancing Indebtedness determined as of and upon the closing of such
revolving credit facility, such term shall also mean all Indebtedness of the
Company
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<PAGE> 20
and its Subsidiaries under any credit agreement, loan agreement, guarantee,
note or other financing or security agreement entered into in connection with
such revolving credit facility.
"SEC" means the Securities and Exchange Commission.
"Semiannual Period" means each period that begins on January 1 and
ends on the next succeeding June 30 or each period that begins on July 1 and
ends on the next succeeding December 31.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stuttgart Mortgage" means that certain Mortgage and Assignment of
Rents, Leases and Leasehold Interests executed by the Company to the Trustee
for its benefit and the ratable benefit of the Holders of the Mortgage Notes,
dated the date of this Indenture and substantially in the form of Exhibit J
hereto, as it may be amended, supplemented or otherwise modified from time to
time.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Intercompany Notes" means the intercompany promissory
notes issued by the Company's Subsidiaries in favor of the Company to evidence
loans by the Company, in each case in the form attached as an exhibit to the
Company Pledge Agreement, provided, that such term shall not include any notes
evidencing indebtedness, Obligations or liabilities of a Subsidiary to the
Company or to another Subsidiary, or by the Company to a Subsidiary, to the
extent such note arises out of or relates to the sale or other disposition of
inventory or rendition of services in connection with the purchase, sale,
processing, storage or distribution of inventory.
"Tax Sharing Agreement" means that certain Tax Agreement dated May
25, 1993 and amended as of the date hereof, by and between ERLY and the
Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section
Section 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA, or, if this Indenture is not required to be so
qualified, as in effect on the date hereof.
"Trademark Security Agreement" means that certain Confirmation and
Grant of Security Interest in Trademarks and Trademark Applications and
Trademark Licenses executed by the Company for the benefit of the Trustee and
the ratable benefit of the Holders of the Mortgage Notes, dated as of the date
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<PAGE> 21
of this Indenture and substantially in the form of Exhibit K hereto, as it may
be amended, supplemented or otherwise modified from time to time.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the election
of directors.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . . . 4.11
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . . . 3.09
"Change of Control Offer" . . . . . . . . . . . . . . . . 4.14
"Change of Control Payment" . . . . . . . . . . . . . . . 4.14
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . 8.03
"Event of Default" . . . . . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . . . . . 4.10
"incur" . . . . . . . . . . . . . . . . . . . . . . . . . 4.09
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . 8.02
"Liquidated Damages" . . . . . . . . . . . . . . . . . . . 4.23
"Offer Amount" . . . . . . . . . . . . . . . . . . . . . . 3.09
"Offer Period" . . . . . . . . . . . . . . . . . . . . . . 3.09
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . 2.03
"Purchase Date" . . . . . . . . . . . . . . . . . . . . . 3.09
"Registrar" . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Restricted Payments" . . . . . . . . . . . . . . . . . . 4.07
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
15
<PAGE> 22
"indenture securities" means the Mortgage Notes;
"indenture security Holder" means a Holder of a Mortgage Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Mortgage Notes means the Company and any successor
obligor upon the Mortgage Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections
or rules adopted by the SEC from time to time.
ARTICLE 2
THE MORTGAGE NOTES
SECTION 2.01. FORM AND DATING.
The Mortgage Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Mortgage Notes may
have notations, legends or endorsements required by law, stock exchange rule or
usage. Each Mortgage Note shall be dated the date of its authentication. The
Mortgage Notes shall be in denominations of $1,000 and integral multiples
thereof.
The terms and provisions contained in the Mortgage Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
16
<PAGE> 23
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Mortgage Notes for the Company by manual
or facsimile signature. The Company's seal shall be reproduced on the Mortgage
Notes and may be in facsimile form.
If an Officer whose signature is on a Mortgage Note no longer holds
that office at the time a Mortgage Note is authenticated, the Mortgage Note
shall nevertheless be valid.
A Mortgage Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Mortgage Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Mortgage Notes for original issue up to an aggregate
principal amount of $100,000,000. The aggregate principal amount of Mortgage
Notes outstanding at any time may not exceed $100,000,000 except as provided in
Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Mortgage Notes. An authenticating agent may
authenticate Mortgage Notes whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as an Agent to deal with
the Company or an Affiliate of the Company.
The Mortgage Notes shall be issuable only in registered form without
coupons in denominations of $1,000 and integral multiples thereof.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency in the Borough of
Manhattan, City of New York where (a) Mortgage Notes may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
Mortgage Notes may be presented or surrendered for payment ("Paying Agent") and
(c) notices and demands to or upon the Company in respect of the Mortgage Notes
and this Indenture may be served. The Company may also from time to time
designate one or more other offices or agencies where the Mortgage Notes may be
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in the Borough of Manhattan, the City of New York,
for such purposes. The Company may act as its own Registrar or Paying Agent
except that for the purposes of Articles Three and Eight and Sections 4.10 and
4.14, neither the Company nor any Subsidiary shall act as Paying Agent. The
Registrar shall keep a register of the Mortgage Notes and of their transfer and
exchange. The Company, upon notice to the Trustee, may have one or more
co-Registrars and one or more additional paying agents reasonably acceptable to
the Trustee. The term "Paying Agent" includes any additional paying agent.
The Company initially appoints the Trustee as Registrar and Paying Agent until
such time as the Trustee has resigned or a successor has been appointed.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent.
17
<PAGE> 24
The Company shall notify the Trustee, in advance, of the name and address of
any such Agent. If the Company fails to maintain a Registrar or Paying Agent,
the Trustee shall act as such and shall be entitled to appropriate compensation
in accordance with Section 7.07 hereof.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, premium and Liquidated Damages, if any, or interest on the
Mortgage Notes, and shall notify the Trustee of any default by the Company in
making any such payment. While any such default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the
Company or a Subsidiary) shall have no further liability for the money. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the ratable benefit of the Holders all money held by it
as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to
the Company, the Trustee shall serve as Paying Agent for the Mortgage Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
seven Business Days before each interest payment date and at such other times
as the Trustee may request in writing, a list in such form and as of such date
as the Trustee may reasonably require of the names and addresses of the Holders
of Mortgage Notes and the Company shall otherwise comply with TIA Section
312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Mortgage Notes. When Mortgage Notes
are presented by a Holder to the Registrar with a request to register the
transfer of the Mortgage Notes or to exchange such Mortgage Notes for an equal
principal amount of Mortgage Notes of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested if its
requirements for such transactions are met; provided, however, that the
Mortgage Notes presented or surrendered for register of transfer or exchange
shall be duly endorsed or accompanied by a written instruction of transfer in
form satisfactory to the Registrar duly executed by such Holder or by his
attorney, duly authorized in writing.
(b) General Provisions Relating to Transfers and Exchanges.
(i) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer
pursuant to Sections 3.07, 4.10, 4.14 and 9.05 hereto).
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<PAGE> 25
(ii) The Registrar shall not be required to register the
transfer of or exchange any Mortgage Note selected for
redemption in whole or in part, except the unredeemed
portion of any Mortgage Note being redeemed in part.
(iii) All Mortgage Notes issued upon transfer or exchange
of Mortgage Notes shall be the valid obligations of
the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the
Mortgage Notes surrendered upon such transfer or
exchange.
(iv) The Company shall not be required:
(A) to issue, to register the transfer of or to exchange
Mortgage Notes during a period beginning at the
opening of business 15 days before the day of any
selection of Mortgage Notes for redemption under
Section 3.02 hereof and ending at the close of
business on the day of selection; or
(B) to register the transfer of or to exchange any
Mortgage Note so selected for redemption in whole or
in part, except the unredeemed portion of any
Mortgage Note being redeemed in part; or
(C) to register the transfer of or to exchange a Mortgage
Note between a record date and the next succeeding
interest payment date.
(v) Prior to due presentment for the registration of a transfer
of any Mortgage Note, the Trustee, any Agent and the
Company may deem and treat the Person in whose name any
Mortgage Note is registered as the absolute owner of such
Mortgage Note for the purpose of receiving payment of
principal of, premium and Liquidated Damages, if any, and
interest on such Mortgage Notes, and neither the Trustee,
any Agent nor the Company shall be affected by notice to
the contrary.
SECTION 2.07. REPLACEMENT MORTGAGE NOTES.
If any mutilated Mortgage Note is surrendered to the Trustee, or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Mortgage Note, the Company shall issue and
the Trustee, upon the written order of the Company in the form of an Officer's
Certificate, shall authenticate a replacement Mortgage Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Mortgage
Note is replaced. The Company and the Trustee may charge for their respective
expenses in replacing a Mortgage Note.
Every replacement Mortgage Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Mortgage Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING MORTGAGE NOTES.
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<PAGE> 26
The Mortgage Notes outstanding at any time are all the Mortgage Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
Except as set forth in Section 2.09 hereof, a Mortgage Note does not cease to
be outstanding because the Company or an Affiliate of the Company holds the
Mortgage Note.
If a Mortgage Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Mortgage Note is held by a bona fide purchaser.
If the principal amount of any Mortgage Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Mortgage Notes payable on that date, then on and after that
date such Mortgage Notes shall be deemed to be no longer outstanding and shall
cease to accrue interest.
SECTION 2.09. TREASURY MORTGAGE NOTES.
In determining whether the Holders of the required principal amount
of Mortgage Notes have concurred in any direction, waiver or consent, Mortgage
Notes owned by the Company, or by any Person directly or indirectly controlling
or controlled by or under direct or indirect common control with the Company,
shall be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Mortgage Notes that a Responsible Officer
knows are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY MORTGAGE NOTES.
Until definitive Mortgage Notes are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Mortgage Notes upon a
written order of the Company in the form of an Officer's Certificate.
Temporary Mortgage Notes shall be substantially in the form of definitive
Mortgage Notes but may have variations that the Company considers appropriate
for temporary Mortgage Notes and as shall be reasonably acceptable to the
Trustee. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate definitive Mortgage Notes in exchange for temporary Mortgage
Notes. Holders of temporary Mortgage Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Mortgage Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Mortgage Notes surrendered to them for registration of transfer, exchange or
payment. The Trustee and no one else shall cancel all Mortgage Notes
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall destroy cancelled Mortgage Notes (subject to the record
retention requirement of the Exchange Act). Certification of the destruction
of all cancelled Mortgage Notes shall be delivered to the Company. The Company
may not issue new Mortgage Notes to replace Mortgage Notes that it has paid or
that have been delivered to the Trustee for cancellation.
20
<PAGE> 27
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest (or Liquidated
Damages) on the Mortgage Notes, it shall pay the defaulted interest (or
Liquidated Damages) in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest (or Liquidated Damages), to the Persons who
are Holders on a subsequent special record date, in each case at the rate
provided in the Mortgage Notes and in Section 4.01 hereof. The Company shall
notify the Trustee in writing of the amount of defaulted interest (or
Liquidated Damages) proposed to be paid on each Mortgage Note and the date of
the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest (or Liquidated Damages). At least 15 days before the special record
date, the Company (or, upon the written request of the Company, the Trustee in
the name and at the expense of the Company) shall mail or cause to be mailed to
Holders a notice that states the special record date, the related payment date
and the amount of such interest (or Liquidated Damages) to be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Mortgage Notes pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall furnish to the
Trustee, at least 30 days but not more than 60 days before a redemption date,
an Officers' Certificate setting forth (i) the clause of this Indenture
pursuant to which the redemption shall occur, (ii) the redemption date, (iii)
the principal amount of Mortgage Notes to be redeemed and (iv) the redemption
price.
SECTION 3.02. SELECTION OF MORTGAGE NOTES TO BE REDEEMED.
If less than all of the Mortgage Notes are to be redeemed at any
time, the Trustee shall select the Mortgage Notes to be redeemed among the
Holders of the Mortgage Notes in compliance with the requirements of the
principal national securities exchange on which the Mortgage Notes are listed
or on a pro rata basis, by lot or in accordance with any other method the
Trustee considers fair and appropriate; provided, however, that no Mortgage
Notes of $1,000 or less shall be redeemed in part.
The Trustee shall promptly notify the Company in writing of the
Mortgage Notes selected for redemption and, in the case of any Mortgage Note
selected for partial redemption, the principal amount thereof to be redeemed.
Mortgage Notes and portions of Mortgage Notes selected shall be in amounts of
$1,000 or whole multiples of $1,000; except that if all of the Mortgage Notes
of a Holder are to be redeemed, the entire outstanding amount of Mortgage Notes
held by such Holder, even if not a multiple of $1,000, shall be redeemed.
Except as otherwise provided for in this Section 3.02, provisions of this
Indenture that apply to Mortgage Notes called for redemption also apply to
portions of Mortgage Notes called for redemption.
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<PAGE> 28
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
whose Mortgage Notes are to be redeemed at its registered address.
The notice shall identify the Mortgage Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) if any Mortgage Note is being redeemed in part, the portion of
the principal amount of such Mortgage Note to be redeemed and that, after
the redemption date upon surrender of such Mortgage Note, a new Mortgage
Note or Mortgage Notes in principal amount equal to the unredeemed portion
shall be issued upon cancellation of the original Mortgage Note;
(d) the name and address of the Paying Agent;
(e) that Mortgage Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Mortgage Notes or portion of the Mortgage Notes
called for redemption ceases to accrue on and after the redemption date;
(g) the paragraph of the Mortgage Notes and/or Section of this
Indenture pursuant to which the Mortgage Notes called for redemption are
being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Mortgage Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Mortgage Notes called for redemption become irrevocably due and payable
on the redemption date at the redemption price. A notice of redemption may not
be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money in immediately
available funds sufficient to pay the redemption price of
22
<PAGE> 29
and accrued interest (and Liquidated Damages, if any) on all Mortgage Notes to
be redeemed on that date. The Trustee or the Paying Agent shall promptly
return to the Company any money deposited with the Trustee or the Paying Agent
by the Company in excess of the amounts necessary to pay the redemption price
of, and accrued interest (and Liquidated Damages, if any) on, all Mortgage
Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Mortgage Notes or the portions of Mortgage Notes called for redemption. If
a Mortgage Note is redeemed on or after an interest record date but on or prior
to the related interest payment date, then any accrued and unpaid interest (and
Liquidated Damages if any) shall be paid to the Person in whose name such
Mortgage Note was registered at the close of business on such record date. If
any Mortgage Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest
(and Liquidated Damages, if any) not paid on or with respect to such unpaid
principal, in each case at the rate provided in the Mortgage Notes and in
Section 4.01 hereof.
SECTION 3.06. MORTGAGE NOTES REDEEMED IN PART.
Upon surrender of a Mortgage Note that is redeemed in part, the
Company shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Mortgage Note
equal in principal amount to the unredeemed portion of the Mortgage Note
surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) The Mortgage Notes shall not be redeemable at the Company's
option prior to July 31, 1999. Thereafter, the Mortgage Notes shall be subject
to redemption at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest (and Liquidated Damages, if any) thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on July 31 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.0%
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.0%
2001 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.0%
</TABLE>
(b) Notwithstanding the foregoing, until August 31, 1998, the
Company may redeem at its option up to one-third of the initial aggregate
principal amount of the Mortgage Notes at a redemption price of 107% of the
aggregate principal amount thereof, plus accrued and unpaid interest (and
Liquidated Damages, if any) to the date of redemption, with the net proceeds
received by the Company from a public offering of common stock of the Company;
provided that at least two-thirds of the initial aggregate principal amount of
the Mortgage Notes remains outstanding immediately after the occurrence of such
23
<PAGE> 30
redemption and such redemption shall occur within 60 days of the date of the
closing of such public offering.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.14 hereof, the Company
shall not be required to make mandatory redemption payments or sinking fund
payments with respect to the Mortgage Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Mortgage Notes (an
"Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later
than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Mortgage
Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer
Amount") or, if less than the Offer Amount has been tendered, all Mortgage
Notes tendered in response to the Asset Sale Offer. Payment for any Mortgage
Notes so purchased shall be made in the same manner as interest payments are
made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Mortgage Note is registered at the close
of business on such record date, and no additional interest shall be payable to
Holders who tender Mortgage Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Mortgage Notes pursuant to the Asset
Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice,
which shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Mortgage Note not tendered or accepted for payment
shall continue to accrete and accrue interest;
(d) that, unless the Company defaults in making such payment, any
Mortgage Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrete and accrue interest after the Purchase Date;
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<PAGE> 31
(e) that Holders electing to have a Mortgage Note purchased pursuant
to an Asset Sale Offer may only elect to have all of such Mortgage Note
purchased and may not elect to have only a portion of such Mortgage Note
purchased;
(f) that Holders electing to have a Mortgage Note purchased pursuant
to any Asset Sale Offer shall be required to surrender the Mortgage Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Mortgage Note completed, or transfer by book-entry transfer, to the
Company, a depositary, if appointed by the Company, or a Paying Agent at
the address specified in the notice at least three days before the
Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Mortgage Note the Holder delivered for purchase
and a statement that such Holder is withdrawing his election to have such
Mortgage Note purchased;
(h) that, if the aggregate principal amount of Mortgage Notes
surrendered by Holders exceeds the Offer Amount, the Company shall select
the Mortgage Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Mortgage Notes in denominations of $1,000, or integral multiples thereof,
shall be purchased); and
(i) that Holders whose Mortgage Notes were purchased only in part
shall be issued new Mortgage Notes equal in principal amount to the
unpurchased portion of the Mortgage Notes surrendered (or transferred by
book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Mortgage Notes or portions thereof tendered pursuant to the
Asset Sale Offer, or if less than the Offer Amount has been tendered, all
Mortgage Notes tendered, and shall deliver to the Trustee an Officers'
Certificate stating that such Mortgage Notes or portions thereof were accepted
for payment by the Company in accordance with the terms of this Section 3.09.
The Company or the Paying Agent, as the case may be, shall promptly (but in any
case not later than five days after the Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Mortgage Notes
tendered by such Holder and accepted by the Company for purchase, and the
Company shall promptly issue a new Mortgage Note, and the Trustee, upon written
request from the Company shall authenticate and mail or deliver such new
Mortgage Note to such Holder, in a principal amount equal to any unpurchased
portion of the Mortgage Note surrendered. Any Mortgage Note not so accepted
shall be promptly mailed or delivered by the Company to the Holder thereof.
The Company shall publicly announce the results of the Asset Sale Offer on the
Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
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ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF MORTGAGE NOTES.
The Company shall pay or cause to be paid the principal of, premium
and Liquidated Damages, if any, and interest on the Mortgage Notes on the dates
and in the manner provided in the Mortgage Notes. Principal, premium and
Liquidated Damages, if any, and interest shall be considered paid on the date
due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium and Liquidated Damages, if any, and interest then due.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Mortgage
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages, if any (without regard to any applicable grace
period), at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Mortgage Notes may
be surrendered for registration of transfer or for exchange and where notices
and demands to or upon the Company in respect of the Mortgage Notes and this
Indenture may be served. The Company shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at
the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Mortgage Notes may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the Borough of Manhattan, the City of New York for such purposes.
The Company shall give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
SECTION 4.03. REPORTS.
Whether or not required by the rules and regulations of the SEC, so
long as any Mortgage Notes are outstanding, the Company shall furnish to the
Holders of Mortgage Notes (i) all quarterly and
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annual financial information that would be required to be contained in a filing
with the SEC on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the SEC on Form 8-K if
the Company were required to file such reports. The Company also shall
include, in the case of such quarterly reports, the Contingent Interest paid,
the Contingent Interest Accrual amount and Consolidated Cash Flow with respect
to the most recently ended fiscal quarter of the Company, and in the case of
annual reports, the audited Contingent Interest paid, the Contingent Interest
Accrual amount and audited Consolidated Cash Flow for the most recently ended
fiscal year and for each of the fiscal quarters in such fiscal year. In
addition, whether or not required by the rules and regulations of the SEC, the
Company shall file a copy of all such information and reports with the SEC for
public availability (unless the SEC will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. The Company shall also provide information returns stating the
amount of original issue discount accrued on the Mortgage Notes held of record
by person other than corporations and other exempt holders. The Company also
shall comply with the other provisions of Sections 314(a) and 314(b) of the
Trust Indenture Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture and the Collateral Documents, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and the Collateral
Documents and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture or the Collateral Documents
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Mortgage Notes is prohibited or if such event has
occurred, a description of the event and what action the Company is taking or
proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year- end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article Four or Article Five hereof or, if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Mortgage Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default or any default
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under any lease, mortgage or indenture described in Section 6.01(e) or 6.01(f),
an Officers' Certificate specifying such Default, Event of Default or any other
default and what action the Company is taking or proposes to take with respect
thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith by appropriate proceedings
and an adequate reserve has been established therefor to the extent required by
GAAP or where the failure to make such payment or effect such discharge
(together with all other such failures) would not have a material adverse
effect on the financial condition or results or operations of the Company.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that would prohibit or forgive
the Company from paying all or any portion of the principal of or interest (or
Liquidated Damages, if any) on the Mortgage Notes or that may affect the
covenants or the performance of this Indenture or any Collateral Documents; and
the Company (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it shall not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any
distribution on account of the Company's or any of its Subsidiaries' Equity
Interests (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to the Company or any Wholly Owned Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Company or any direct or indirect parent of the Company or other
Affiliate of the Company (other than any such Equity Interests owned by the
Company or any Wholly Owned Subsidiary of the Company); (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated in right of payment to
the Mortgage Notes; or (iv) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph
of Section 4.09;
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(c) after giving effect to such Restricted Payment and the
incurrence of any Indebtedness the net proceeds of which are used to
finance such Restricted Payment, the Company's Indebtedness to Cash Flow
Ratio would not have exceeded 3.0 to 1;
(d) immediately after such Restricted Payment (the value of any such
payment, of other than cash, being determined by the Board of Directors
and evidenced by a resolution set forth in an Officers' Certificate
delivered to the Trustee) and after giving effect thereto on a pro forma
basis, the Consolidated Net Worth of the Company would be more than $50.0
million; and
(e) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of this Indenture (excluding Restricted Payments permitted by
clauses (ii) and (iii) in the next succeeding paragraph), is less than the
sum of (i) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of this Indenture to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment
(or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale since the date of this
Indenture of Equity Interests of the Company or of debt securities of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of this Indenture is
sold for cash or otherwise liquidated or repaid for cash, the lesser of
(A) the cash return of capital with respect to such Restricted Investment
(less the cost of disposition, if any) and (B) the initial amount of such
Restricted Investment, plus (iv) $2.0 million.
The foregoing provisions shall not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company)
of other Equity Interests of the Company (other than any Disqualified Stock),
provided that the amount of any such net cash proceeds that are utilized for
any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (e)(ii) of the preceding paragraph; (iii) the defeasance,
redemption or repurchase of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness or the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than Disqualified Stock), provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (iv) the repurchase, redemption or
other acquisition or retirement for value of any Equity Interests of the
Company or any Subsidiary of the Company held by any member of the Company's
(or any of its Subsidiaries') management pursuant to any management equity
subscription agreement or stock option agreement in effect as of the date of
this Indenture, provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$250,000 in any twelve-month period plus the aggregate cash proceeds received
by the Company during such twelve-month period from any reissuance of Equity
Interests by the Company to members of management of the Company and its
Subsidiaries, and no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (v) any payment or other
distribution pursuant to
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the terms of the Management Agreement and the Tax Sharing Agreement, as such
agreements exist on the date of this Indenture, provided that payments made
pursuant to the Management Agreement will be permitted only if (a) the Company
has made all payments of principal, premium and Liquidated Damages, if any, and
interest (including all Contingent Interest accrued or deferred) due on the
Mortgage Notes at the time payment of such Management Agreement fees is
proposed to be made and (b) the Company's Consolidated Cash Flow for the four
fiscal quarters last completed prior to such payment is at least $19.0 million;
(vi) any payments of dividends or distributions on account of the Equity
Interests in ARI-Vinafood held by Central Food Corporation II, a company
organized under the laws of the Socialist Republic of Vietnam ("Central Food
Corporation II"), provided that, concurrently with such payments ARI-Vinafood
pays to the Company a dividend or distribution on account of the Company's
Equity Interests in ARI-Vinafood proportionate to the Company's ownership
interest in ARI-Vinafood; (vii) capital contributions (in any form) by the
Company to ARI-Vinafood pursuant to that certain Joint Venture Contract dated
July 27, 1994 (as in effect on the date of this Indenture) between Central Food
Corporation II and the Company in an aggregate amount not to exceed $1.0
million; (viii) a loan of $10.5 million in aggregate principal amount to ERLY
that is evidenced by the 15% ERLY Intercompany Note and pledged to the Trustee
as Collateral for the Mortgage Notes; (ix) any intercompany loan by the Company
to any Subsidiary that is not a Wholly Owned Subsidiary of up to $2.0 million
and which is evidenced by a Subsidiary Intercompany Note that is pledged to the
Trustee as Collateral for the Mortgage Notes, provided that the aggregate
amount of all such loans may not exceed $10.0 million at any one time; provided
further that (a) any subsequent issuance or transfer of Equity Interests that
results in the Obligations under any such intercompany loan being owed by a
Person other than a Subsidiary of the Company and (b) any sale or other
transfer of the Obligations under any such intercompany loan to a Person that
is not either the Company or a Subsidiary shall be deemed, in each case, to
constitute a Restricted Payment by the Company or such Subsidiary, as the case
may be; and (x) any payments of principal and interest on account of the
Freeport IRBs made to any Person other than an Affiliate of the Company after
the Company remarkets the Freeport IRBs.
The amount of all Restricted Payments (other than cash) shall be the
fair market value (evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company or
such Subsidiary, as the case may be, pursuant to the Restricted Payment. Not
later than the date of making any Restricted Payment, the Company shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this Section were computed, which calculations may be based upon the Company's
latest available financial statements.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any
Subsidiary to (i)(a) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect
to any other interest or participation in, or measured by, its profits, or (b)
pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make
loans or advances to the Company or any of its Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
existing agreements evidencing Indebtedness as in effect on the date of this
Indenture, including the Revolving Credit Loan, and restrictions against
intersubsidiary loans,
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advances or transfers contained in the Revolving Credit Loan, (b) this
Indenture and the Mortgage Notes, (c) applicable law, (d) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that
the Consolidated Cash Flow of such Person is not taken into account in
determining whether such acquisition was permitted by the terms of this
Indenture, (e) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, or (g) Permitted Refinancing
Indebtedness, provided that the restrictions of the nature described in clauses
(i), (ii) and (iii) above contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Debt) and that
the Company shall not issue any Disqualified Stock and shall not permit any of
its Subsidiaries to issue any shares of Preferred Stock; provided, however,
that the Company and its Subsidiaries may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock if the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such Disqualified
Stock is issued would have been at least 2.25:1 from the date of the Indenture
through July 31, 1996, at least 2.5:1 from August 1, 1996 through July 31,
1997, at least 2.75:1 from August 1, 1997 through July 31, 1998, and at least
3.0:1 from August 1, 1998 and thereafter, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The foregoing provisions shall not apply to:
(i) the incurrence by the Company and its Subsidiaries of
revolving credit Indebtedness and letters of credit pursuant to the
Revolving Credit Loan for working capital purposes and other proper
corporate purposes not prohibited by the Revolving Credit Loan (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company thereunder) in an aggregate
principal amount not to exceed the amount of the Borrowing Base, plus
interest, fees, charges, costs, and expenses pursuant to the Revolving
Credit Loan;
(ii) the incurrence by the Company of Indebtedness represented
by the Mortgage Notes;
(iii) the incurrence by the Company or any of its Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by this Indenture to be incurred;
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(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of the Company or such
Subsidiary, in an aggregate principal amount not to exceed $10.0 million
at any time outstanding; provided that none of the Company or any of the
Subsidiaries shall incur any Indebtedness pursuant to this clause (iv)
that creates a security interest in, causes a Lien (other than a Permitted
Lien) to be placed against or otherwise encumbers the Collateral;
(v) the incurrence by the Company or any of its Wholly Owned
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly Owned Subsidiaries; provided, however, that, except to
the extent that such Indebtedness may be incurred pursuant to the next
paragraph, (a) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than a
Wholly Owned Subsidiary and (b) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Subsidiary shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Wholly Owned Subsidiary, as the
case may be;
(vi) the incurrence by any Subsidiary of the Company that is not
a Wholly Owned Subsidiary of intercompany Indebtedness between the Company
and such Subsidiary in an aggregate principal amount not to exceed $2.0
million at any time with respect to any such Subsidiary; provided that the
aggregate amount of Indebtedness incurred by the Company's Subsidiaries
pursuant to this paragraph (vi) shall not exceed $10.0 million at any one
time;
(vii) the incurrence by the Company of Indebtedness under a
letter of credit in such amount and to the extent necessary to remarket
the Freeport IRBs; provided that the Fixed Charge Coverage Ratio, as
determined above, would have been at least 2.5:1;
(viii) the incurrence by ARI-Vinafood of Non-Recourse Debt; and
(ix) the incurrence by the Company or any of its Subsidiaries of
Indebtedness not otherwise permitted to be incurred pursuant to the
provisions described above in an aggregate principal amount not to exceed
$2.0 million at any one time outstanding.
SECTION 4.10. REPURCHASE AT OPTION OF HOLDERS UPON ASSET SALES.
The Company shall not, and shall not permit any of its Subsidiaries
to, engage in an Asset Sale unless (i) the Company (or the Subsidiary, as the
case may be) receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee) of
the assets or Equity Interests issued or sold or otherwise disposed of; (ii) at
least 85% of the Net Proceeds therefor received by the Company or such
Subsidiary is in the form of cash or Cash Equivalents, provided that, with
respect to the Houston Property, at least 50% of the Net Proceeds therefor
received by the Company must be in the form of cash or Cash Equivalents, and
provided further that any notes or other obligations received by the Company or
any Subsidiary as consideration in connection with an Asset Sale shall be
counted as "Net Proceeds" only to the extent such notes or other obligations
are immediately converted by the Company or such Subsidiary into cash (and then
only to the extent of the cash received); and (iii) if such Asset Sale
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involves Collateral, the Company obtains a release of the Lien from the Trustee
on such Collateral on or before the date such Asset Sale occurs.
Within one year after the receipt of any Net Cash Proceeds from an
Asset Sale, the Company (or the Subsidiary, as the case may be) may apply such
Net Cash Proceeds to an investment in another business, the making of a capital
expenditure or the acquisition of other tangible assets, in each case, in a
Related Business; provided, that if any Collateral is sold, (a) any Net
Proceeds received from such Asset Sale that are not in the form of cash or Cash
Equivalents shall be pledged to the Trustee to secure the Company's Obligations
under the Mortgage Notes and this Indenture; (b) if the Net Cash Proceeds from
such sales (either individually or when combined with the Excess Proceeds (as
defined below) from sales of Collateral during such one year period) exceed
$1.0 million, then such Net Cash Proceeds shall be held in a segregated
Collateral Account (which may, at the Company's option, be invested in Cash
Equivalents) that will be pledged to the Trustee to secure the Company's
Obligations under the Mortgage Notes and this Indenture until such Net Cash
Proceeds are either reinvested or applied to redeem the Mortgage Notes as
described below; and (c) if any such Net Cash Proceeds are reinvested, such Net
Cash Proceeds shall only be reinvested in the type of assets of the Company
defined as Collateral under the Collateral Documents and similar in character
to the assets sold, and only if the assets acquired by such reinvestment are
subject to a perfected Lien in favor of the Trustee (with the same priority as
the Lien on the Collateral that was the subject of the Asset Sale); and
provided further that if any such Net Cash Proceeds consist of proceeds of
insurance paid on account of the loss or damage to any property, or
compensation or other proceeds for any property taken by condemnation, eminent
domain or similar proceedings, such proceeds may be applied to reimburse the
Company or any of its Subsidiaries, as applicable, for expenditures made, and
costs incurred, to repair, rebuild, replace or restore the property subject to
such loss, damage or taking so long as the Company utilizes such Net Cash
Proceeds in accordance with clauses (a), (b) and (c) of this paragraph.
Any Net Cash Proceeds from any Asset Sales that are not applied or
reinvested as provided above shall be deemed to constitute "Excess Proceeds."
Pending the final application of any such Net Cash Proceeds (other than
proceeds from an Asset Sale of assets constituting Collateral), the Company or
such Subsidiary may temporarily reduce the Revolving Credit Loan or otherwise
invest such Net Cash Proceeds in any manner that is not prohibited by this
Indenture. When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company shall make an Asset Sale Offer to purchase up to a maximum
aggregate principal amount (expressed as an integral multiple of $1,000) of
Mortgage Notes equal to the Excess Proceeds at an offer price in cash equal to
100% of the Accreted Value thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of repurchase, in accordance
with the procedures set forth in Section 3.09 hereof. To the extent that the
aggregate Accreted Value of the Mortgage Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate Accreted
Value of the Mortgage Notes surrendered by Holders thereof exceeds the amount
of Excess Proceeds, the Trustee shall select the Mortgage Notes in accordance
with Section 3.02 hereof. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Subsidiaries
to, sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make any
contract, agreement, understanding, loan, advance or guarantee
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with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $5.0 million, an opinion as to the fairness to the
Company or such Subsidiary of such Affiliate Transaction from a financial point
of view issued by an investment banking firm of national standing; provided
that (x) any employment agreement entered into by the Company or any of its
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary, (y) transactions between or among
the Company and/or its Subsidiaries and (z) transactions permitted by the
provisions of this Indenture set forth in Section 4.07, in each case, shall not
be deemed Affiliate Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly create, incur, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired, or any income or profits therefrom
or assign or convey any right to receive income therefrom, except Permitted
Liens.
SECTION 4.13. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Mortgage Notes.
SECTION 4.14. REPURCHASE AT OPTION OF HOLDERS UPON CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, each Holder of Mortgage
Notes shall have the right to require the Company to repurchase all or any part
(equal to $1,000 in principal amount or an integral multiple thereof) of such
Holder's Mortgage Notes pursuant to the offer described below (the "Change of
Control Offer") at an offer price in cash equal to 101% (or 100% if such Change
of Control occurs on or after July 31, 2001) of the Accreted Value thereof,
plus accrued and unpaid interest (and Liquidated Damages, if any) thereon to
the date of repurchase (the "Change of Control Payment"). Within ten days
following any Change of Control, the Company shall mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Mortgage Notes pursuant to the procedures
required by this Indenture and described in such notice. The
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Company shall comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Mortgage Notes as a result of a Change of Control.
On the date of the Change of Control Payment, the Company shall, to
the extent lawful, (1) accept for payment all Mortgage Notes or portions
thereof properly tendered pursuant to the Change of Control Offer, (2) deposit
with the paying agent an amount equal to the Change of Control Payment in
respect of all Mortgage Notes or portions thereof so tendered and (3) deliver
or cause to be delivered to the Trustee the Mortgage Notes so accepted together
with an Officers' Certificate stating the aggregate principal amount of the
Mortgage Notes thereof being purchased by the Company. The paying agent shall
promptly mail to each Holder of Mortgage Notes so tendered the Change of
Control Payment for such Mortgage Notes, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Mortgage Note equal in principal amount to any unpurchased portion of the
Mortgage Notes surrendered, if any; provided that each such new Mortgage Note
shall be in a principal amount of $1,000 or an integral multiple thereof. The
Company shall publicly announce the results of the Change of Control Offer on
or as soon as practicable after the date of the Change of Control Payment.
SECTION 4.15. LOANS TO SUBSIDIARIES.
Without limitation of Section 4.07, all loans to Subsidiaries made by
the Company from time to time after the date of this Indenture shall be
evidenced by unsecured Subsidiary Intercompany Notes in favor of the Company
that shall be pledged to the Trustee as Collateral to secure the Mortgage
Notes. All loans by the Company to any Subsidiary of the Company outstanding
on the date of this Indenture shall be evidenced by an unsecured Subsidiary
Intercompany Note that shall be pledged to the Trustee as Collateral for the
Mortgage Notes. Each Subsidiary Intercompany Note shall be payable upon
demand, shall bear interest at the same rate as the Mortgage Notes, shall be
pari passu in right of payment with all present and future senior Indebtedness
of the Subsidiary to which such loan is made and senior to all future
subordinated Indebtedness of such Subsidiary.
SECTION 4.16. LIMITATIONS ON ISSUANCE AND SALES OF CAPITAL STOCK OF WHOLLY
OWNED SUBSIDIARIES.
The Company (i) shall not, and shall not permit any Wholly Owned
Subsidiary of the Company to, transfer, convey, sell or otherwise dispose of
any Capital Stock of any Wholly Owned Subsidiary of the Company to any Person
(other than the Company), unless (a) such transfer, conveyance, sale or other
disposition is of all the Capital Stock of such Wholly Owned Subsidiary and (b)
the Net Cash Proceeds from such transfer, conveyance, sale or other disposition
are applied in accordance with Section 4.10 hereof, and (ii) shall not permit
any Wholly Owned Subsidiary of the Company to issue any of its Equity Interests
(other than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company. Any Capital Stock
so issued shall be pledged to the Trustee.
SECTION 4.17. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS.
Without limitation of Section 4.09, the Company shall not permit any
Subsidiary, directly or indirectly, to Guarantee the payment of any
Indebtedness other than such Indebtedness represented by the Mortgage Notes and
the Revolving Credit Loan or secure the payment of any Indebtedness, other than
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with accounts receivable, inventory (and the proceeds therefrom) and related
collateral, unless such Subsidiary simultaneously executes and delivers a
supplemental indenture to this Indenture providing for (i) the Guarantee of the
payment of the Mortgage Notes by such Subsidiary, which Guarantee shall be
senior to or pari passu with such Subsidiary's Guarantee of or pledge to secure
such other Indebtedness, and (ii) a security interest (other than on accounts
receivable, inventory (and the proceeds therefrom) and related collateral)
securing such Guarantee on the Mortgage Notes that ranks pari passu with the
Liens securing such Indebtedness. Notwithstanding the foregoing, any such
Guarantee by a Subsidiary of the Mortgage Notes shall provide by its terms that
it shall be automatically and unconditionally released and discharged upon
either (a) the release or discharge of such Guarantee of such Indebtedness,
except a discharge by or as a result of payment under such Guarantee, or (b)
any sale, exchange or transfer, to any Person not an Affiliate of the Company,
of all of the Company's stock in, or all or substantially all the assets of,
such Subsidiary, which sale, exchange or transfer is made in compliance with
the applicable provisions of this Indenture.
SECTION 4.18. INSURANCE.
Until the Mortgage Notes have been paid in full, the Company shall,
and shall cause its Subsidiaries to, maintain insurance with responsible
carriers against such risks and in such amounts as is customarily carried by
similar businesses with such deductibles, retentions, self insured amounts and
coinsurance provisions as are customarily carried by similar businesses of
similar size, including, without limitation, property and casualty, and shall
have provided insurance certificates evidencing such insurance to the Trustee
prior to the date of this Indenture and shall thereafter provide evidence of
such insurance within 30 days of the anniversary or renewal date of each such
policy, which certificate shall expressly state the expiration date for each
policy listed. Without limitation of the foregoing, customary insurance
coverage for the purposes of this Indenture shall include the following: (i)
workers' compensation insurance to the extent required to comply with all
applicable state, territorial, or United States laws and regulations or the
laws and regulations of any other applicable jurisdiction; (ii) comprehensive
general liability insurance with minimum limits of $1.0 million; (iii) umbrella
or excess liability insurance providing liability limits over and above the
foregoing insurance up to a minimum limit of $25.0 million; (iv) property
insurance protecting the property against such risks and hazards (other than
earthquakes) as are from time to time covered by an "all-risk" policy or a
property policy covering "special" causes of loss (such insurance shall provide
coverage in not less than the lesser of 120% of the outstanding principal
amount of Mortgage Notes plus accrued and unpaid interest and 100% of actual
replacement value (as determined at each policy renewal based on the F.W.
Dodge Building Index or some other recognized means) of any fixtures, equipment
or improvements and with a deductible no greater than $250,000 (other than
flood insurance, for which the deductible may be up to 10% of such replacement
value or such greater amount as is available on reasonably commercial terms));
and (v) such insurance of any leased real or personal property as is required
by the terms of the applicable lease. All insurance required under this
Indenture (except worker's compensation) shall name the Trustee as an
additional insured or loss payee, as applicable. All such insurance policies
shall be issued by carriers having an A.M. Best & Company, Inc. rating of A--
or higher, or if such carrier is not rated by A.M. Best & Company, Inc., having
the financial stability and size deemed appropriate by an opinion from a
reputable insurance broker.
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SECTION 4.19. FURTHER ASSURANCES.
The Company shall (and shall cause each of its Subsidiaries to) do,
execute, acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments as may be required
from time to time or as the Trustee may reasonably request in order (i) to
carry out more effectively the purposes of the Collateral Documents, (ii) to
subject to the Liens created by any of the Collateral Documents any of the
properties, rights or interests required to be encumbered thereby, (iii) to
perfect and maintain the validity, effectiveness and priority of any of the
Collateral Documents and the Liens intended to be created hereby or thereby,
and (iv) to better assure, convey, grant, assign, transfer, preserve, protect
and confirm to the Trustee any of the rights granted or now or hereafter
intended by the parties thereto to be granted to the Trustee or under any other
instrument executed in connection therewith or granted by the Company under the
Collateral Documents or under any other instrument executed in connection
therewith. Without limiting the generality of the foregoing, the Company shall
not, without the consent of the Holders of a majority in principal amount of
the then outstanding Mortgage Notes, amend the Management Agreement, the Tax
Sharing Agreement, the ERLY Intercompany Notes or the Warrant Agreement dated
as of the date hereof by and between ERLY and the Company (or the associated
warrants) in any manner that adversely affects the Holders of the Mortgage
Notes.
SECTION 4.20. NEW SUBSIDIARIES.
The Company shall not create or otherwise cause or suffer to exist
any new direct Subsidiary of the Company unless the Capital Stock of such
Subsidiary owned by the Company and any Subsidiary Intercompany Note to which
such Subsidiary becomes a party are pledged as Collateral pursuant to the
Collateral Documents. The Company shall not create, cause or suffer to exist
or allow any direct Subsidiary to create, cause or suffer to exist any
Subsidiary of a Subsidiary owned in whole or in part by the Company.
SECTION 4.21. LIMITATION ON OPERATING LEASE OBLIGATIONS.
The Company shall not, and shall cause each of its Subsidiaries not
to, directly or indirectly create or otherwise suffer to exist additional
Operating Lease Obligations not in existence on the date of this Indenture,
unless the amount of additional minimum rental payments (determined in
accordance with GAAP) incurred as a result of all such additional Operating
Lease Obligations does not exceed $2.5 million in the aggregate on a pro forma
basis for the 12 months preceding and including the date such proposed
additional Operating Lease Obligation is incurred; provided, however, that this
restriction will not apply to (i) any renewal or extension by the Company of an
Operating Lease Obligation existing on the date of this Indenture on
substantially similar terms, allowing for adjustment of rental payments to
reflect market prices and customary extensions and rate adjustments on the same
assets previously leased, or (ii) Operating Lease Obligations with a term of
less than one year.
SECTION 4.22. LIMITATION ON CAPITAL EXPENDITURES.
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If the Consolidated Cash Flow of the Company for any fiscal year
ending on March 31, 1995 or thereafter does not exceed $30.0 million, then the
Capital Expenditures for the Company and its Subsidiaries for the next
succeeding fiscal year shall not exceed the sum of (a) $5.5 million and (b) the
Carryover Amount determined with respect to such prior fiscal year.
SECTION 4.23. SALE OF HOUSTON PROPERTY.
The Company shall sell the Houston Property to a third party that is
not an Affiliate of the Company or ERLY within 18 months from the date hereof
and shall apply the proceeds of such sale in accordance with Section 4.10
hereof. If the Company fails to sell the Houston Property by such date, then
the Company shall become obligated to pay liquidated damages ("Liquidated
Damages") to each Holder in an amount equal to $0.048 per week per $1,000
principal amount of Mortgage Notes held by such Holder for each week or portion
thereof that the sale of the Houston Property has not been effected, which
Liquidated Damages should be the Trustee's sole remedy for the Company's
failure to sell such property by such date; provided that the Trustee shall
have all rights and remedies afforded to it under this Indenture to proceed
against the Houston Property in the same manner as against any other assets
constituting Collateral. All accrued Liquidated Damages shall be deemed
interest and shall be paid by the Company on the same dates and in the same
manner as regular interest payments on the Mortgage Notes.
SECTION 4.24. LIMITATION ON RICE CONTRACT POLICIES AND PROCEDURES.
The Company shall not, without first obtaining consent of the holders
of a majority in aggregate principal amount of the Mortgage Notes then
outstanding, modify or revoke the Company's policies and procedures with
respect to the trading of rice futures contracts adopted by the Company's Board
of Directors on September 22, 1994 (other than modifications necessary to
reflect changes in the terms of employment of the employees identified in such
policies and procedures), which policies and procedures are attached as Exhibit
L hereto.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another Person
unless:
(a) the Company is the surviving corporation or the Person formed by
or surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia;
(b) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Mortgage Notes, this
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Indenture and the Collateral Documents pursuant to a supplemental indenture or
other documents or instruments in form reasonably satisfactory to the Trustee;
(c) immediately after such transaction no Default or Event of
Default exists;
(d) the owner of the Capital Stock of the Person formed by or
surviving any such consolidation or merger (if other than the Company) or the
Person to which such sale, assignment, transfer, lease, conveyance or other
disposition has been made shall have pledged to the Trustee all of the issued
and outstanding Capital Stock of the surviving corporation or the Company, as
the case may be (with the same priority as the Lien on the Capital Stock of the
Company owned by ERLY);
(e) the perfection and priority of the Liens in the Collateral in
favor of the Trustee are not impaired, except for the Lien on the Capital Stock
of the Company owned by ERLY, which Lien may be released upon such merger,
consolidation or sale of assets if the other conditions herein are satisfied;
and
(f) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made, (A) shall have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) shall, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at
the beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 4.09.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Mortgage Notes except in
the case of a sale of all of the Company's assets that meets the requirements
of Section 5.01 hereof.
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ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest
(including Contingent Interest) on, or Liquidated Damages with
respect to, the Mortgage Notes and such default continues for a
period of 30 days, provided, that payments of Contingent Interest
that are permitted to be deferred as provided in this Indenture shall
not become due for this purpose until such payment is required to be
made pursuant to the terms of this Indenture;
(b) the Company defaults in the payment when due of principal
of or premium, if any, on the Mortgage Notes when the same becomes
due and payable at maturity, upon redemption (including in connection
with an offer to purchase), acceleration or otherwise;
(c) the Company or any Subsidiary fails for 15 days after
notice from the Trustee to comply with any of the provisions of
Sections 4.07, 4.09, 4.10 or 4.14 hereof;
(d) the Company or any Subsidiary fails to observe or perform
any other covenant, representation, warranty or other agreement in
this Indenture, the Mortgage Notes or the Collateral Documents for 60
days after notice to the Company by the Trustee or the Holders of at
least 25% in principal amount of the Mortgage Notes then outstanding;
(e) an "Event of Default" under and as defined in either of
the lease agreements relating to real property leased by the Company
at the Freeport Facility or the Maxwell Facility;
(f) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is
Guaranteed by the Company or any of its Subsidiaries), whether such
Indebtedness or Guarantee now exists, or is created after the date of
this Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or
more or is secured by a Lien that is prior to the Lien in favor of
the Trustee;
(g) any Collateral Document shall be held to be unenforceable
or otherwise invalid (except as expressly set forth therein or in
this Indenture) or the Lien created by any Collateral Document in any
asset or assets with a fair market value in excess of $5.0 million
ceases to be a valid and perfected Lien with the same priority as the
Lien specified in such Collateral Document, subject only to Permitted
Liens;
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(h) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent jurisdiction
against the Company or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary and such judgment or judgments remain unpaid,
undischarged or unstayed for a period (during which execution shall
not be effectively stayed) of 60 days, provided that the aggregate of
all such undischarged judgments exceeds $5.0 million;
(i) the Company or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary pursuant to or within the meaning of
Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against
it in an involuntary case,
(iii) consents to the appointment of a custodian of it or
for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due;
or
(j) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary in
an involuntary case;
(ii) appoints a custodian of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary or
for all or substantially all of the property of the Company or
any of its Significant Subsidiaries or any group of Subsidiaries
that, taken as a whole, would constitute a Significant
Subsidiary; or
(iii) orders the liquidation of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that,
taken as a whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (i) or (j) of Section 6.01 hereof with respect to the Company, any
Significant Subsidiary or any group of Significant Subsidiaries that, taken as
a whole, would constitute a Significant Subsidiary) occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Mortgage Notes may declare the principal, premium, if any, interest
(including all Contingent Interest accrued or deferred)
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and any other monetary obligations on all the Mortgage Notes to be due and
payable immediately. Upon any such declaration, the Mortgage Notes shall
become due and payable immediately. Notwithstanding the foregoing, if an Event
of Default specified in clause (i) or (j) of Section 6.01 hereof occurs with
respect to the Company, any of its Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary,
all outstanding Mortgage Notes shall be due and payable immediately without
further action or notice. The Holders of a majority in aggregate principal
amount of the then outstanding Mortgage Notes by written notice to the Trustee
may on behalf of all of the Holders rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal, interest
or premium that has become due solely because of the acceleration) have been
cured or waived.
In the case of any Event of Default occurring on or after July 31,
1999 by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Company or any of its Subsidiaries with the intention of
avoiding payment of the premium that the Company would have had to pay if the
Company then had elected to redeem the Mortgage Notes pursuant to Section 3.07
hereof, then, upon acceleration of the Mortgage Notes, an equivalent premium
shall also become and be immediately due and payable, to the extent permitted
by law, anything in this Indenture or in the Mortgage Notes to the contrary
notwithstanding. If an Event of Default occurs prior to July 31, 1999 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Company or any of its Subsidiaries with the intention of avoiding the
prohibition on redemption of the Mortgage Notes prior to such date, then, upon
acceleration of the Mortgage Notes, an additional premium shall also become and
be immediately due and payable to the extent permitted by law in an amount, for
each of the years beginning on July 31 of the years set forth below, as set
forth below (expressed as a percentage of the Accreted Value to the date of
payment that would otherwise be due but for the provisions of this sentence):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119.0%
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116.0%
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.0%
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110.0%
</TABLE>
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium and
Liquidated Damages, if any, and interest on the Mortgage Notes or to enforce
the performance of any provision of the Mortgage Notes or this Indenture or any
Collateral Documents.
The Trustee may maintain a proceeding even if it does not possess any
of the Mortgage Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Mortgage Note in exercising
any right or remedy accruing upon an Event of Default shall not impair the
right or remedy or constitute a waiver of or acquiescence in the Event of
Default. All remedies are cumulative to the extent permitted by law.
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SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Mortgage Notes by notice to the Trustee may on behalf of
the Holders of all of the Mortgage Notes waive an existing Default or Event of
Default and its consequences hereunder, except a continuing Default or Event of
Default in the payment of the principal of, premium and Liquidated Damages, if
any, or interest (including Contingent Interest) on, the Mortgage Notes
(including in connection with an offer to purchase); provided, however, that
the Holders of a majority in principal amount of the then outstanding Mortgage
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration. Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in aggregate principal amount of the then
outstanding Mortgage Notes may direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture or the Collateral
Documents or that the Trustee determines may be unduly prejudicial to the
rights of other Holders of Mortgage Notes or that may involve the Trustee in
personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Mortgage Note may pursue a remedy with respect to this
Indenture or the Mortgage Notes only if:
(a) the Holder of a Mortgage Note gives to the Trustee written
notice of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Mortgage Notes make a written request to the Trustee to pursue
the remedy;
(c) such Holder of a Mortgage Note or Holders of Mortgage Notes
offer and, if requested, provide to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Mortgage Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Mortgage Note may not use this Indenture to prejudice the rights
of another Holder of a Mortgage Note or to obtain a preference or priority over
another Holder of a Mortgage Note.
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SECTION 6.07. RIGHTS OF HOLDERS OF MORTGAGE NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Mortgage Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Mortgage Note, on or after the
respective due dates expressed in the Mortgage Note (including in connection
with an offer to purchase), or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of such Holder, except that no Holder shall have the right
to institute any suit if and to the extent that the institution or prosecution
thereof, or entry or enforcement of any judgment resulting therefrom, would
under applicable law result in the surrender, impairment, waiver or loss of any
Lien created pursuant to any Collateral Document.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Mortgage Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Mortgage Notes allowed in any judicial proceedings
relative to the Company (or any other obligor upon the Mortgage Notes), its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on
any such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the
event that the Trustee shall consent to the making of such payments directly to
the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof.
To the extent that the payment of any such compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or
adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Mortgage Notes or the rights of any
Holder, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
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SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order, subject to the terms of any
Intercreditor Agreement:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Mortgage Notes for amounts due and unpaid on
the Mortgage Notes for principal, premium and Liquidated Damages, if any, and
interest, ratably, without preference or priority of any kind, according to the
amounts due and payable on the Mortgage Notes for principal, premium and
Liquidated Damages, if any, and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Mortgage Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Mortgage Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Mortgage Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Collateral Documents and
the Trustee need perform only those duties that are specifically set
forth in this Indenture and the Collateral Documents and no others,
and no
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implied covenants or obligations shall be read into this Indenture
and the Collateral Documents against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture or any Collateral Document shall
require the Trustee to expend or risk its own funds or incur any
liability. The Trustee shall be under no obligation to exercise any of
its rights and powers under this Indenture or any Collateral Document at
the request of any Holders, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith
in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel and the written advice of such counsel or
any Opinion of Counsel shall be full and complete authorization and
protection from liability in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
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(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient
if signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture or any Collateral Document
at the request or direction of any of the Holders unless such Holders
shall have offered and, if requested, provided to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that
might be incurred by it in compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Mortgage Notes and may otherwise deal with the Company or
any Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with
like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture, the Collateral Documents or
the Mortgage Notes, it shall not be accountable for the Company's use of the
proceeds from the Mortgage Notes or any money paid to the Company or upon the
Company's direction under any provision of this Indenture, it shall not be
responsible for the use or application of any money received by any Paying
Agent other than the Trustee, and it shall not be responsible for any statement
or recital herein or any statement in the Mortgage Notes or any other document
in connection with the sale of the Mortgage Notes or pursuant to this Indenture
other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to Holders of Mortgage Notes a
notice of the Default or Event of Default within 90 days after it occurs.
Except in the case of a Default or Event of Default in payment of principal of,
premium and Liquidated Damages, if any, or interest on any Mortgage Note, the
Trustee may withhold the notice if it determines that withholding notice is in
the interests of the Holders of the Mortgage Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE MORTGAGE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Mortgage Notes remain
outstanding, the Trustee shall mail to the Holders
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of the Mortgage Notes a brief report dated as of such reporting date that
complies with TIA Section 313(a) (but if no event described in TIA Section
313(a) has occurred within the twelve months preceding the reporting date, no
report need be transmitted). The Trustee also shall comply with TIA Section
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Mortgage Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Mortgage Notes are listed in accordance with TIA
Section 313(d). The Company shall promptly notify the Trustee when the
Mortgage Notes are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder and
under the Collateral Documents. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture and the
Collateral Documents, including the costs and expenses of enforcing this
Indenture or any Collateral Documents against the Company (including this
Section 7.07) and defending itself against any claim (whether asserted by the
Company or any Holder or any other person) or liability in connection with the
exercise or performance of any of its powers or duties hereunder, except to the
extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of such counsel. The Company need not pay for any settlement
made without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture and the Collateral Documents.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Mortgage Notes on all money or property
held or collected by the Trustee, except that held in trust to pay principal
and interest on particular Mortgage Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture and the Collateral Documents.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(i) or (j) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
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SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of a
majority in principal amount of the then outstanding Mortgage Notes may remove
the Trustee by so notifying the Trustee and the Company in writing. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding Mortgage
Notes may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding
Mortgage Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Mortgage
Note who has been a Holder of a Mortgage Note for at least six months, fails to
comply with Section 7.10, such Holder of a Mortgage Note may petition any court
of competent jurisdiction for the removal of the Trustee and the appointment of
a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company and as required by the
Intercreditor Agreement. Thereupon, the resignation or removal of the retiring
Trustee shall become effective, and the successor Trustee shall have all the
rights, powers and duties of the Trustee under this Indenture and the
Collateral Documents, and shall also act as the Collateral Agent under any
Collateral Document. The successor Trustee shall mail a notice of its
succession to Holders of the Mortgage Notes. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee,
provided all sums owing to the Trustee hereunder have been paid and subject to
the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of
the Trustee pursuant to this Section 7.08, the Company's obligations under
Section 7.07 hereof shall continue for the benefit of the retiring Trustee.
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SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or
state authorities and that has a combined capital and surplus of at least $100
million (or be a member or subsidiary of a bank holding system with aggregate
combined capital and surplus of at least $100 million) as set forth in its most
recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Mortgage Notes
upon compliance with the conditions set forth below in this Article Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Mortgage Notes
on the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by
the outstanding Mortgage Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Mortgage Notes and this
Indenture (and the Trustee, on demand of and at the expense of the Company,
shall, upon satisfaction by the Company of the conditions in Section 8.04
hereof, execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise
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terminated or discharged hereunder: (a) the rights of Holders of outstanding
Mortgage Notes to receive solely from the trust fund described in Section 8.04
hereof, and as more fully set forth in such Section, payments in respect of the
principal of, and premium and Liquidated Damages, if any, and interest
(including Contingent Interest, if any) on such Mortgage Notes when such
payments are due, (b) the Company's obligations with respect to such Mortgage
Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and the Company's obligations in
connection therewith and (d) this Article Eight. Subject to compliance with
this Article Eight, the Company may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12 and 4.14 hereof with respect to the outstanding Mortgage Notes on
and after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Mortgage Notes shall thereafter be deemed not
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Mortgage Notes shall not be deemed
outstanding for accounting purposes). For this purpose, Covenant Defeasance
means that, with respect to the outstanding Mortgage Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 6.01 hereof, but, except as
specified above, the remainder of this Indenture and such Mortgage Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03 hereof, subject to
the satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(f) through 6.01(h) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Mortgage Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the ratable benefit of the Holders, cash in United States
dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay
the principal of, premium and Liquidated Damages, if any, and
interest (including the maximum amount payable as Contingent
Interest, if any) due on the outstanding Mortgage Notes on the stated
date for payment thereof or on the applicable redemption date, as the
case may be, and the Company must specify whether the Mortgage Notes
are being defeased to maturity or to a particular redemption date;
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(b) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in
the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of
this Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of the
outstanding Mortgage Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in
the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Mortgage Notes will not recognize
income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event
of Default resulting from the incurrence of Indebtedness all or a
portion of the proceeds of which will be used to defease the Mortgage
Notes pursuant to this Article Eight concurrently with such
incurrence) or insofar as Sections 6.01(i) or 6.01(j) hereof are
concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under,
any material agreement or instrument (other than this Indenture) to
which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an opinion
of counsel to the effect that on the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of Mortgage Notes over other
creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with.
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SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding
Mortgage Notes shall be held in trust and applied by the Trustee, in accordance
with the provisions of such Mortgage Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Mortgage
Notes of all sums due and to become due thereon in respect of principal,
premium and Liquidated Damages, if any, and interest, but such money need not
be segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non- callable
Government Securities deposited pursuant to Section 8.04 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Mortgage Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Mortgage Note and remaining unclaimed for two years
after such principal, and premium and Liquidated Damages, if any, or interest
has become due and payable shall be paid to the Company on its request or (if
then held by the Company) shall be discharged from such trust; and the Holder
of such Mortgage Note shall thereafter, as a secured creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and
The Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such notification or publication, any unclaimed
balance of such money then remaining shall be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02
or 8.03 hereof, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise
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prohibiting such application, then the Company's obligations under this
Indenture and the Mortgage Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as
the Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that,
if the Company makes any payment of principal of, premium, if any, or interest
on any Mortgage Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Mortgage Notes
to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF MORTGAGE NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Mortgage Notes or any
Collateral Documents without the consent of any Holder of a Mortgage Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Mortgage Notes in addition to or
in place of certificated Mortgage Notes;
(c) to provide for the assumption of the Company's obligations to
the Holders of the Mortgage Notes in the case of a merger or consolidation
pursuant to Article Five hereof;
(d) to provide for certain amendments to the Collateral Documents
expressly called for therein in the case of a merger or consolidation;
(e) to execute and deliver any documents necessary or appropriate to
release Liens on any Collateral as provided for herein or in any
Collateral Documents;
(f) to make any change that would provide any additional rights or
benefits or Collateral to or for the ratable benefit of the Holders or
that does not adversely affect the legal rights of any such Holder
hereunder or under the Collateral Documents; or
(g) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company in
the execution of any amended or supplemental Indenture or Collateral Documents
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture or Collateral Documents that affects its own rights, duties or
immunities under this Indenture, any Collateral Documents or otherwise.
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SECTION 9.02. WITH CONSENT OF HOLDERS OF MORTGAGE NOTES.
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture or the Collateral Documents
(including Section 3.09, 4.10 and 4.14 hereof) and the Mortgage Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Mortgage Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Mortgage
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of
the principal of, premium and Liquidated Damages, if any, or interest on the
Mortgage Notes, except a payment default resulting from an acceleration that
has been rescinded) or compliance with any provision of this Indenture, the
Mortgage Notes or any Collateral Document may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Mortgage
Notes (including consents obtained in connection with a tender offer or
exchange offer for the Mortgage Notes).
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental Indenture, any amendment or supplement to any Collateral Document
or any such waiver, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Mortgage Notes as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.02 hereof, the Trustee shall join with the Company in the execution
of such amended or supplemental Indenture or Collateral Document unless such
amended or supplemental Indenture or Collateral Document affects the Trustee's
own rights, duties or immunities under this Indenture or such Collateral
Document or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture or
Collateral Documents.
It shall not be necessary for the consent of the Holders of Mortgage
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Mortgage Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture, Collateral Document or waiver. Subject to Sections
6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount
of the Mortgage Notes then outstanding may waive compliance in a particular
instance by the Company with any provision of this Indenture, the Mortgage
Notes or the Collateral Documents. However, without the consent of each Holder
affected, an amendment or waiver may not (with respect to any Mortgage Notes
held by a non-consenting Holder):
(a) reduce the principal amount of Mortgage Notes whose Holders
must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Mortgage Note or alter or waive any of the provisions with respect to
the redemption of the Mortgage Notes except as provided above in
Sections 4.10 and 4.14 hereof;
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<PAGE> 62
(c) reduce the rate of or change the time for payment of
interest (including Contingent Interest or Liquidated Damages),
including default interest, on any Mortgage Note;
(d) waive an Event of Default in the payment of principal of or
premium or Liquidated Damages, if any, or interest (including
Contingent Interest) or on the Mortgage Notes (except a rescission of
acceleration of the Mortgage Notes by the Holders of at least a
majority in aggregate principal amount of the Mortgage Notes and a
waiver of the payment default that resulted from such acceleration);
(e) make any Mortgage Note payable in money other than that
stated in the Mortgage Notes;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Mortgage
Notes to receive payments of principal, premium or Liquidated
Damages, if any, or interest (including Contingent Interest) on the
Mortgage Notes;
(g) waive a redemption payment with respect to any Mortgage Note
(other than a payment required by one of the covenants set forth in
Sections 4.10 and 4.14 hereof);
(h) directly or indirectly release Liens on all or substantially
all of the Collateral except in connection with a permitted merger,
consolidation or disposition of assets or repayment or redemption of
the Mortgage Notes; or
(i) make any change in the foregoing amendment and waiver
provisions.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Mortgage Notes
shall be set forth in a amended or supplemental Indenture that complies with
the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Mortgage Note is a continuing consent by the Holder of a
Mortgage Note and every subsequent Holder of a Mortgage Note or portion of a
Mortgage Note that evidences the same debt as the consenting Holder's Mortgage
Note, even if notation of the consent is not made on any Mortgage Note.
However, any such Holder of a Mortgage Note or subsequent Holder of a Mortgage
Note may revoke the consent as to its Mortgage Note if the Trustee receives
written notice of revocation before the date the waiver, supplement or
amendment becomes effective. An amendment, supplement or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated
proxies), and only those persons, shall be entitled
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to revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder of a Mortgage Note, unless it makes a change described in any
of clauses (g) and (h) of Section 9.02, in which case, the amendment,
supplement or waiver shall bind only each Holder of a Mortgage Note who has
consented to it and every subsequent Holder of a Mortgage Note or portion of a
Note that evidences the same debt as the consenting Holder's Mortgage Note;
provided that any such waiver shall not impair or affect the right of any
Holder to receive payment of principal of and interest and Liquidated Damages
on a Mortgage Note, on or after the respective due dates expressed in such
Mortgage Note, or to bring suit for the enforcement of any such payment on or
after such respective dates without the consent of such Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF MORTGAGE NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Mortgage Note thereafter authenticated. The
Company in exchange for all Mortgage Notes may issue and the Trustee shall
authenticate new Mortgage Notes that reflect the amendment, supplement or
waiver.
Failure to make the appropriate notation or issue a new Mortgage Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture, amended
Collateral Document or waiver authorized pursuant to this Article Nine if the
amendment or supplement does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. The Company may not sign an
amendment or supplemental Indenture or amended Collateral Document until the
Board of Directors approves it. In executing any amended or supplemental
Indenture, amended Collateral Document or waiver the Trustee shall be entitled
to receive and (subject to Section 7.01) shall be fully protected in relying
upon, an Officer's Certificate and an Opinion of Counsel stating that the
execution of such amended or supplemental Indenture, amended Collateral
Document or waiver is authorized or permitted by this Indenture and will be
binding upon the Company.
ARTICLE 10
COLLATERAL AND SECURITY
SECTION 10.01. COLLATERAL DOCUMENTS.
The due and punctual payment of the principal of and interest
(including Contingent Interest) or premium and Liquidated Damages, if any, on
the Mortgage Notes when and as the same shall be due and payable, whether on an
interest payment date, at maturity, by acceleration, repurchase, redemption or
otherwise, and interest on the overdue principal of and interest (to the extent
permitted by law), if any, on the Mortgage Notes and performance of all other
obligations of the Company to the Holders of Mortgage Notes or the Trustee
under this Indenture and the Mortgage Notes, according to the terms hereunder
or thereunder, shall be secured as provided in the Collateral Documents. Each
Holder of Mortgage Notes, by its acceptance thereof, consents and agrees to the
terms of the Collateral
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Documents (including, without limitation, the provisions providing for
foreclosure and release of Collateral and the provisions of the Intercreditor
Agreement) as the same may be in effect or may be amended from time to time in
accordance with the terms hereof and thereof and authorizes and directs the
Trustee to enter into the Collateral Documents, to act as Collateral Agent for
its benefit and the ratable benefits of the Holders of Mortgage Notes and to
perform its obligations and exercise its rights thereunder in accordance
therewith. The Company shall do or cause to be done all such acts and things
as may be necessary or proper, or as may be required by the provisions of the
Collateral Documents, to assure and confirm to the Trustee the security
interests and Liens in the Collateral contemplated hereby and by the Collateral
Documents or any part thereof, as from time to time constituted, (including the
pledge of the Capital Stock and Subsidiary Intercompany Notes of new
Subsidiaries as provided in this Indenture and the Company Pledge Agreement) so
as to render the same available for the security and benefit of this Indenture
and of the Mortgage Notes secured hereby, according to the intent and purposes
herein expressed. The Company shall take, or shall cause its Subsidiaries to
take, upon request of the Trustee, any and all actions reasonably required to
cause the Collateral Documents to create and maintain, as security for the
Obligations of the Company hereunder, a valid and enforceable perfected first
priority Lien, by subordination or otherwise (except as provided in the
Collateral Documents), in and on all the Collateral, in favor of the Trustee
for the ratable benefit of the Holders of Mortgage Notes, superior to and prior
to the rights of all third Persons (except as provided in the Collateral
Documents) and subject to no Liens other than Permitted Liens.
SECTION 10.02. RECORDING AND OPINIONS.
(a) The Company shall furnish to the Trustee simultaneously with the
execution and delivery of this Indenture, or as soon as practicable thereafter
but in no event later than September 15, 1995, an Opinion of Counsel either (i)
stating that in the opinion of such counsel all action has been taken with
respect to the recording, registering and filing of this Indenture, the
Collateral Documents, financing statements or other instruments necessary to
make effective the Liens intended to be created by the Collateral Documents,
and reciting with respect to the security interests in the Collateral, the
details of such action, or (ii) stating that, in the opinion of such counsel,
no such action is necessary to make such Liens effective.
(b) The Company shall furnish to the Trustee on August 24 in each
year beginning with August 24, 1995 an Opinion of Counsel, dated as of such
date, either (i) (A) stating that, in the opinion of such counsel, all such
action has been taken with respect to the recording, registering, filing,
re-recording, re-registering and refiling of all supplemental indentures,
financing statements, continuation statements or other instruments of further
assurance as is necessary to maintain the Liens of the Collateral Documents and
reciting with respect to the security interests in the Collateral the details
of such action or referring to prior Opinions of Counsel in which such details
are given and (B) stating that, based on relevant laws as in effect on the date
of such Opinion of Counsel, all financing statements and continuation
statements have been executed and filed that are necessary as of such date and
during the succeeding 12 months fully to preserve and protect the rights of the
Holders of Mortgage Notes and the Trustee hereunder and under the Collateral
Documents with respect to the Liens in the Collateral, or (ii) stating that, in
the opinion of such counsel, no such action is necessary to maintain such Liens
and assignment.
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(c) The Company shall otherwise comply with the provisions of TIA
Section 314(b).
SECTION 10.03. RELEASE OF COLLATERAL.
(a) Subject to subsections (b), (c), (d) and (e) of this Section
10.03, Collateral may be released from the Liens and security interest created
by the Collateral Documents at any time or from time to time at the sole cost
and expense of the Company and upon request of the Company pursuant to an
Officers' Certificate certifying that the release of the Liens is required by
the terms of this Indenture, (i) upon payment in full of the Mortgage Notes in
accordance with the terms thereof and of this Indenture and all other
Obligations of the Company then due and owing under this Indenture, the
Mortgage Notes and the Collateral Documents; (ii) upon the sale or other
disposition of such Collateral constituting an Asset Sale if such sale or other
disposition is not prohibited under this Indenture, if the lender under the
Revolving Credit Loan has released its Liens on such Collateral and if the Net
Proceeds of such sale or other disposition are applied in accordance with this
Indenture; (iii) to the extent a purchase money lien is granted on such
Collateral to secure Indebtedness permitted under Section 4.12 hereof if the
terms of such Indebtedness require such release; (iv) with respect to amounts
in the Collateral Account (A) consisting of Net Cash Proceeds of Asset Sales,
upon the expenditure of such cash if such expenditure is made in accordance
with this Indenture and (B) consisting of cash proceeds from any other
permitted sale or other disposition of Collateral and so long as no default
shall have occurred and be continuing under this Indenture, upon the request of
the Company therefor; and (v) as required under the terms of this Indenture,
the Intercreditor Agreement or any other Collateral Document. In addition,
second Liens, if any, on Collateral securing the Revolving Credit Loan will be
released as specified in the Intercreditor Agreement. Transfers of Collateral
among the Company and its Subsidiaries will be effected subject to the Liens in
favor of the Trustee. Upon compliance with the above provisions and the
provisions of Section 10.04 hereof, the Trustee shall execute, deliver or
acknowledge any necessary or proper instruments of termination, satisfaction or
release provided by or on behalf of the Company to evidence the release of any
Collateral requested or permitted to be released pursuant to this Indenture or
the Collateral Documents.
(b) Under the terms of the Collateral Documents, the Trustee will
determine the circumstances and manner in which the Collateral shall be
disposed of, including, but not limited to, the determination of whether to
release all of any portion of the Collateral from the Liens created by the
Collateral Documents and whether to foreclose on the Collateral following an
Event of Default. In addition, in the event that any of the Collateral is sold
as permitted under Section 4.10 hereof and the Net Cash Proceeds are pledged
and/or applied in accordance with the terms of this Indenture, the Trustee
shall release the Liens in favor of the Trustee in the assets sold; provided,
that such Net Cash Proceeds are deposited into a segregated bank account and
pledged to the Trustee on or before the date of such Asset Sale and the Trustee
shall have received from the Company on or before the date of such Asset Sale
an Officers' Certificate and an Opinion of Counsel that a valid Lien in such
Net Cash Proceeds has been perfected in favor of the Trustee. Such pledged Net
Cash Proceeds may be reinvested and the Trustee will release or reduce the
amount of the Net Cash Proceeds subject to the Trustee's Lien on such Net Cash
Proceeds to the extent of such reinvestment, in accordance with the terms of
the provision under this Indenture; provided, that the Trustee shall have
received from the Company on or before the date such Net Cash Proceeds are so
applied an Officers' Certificate and an Opinion of Counsel that such Net Cash
Proceeds have been or will be so applied and that a valid Lien in the assets in
which such Net Cash Proceeds are reinvested had been perfected in favor of the
Trustee.
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(c) No Collateral shall be released from the Lien and security
interest created by the Collateral Documents pursuant to the provisions of the
Collateral Documents unless there shall have been delivered to the Trustee the
certificates required by this Section 10.03 or by Section 10.04.
(d) Except as otherwise required by the Intercreditor Agreement, at
any time when a Default or Event of Default shall have occurred and be
continuing and the maturity of the Mortgage Notes shall have been accelerated
(whether by declaration or otherwise), no release of Collateral pursuant to the
provisions of the Collateral Documents shall be effective as against the
Holders of Mortgage Notes.
(e) The release of any Collateral from the terms of this Indenture
and the Collateral Documents shall not be deemed to impair the security under
this Indenture in contravention of the provisions hereof if and to the extent
the Collateral is released pursuant to the terms hereof. To the extent
applicable, the Company shall cause TIA Section 313(b), relating to reports,
and TIA Section 314(d), relating to the release of property or securities from
the Liens and security interest of the Collateral Documents and relating to the
substitution therefor of any property or securities to be subjected to the
Liens and security interest of the Collateral Documents, to be complied with.
Any certificate or opinion required by TIA Section 314(d) may be made by an
Officer of the Company except in cases where TIA Section 314(d) requires that
such certificate or opinion be made by an independent Person, which Person
shall be an independent engineer, appraiser or other expert selected or
approved by the Trustee in the exercise of reasonable care.
SECTION 10.04. CERTIFICATES OF THE COMPANY.
The Company shall furnish to the Trustee, prior to each proposed
release of Collateral pursuant to the Collateral Documents, (i) all documents
required by TIA Section 314(d) and (ii) an Opinion of Counsel, which may be
rendered by internal counsel to the Company, to the effect that such
accompanying documents constitute all documents required by TIA Section 314(d).
The Trustee may, to the extent permitted by Sections 7.01 and 7.02 hereof,
accept as conclusive evidence of compliance with the foregoing provisions the
appropriate statements contained in such documents and such Opinion of Counsel.
SECTION 10.05. CERTIFICATES OF THE TRUSTEE.
In the event that the Company wishes to release Collateral in
accordance with this Indenture and the Collateral Documents and has delivered
the certificates and documents required by the Collateral Documents and
Sections 10.03 and 10.04 hereof, the Trustee shall determine whether it has
received all documentation required by TIA Section 314(d) in connection with
such release and, based on such determination and the Opinion of Counsel
delivered pursuant to Section 10.04(b), shall deliver a certificate to the
Collateral Agent setting forth such determination.
SECTION 10.06. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE
COLLATERAL DOCUMENTS INCLUDING THE INTERCREDITOR AGREEMENT.
Subject to the provisions of Section 7.01 and 7.02 hereof, the
Trustee may, in its sole discretion and without the consent of the Holders of
Mortgage Notes, take all actions it deems necessary or appropriate in order to
(a) enforce any of the terms of the Collateral Documents and (b) collect and
receive any and all amounts payable in respect of the Obligations of the
Company hereunder. The Trustee shall have power to institute and maintain such
suits and proceedings as it may deem expedient to prevent any impairment of the
Collateral by any acts that may be unlawful or in violation of the
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Collateral Documents or this Indenture, and such suits and proceedings as the
Trustee may deem expedient to preserve or protect its interests and the
interests of the Holders of Mortgage Notes in the Collateral (including power
to institute and maintain suits or proceedings to restrain the enforcement of
or compliance with any legislative or other governmental enactment, rule or
order that may be unconstitutional or otherwise invalid if the enforcement of,
or compliance with, such enactment, rule or order would impair the Liens under
the Collateral Documents or be prejudicial to the interests of the Holders of
Mortgage Notes or of the Trustee). Further, each Holder of a Mortgage Note, by
acceptance thereof, consents and agrees to the terms of the Intercreditor
Agreement and the other Collateral Documents, and authorizes and directs the
Trustee to enter into the Intercreditor Agreement and the other Collateral
Documents and to perform its obligations and exercise its rights and remedies
thereunder.
SECTION 10.07. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE
COLLATERAL DOCUMENTS.
The Trustee is authorized to receive any funds for the ratable
benefit of the Holders of Mortgage Notes distributed under the Collateral
Documents, and to make further distributions of such funds to the Holders of
Mortgage Notes according to the provisions of this Indenture.
SECTION 10.08. TERMINATION OF SECURITY INTEREST.
Upon the payment in full of all Obligations of the Company under this
Indenture and the Mortgage Notes, or upon Legal Defeasance, the Trustee shall,
at the request of the Company, release the Liens pursuant to this Indenture and
the Collateral Documents.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA Section 318(c), the imposed duties shall
control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company:
American Rice, Inc.
16825 Northchase Drive
Suite 1600
Houston, TX 77060
Telecopier No.: (713) 872-1929
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Attention: Vice President of Finance
With a copy to:
Vial, Hamilton, Koch & Knox, L.L.P.
1717 Main Street
Suite 4400
Dallas, TX 75201
Telecopier No.: (214) 712-4402
Attention: Gary L. Woolfolk, Esq.
If to the Trustee:
U.S. Trust Company of Texas, N.A.
500 North Akard
Suite 2100
Dallas, TX 75201-3320
Telephone No.: (214) 740-4255
Telecopier No.: (214) 754-1303
Attention: Corporate Trust Department
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
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SECTION 11.03. COMMUNICATION BY HOLDERS OF MORTGAGE NOTES WITH OTHER HOLDERS OF
MORTGAGE NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Mortgage
Notes. The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture or the Collateral Documents, the Company shall
furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
or the Collateral Documents relating to the proposed action have been
satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions
of TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
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SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Mortgage Notes or this Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
of Mortgage Notes by accepting a Mortgage Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Mortgage Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the SEC that such a
waiver is against public policy.
SECTION 11.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE MORTGAGE NOTES AND, EXCEPT AS SET FORTH IN ANY
COLLATERAL DOCUMENT, THE COLLATERAL DOCUMENTS.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 11.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Mortgage
Notes shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture or in the Mortgage Notes
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 11.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
Dated as of August 24, 1995 AMERICAN RICE, INC.
By:
--------------------------
Name:
Title:
Attest:
__________________________________ (SEAL)
Dated as of August 24, 1995 U.S. TRUST COMPANY OF TEXAS,N.A.
By:
---------------------------
Name:
Title:
Attest:
__________________________________ (SEAL)
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===============================================================================
EXHIBIT A
(Face of Mortgage Note)
13% Mortgage Notes Due 2002
With Contingent Interest
No. $__________
AMERICAN RICE, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on July 31, 2002.
Interest Payment Dates: February 28 and August 31
Record Dates: February 15 and August 15
Dated: August 24, 1995
AMERICAN RICE, INC.
By:____________________________
Name:
Title:
(SEAL)
This is one of the Mortgage
Notes referred to in the
within-mentioned Indenture:
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Trustee
By:______________________________
===============================================================================
A-1
<PAGE> 73
(Back of Mortgage Note)
13% Mortgage Notes due 2002
With Contingent Interest
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. American Rice, Inc., a Texas corporation (the
"Company"), promises to pay Fixed Interest on the principal amount of this
Mortgage Note at 13% per annum from August 24, 1995 until maturity. The
Company shall pay Fixed Interest semiannually on February 28 and August 31 of
each year, or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date"). Fixed Interest on the Mortgage
Notes shall accrue from the most recent date to which Fixed Interest has been
paid or, if no Fixed Interest has been paid, from the date of issuance;
provided that if there is no existing Default in the payment of Fixed Interest,
and if this Mortgage Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, Fixed Interest
shall accrue from such next succeeding Interest Payment Date; provided,
further, that the first Interest Payment Date shall be February 28, 1996. The
Company shall pay Fixed Interest (including post-petition Fixed Interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the
rate then in effect; it shall pay Fixed Interest (including post-petition Fixed
Interest in any proceeding under any Bankruptcy Law) on overdue installments of
Fixed Interest (without regard to any applicable grace periods) from time to
time on demand at the same rate to the extent lawful. Fixed Interest shall be
computed on the basis of a 360-day year of twelve 30-day months. Additionally,
installments of accrued and unpaid Fixed Interest will become due and payable
with respect to any principal amount of the Mortgage Notes upon the maturity of
such principal amount of Mortgage Notes (whether at stated maturity, upon
acceleration, upon maturity of repurchase obligation or otherwise). Each
installment of Fixed Interest will be calculated to accrue from and including
the most recent date to which Fixed Interest has been paid or provided for (or
from and including the date of the Indenture if no installment of Fixed
Interest has been paid), but not including, the date of payment.
In addition to regular semiannual payments of Fixed Interest, the
Mortgage Notes will bear Contingent Interest, calculated as described below,
from August 24, 1995 until maturity. Installments of accrued Contingent
Interest will become due and payable semiannually on the Interest Payment Date
immediately following the Semiannual Period after the Semiannual Period in
which such Contingent Interest is accrued (e.g., Contingent Interest for the
Semiannual Periods ending June 30 and December 31 will be payable on the
following February 28 and August 31, respectively), unless such installment of
Contingent Interest is permitted to be deferred on such payment date.
Installments of deferred Contingent Interest will become due and payable
semiannually on each Interest Payment Date unless such installment of deferred
Contingent Interest is permitted to be deferred again on such payment date.
All payments of Contingent Interest that are not deferred will be payable on
the applicable Interest Payment Dates to the holders of record at the close of
business on the immediately preceding Record Date. Additionally, all
installments of accrued or deferred Contingent Interest will become due and
payable (and may not be further deferred) with respect to any principal amount
of the Mortgage Notes upon the maturity of such principal amount of Mortgage
Notes (whether at stated maturity, upon acceleration, upon maturity of
repurchase obligation or otherwise).
The Company, at its option, may defer payment of all or a portion of
any installment of Contingent Interest then otherwise due if, and only to the
extent that, (a) the payment of such portion of Contingent Interest will cause
the Company's Adjusted Fixed Charge Coverage Ratio for the two consecutive
Semiannual Periods immediately preceding the Semiannual Period last completed
prior to such Interest Payment Date to be less than 2.0:1
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on a pro forma basis after giving effect to the assumed payment of such
Contingent Interest but before giving effect to the payment of any interest on
the Mortgage Notes which is then not payable and (b) the principal of the
Mortgage Notes corresponding to such Contingent Interest has not then matured
and become due and payable (whether at stated maturity, upon acceleration, upon
maturity of repurchase obligation or otherwise). Contingent Interest that is
deferred shall become due and payable on the earlier of (i) the next succeeding
Interest Payment Date on which such Contingent Interest is not permitted to be
deferred, and (ii) upon the maturity of the corresponding principal of the
Mortgage Notes (whether at stated maturity, upon acceleration, upon maturity of
repurchase obligation or otherwise). No interest will accrue on any Contingent
Interest deferred and which does not become due and payable. The aggregate
amount of Contingent Interest payable in any Semiannual Period will be reduced
pro rata for reductions in the outstanding principal amount of the Mortgage
Notes prior to the close of business on the record date immediately preceding
such payment of Contingent Interest.
Each installment of Contingent Interest will be calculated to accrue
(an "Accrual Period") from, but not including, the most recent date to which
Contingent Interest has been paid or provided for, the date through which
Contingent Interest had been calculated and deferred or, if no installment of
Contingent Interest has been paid or deferred, from and including the date of
the Indenture to, and including, either (a) the last day of the Semiannual
Period preceding the Semiannual Period last completed prior to such Interest
Payment Date if the corresponding principal of the Mortgage Notes has not
become due and payable or (b) the date of payment if the corresponding
principal of the Mortgage Notes has become due and payable (whether at stated
maturity, upon acceleration, upon maturity of repurchase obligation or
otherwise), but excluding any Semiannual Period at the end of which the
Company's Consolidated Cash Flow during such Semiannual Period and the
immediately preceding Semiannual Period is less than $20.0 million. With
respect to each Accrual Period, Contingent Interest will accrue daily on the
principal of each Mortgage Note outstanding during such period as follows: (i)
for any portion of an Accrual Period which consists of all or part of a
Semiannual Period that ends during such Accrual Period, 1/180 of the Base
Contingent Interest with respect to such principal amount of such Semiannual
Period until fully accrued and (ii) for any other portion of an Accrual Period,
1/180 of the Base Contingent Interest with respect to such principal amount for
the Semiannual Period that began and last ended after the date of the
Indenture.
"Base Contingent Interest" means the interest payable on each Interest
Payment Date with respect to any principal amount of outstanding Mortgage Notes
in an amount equal to the product of (i) 4% of the Consolidated Cash Flow for
the Semiannual Period immediately preceding the Semiannual Period most recently
completed prior to such Interest Payment Date, up to a limit of the Contingent
Interest on $40.0 million of the Company's Consolidated Cash Flow during the
fiscal year in which such interest is accrued and (ii) a fraction, the
numerator of which is the aggregate principal amount of Mortgage Notes
outstanding on the close of business on the Record Date corresponding to such
Interest Payment Date and the denominator of which is $100.0 million.
In addition, if the Company fails to sell the Houston Property to a
third party that is not an Affiliate of the Company or ERLY within 18 months
following the date of the Indenture in accordance with Section 4.23 of the
Indenture, then the Company will become obligated to pay liquidated damages
("Liquidated Damages") to each Holder of Mortgage Notes in an amount equal to
$0.048 per week per $1,000 principal amount of Mortgage Notes held by such
Holder for each week or portion thereof that the sale of the Houston Property
has not been effected, which Liquidated Damages shall be the Trustee's sole
remedy for the Company's failure to sell such property by such date; provided
that the Trustee shall have all rights and remedies afforded to it under this
Indenture to
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proceed against the Houston Property in the same manner as against any other
assets constituting Collateral.
. All accrued Liquidated Damages will be paid by the Company on the same dates
and in the same manner as regular interest payment on the Mortgage Notes.
Any reference in the Indenture to "accrued and unpaid interest"
includes the amount of unpaid Contingent Interest and Liquidated Damages, if
any, due and payable.
2. METHOD OF PAYMENT. The Company shall pay interest (including
Contingent Interest and Liquidated Damages, if any) on the Mortgage Notes
(except defaulted interest) to the Persons who are registered Holders of
Mortgage Notes at the close of business on the February 15 or August 15
preceding the Interest Payment Date, even if such Mortgage Notes are cancelled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Mortgage Notes shall be payable as to principal, premium, Liquidated
Damages, if any, and interest (including Contingent Interest, if any), at the
office or agency of the Company maintained for such purpose within or without
the City and State of New York. Such payment shall be in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, U.S. Trust Company of
Texas, N.A., the Trustee under the Indenture, shall act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE AND COLLATERAL DOCUMENTS. The Company issued the
Mortgage Notes under an Indenture dated as of August 24, 1995 ("Indenture")
between the Company and the Trustee. The terms of the Mortgage Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (15 U.S. Code Section Section
77aaa-77bbbb). The Mortgage Notes are subject to all such terms, and Holders
are referred to the Indenture and such Act for a statement of such terms. The
Mortgage Notes are secured obligations of the Company limited to $100.0 million
in aggregate principal amount. As provided in the Indenture and the Collateral
Documents, and subject to the terms of any Intercreditor Agreement, the
Mortgage Notes are secured the Collateral. Each Holder, by accepting a
Mortgage Note, agrees to be bound by the terms of the Collateral Documents and
the Intercreditor Agreement. Liens may be released in accordance with the
Indenture.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Company shall not have the option to redeem the Mortgage Notes prior to July
31, 1999. Thereafter, the Company shall have the option to redeem the Mortgage
Notes, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on July
31 of the years indicated below:
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<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.0%
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.0%
2001 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.0%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to August 31, 1998, the Company may redeem up to one-third
of the initial aggregate principal amount of the Mortgage Notes with the net
proceeds of an initial public offering of its common stock at a redemption
price equal to 107% of the principal amount thereof plus accrued and unpaid
interest to the date of redemption; provided that at least two-thirds of the
aggregate principal amount of the Mortgage Notes originally issued remain
outstanding immediately after the occurrence of such redemption and that such
redemption occurs within 60 days of the date of the closing of such initial
public offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments or sinking fund payments with
respect to the Mortgage Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required to
make an offer (a "Change of Control Offer") to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Mortgage
Notes at a purchase price equal to 101% of the Accreted Value thereof plus
accrued and unpaid interest to the date of purchase (or 100% of the Accreted
Value thereof plus accrued and unpaid interest, if any, to the date of
repurchase, if on or after July 31, 2001) (in either case, the "Change of
Control Payment"). Within ten days following any Change of Control, the Company
shall mail a notice to each Holder setting forth the procedures governing the
Change of Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales, within
five days of each date on which the aggregate amount of Excess Proceeds exceeds
$5 million, the Company shall commence an offer to all Holders of Mortgage
Notes (as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to
purchase the maximum principal amount of Mortgage Notes that may be purchased
out of the Excess Proceeds at an offer price in cash in an amount equal to 100%
of the Accreted Value thereof plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of repurchase, in accordance with the procedures
set forth in the Indenture. To the extent that the aggregate amount of Mortgage
Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company (or such Subsidiary) may use such deficiency for general
corporate purposes. If the Accreted Value of Mortgage Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Mortgage Notes to be purchased on a pro rata basis. Holders of Mortgage
Notes that are the subject of an offer to purchase shall receive an Asset Sale
Offer from the Company prior to any related purchase date and may elect to have
such Mortgage Notes purchased by completing the form entitled "Option of Holder
to Elect Purchase" on the reverse of the Mortgage Notes.
(c) Upon the remarketing by the Company of the Freeport IRBs in
accordance with the procedures in the Indenture, the Company shall be required
to make an offer to all Holders of the Mortgage Notes to purchase the maximum
aggregate principal amount (expressed as an integral multiple of
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$1,000) of Mortgage Notes that may be purchased out of the net proceeds of such
remarketing at an offer price in cash equal to 100% of the Accreted Value of
the Mortgage Notes, plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the date of repurchase. To the extent that the aggregate
amount of Mortgage Notes tendered pursuant to such offer is less than the net
proceeds of such remarketing, the Company may use any remaining net proceeds
for general corporate purposes. If the aggregate Accreted Value of the
Mortgage Notes surrendered by Holders thereof exceeds the amount of net
proceeds, the Trustee shall select the Mortgage Notes in accordance with the
requirements of the principal national securities exchange, if any, on which
the Mortgage Notes are listed, or, if the Mortgage Notes are not so listed, on
a pro rata basis, by lot or by such method as the Trustee may deem fair;
provided that no Mortgage Notes of $1,000 in principal amount or less shall be
redeemed in part.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Mortgage Notes are to be redeemed at its registered address. Mortgage
Notes in denominations larger than $1,000 may be redeemed in part but only in
whole multiples of $1,000, unless all of the Mortgage Notes held by a Holder
are to be redeemed. On and after the redemption date interest ceases to accrue
on Mortgage Notes or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Mortgage Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Mortgage Notes may be registered and
Mortgage Notes may be exchanged as provided in the Indenture. The Registrar
and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
The Company need not exchange or register the transfer of any Mortgage Note or
portion of a Mortgage Note selected for redemption, except for the unredeemed
portion of any Mortgage Note being redeemed in part. Also, it need not
exchange or register the transfer of any Mortgage Notes for a period of 15 days
before a selection of Mortgage Notes to be redeemed or during the period
between a record date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Mortgage Note may
be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Mortgage Notes or the Collateral Documents may be amended or
supplemented with the consent of the Holders of at least a majority in
principal amount of the then outstanding Mortgage Notes, and any existing
default or compliance with any provision of the Indenture or the Mortgage Notes
or the Collateral Documents may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Mortgage Notes. Without
the consent of any Holder of a Mortgage Note, the Indenture or the Mortgage
Notes or the Collateral Documents may be amended or supplemented to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Mortgage
Notes in addition to or in place of certificated Mortgage Notes, to provide for
the assumption of the Company's obligations to Holders of the Mortgage Notes in
case of a merger or consolidation, to make any change that would provide any
additional rights, benefits or collateral to the Holders of the Mortgage Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, or to comply with the requirements of the SEC in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest on the Mortgage Notes; (ii) default in
payment when due of principal of or
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premium, if any, on the Mortgage Notes when the same becomes due and payable at
maturity, upon redemption (including in connection with an offer to purchase)
or otherwise, (iii) failure by the Company or any Subsidiary to comply with
Section 4.07, 4.09, 4.10 or 4.14 of the Indenture, which failure remains
uncured for 15 days; (iv) failure by the Company or any Subsidiary for 60 days
after notice to the Company by the Trustee or the Holders of at least 25% in
principal amount of the Mortgage Notes then outstanding to comply with certain
other agreements in the Indenture, the Mortgage Notes or the Collateral
Documents; (v) default under certain other agreements relating to Indebtedness
of the Company which default is a payment default or results in the
acceleration of such Indebtedness prior to its express maturity; (vi) certain
final judgments for the payment of money that remain undischarged for a period
of 60 days; (vii) certain events of bankruptcy or insolvency with respect to
the Company or any of its Significant Subsidiaries; (viii) the breach of
certain covenants in the Collateral Documents or any Collateral Documents shall
be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Liens or assets in
excess of $5.0 million ceases to be valid and perfected; or (ix) defaults under
certain leases. If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding
Mortgage Notes may declare all the Mortgage Notes to be due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Mortgage Notes
shall become due and payable without further action or notice. Holders may not
enforce the Indenture or the Mortgage Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Mortgage Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Mortgage Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest)
if it determines that withholding notice is in their interest. The Holders of
a majority in aggregate principal amount of the Mortgage Notes then outstanding
by notice to the Trustee may on behalf of the Holders of all of the Mortgage
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest (including Contingent Interest) on or Liquidated Damages, or the
principal of, the Mortgage Notes. The Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required upon becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Mortgage Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Mortgage Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Mortgage Notes.
15. AUTHENTICATION. This Mortgage Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
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18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Mortgage Notes and the Trustee may use CUSIP
numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Mortgage Notes or as contained in any notice of redemption and reliance may
be placed only on the other identification numbers placed thereon.
The Company shall furnish to any Holder upon written request and without
charge a copy of the Indenture and any Collateral Documents. Requests may be
made to:
American Rice, Inc.
16825 Northchase Drive
Suite 1600
Houston, Texas 77060
Attention: Vice President of Finance
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<PAGE> 80
ASSIGNMENT FORM
To assign this Mortgage Note, fill in the form below: (I) or (we) assign
and transfer this Mortgage Note to
_______________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint________________________________________________________
to transfer this Mortgage Note on the books of the Company. The agent may
substitute another to act for him.
_______________________________________________________________________________
Date: _________________________
Your Signature:___________________________
(Sign exactly as your name appears on the face of this Mortgage Note)
Signature Guarantee.
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<PAGE> 81
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Mortgage Note purchased by the
Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box below:
/ / Section 4.10 / / Section 4.14
If you want to elect to have only part of the Mortgage Note purchased
by the Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state
the amount you elect to have purchased: $___________
Date:__________________________ Your Signature:______________________
(Sign exactly as your name appears on the Mortgage Note)
Your Tax Identification No.:__________
Signature Guarantee.
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<PAGE> 82
Exhibit L
TRADING FUTURES CONTRACTS
===============================================================================
AMERICAN RICE, INC.
POLICIES AND PROCEDURES
===============================================================================
Effective Date: September 22, 1994 Approved:
Page: 1 of 1
===============================================================================
1. It is the intent of ARI to implement futures trading as a hedge mechanism
to offset risk due to the huge volume need of raw material. It is
further understood that as in all other major decisions, there will be
active and effective communication between the senior vice president
responsible and the president of ARI. Trading profits or losses from
speculative trading is not authorized by this policy.
2. Only one person ("the Trader") may make buy/sell orders for futures
contracts (John Poole).
3. One other person, a trusted assistant of the Trader (Robin Mann), may be
authorized to call in trades and then only at the direction of Trader.
4. The Trader is authorized to trade rice only.
5. In total, at any one point in time, the trader is authorized to have no
more than 300 open contracts (long and short) and to have bought or sold
no more than 250 options. It is understood that if the company's overall
position necessitates a position in excess of the above, either long or
short, that a written memo will be initiated stating logic and reason for
such action and signed by the senior vice president responsible and the
president and placed on file within three weeks. If the trader intends to
take a total position greater than 500 open contracts and 250 options,
(or anticipates the need to do so) then written approval by the president
and notification to the vice president of finance will be required prior
to taking such positions.
6. All statements will be mailed to and received directly by the accountant
responsible for reporting futures transactions (Rhonda Stagg).
7. No employee is authorized to trade futures contracts on rice for his or
her own account.
8. The Company's position on the rice commodity market, as well as physical
inventory and sales information is confidential and shall not be
discussed outside the Company.
9. At least weekly, open positions and realized and unrealized gains or
losses will be reported by the accountant to the Trader's supervisor
(Doug Murphy) and the financial executive (Bronson Schulz).
<PAGE> 1
Exhibit 4.11
COMPANY PLEDGE AGREEMENT
THIS COMPANY PLEDGE AGREEMENT (this "Agreement") is made and
entered into as of August 24, 1995 by AMERICAN RICE, INC., a Texas corporation
(the "Pledgor"), having its principal office at 16825 Northchase Drive, Suite
1600, Houston, Texas 77060, in favor of U.S. TRUST COMPANY OF TEXAS, N.A., a
national banking association, having an office at 500 North Akard, Suite 2100,
Dallas, Texas, 75201-3320, trustee under the Indenture referred to below as
collateral agent (the "Collateral Agent") for the holders (the "Holders") of
the Pledgor's 13% Mortgage Notes due 2002 With Contingent Interest.
Capitalized terms used and not defined herein shall have the meanings given to
such terms in the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, the Pledgor is the legal and beneficial owner of (i)
all of the issued and outstanding shares of capital stock set forth on Schedule
I hereto (the "Pledged Shares") of the corporations listed on such Schedule I
(each, an "Issuer"), (ii) a 55% ownership interest in ARI-Vinafood (the "Joint
Venture Interest," and together with the Pledged Shares, the "Pledged
Securities") set forth on Schedule I, (iii) those certain Subsidiary
Intercompany Notes (if any) issued by the Issuers, (iv) that certain 6% ERLY
Intercompany Note issued by ERLY Industries, Inc. ("ERLY") in favor of the
Pledgor and that certain 15% ERLY Intercompany Note issued by ERLY in favor of
the Pledgor, together with that certain Warrant Certificate, in the form
attached to the 15% ERLY Intercompany Note, evidencing warrants exercisable for
common stock of ERLY (the Subsidiary Intercompany Notes, the 6% ERLY
Intercompany Note and the 15% ERLY Intercompany collectively, the "Pledged
Notes"), and (v) the Freeport IRBS; and
WHEREAS, the Pledgor and the Collateral Agent, as trustee,
have entered into that certain indenture dated as of August 24, 1995 (as
amended, amended and restated, supplemented or otherwise modified from time to
time, the "Indenture"), pursuant to which the Pledgor has issued or will issue
$100,000,000 in aggregate principal amount of 13% Mortgage Notes due 2002
With Contingent Interest (together with any notes issued in replacement thereof
or in exchange or substitution therefor, the "Mortgage Notes"); and
WHEREAS, the terms of the Indenture require that the Pledgor
(i) pledge to the Collateral Agent for the ratable benefit of the Holders of
Mortgage Notes, and grant to the Collateral Agent for the ratable benefit of the
Holders of Mortgage Notes a security interest in, the Pledged Collateral (as
defined herein) and (ii) execute and deliver this Agreement in order to secure
the payment and performance by the Pledgor of all of the Obligations of the
Pledgor under the Indenture and the Mortgage Notes (the "Obligations").
<PAGE> 2
AGREEMENT
NOW, THEREFORE, in consideration of the premises, and in order
to induce the Holders of Mortgage Notes to purchase the Mortgage Notes, the
Pledgor hereby agrees with the Collateral Agent for its benefit and the ratable
benefit of the Holders of Mortgage Notes as follows:
SECTION 1. Pledge. The Pledgor hereby pledges to the Collateral Agent
for its benefit and for the ratable benefit of the Holders of Mortgage Notes,
and grants to the Collateral Agent for the ratable benefit of the Holders of
Mortgage Notes, a continuing first priority security interest in all of its
right, title and interest in the following (the "Pledged Collateral"):
(a) the Pledged Securities and the certificates, if any,
representing the Pledged Securities, and all products and proceeds of
any of the Pledged Securities, including, without limitation, all
dividends, cash, options, warrants, rights, instruments, subscriptions and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
Pledged Securities or any of the foregoing; and
(b) all additional shares of, and all securities convertible into and
all warrants, options or other rights to purchase, Capital Stock of, or
other Equity Interests in, any Issuer or any Subsidiary of Pledgor from
time to time acquired by the Pledgor in any manner, and the certificates
representing such additional shares and Equity Interests (any such
additional shares and Equity Interests and other items shall constitute
part of the Pledged Securities under and as defined in this Agreement),
and all products and proceeds of any of the foregoing, including, without
limitation, all dividends, cash, options, warrants, rights, instruments,
subscriptions, and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any
or all of the foregoing; and
(c) the Pledged Notes and the instruments representing the Pledged
Notes, and all products and proceeds of the Pledged Notes, including,
without limitation, all interest, principal and premium payments, and all
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for the Pledged Notes
or any of the foregoing; and
(d) all additional promissory notes of any Issuer or ERLY or any
Subsidiary of the Pledgor from time to time held by the Pledgor in any
manner (any such additional promissory notes shall constitute part of the
Pledged Notes under and as defined in this Agreement) and all products and
proceeds of any of such additional Pledged Notes, including, without
limitation, all interest, principal and premium payments, instruments and
other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
Pledged Notes or any of the foregoing; and
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(e) the Freeport IRB's until such time as such Freeport IRB's are
remarketed in accordance with the Indenture.
SECTION 2. Security for Obligations. This Agreement secures the
prompt and complete payment and performance when due (whether at stated
maturity, on redemption, by acceleration or otherwise) of all Obligations of the
Pledgor under the Indenture and the Mortgage Notes (including, without
limitation, interest and any other Obligations accruing after the date of any
filing by the Pledgor of any petition in bankruptcy or the commencement of any
bankruptcy, insolvency or similar proceeding with respect to the Pledgor) and
under the Collateral Documents.
SECTION 3. Delivery of Pledged Collateral. Pledgor hereby agrees that
all certificates or instruments representing or evidencing the Pledged
Collateral shall be immediately delivered to and held at all times by the
Collateral Agent pursuant hereto in the State of New York and shall be in
suitable form for transfer by delivery, or issued in the name of Pledgor, and
accompanied by instruments of transfer or assignment duly executed in blank and
undated, and in either case having attached thereto all requisite federal or
state stock transfer tax stamps, all in form and substance satisfactory to the
Collateral Agent.
SECTION 4. Representations and Warranties. The Pledgor represents and
warrants that:
(a) The execution, delivery and performance by the Pledgor of this
Agreement are within the Pledgor's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene, or
constitute a default under, any provision of applicable law or regulation
or of the certificate of incorporation or bylaws of the Pledgor or any
Issuer or ERLY or of any agreement, judgment, injunction, order, decree or
other instrument binding upon the Pledgor or any Issuer or ERLY, or result
in the creation or imposition of any Lien on any assets of the Pledgor,
other than the Lien contemplated hereby.
(b) The Pledged Securities have been duly authorized and validly
issued and are fully paid and non-assessable, except for the Joint Venture
Interest, which, pursuant to that certain Joint Venture Contract by and
between the Pledgor and Central Food Corporation II, A Vietnam
corporation, dated as of July 27, 1994 (the "Joint Venture Agreement"),
requires continuing capital contributions by the Pledgor. Each Pledged
Note has been duly authorized and executed by the applicable Issuer or
ERLY, as the case may be, and constitutes a legal, valid and binding
obligation of such Issuer or ERLY, as the case may be, enforceable against
the Issuer or ERLY as the case may be, in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
the rights and remedies of creditors and the effect of general equitable
principles, whether such enforceability is considered in a proceeding in
equity or at law, and the discretion of the court before which any
proceeding therefor may be brought.
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(c) The Pledged Securities constitute all of the authorized, issued
and outstanding Equity Interests of the Issuers, except as shown on
Schedule I, and constitute all of the shares of Equity Interests of the
Issuers beneficially owned by the Pledgor.
(d) All intercompany indebtedness of the Issuers to the Pledgor is
evidenced by promissory notes in the form of Exhibit A hereto; all
intercompany indebtedness of ERLY to the Pledgor under the 15% ERLY
Intercompany Note and the 6% ERLY Intercompany Note is evidenced by the
promissory notes attached hereto as Exhibit B and Exhibit C, respectively;
the Pledged Notes constitute all of the promissory notes of the Issuers
and ERLY in favor of the Pledgor; and there are no other instruments,
certificates, securities or other writings or chattel paper, evidencing or
representing any equity interest in the Issuers.
(e) The Pledgor is the legal, record and beneficial owner of the
Pledged Collateral, free and clear of any Lien or claims of any Person
except for the security interest created by this Agreement and, with
respect to the Joint Venture Interest, except as provided for in the Joint
Venture Agreement.
(f) This Agreement has been duly executed and delivered by the
Pledgor and constitutes a legal, valid and binding obligation of the
Pledgor, enforceable against the Pledgor in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
the rights and remedies of creditors and the effect of general equitable
principles, whether such enforceability is considered in a proceeding in
equity or at law, and the discretion of the court before which any
proceeding therefor may be brought.
(g) Upon the delivery to the Collateral Agent of the Pledged
Collateral and (as to certain proceeds therefrom) the filing of Uniform
Commercial Code (the "UCC") financing statements, the pledge of the
Pledged Collateral pursuant to this Agreement creates a valid and
perfected first priority security interest in the Pledged Collateral,
securing the payment of the Obligations for the benefit of the Collateral
Agent and the Holders of Mortgage Notes, and enforceable as such against
all creditors of the Pledgor and any Persons purporting to purchase any of
the Pledged Collateral from the Pledgor.
(h) No consent of any other Person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (i) for the
pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement
or for the execution, delivery or performance of this Agreement by the
Pledgor or (ii) for the exercise by the Collateral Agent of the voting or
other rights provided for in this Agreement or the remedies in respect of
the Pledged Collateral pursuant to this Agreement (except as may be
required in connection with such disposition by laws affecting the
offering and sale of securities and except, with respect to the Joint
Venture Interest, as otherwise provided in the Joint Venture Agreement).
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(i) No litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the best knowledge
of the Pledgor, threatened by or against the Pledgor or against any of its
properties or revenues with respect to the execution and delivery of this
Agreement by the Pledgor or performance by the Pledgor of any of the
transactions contemplated hereby.
(j) The pledge of the Pledged Collateral pursuant to this Agreement
is not prohibited by any applicable law or governmental regulation,
release, interpretation or opinion of the Board of Governors of the
Federal Reserve System or other regulatory agency (including, without
limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System).
(k) All information set forth herein relating to the Pledged
Collateral is accurate and complete in all respects.
SECTION 5. Further Assurances. Pledgor will at all times cause the
security interests granted pursuant to this Agreement to constitute valid
perfected first priority security interests in the Pledged Collateral,
enforceable as such against all creditors of Pledgor and (except as otherwise
specifically provided herein) any Persons purporting to purchase any Pledged
Collateral from Pledgor. The Pledgor will, promptly upon request by the
Collateral Agent, execute and deliver or cause to be executed and delivered, or
use its best efforts to procure, all stock powers, proxies, tax stamps,
assignments, instruments and other documents, all in form and substance
satisfactory to the Collateral Agent, deliver any instruments to the Collateral
Agent and take any other actions that are necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect, continue the perfection
of, or protect the first priority of the Collateral Agent's security interest
in, the Pledged Collateral, to protect the Pledged Collateral against the
rights, claims, or interests of third persons, to enable the Collateral Agent to
exercise or enforce its rights and remedies hereunder, or otherwise to effect
the purposes of this Agreement. The Pledgor also hereby authorizes the
Collateral Agent to file any financing or continuation statements with respect
to the Pledged Collateral without the signature of the Pledgor to the extent
permitted by applicable law. The Pledgor will pay all reasonable costs incurred
in connection with any of the foregoing.
SECTION 6. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Pledged Securities or any
part thereof for any purpose not inconsistent with the terms of this
Agreement or the Indenture; provided, however, that the Pledgor shall not
exercise or shall refrain from exercising any such right if such action
would be inconsistent with or violate any provisions of this Agreement
or the Indenture.
(b) So long as no Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to receive, and to utilize
(subject to the provisions of the Indenture) free
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and clear of the Lien of this Agreement, all cash payments made from time
to time with respect to any Pledged Notes.
(c) So long as no Event of Default shall have occurred and be
continuing, and subject to the other terms and conditions of the
Indenture, the Pledgor shall be entitled to receive, and to utilize
(subject to the provisions of the Indenture) free and clear of the Lien of
this Agreement, all cash dividends or other cash payments paid from time
to time in respect of the Pledged Securities.
(d) Any and all (i) dividends, other distributions, interest and
principal payments paid or payable in the form of instruments and/or other
property (other than cash payments permitted under Section 6(b) hereof and
cash dividends permitted under Section 6(c) hereof) received, receivable
or otherwise distributed in respect of, or in exchange for, any Pledged
Collateral, (ii) dividends and other distributions paid or payable in cash
in respect of any Pledged Securities in connection with a partial or
total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and (iii) cash paid, payable
or otherwise distributed in redemption of, or in exchange for, any Pledged
Collateral, shall in each case be forthwith delivered to the Collateral
Agent to hold as Pledged Collateral and shall, if received by the Pledgor,
be received in trust for the benefit of the Collateral Agent and the
Holders of Mortgage Notes, be segregated from the other property and funds
of the Pledgor and be forthwith delivered to the Collateral Agent as
Pledged Collateral in the same form as so received (with any necessary
endorsements).
(e) The Collateral Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to Sections 6(a) through 6(c) above.
(f) Upon the occurrence and during the continuance of an Event of
Default, (i) all rights of the Pledgor to exercise the voting and other
consensual rights that it would otherwise be entitled to exercise pursuant
to Section 6(a) shall cease, and all such rights shall thereupon become
vested in the Collateral Agent, which, to the extent permitted by law,
shall thereupon have the sole right to exercise such voting and other
consensual rights, and (ii) all cash payments and dividends and other
distributions payable in respect of the Pledged Collateral shall be paid
to the Collateral Agent and the Pledgor's right to receive such cash
payments pursuant to Sections 6(b) and 6(c) hereof shall immediately
cease.
(g) Upon the occurrence and during the continuance of an Event of
Default, the Pledgor shall execute and deliver (or cause to be executed
and delivered) to the Collateral Agent all such proxies, dividend and
interest payment orders and other instruments as the Collateral Agent may
reasonably request for the purpose of enabling the Collateral Agent to
exercise the voting and other rights that it is entitled to exercise
pursuant to Section 6(f) above.
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(h) All payments of interest, principal or premium and all dividends
and other distributions that are received by the Pledgor contrary to the
provisions of this Section 6 shall be received in trust for the benefit of
the Collateral Agent and the Holders, shall be segregated from the other
property or funds of the Pledgor and shall be forthwith delivered to the
Collateral Agent as Pledged Collateral in the same form as so received
(with any necessary endorsements).
SECTION 7. Covenants. The Pledgor hereby covenants and agrees with
the Collateral Agent and the Holders of Mortgage Notes that it will comply with
all of the obligations, requirements and restrictions applicable to the Pledgor
contained in the Indenture. The Pledgor further covenants and agrees, from and
after the date of this Agreement and until the Obligations have been paid in
full, as follows:
(a) Except as may be required with respect to the Joint Venture
Interest pursuant to the Joint Venture Agreement, the Pledgor agrees that it
will not (i) sell, assign, transfer, convey or otherwise dispose of, or grant
any option or warrant with respect to, any of the Pledged Collateral without the
prior written consent of the Collateral Agent except to the extent permitted
under the Indenture, (ii) create or permit to exist any Lien (other than liens
permitted under the Indenture) upon or with respect to any of the Pledged
Collateral, except for the security interest granted under this Agreement, and
at all times will be the sole beneficial owner of the Pledged Collateral, (iii)
enter into any agreement or understanding that purports to or that may restrict
or inhibit the Collateral Agent's rights or remedies hereunder, including,
without limitation, the Collateral Agent's right to sell or otherwise dispose of
the Pledged Collateral, (iv) take any action, or permit the taking of any action
by any Issuer or ERLY with respect to the Pledged Collateral the taking of which
would result in a violation of the Indenture or this Agreement, including,
without limitation, the issuance by the Issuer of any additional Equity
Interests or promissory notes or the incurrence by any Issuer of any
Indebtedness to Persons other than the Pledgor (except as permitted by the
Indenture), (v) without the prior written consent of the Collateral Agent, enter
into any agreement amending, modifying or supplementing the interest, principal
or maturity terms of the Pledged Notes in a manner adverse to the interests of
the Collateral Agent and the Holders of Mortgage Notes, (vi) fail to give prompt
notice to the Collateral Agent of any notice of default given by or to the
Pledgor under or with respect to the Pledged Notes together with a complete copy
of such notice, (vii) permit any Issuer to merge or consolidate with or into
another person or entity or sell or transfer all or substantially all of its
assets to another person or entity, unless (x) Pledgor shall have delivered to
the Collateral Agent an Opinion of Counsel substantially in the form of Exhibit
D hereto and a certificate executed by the President and Chief Financial
Officer of Pledgor substantially in the form of Exhibit E hereto and (y) all
outstanding capital stock of the surviving entity in such merger or
consolidation or of the entity to whom such sale or transfer was made, together
with any promissory notes issued by such entity in favor of Pledgor are, upon
such merger or consolidation, pledged hereunder to and deposited with the
Collateral Agent, or (viii) fail to pay or discharge any tax, assessment or levy
on the Pledged Collateral of any nature not later than five days prior to the
date of any proposed sale under any judgment, writ or warrant of attachment with
regard to the Pledged Collateral.
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(b) The Pledgor agrees that immediately upon becoming the beneficial
owner of any additional shares of Capital Stock, notes, other securities or
Equity Interests of any Issuer (including as a result of the merger or
consolidation of such Issuer with or into another entity) or any other
Subsidiary (which shall thereafter be an Issuer hereunder) it will pledge and
deliver to the Collateral Agent for its benefit and the ratable benefit of the
Holders and grant to the Collateral Agent for its benefit and the ratable
benefit of the Holders, a continuing first priority security interest in such
shares, notes, other securities or Equity Interests (as well as instruments of
transfer or assignment duly executed in blank and undated and any necessary
stock transfer tax stamps, all in form and substance satisfactory to the
Collateral Agent). The Pledgor further agrees that it will promptly (i) cause
any Issuer or ERLY upon becoming indebted to the Pledgor to execute a promissory
note in the form of Exhibit A or B, as applicable, hereto evidencing such debt
in order that such promissory note may be promptly pledged as a Pledged Note
pursuant hereto and (ii) deliver to the Collateral Agent a certificate executed
by a principal executive officer of the Pledgor describing such additional
shares, notes or other securities and certifying that the same have been duly
pledged and delivered to the Collateral Agent hereunder.
SECTION 8. Power of Attorney. In addition to all of the powers
granted to the Collateral Agent pursuant to Section 10.06 of the Indenture, the
Pledgor hereby appoints and constitutes the Collateral Agent as the Pledgor's
attorney-in-fact to exercise all of the following powers upon the occurrence and
at any time during the continuance of an Event of Default: (i) collection of
proceeds of any Pledged Collateral; (ii) conveyance of any item of Pledged
Collateral to any purchaser thereof; (iii) giving of any notices or recording of
any Liens under Section 5 hereof; (iv) making of any payments or taking any acts
under Section 9 hereof and (v) paying or discharging taxes or Liens (other than
Liens permitted under the Indenture) levied or placed upon or threatened against
the Pledged Collateral, the legality or validity thereof and the amounts
necessary to discharge the same to be determined by the Collateral Agent in its
sole discretion, and such payments made by the Collateral Agent to become the
obligations of the Pledgor to the Collateral Agent, due and payable immediately
without demand. The Collateral Agent's authority hereunder shall include,
without limitation, the authority to endorse and negotiate, for the Collateral
Agent's own account, any checks or instruments in the name of the Pledgor,
execute and give receipt for any certificate of ownership or any document,
transfer title to any item of Pledged Collateral, sign the Pledgor's name on all
financing statements or any other documents deemed necessary or appropriate to
preserve, protect or perfect the security interest in the Pledged Collateral and
to file the same, prepare, file and sign the Pledgor's name on any notice of
Lien, and prepare, file and sign the Pledgor's name on a proof of claim in
bankruptcy or similar document against any customer of the Pledgor, and to take
any other actions arising from or incident to the powers granted to the
Collateral Agent in this Agreement. This power of attorney is coupled with an
interest and is irrevocable by the Pledgor.
SECTION 9. Collateral Agent May Perform. If the Pledgor fails to
perform any agreement contained herein, the Collateral Agent may itself perform,
or cause performance of, such agreement, and the reasonable expenses of the
Collateral Agent incurred in connection therewith shall be payable by the
Pledgor under Section 14 hereof.
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SECTION 10. No Assumption of Duties; Reasonable Care. The rights and
powers granted to the Collateral Agent hereunder are being granted in order to
preserve and protect the Collateral Agent's and the Holders' security interest
in and to the Pledged Collateral granted hereby and shall not be interpreted to,
and shall not, impose any duties on the Collateral Agent in connection
therewith. The Collateral Agent shall be deemed to have exercised reasonable
care in the custody and preservation of the Pledged Collateral in its possession
if the Pledged Collateral is accorded treatment substantially equal to that
which the Collateral Agent accords its own property, it being understood that
the Collateral Agent shall not have any responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relative to any Pledged Collateral, whether or not the
Collateral Agent has or is deemed to have knowledge of such matters, or (ii)
taking any necessary steps to preserve rights against any parties with respect
to any Pledged Collateral.
SECTION 11. Subsequent Changes Affecting Collateral. The Pledgor
represents to the Collateral Agent and the Holders of Mortgage Notes that the
Pledgor has made its own arrangements for keeping informed of changes or
potential changes affecting the Pledged Collateral (including, but not limited
to, rights to convert, rights to subscribe, payment of dividends, payments of
interest and/or principal, reorganization or other exchanges, tender offers and
voting rights), and the Pledgor agrees that the Collateral Agent and the Holders
of Mortgage Notes shall have no responsibility or liability for informing the
Pledgor of any such changes or potential changes or for taking any action or
omitting to take any action with respect thereto. The Pledgor covenants that it
will not, without the prior written consent of the Collateral Agent, vote to
enable, or take any other action to permit, any Issuer to issue any capital
stock or other securities or to sell or otherwise dispose of, or grant any
option with respect to, any of the Pledged Collateral or create or permit to
exist any Lien (other than liens permitted under the Indenture) upon or with
respect to any of the Pledged Collateral, except for the security interests
granted under this Agreement. The Pledgor will defend the right, title and
interest of the Collateral Agent and the Holders of Mortgage Notes in and to the
Pledged Collateral against the claims and demands of all Persons.
SECTION 12. Remedies Upon Default.
(a) If any Event of Default shall have occurred and be
continuing, the Collateral Agent and the Holders of Mortgage Notes shall
have, in addition to all other rights given by law or by this Agreement or
the Indenture, all of the rights and remedies with respect to the Pledged
Collateral of a secured party under the UCC as in effect in the State of
New York at that time (whether or nor such rights apply to the Pledged
Collateral). Except with respect to the Joint Venture Interest, which
Collateral Agent agrees is subject to a right of first refusal under
Article 15 of the Joint Venture Agreement and which Collateral Agent
agrees to honor upon an Event of Default, the Collateral Agent may,
without notice and at its option, transfer or register, and the Pledgor
shall register or cause to be registered upon request therefor by the
Collateral Agent, the Pledged Collateral or any part thereof on the books
of one or more Issuer(s) or ERLY into the name of the Collateral Agent or
the Collateral Agent's nominee(s), with or without any indication that
such Pledged Collateral is subject to the security interest hereunder. In
addition, with
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respect to any Pledged Collateral that shall then be in or shall
thereafter come into the possession or custody of the Collateral Agent,
the Collateral Agent may sell or cause the same to be sold at any broker's
board or at public or private sale, in one or more sales or lots, at such
price or prices as the Collateral Agent may deem best, for cash or on
credit or for future delivery, without assumption of any credit risk. The
purchaser of any or all Pledged Collateral so sold shall thereafter hold
the same absolutely, free from any claim, encumbrance or right of any kind
whatsoever. Unless any of the Pledged Collateral threatens to decline
speedily in value or is or becomes of a type sold on a recognized market,
the Collateral Agent will give Pledgor reasonable notice of the time and
place of any public sale thereof, or of the time after which any private
sale or other intended disposition is to be made. Any sale of the Pledged
Collateral conducted in conformity with reasonable commercial practices of
banks, insurance companies, commercial finance companies, or other
financial institutions disposing of property similar to the Pledged
Collateral shall be deemed to be commercially reasonable. Any requirements
of reasonable notice shall be met if such notice is mailed to the Pledgor
as provided below in Section 18.1, at least ten days before the time of
the sale or disposition. Any other requirement of notice, demand or
advertisement for sale is, to the extent permitted by law, waived. The
Collateral Agent or any Holder of Mortgage Notes may, in its own name or
in the name of a designee or nominee, buy any of the Pledged Collateral at
any public sale and, if permitted by applicable law, at any private sale.
All reasonable expenses (including court costs and reasonable attorneys'
fees and disbursements) of, or incident to, the enforcement of any of the
provisions hereof shall be recoverable from the proceeds of the sale or
other disposition of the Pledged Collateral.
(b) If the Collateral Agent shall determine to exercise its
right to sell any or all of the Pledged Securities pursuant to Section
12(a) above, and if in the opinion of counsel for the Collateral Agent it
is necessary, or if in the opinion of the Collateral Agent it is
advisable, to have the Pledged Securities or that portion thereof to be
sold, registered under the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), Pledgor will cause the applicable Issuer
to (i) execute and deliver, and cause its directors and officers to
execute and deliver, all at the Issuer's expense, all such instruments and
documents, and to do or cause to be done all such other acts and things as
may be necessary or, in the opinion of the Collateral Agent, advisable to
register such Pledged Securities under the provisions of the Securities
Act, (ii) cause the registration statement relating thereto to become
effective and to remain effective for a period of 180 days from the date
of the first public offering of such Pledged Securities, or that portion
thereof to be sold and (iii) make all amendments thereto and/or to the
related prospectus that, in the opinion of the Collateral Agent, are
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and
Exchange Commission applicable thereto. Pledgor agrees to cause each
Issuer to comply with the provisions of the securities or "Blue Sky" laws
of any jurisdiction that the Collateral Agent shall designate for the sale
of the Pledged Securities and to make available to the Issuer's security
holders, as soon as practicable, an earnings statement (which need not be
audited) that will satisfy the provisions of Section 11(a) of the
Securities Act. The Pledgor will cause such Issuer to furnish to the
Collateral Agent such number of copies as the Collateral
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Agent may reasonably request of each preliminary and final prospectus, to
notify the Collateral Agent promptly of the happening of any event as a
result of which any then effective prospectus includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of then existing circumstances, and to cause the Collateral Agent to
be furnished with such number of copies as the Collateral Agent may
request of such supplement to or amendment of such prospectus. The Pledgor
will cause each Issuer, to the extent permitted by law, to indemnify,
defend and hold harmless the Collateral Agent and the Holders of Mortgage
Notes from and against all losses, liabilities, expenses or claims
(including reasonable legal expenses and the reasonable costs of
investigation) that the Collateral Agent or the Holders of Mortgage Notes
may incur under the Securities Act or otherwise, insofar as such losses,
liabilities, expenses or claims arise out of or are based upon any alleged
untrue statement of a material fact contained in such registration
statement (or any amendment thereto) or in any preliminary or final
prospectus (or any amendment or supplement thereto), or arise out of or
are based upon any alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, except to the extent that any such losses, liabilities,
expenses or claims arise solely out of or are based upon any such alleged
untrue statement made or such alleged omission to state a material fact
included or excluded on the written direction of the Collateral Agent.
Pledgor will cause each Issuer to bear all reasonable costs and expenses
of carrying out its obligations hereunder.
(c) In view of the fact that federal and state securities laws
may impose certain restrictions on the method by which a sale of the
Pledged Collateral may be effected after an Event of Default, Pledgor
agrees that upon the occurrence or existence of any Event of Default, the
Collateral Agent may, from time to time, attempt to sell all or any part
of the Pledged Collateral by means of a private placement, restricting the
prospective purchasers to those who will represent and agree that they are
purchasing for investment only and not for distribution. In so doing, the
Collateral Agent may solicit offers to buy the Pledged Collateral, or any
part of it, for cash, from a limited number of investors who might be
interested in purchasing the Pledged Collateral. The Pledgor acknowledges
and agrees that any such private sale may result in prices and terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have
been made in a commercially reasonable manner. The Collateral Agent shall
be under no obligation to delay a sale of any of the Pledged Collateral
for the period of time necessary to permit any Issuer to register such
securities for public sale under the Securities Act, or under applicable
state securities laws, even if an Issuer agrees to do so.
(d) The Pledgor further agrees to use its best efforts to do or
cause to be done all such other acts as may be necessary to make such sale
or sales of all or any portion of the Pledged Collateral pursuant to this
Section 12 valid and binding and in compliance with any and all other
applicable requirements of law. The Pledgor further agrees that a breach
of any of the covenants contained in this Section 12 will cause
irreparable injury to the Collateral Agent and the Holders of Mortgage
Notes, that the Collateral Agent and the Holders of Mortgage Notes have no
adequate remedy at law in respect of such breach and,
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as a consequence, that each and every covenant contained in this Section
12 shall be specifically enforceable against the Pledgor, and the Pledgor
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that no
Default or Event of Default has occurred under the Indenture.
SECTION 13. Irrevocable Authorization and Instruction to the Issuers
and ERLY. With respect to the Pledged Securities and the Subsidiary
Intercompany Notes, the Pledgor hereby authorizes and instructs each Issuer and,
with respect to the ERLY Intercompany Notes, the Pledgor hereby authorizes and
instructs ERLY, to comply with any instruction received by it from the
Collateral Agent that (i) states that an Event of Default has occurred and (ii)
is otherwise in accordance with the terms of this Agreement, without any other
or further instructions from the Pledgor, and the Pledgor agrees that the
Issuers and ERLY shall be fully protected in so complying.
SECTION 14. Fees and Expenses. The Pledgor will upon demand pay to
the Collateral Agent the amount of any and all reasonable fees and expenses
(including, without limitation, the reasonable fees and disbursements of its
legal counsel, of any investment banking firm, business broker or other selling
agent and of any other experts and agents retained by the Collateral Agent) that
the Collateral Agent may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of the Collateral Agent and the Holders of
Mortgage Notes hereunder or (iv) the failure by the Pledgor to perform or
observe any of the provisions hereof.
SECTION 15. Security Interest Absolute. All rights of the Collateral
Agent and the Holders of Mortgage Notes and the security interests created
hereunder, and all obligations of the Pledgor hereunder, shall be absolute and
unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture, any
Mortgage Note, any Collateral Document or any other agreement or
instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations under the indenture and the
Mortgage Notes, or any other amendment or waiver of or any consent to any
departure from the Indenture;
(c) any exchange, surrender, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any of the Obligations under the
Indenture and the Mortgage Notes; or
(d) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Pledgor in respect of such
Obligations or of this Agreement.
SECTION 16. Application of Proceeds. Upon the occurrence and during
the continuance of an Event of Default, the proceeds of any sale of, or other
realization upon, all
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<PAGE> 13
or any part of the Pledged Collateral and any cash held shall be applied by the
Collateral Agent in the following order of priorities, subject to the terms of
the Intercreditor Agreement:
first, to payment of the reasonable expenses of such sale or other
realization, including reasonable compensation to agents and legal counsel for
the Collateral Agent, and all reasonable expenses, liabilities and advances
incurred or made by the Collateral Agent in connection therewith, and any other
unreimbursed fees and expenses for which the Collateral Agent is to be
reimbursed pursuant to Section 14 hereof;
second, to the ratable payment (based on the principal amount of
Mortgage Notes deemed by the Indenture to be outstanding at the time of
distribution) of accrued but unpaid interest on such outstanding Mortgage Notes;
third, to the ratable payment (based on the principal amount of
Mortgage Notes deemed by the Indenture to be outstanding at the time of
distribution) of unpaid principal of such outstanding Mortgage Notes;
fourth, to the ratable payment (based on the principal amount of
Mortgage Notes deemed by the Indenture to be outstanding at the time of
distribution) of all other Obligations, until all Obligations shall have been
paid in full; and
finally, to payment to the Pledgor or its successors or assigns, or
as a court of competent jurisdiction may direct, of any surplus then remaining
from such proceeds.
SECTION 17. Uncertificated Securities. Notwithstanding anything to
the contrary contained herein, if any Pledged Securities (whether now owned or
hereafter acquired) are uncertificated Pledged Securities, the Pledgor shall
promptly notify the Collateral Agent, and shall promptly take all actions
required to perfect the security interest of the Collateral Agent under
applicable law (including, in any event, under Sections 8-313 and 8-321 of the
New York Uniform Commercial Code). The Pledgor further agrees to take such
actions as the Collateral Agent deems necessary or desirable to effect the
foregoing and to permit the Collateral Agent to exercise any of its rights and
remedies hereunder, and agrees to provide an Opinion of Counsel satisfactory to
the Pledgee with respect to any such pledge of uncertificated Pledged
Securities promptly upon request of the Collateral Agent.
SECTION 18. Miscellaneous Provisions.
Section 18.1 Notices. All notices, approvals, consents or other
communications required or desired to be given hereunder shall be in the form
and manner as set forth in Section 11.02 of the Indenture, and delivered to the
addresses set forth in such Section.
Section 18.2 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Pledgor to the Collateral Agent to take
any action or omit to take any action under this Agreement, the Pledgor shall
deliver to the Collateral Agent an
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Officers' Certificate and/or an Opinion of Counsel in accordance with the
requirements of Sections 11.04 and 11.05 of the Indenture.
Section 18.3 No Adverse Interpretation of Other Agreements. This
Agreement may not be used to interpret another pledge, security or debt
agreement of the Pledgor, any Issuer, ERLY or any subsidiary of any thereof. No
such pledge, security or debt agreement may be used to interpret this Agreement.
Section 18.4 Severability. The provisions of this Agreement are
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
Section 18.5 No Recourse Against Others. No director, officer,
employee, stockholder or affiliate, as such, of the Pledgor or any Issuer or
ERLY shall have any liability for any obligations of the Pledgor under this
Agreement or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder of Mortgage Notes, by accepting a
Mortgage Note, waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Mortgage Notes.
Section 18.6 Headings. The headings of the Articles and Sections
of this Agreement have been inserted for convenience of reference only, are not
to be considered a part hereof and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 18.7 Counterpart Originals. This Agreement may be signed
in two or more counterparts. Each signed copy shall be an original, but all of
them together represent one and the same agreement. Each counterpart may be
executed and delivered by telecopy, if such delivery is promptly followed by the
original manually signed copy sent by overnight courier.
Section 18.8 Benefits of Agreement. Nothing in this Agreement,
express or implied, shall give to any Person, other than the parties hereto and
their successors hereunder, and the Holders of Mortgage Notes, any benefit or
any legal or equitable right, remedy or claim under this Agreement.
Section 18.9 Amendments, Waivers and Consents. Any amendment or
waiver of any provision of this Agreement and any consent to any departure by
the Pledgor from any provision of this Agreement shall be effective only if made
or given in compliance with all of the terms and provisions of the Indenture
necessary for amendments or waivers of, or consents to any departure by the
Pledgor from any provision of the Indenture or any Collateral Document, as
applicable, and neither the Collateral Agent nor any Holder of Mortgage Notes
shall be deemed, by any act, delay, indulgence, omission or otherwise, to have
waived any right or remedy hereunder or to have acquiesced in any Default or
Event of Default or in any breach of any of the terms and conditions hereof.
Failure of the Collateral Agent or any Holder of
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<PAGE> 15
Mortgage Notes to exercise, or delay in exercising, any right, power or
privilege hereunder shall not operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Collateral Agent or any Holder of Mortgage Notes of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy that the Collateral Agent or such Holder of Mortgage Notes would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.
Section 18.10 Interpretation of Agreement. Time is of the
essence in each provision of this Agreement of which time is an element. All
terms not defined herein or in the Indenture shall have the meaning set forth in
the applicable UCC, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with the Indenture and is not
dealt with herein with more specificity, the Indenture shall control with
respect to the subject matter of such term or provision. Acceptance of or
acquiescence in a course of performance rendered under this Agreement shall not
be relevant to determine the meaning of this Agreement even though the accepting
or acquiescing party had knowledge of the nature of the performance and
opportunity for objection.
Section 18.11 Continuing Security Interest; Transfer of Mortgage
Notes. This Agreement shall create a continuing security interest in the Pledged
Collateral and shall (i) remain in full force and effect until the payment in
full of all the Obligations under the Indenture and the Mortgage Notes and all
the fees and expenses owing to the Collateral Agent, (ii) be binding upon the
Pledgor, its successors and assigns, and (iii) inure, together with the rights
and remedies of the Collateral Agent hereunder, to the benefit of and be binding
upon the Collateral Agent, the Holders of Mortgage Notes and their respective
successors, transferees and assigns.
Section 18.12 Reinstatement. This Agreement shall continue to be
effective or be reinstated if at any time any amount received by the Collateral
Agent or any Holder of Mortgage Notes in respect of the Obligations is rescinded
or must otherwise be restored or returned by the Collateral Agent or any Holder
of Mortgage Notes upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Pledgor or upon the appointment of any receiver,
intervenor, conservator, trustee or similar official for the Pledgor or any
substantial part of its assets, or otherwise, all as though such payments had
not been made.
Section 18.13 Survival of Provisions. All representations,
warranties and covenants of the Pledgor contained herein shall survive the
execution and delivery of this Agreement, and shall terminate only upon the full
and final payment and performance by the Pledgor of the Obligations under the
Indenture and the Mortgage Notes.
Section 18.14 Waivers. The Pledgor waives presentment and demand
for payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
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<PAGE> 16
Section 18.15 Authority of the Collateral Agent.
(a) The Collateral Agent shall have and be entitled to exercise
all powers hereunder that are specifically granted to the Collateral Agent
by the terms hereof, together with such powers as are reasonably incident
thereto. The Collateral Agent may perform any of its duties hereunder or
in connection with the Pledged Collateral by or through agents or
employees and shall be entitled to retain counsel and to act in reliance
upon the advice of counsel concerning all such matters. Neither the
Collateral Agent nor any director, officer, employee, attorney or agent of
the Collateral Agent shall be responsible for the validity, effectiveness
or sufficiency hereof or of any document or security furnished pursuant
hereto. The Collateral Agent and its directors, officers, employees,
attorneys and agents shall be entitled to rely on any communication,
instrument or document believed by it or them to be genuine and correct
and to have been signed or sent by the proper person or persons. The
Pledgor agrees to indemnify and hold harmless the Collateral Agent, the
Holders of Mortgage Notes and any other Person from and against any and
all costs, expenses (including the reasonable fees and disbursements of
counsel (including, the allocated costs of inside counsel)), claims and
liabilities incurred by the Collateral Agent, the Holders of Mortgage
Notes or such Person hereunder, unless such claim or liability shall be
due to willful misconduct or gross negligence on the part of the
Collateral Agent, the Holders of Mortgage Notes or such Person.
(b) The Pledgor acknowledges that the rights and
responsibilities of the Collateral Agent under this Agreement with respect
to any action taken by the Collateral Agent or the exercise or
non-exercise by the Collateral Agent of any option, right, request,
judgment or other right or remedy provided for herein or resulting or
arising out of this Agreement shall, as between the Collateral Agent and
the Holders of Mortgage Notes, be governed by the Indenture and by such
other agreements with respect thereto as may exist from time to time among
them, but, as between the Collateral Agent and the Pledgor, the Collateral
Agent shall be conclusively presumed to be acting as agent for the Holders
of Mortgages Note with full and valid authority so to act or refrain from
acting, and the Pledgor shall be entitled to rely on the action of the
Collateral Agent and will not be obligated or entitled to make any inquiry
respecting such authority.
Section 18.16 Resignation or Removal of the Collateral Agent.
Until such time as the Obligations under the Indenture and the Mortgage Notes
shall have been paid in full, the Collateral Agent may at any time, by giving
written notice to the Pledgor in accordance with the Indenture, resign and be
discharged of the responsibilities hereby created, such resignation to become
effective upon (i) the appointment of a successor Collateral Agent and (ii) the
acceptance of such appointment by such successor Collateral Agent. If a
successor trustee shall be appointed in accordance with the Indenture, such
successor shall be the Collateral Agent hereunder. Simultaneously with its
replacement as Collateral Agent hereunder, the Collateral Agent so replaced
shall deliver to its successor all documents, instruments, certificates and
other items of whatever kind (including, without limitation, the certificates
and instruments evidencing the Pledged Collateral and all instruments of
transfer or assignment) held by it pursuant to the terms hereof. The Collateral
Agent that has resigned shall be entitled to reasonable fees, costs
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<PAGE> 17
and expenses to the extent incurred or arising, or relating to events occurring,
before its resignation or removal.
Section 18.17 Release; Termination of Agreement.
(a) Subject to the provisions of Section 18.12 hereof, this
Agreement shall terminate upon full and final payment and performance of
the Obligations under the Indenture and the Mortgage Notes (and upon
receipt by the Collateral Agent of the Pledgor's written certification
that all such Obligations have been satisfied) and payment in full of all
reasonable fees and expenses owing by the Pledgor to the Collateral Agent.
At such time, the Collateral Agent shall, at the request of the Pledgor,
reassign and redeliver to the Pledgor all of the Pledged Collateral
hereunder that has not been sold, disposed of, retained or applied by the
Collateral Agent in accordance with the terms hereof. Such reassignment
and redelivery shall be without warranty by or recourse to the Collateral
Agent, except as to the absence of any prior assignments by the Collateral
Agent of its interest in the Pledged Collateral, and shall be at the
reasonable expense of the Pledgor.
(b) Except as permitted by the Indenture and except as
required with respect to the Joint Venture Interest pursuant to the Joint
Venture Agreement, the Pledgor agrees that it will not sell or dispose of,
or grant any option or warrant with respect to, any of the Pledged
Collateral; provided, however, that if the Pledgor shall sell any of the
Pledged Collateral in accordance with the terms of the Indenture,
including the requirement that Pledgor apply the Net Proceeds of such sale
in accordance with Section 4.10 of the Indenture, the Collateral Agent
shall, at the request of the Pledgor and subject to requirements of
Section 10.03 of the Indenture, release the Pledged Collateral subject to
such sale free and clear of the Lien and security interest under this
Agreement.
Section 18.18 Final Expression. This Agreement, together with
any other agreement executed in connection herewith, is intended by the parties
as a final expression of their Agreement and is intended as a complete and
exclusive statement of the terms and conditions thereof.
Section 18.19 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL; WAIVER OF DAMAGES.
(i) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER
THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE
PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS OF MORTGAGE NOTES IN CONNECTION
WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE
CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
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(ii) EXCEPT AS PROVIDED IN THE NEXT PARAGRAPH AND IN
PARAGRAPH (vi) BELOW, THE PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS OF
MORTGAGE NOTES AGREE THAT ALL DISPUTES BETWEEN OR AMONG THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS
LOCATED IN NEW YORK, NEW YORK, BUT THE PLEDGOR, THE COLLATERAL AGENT AND THE
HOLDERS OF MORTGAGE NOTES ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY
HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. THE PLEDGOR
WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE
COURT CONSIDERING THE DISPUTE INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(iii) THE PLEDGOR AGREES THAT THE COLLATERAL AGENT SHALL, IN
ITS OWN NAME OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF MORTGAGE NOTES, HAVE
THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE
PLEDGOR OR ITS PROPERTY IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD
FAITH TO ENABLE THE COLLATERAL AGENT TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE
A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL AGENT. THE
PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY
PROCEEDING BROUGHT BY THE COLLATERAL AGENT TO REALIZE ON SUCH PROPERTY, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE COLLATERAL AGENT. THE
PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
WHICH THE COLLATERAL AGENT HAS COMMENCED A PROCEEDING DESCRIBED IN THIS
PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(iv) THE PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS OF
MORTGAGE NOTES EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF,
CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT
WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
(v) THE PLEDGOR HEREBY IRREVOCABLY DESIGNATES [CT
CORPORATION] AS THE DESIGNEE, APPOINTEE AND AGENT OF THE PLEDGOR TO RECEIVE, FOR
AND ON BEHALF OF THE PLEDGOR, SERVICE OF PROCESS IN ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT. IT IS UNDERSTOOD THAT NOTICE AND A
COPY OF SUCH PROCESS SERVED ON SUCH
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<PAGE> 19
AGENT, WILL BE FORWARDED PROMPTLY TO THE PLEDGOR, BUT THE FAILURE OF THE PLEDGOR
TO RECEIVE SUCH NOTICE AND COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH
PROCESS. THE PLEDGOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF
ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING
OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE
PLEDGOR AT ITS ADDRESS SET FORTH IN SECTION [11.02] OF THE INDENTURE, SUCH
SERVICE TO BECOME EFFECTIVE FIVE (5) BUSINESS DAYS AFTER SUCH MAILING.
(vi) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL
AGENT OR ANY HOLDER OF MORTGAGE NOTES TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE PLEDGOR IN ANY OTHER JURISDICTION.
(vii) THE PLEDGOR HEREBY AGREES THAT NEITHER THE COLLATERAL
AGENT NOR ANY HOLDER OF MORTGAGE NOTES SHALL HAVE ANY LIABILITY TO THE PLEDGOR
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE
PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR
ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS
DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON
THE COLLATERAL AGENT OR SUCH HOLDER OF MORTGAGE NOTES, AS THE CASE MAY BE, THAT
SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE COLLATERAL
AGENT OR SUCH HOLDER OF MORTGAGE NOTES, AS THE CASE MAY BE, CONSTITUTING GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
(viii) THE PLEDGOR WAIVES ALL RIGHTS OF NOTICE AND HEARING OF
ANY KIND PRIOR TO THE EXERCISE BY THE COLLATERAL AGENT OR ANY HOLDER OF MORTGAGE
NOTES OF ITS RIGHTS DURING THE CONTINUANCE OF AN EVENT OF DEFAULT TO REPOSSESS
THE COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE
COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS. THE PLEDGOR WAIVES THE POSTING
OF ANY BOND OTHERWISE REQUIRED OF THE COLLATERAL AGENT OR ANY HOLDER OF MORTGAGE
NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO OBTAIN POSSESSION
OF, REPLEVY, ATTACH OR LEVY UPON COLLATERAL OR OTHER SECURITY FOR THE
OBLIGATIONS, TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
THE COLLATERAL AGENT OR ANY HOLDER OF MORTGAGE NOTES, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION
THIS AGREEMENT OR ANY OTHER AGREEMENT OR
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<PAGE> 20
DOCUMENT BETWEEN THE PLEDGOR, THE COLLATERAL AGENT AND THE
HOLDERS OF MORTGAGE NOTES.
Section 18.20 Acknowledgments. The Pledgor hereby acknowledges
that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement;
(b) neither the Collateral Agent nor any Holder of Mortgage
Notes has any fiduciary relationship to the Pledgor, and the relationship
between the Collateral Agent and the Holders of Mortgage Notes, on the one
hand, and the Pledgor, on the other hand, is solely that of a secured
party and a creditor; and
(c) no joint venture exists among the Holders of Mortgage Notes
or among the Pledgor and the Holders of Mortgage Notes.
[Signature Page Follows]
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[American Rice, Inc. Pledge Agreement Signature Page]
IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have each
caused this Company Pledge Agreement to be duly executed and delivered as of the
date first above written.
PLEDGOR:
AMERICAN RICE, INC.
a Texas corporation
By:____________________________________
Name:
Title:
COLLATERAL AGENT:
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Collateral Agent
By:____________________________________
Name:
Title:
21
<PAGE> 22
SCHEDULE I
PLEDGED SECURITIES
<TABLE>
<CAPTION>
Number of Pledged Share Certificate Percentage of
Issuer Shares Number Outstanding
(IF ANY) (IF ANY) CLASS OR
OWNERSHIP INTEREST
<S> <C> <C> <C>
[Name of 100%
Subsidiary]
</TABLE>
22
<PAGE> 23
EXHIBIT A
FORM OF SUBSIDIARY INTERCOMPANY NOTE
______________, ___
New York, New York
NOTE
FOR VALUE RECEIVED, [Name of Subsidiary], a [________] corporation
(the "Maker"), promises to pay to American Rice, Inc., a Texas corporation (the
"Company"), or order, the amount of principal advanced from time to time by the
Company to such Maker as reflected on the books and records of the Company,
together with interest on the unpaid principal amount at a rate per annum equal
to 15%, from the date of advance to the date of payment. Interest shall be
computed on the basis of a year of 360 days and twelve 30-day months. All
principal and accrued interest under this Note shall be due and payable on
demand.
This Note may be prepaid in whole or in part at any time without
penalty or premium. All payments shall be applied first to accrued and unpaid
interest and then to principal.
The right to plead any and all statutes of limitations as a defense
to demand hereunder is hereby waived to the extent permitted by law. The Maker,
for itself and its successors and assigns, waives presentment, demand, protest
and notice thereof or of dishonor, and waives the right to be released by reason
of any extension of time or change in the terms of payment or any change,
alteration or release of any security given for the payment hereof. The Maker
hereby acknowledges that this Note may be pledged by the Company to the
Collateral Agent named below. In no event shall the interest paid, or agreed to
be paid, hereunder exceed the maximum rate permitted by law.
This Note shall be governed by and construed in accordance with the
laws of the State of New York, without reference to principles of conflict of
interest.
[NAME OF SUBSIDIARY]
By:______________________________
Title: Vice President
Pay to the Order of:
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Collateral Agent
AMERICAN RICE, INC.
By:_________________________
Title: Vice President
A-1
<PAGE> 24
EXHIBIT B
FORM OF 15% ERLY INTERCOMPANY NOTE
August 24, 1995
New York, New York
NOTE
FOR VALUE RECEIVED, ERLY Industries Inc., a California corporation (the
"Maker"), promises to pay to American Rice, Inc., a Texas corporation (the
"Company"), or order, on or before July 30, 2001 (the "Maturity Date") the
principal amount of Ten-Million Five-Hundred Thousand Dollars
($10,500,000.00) together with interest on the unpaid principal amount at a
rate per annum equal to 15%, from the date of advance to the date of payment.
Interest shall be computed on the basis of a year of 360 days and twelve 30-day
months. All payments of principal and interest not satisfied by set-off (as
described below) shall be payable at the offices of the Company in Houston,
Texas or such other place as the holder shall designate in writing from time to
time.
The Maker shall make mandatory principal payments on this Note on or
before July 30 of each calendar year, commencing with July 30, 1996, in an
amount equal to (I) Five Hundred Thousand Dollars ($500,000.00), which may be
paid in cash or by set-off of amounts due the Company from the Maker under
that certain Tax Sharing Agreement dated May 25, 1993, as amended as of the
date of this Note, between the Maker and the Company, plus (II) any amount that
may be set off against all additional amounts due the Company under the Tax
Sharing Agreement after setting off the amount specified in clause (I) above and
an amount sufficient to pay all interest accrued and payable on this Note as of
such date. Interest on this Note also may be paid by setting off amounts due the
Company under the Tax Sharing Agreement (after application of $500,000 of such
amounts to principal) and any payment of accrued and unpaid interest on this
Note may be deferred if and to the extent that the amount available under the
Tax Sharing Agreement to be set off does not exceed $500,000.
This Note is secured by Warrants issued by Maker to the Company
exercisable into shares of common stock representing 7 1/2% of Maker's voting
capital stock on a fully diluted basis, exercisable at $0.01 per share of common
stock, after any payment default, the form of which Warrants are attached as
Attachment I to this Note (the "Warrants").
It is expressly understood that the terms of this Note may not be
modified, altered or changed in any manner without the express written consent
of U.S. Trust Company of Texas, N.A. (the "Trustee"), or its successor pursuant
to the terms of that certain indenture dated as of August 24, 1995 between the
Company and the Trustee for the benefit of the Holders of the 13% Mortgage Notes
issued by the Company.
B-1
<PAGE> 25
This Note may be prepaid in whole or in part at any time without penalty
or premium. All voluntary pre-payments shall be applied first to accrued and
unpaid interest and then to principal.
The right to plead any and all statutes of limitations as a defense to
demand hereunder is hereby waived to the extent permitted by law. The Maker, for
itself and its successors and assigns, waives presentment, demand, protest and
notice thereof or of dishonor, and waives the right to be released by reason of
any extension of time or change in the terms of payment or any change,
alteration or release of any security given for the payment hereof. The Maker
hereby acknowledges that this Note and the Warrants may be pledged by the
Company to the Collateral Agent named below. In no event may the interest paid,
or agreed to be paid, hereunder exceed the maximum amount permitted by
applicable law.
This Note shall be governed by and construed in accordance with the
internal laws of the State of New York, without reference to principles of
conflict of interest.
ERLY INDUSTRIES INC.
By:________________________
Title: Vice President
Pay to the Order of:
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Collateral Agent
AMERICAN RICE, INC.
By:____________________________
Title: Vice President
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<PAGE> 26
[ATTACHMENT I TO EXHIBIT B]
WARRANT AGREEMENT
THIS WARRANT AGREEMENT IS DELIVERED BY THE COMPANY AS
SECURITY FOR ITS OBLIGATIONS UNDER A $10,500,000 PROMISSORY NOTE
MADE PAYABLE TO ARI, AND MAY NOT BE AMENDED EXCEPT AS PROVIDED
HEREIN.
THIS WARRANT AGREEMENT (this "Agreement") is dated as of August 24,
1995, between ERLY INDUSTRIES INC. (the "Company"), and AMERICAN RICE, INC.
("ARI").
WHEREAS, the Company proposes to issue to ARI 256,370 warrants (the
"Warrants," which outstanding number of Warrants is subject to adjustment as
provided herein), each such Warrant entitling the holder thereof to purchase one
share of Common Stock of the Company (the "Common Stock," which term includes
the Company's Common Stock as it may from time to time hereafter be constituted)
(as used hereinafter the term "Shares" refers to the Common Stock, and, where
appropriate, such term shall also mean the other securities or property
purchasable upon the exercise of a Warrant as provided for herein upon the
happening of certain events); and
WHEREAS, concurrently with the execution and delivery of this
Agreement ARI is selling, in a registered public offering, $100,000,000 in
aggregate principal amount of its Mortgage Notes due 2002 with Contingent
Interest (the "Mortgage Notes") pursuant to an indenture dated as of August 24,
1995 (the "Indenture"); and
WHEREAS, this Agreement is delivered as security for the performance
of the Company's obligations under that certain promissory note made payable to
the order of ARI in the original principal amount of $10,500,000 (the "ERLY
Note"); and
WHEREAS, in purchasing the Mortgage Notes issued pursuant to the
Indenture, the holders thereof are relying upon the existence of such security
arrangement in favor of ARI, and, accordingly, this Agreement may not be amended
without the prior written consent of the holders of at least a majority in
aggregate principal amount of the Mortgage Notes then outstanding.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Warrant Certificates. The Warrant Certificates (the
"Warrant Certificates") to be delivered pursuant to this Agreement shall be in
the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
are required or permitted by this Agreement.
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<PAGE> 27
SECTION 2. Execution of Warrant Certificates. Warrant Certificates
shall be executed on behalf of the Company by its chairman of the board, its
president, any executive vice president, any senior vice president or any vice
president under its corporate seal impressed or reproduced thereon attested by
its corporate secretary or one of its assistant secretaries. Each such signature
upon the Warrant Certificate may be in the form of a facsimile signature of the
chairman of the board, the president, an executive vice president, a senior vice
president, a vice president, a corporate secretary or an assistant secretary and
may be imprinted or otherwise reproduced on the Warrant Certificates and for
that purpose the Company may adopt and use the facsimile signature of any person
who shall have been chairman of the board, president, executive vice president,
senior vice president, vice president, corporate secretary or assistant
secretary, notwithstanding the fact that at the time the Warrant Certificates
shall be countersigned and delivered or disposed of he shall have ceased to hold
such office.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been disposed of by the Company, such Warrant
Certificates nevertheless may be delivered or disposed of as though such person
had not ceased to be such officer of the Company; and any Warrant Certificate
may be signed on behalf of the Company by any person who, at the actual date of
the execution of such Warrant Certificate, shall be a proper officer of the
Company to sign such Warrant Certificate, although at the date of the execution
of this Warrant Agreement any such person was not such officer.
Warrant Certificates shall be dated the date of execution by the
Company either upon initial issuance, division, exchange, substitution or
transfer.
SECTION 3. Registration. Warrant Certificates shall be registered in
the names of the record holders of the Warrant Certificates to whom they are to
be distributed.
The Warrants shall be numbered and shall be registered in a Warrant
Register. The Company may deem and treat the registered holder(s) of the Warrant
Certificates as the absolute owner(s) thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone), for the purpose of any
exercise thereof or any distribution to the holder thereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
The Warrants shall be registered initially in the name of "American
Rice, Inc." in such denominations as ARI may request in writing to the Company.
SECTION 4. Registration of Transfers and Exchanges. The Warrants may
not be sold, transferred, assigned or hypothecated prior to the close of
business on July 31, 2003. Subject to the foregoing, the Company shall from time
to time register the transfer of any outstanding Warrant Certificates upon the
records to be maintained by it for that purpose. Upon any such registration of
transfer, a new Warrant Certificate shall be issued to the transferee and the
surrendered Warrant Certificate shall be cancelled by the
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<PAGE> 28
Company. Cancelled Warrant Certificates shall thereafter be disposed of in a
manner satisfactory to the Company.
Warrant Certificates may be exchanged at the option of the holder
thereof, when surrendered to the Company for another Warrant Certificate or
other Warrant Certificates of like tenor and representing in the aggregate a
like number of Warrants. Warrant Certificates surrendered for exchange shall be
cancelled by the Company. Such cancelled Warrant Certificates shall then be
disposed of by the Company in a manner satisfactory to the Company.
SECTION 5. Right to Exercise Warrants. Each Warrant may be exercised
following any ERLY Default (as hereinafter defined) on any business day after
9:00 A.M. New York time on August 24, 1995 until 5:00 P.M. New York time on July
31, 2003 (the "Expiration Date"). Each Warrant not exercised on or before the
Expiration Date shall expire. No Warrant may be exercised prior to a payment
default by ERLY under the ERLY Note (an "ERLY Default").
Subject to the provisions of this Agreement, including Section 12,
the holder of each Warrant shall have the right to purchase from the Company
(and the Company shall issue and sell to such holder(s) of a Warrant) one fully
paid and nonassessable Share at the price set forth in the form of Warrant
Certificate included herein, as adjusted from time to time (the "Exercise
Price"), upon surrender to the Company of the Warrant Certificate evidencing
such Warrant, with the form of election to purchase duly completed and signed,
and upon payment of the Exercise Price. Payment of the Exercise Price may be in
cash, or by certified or official bank check payable to the order of the
Company, or any combination of such cash or check. No adjustments shall be made
for any cash dividends on Shares issuable upon the exercise of a Warrant.
Subject to Sections 6, 9 and 10 hereof, upon such surrender of a
Warrant Certificate and payment of the Exercise Price, the Company shall cause
to be issued and delivered promptly to the registered holder thereof, or upon
the written order of the registered holder of such Warrant Certificate in such
name or names as such registered holder may designate, a certificate for the
Share or Shares issuable upon the exercise of the Warrant or Warrants evidenced
by such Warrant Certificate. Such certificate shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become the holder of record of such Share or Shares as of the date of the
surrender of such Warrant Certificate and payment of the Exercise Price. The
Warrants evidenced by a Warrant Certificate shall be exercisable, at the
election of the registered holder thereof, either as an entirety or from time to
time for part only of the number of Warrants specified in the Warrant
Certificate. In the event that less than all of the Warrants evidenced by a
Warrant Certificate surrendered upon the exercise of Warrants are exercised at
any time prior to the date of expiration of the Warrants, a new Warrant
Certificate or Certificates shall be issued for the remaining number of Warrants
evidenced by the Warrant Certificate so surrendered, and the Company shall
deliver the required new Warrant Certificate or Certificates pursuant to the
provisions of this Section 5 and of Section 4.
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<PAGE> 29
All Warrant Certificates surrendered upon exercise of Warrants shall
be cancelled by the Company. Such cancelled Warrant Certificates shall then be
disposed of by the Company in a manner satisfactory to the Company.
SECTION 6. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Shares upon the exercise of
Warrants; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Shares in a name other
than that of the registered holder of a Warrant Certificate surrendered upon the
exercise of a Warrant.
SECTION 7. Mutilated or Missing Warrant Certificates. In case any of
the Warrant Certificates shall be mutilated, lost, stolen, or destroyed, the
Company shall issue and deliver, in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen, or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent right or
interest, but only upon receipt of evidence satisfactory to the Company of such
loss, theft, or destruction of such Warrant Certificate and indemnity, if
requested, also satisfactory to the Company. Applicants for such substitute
Warrant Certificates shall also comply with such other reasonable regulations
and pay such other reasonable charges as the Company may prescribe.
SECTION 8. Reservation of Shares; Stock Exchange Listing. The Company
will at all times reserve and keep available, free from preemptive rights, out
of the aggregate of its authorized but unissued Shares or its authorized and
issued Shares held in its treasury, for the purpose of enabling it to satisfy
any obligation to issue Shares upon exercise of Warrants, the full number of
Shares deliverable upon the exercise of all outstanding Warrants.
Before taking any action which would cause an adjustment pursuant to
Section 12 reducing the Exercise Price below the then par value (if any) of the
Shares issuable upon exercise of the Warrants, the Company will take any
corporate action which may, in the opinion of its counsel (which may be counsel
employed by the Company), be necessary in order that the Company may validly and
legally issue fully paid and nonassessable Shares at the Exercise Price as so
adjusted.
The Company covenants that all Shares which may be issued upon
exercise of Warrants will be validly issued, fully paid, and nonassessable
outstanding Shares of the Company.
Upon the issuance of any Shares, the Company will list such Shares on
any and all securities exchanges on which shares of Common Stock are then
listed. If the Common Stock is not then listed on any such exchange, the Company
will use its best efforts to arrange for Such Shares to be authorized for
quotation on the NASDAQ National Market System.
B-6
<PAGE> 30
SECTION 9. Registration under the Securities Act of 1933. ARI
represents and warrants to the Company that ARI will not dispose of any such
Warrants or Shares except pursuant to (i) an effective registration statement,
(ii) Rule 144 under the Securities Act of 1933, as amended (the "Act") (or any
similar rule under the Act relating to the disposition of securities), or (iii)
an opinion of counsel, reasonably satisfactory to counsel for the Company, that
an exemption from such registration is available.
SECTION 10. Certificates to Bear Legends. The Warrants shall be
subject to a stop-transfer order and the certificate or certificates therefor
shall bear the following legend by which each holder shall be bound:
"THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK (OR OTHER SECURITIES) ISSUABLE UPON EXERCISE THEREOF MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE,
RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO
THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION,
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE."
The Shares shall be subject to a stop-transfer order and the
certificate or certificates evidencing any such shares shall bear the following
legend:
"THE SHARES (OR OTHER SECURITIES) REPRESENTED BY THIS CERTIFICATE MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE,
RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO
THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION,
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE."
Certificates for Warrants or Shares without such legend shall be issued if such
Warrants or Shares are sold pursuant to an effective registration statement
under the Securities Act of 1933 or if the Company has received an opinion from
counsel, reasonably satisfactory to counsel for the Company, that such legend is
no longer required under the Securities Act of 1933.
SECTION 11. Special Adjustment in the Number of Outstanding Warrants.
upon each timely payment of principal on the ERLY Note, the number of Warrants
shall be reduced by the product of (a) 256,370 and (b) a fraction, the numerator
of which is the amount of such principal payment and the denominator of which is
$10,500,000 (such product rounded to the nearest whole share).
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<PAGE> 31
SECTION 12. Adjustment of Exercise Price and Number of Shares
Purchasable. The Exercise Price and the number of Shares purchasable upon the
exercise of each Warrant are subject to adjustment from time to time as set
forth in this Section 12.
(A) Adjustment for Change in Capital Stock. If the Company:
(1) pays a dividend or makes a distribution on its Common Stock
in shares of its Common Stock:
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number of shares;
(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any shares of
its capital stock;
Then the exercise privilege and the Exercise Price in effect immediately prior
to such action shall be adjusted so that the holder of any Warrant thereafter
exercised may receive the number of shares of capital stock of the Company which
he would have owned immediately following such action if he had exercised the
Warrant immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a holder of a Warrant upon exercise of it may
receive shares of two or more classes of capital stock of the Company, the
Company shall determine the allocation of the adjusted Exercise Price between
the classes of capital stock. After such allocation, the exercise privilege and
the Exercise Price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Section 12.
(B) Adjustment for Rights Issue. If the Company distributes any
rights or warrants to all holders of its Common Stock entitling them for a
period expiring within 60 days after the record date mentioned below to purchase
shares of Common Stock at a price per share less than the current market price
per share on that record date, the Exercise Price shall be adjusted in
accordance with the formula:
N X P
O + M
C' = C X O + N
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where:
C' = the adjusted Exercise Price.
C = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the current market price per share of Common Stock on the record
date.
The adjustment shall be made successively whenever any such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the rights
or warrants. If at the end of the period during which such warrants or rights
are exercisable, not all warrants or rights shall have been exercised, the
Exercise Price shall be immediately readjusted to what it would have been if "N"
in the above formula had been the number of shares actually issued.
(c) Adjustment for Other Distributions. If the Company
distributes to all holders of its Common Stock any of its assets or debt
securities or any rights or warrants to purchase assets, debt securities or
other securities of the Company, the Exercise Price shall be adjusted in
accordance with the formula:
M - F
C' = C x M
where:
C' = the adjusted Exercise Price.
C = the current Exercise Price.
M = the current market price per share of Common Stock on the
record date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share of
Common Stock. The Company's Board of Directors shall determine
the fair market value.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
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This Section does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown on
the books of the Company. Also, this Section does not apply to rights or
warrants referred to in Section 12(B).
(D) Adjustment for Common Stock Issue. If the Company issues
shares of Common Stock for a consideration per share less than the current
market price per share on the date the Company fixes the offering price of such
additional shares, the Exercise Price shall be adjusted in accordance with the
formula:
O + P
M
C' = C x A
WHERE:
C' = the adjusted Exercise Price.
C = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = the current market price per share on the date of issuance of
such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
This Section does not apply to (i) any of the transactions
described in Sections 12(b) and 12(c), (ii) the conversion or exchange of
securities convertible or exchangeable for Common Stock, (iii) Common Stock
issued to the Company's employees under bona fide employee benefit plans adopted
by the Company's Board of Directors and approved by the holders of Common Stock
when required by law, if such Common Stock would otherwise be covered by this
Section (but only to the extent that the aggregate number of shares excluded
hereby and issued after the date of this agreement shall not exceed 10% of the
Common Stock outstanding at the time of determination, exclusive of antidilution
adjustments thereunder), (iv) Common Stock issued upon the exercise of rights or
warrants issued to the holders of Common Stock, (v) Common Stock issued to
shareholders of any person which merges into the Company in proportion to their
stock holdings of such person immediately prior to such merger, upon such merger
(vi) Common Stock issued in a bona
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fide underwritten public offering, or (vii) Common Stock issued in a bona fide
private placement through a placement agent which is a member firm of the
National Association of Securities Dealers, Inc. (except to the extent that any
discount from the current market price attributable to restrictions on
transferability of the Common Stock, as determined in good faith by the
Company'S Board of Directors and described in a resolution thereof which shall
be available to any Warrant holder for inspection, shall exceed 20%).
(E) Adjustment for Convertible Securities Issue. If the
Company issues any securities convertible into or exchangeable for Common Stock
(other than the Warrants or securities issued in transactions described in
sections 12(b) and 12(c)) for a consideration per share of Common Stock
initially deliverable upon conversion or exchange of such securities less than
the current market price per share on the date of issuance of such securities,
the Exercise Price shall be adjusted in accordance with this formula:
O + P
M
C' = C x O + D
WHERE:
C' = the adjusted Exercise Price.
C = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such securities.
P = the aggregate consideration received for the issuance of such
securities.
M = the current market price per share on the date of issuance of
such securities.
D = the maximum number of shares deliverable upon conversion or in
exchange for such securities at the initial conversion or
exchange rate.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance. If
all of the Common Stock deliverable upon conversion or exchange of such
securities has not been issued when such securities are no longer outstanding,
then the Exercise Price shall promptly be readjusted to the Exercise Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion or exchange of such securities.
This Section does not apply to (i) convertible securities
issued to shareholders of any person which merges into the Company, or with a
subsidiary of the Company, in proportion to their stock holdings of such person
immediately prior to such merger, upon such merger, (ii) convertible securities
issued in a bona fide underwritten public offering,
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<PAGE> 35
or (iii) convertible securities issued in a bona fide private placement through
a placement agent which is a member firm of the National Association of
Securities Dealers, Inc. (except to the extent that any discount from the
current market price attributable to restrictions on transferability of Common
Stock issuable upon conversion, as determined in good faith by the Company's
Board of Directors and described in a resolution thereof which shall be
available to any Warrant holder for inspection, shall exceed 20% of the then
current market price).
(f) Current Market Price. In Sections 12(b), (c), (d) and (e),
the current market price per share of Common Stock on any date is the average of
the Quoted Prices (as defined below) of the Common Stock for 30 consecutive
trading days commencing 45 trading days before the date in question. In the
absence of one or more such quotations, the Company's Board of Directors shall
determine the current market price on the basis of such quotations as it
considers appropriate.
For the purposes of this Agreement, the "Quoted Price" of the
Common Stock is the last reported sales price of the Common Stock as reported by
the NASDAQ National Market System, or if the Common Stock is listed on a
securities exchange, the last reported sales price of the Common Stock on such
exchange which shall be for consolidated trading if applicable to such exchange
or, if neither so reported or listed, the last reported bid price of the Common
Stock.
(g) Consideration Received. For purposes of any
computation respecting consideration received pursuant to Sections 12(d) and
12(e), the following shall apply:
(1) in the case of the issuance of shares of Common
Stock for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any
commissions, discounts or other expenses incurred by the Company for
any underwriting of the issue or otherwise in connection therewith;
(2) in the case of the issuance of shares of Common
Stock for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the Company's Board of
Directors (irrespective of the accounting treatment thereof), whose
determination shall be conclusive, and described in a resolution of
such Board which shall be available to any Warrant holder for
inspection; and
(3) in the case of the issuance of securities
convertible into or exchangeable for shares, the aggregate
consideration received therefor shall be deemed to be the consideration
received by the Company for the issuance of such securities plus the
additional minimum consideration, if any, to be received by the Company
upon the conversion or exchange thereof (the consideration in each case
to be determined in the same manner as provided in clauses (1) and (2)
of this Section 12(G)).
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<PAGE> 36
(h) When Adjustment May Be Deferred. No adjustment in the
Exercise Price need be made unless the adjustment would require an increase or
decrease of at least 1% in the Exercise Price. Any adjustments that are not made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 12 shall be made to the
nearest cent or to the nearest 1/100th of a Share, as the case may be.
(i) When No Adjustment Required. No adjustment need be
made for rights to purchase Common Stock pursuant to a Company Plan for
reinvestment of dividends or interest.
No adjustment need be made for a change in the par value or no
par value of the Common Stock.
To the extent the Warrants become exercisable for cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on
the cash.
(j) Notice of Adjustment. Whenever the Exercise Price is
adjusted, the Company shall promptly mail to holders of Warrants a notice of the
adjustment briefly stating the facts requiring the adjustment and the manner of
computing it. The Company shall make available for inspection by holders of
Warrants a certificate from the Company's independent public accountants briefly
stating the facts requiring the adjustment and the manner of computing it. The
certificate shall be conclusive evidence that the adjustment is correct.
(k) Notice of Certain Transactions. If:
(1) the Company takes any action that would
require an adjustment in the Exercise Price pursuant to Sections 12(a),
(b), (c), (d) or (e);
(2) the Company takes any action that would
require an assumption of the Company's obligations hereunder pursuant
to Section 12(1); or
(3) there is a liquidation or dissolution of the
Company,
the Company shall mail to holders of Warrants a notice stating the proposed
record date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger, transfer,
lease, liquidation or dissolution. The Company shall mail the notice at least 15
days before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
(l) Reorganization of Company. If the Company is a party to a
transaction subject to section 5.01 of the Indenture, or a merger which
reclassifies or changes its outstanding Common Stock, upon consummation of such
transaction the Warrants shall automatically become exercisable for the kind and
amount of securities,
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<PAGE> 37
cash or other assets which the holder of a Warrant would have owned immediately
after the consolidation, merger, transfer or lease if the holder had exercised
the Warrant immediately before the effective date of the transaction.
Concurrently with the consummation of such transaction, the person obligated to
issue securities or deliver cash or other assets upon exercise of the Warrants
shall assume the Company's obligations hereunder by executing an instrument so
providing and further providing for adjustments which shall be as nearly
equivalent as may be practical to the adjustments provided for in this Section
12. The successor Company shall mail to holders of Warrants a notice describing
the assumption.
If securities deliverable upon exercise of Warrants, as
provided above, are themselves convertible into the securities of an affiliate
of the formed, surviving, transferee or lessee corporation, that issuer shall
join in the assumption instrument which shall so provide.
If this Section applies to a transaction, Section 12(a) does
not apply to it.
(m) Company Determination Final. Any determination that the
Company or the Board of Directors of the Company must make pursuant to Section
12(a), (c), (d), (e), (f), (g) or (i) or Section 13 is conclusive.
Section 13. Fractional Shares. The Company will not issue a
fractional Share or Shares upon exercise of a Warrant. Instead, the Company will
deliver its check for the current market value of the fractional Share. The
current market value of a fraction of a Share is determined as follows: Multiply
the current market price of a full Share by the fraction. Round the result to
the nearest cent.
The current market price of a share of Common Stock is the
Quoted Price of the Common Stock on the last trading day prior to the exercise
date. In the absence of such a quotation, the Company shall determine the
current market price on the basis of such quotations as it considers
appropriate.
Section 14. Notices to Warrantholders. Upon any adjustment of
the Exercise Price pursuant to Section 12, the Company within 20 days thereafter
shall (i) have on file with the Company a certificate of a firm of independent
public accountants of recognized standing selected by the Board of Directors of
the Company (who may be the regular auditors of the Company) setting forth the
Exercise Price after such adjustment and setting forth in reasonable detail the
method of calculation and the facts upon which such calculations are based and
setting forth the number of Shares purchasable upon exercise of a Warrant after
such adjustment in the Exercise Price, which certificate shall be conclusive
evidence of the correctness of the matters set forth therein, and (ii) cause to
be given to each of the registered holders of the Warrant Certificates at his
address appearing on the Warrant register written notice of such adjustment by
first-class mail, postage prepaid. Where appropriate, such notice may be given
in advance and included as a part of the notice required to be mailed under the
other provisions of this Section 14.
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<PAGE> 38
In case:
(a) the Company shall authorize the issuance to all
holders of Shares of rights, options or warrants to subscribe for or
purchase shares or of any other subscription rights or warrants or of
securities convertible into or exchangeable for Shares; or
(b) the Company shall authorize the distribution to
all holders of Shares of evidence of its indebtedness or assets (other
than cash dividends or distributions or dividends payable in Shares);
or
(c) of any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the
Company is required, or of the conveyance or transfer of the properties
and assets of the Company as, or substantially as, an entirety, or of
any reclassification or change of outstanding Shares issuable upon
exercise of the Warrants (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a
result of a subdivision or combination); or
(d) of the voluntary or involuntary dissolution,
liquidation, or winding up of the Company; or
(e) the Company proposes to take any action (other
than actions of the character described in Section 12(a), except as
required under (c) above) which would require an adjustment of the
Exercise Price pursuant to Section 12:
then the Company shall cause to be given to each of the registered holders of
the Warrant Certificates at his address appearing on the Warrant register, at
least 20 days (or 10 days in any case specified in clauses (a) or (b) above)
prior to the applicable record date hereinafter specified, by first-class mail,
postage prepaid, a written notice stating (i) the date as of which the holders
of record of Shares to be entitled to receive any such rights, options,
warrants, convertible or exchangeable securities or distribution are to be
determined, (ii) the date on which any such consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of record of
Shares shall be entitled to exchange their Shares for securities or other
property, if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or (iii) the date
of such action which would require an adjustment of the Exercise Price pursuant
to Section 12. the failure to give the notice required by this Section 14 or any
defect therein shall not affect the legality or validity of any distribution,
right, warrant, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders thereof the right
to vote or to consent or
B-15
<PAGE> 39
to receive notice as stockholders in respect of the meetings of stockholders or
the election of directors of the Company or any other matter or any rights
whatsoever as stockholders of the Company.
SECTION 15. Merger or Consolidation of the Company. The
Company will not merge or consolidate with or into, or sell, transfer or lease
all or substantially all of its property to, any other corporation unless the
successor or purchasing corporation, as the case may be (if not the Company),
shall expressly assume, by supplemental agreement in writing, the due and
punctual performance and observance of each and every covenant and condition of
this Agreement to be performed and observed by the Company.
SECTION 16. Notices to Company and ARI. Any notice or demand
authorized by this Agreement to be given or made by any registered holder of any
Warrant Certificate to or on the Company shall be sufficiently given or made if
sent by mail, first-class or registered, postage prepaid, addressed (until
another address is filed in writing by the Company with the holders) to the
Company as follows:
ERLY Industries Inc.
10990 Wilshire Boulevard, Suite 1800
Los Angeles, California 90024
Attention: Gerald Murphy
Any notice pursuant to this Agreement to be given by the
Company to ARI shall be sufficiently given if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by ARI with the
Company) to ARI as follows:
American Rice, Inc.
16825 Northchase Drive, Suite 1600
Houston, Texas 77060
Attention: Vice President of Finance
SECTION 17. Supplements and Amendments. The Company and ARI
may from time to time supplement or amend this Agreement without the approval of
any holders of Warrant Certificates (other than ARI) in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and ARI may deem necessary or desirable and which the Company and ARI deem shall
not adversely affect the interests of the holders of Warrant Certificates. The
foregoing notwithstanding, while any of the Mortgage Notes are outstanding, no
such supplement or amendment shall be executed or entered into without the
consent of the holders of a majority in aggregate principal amount of the
Mortgage Notes then outstanding.
SECTION 18. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or ARI shall bind and inure
to the benefit of their respective successors and assigns hereunder.
B-16
<PAGE> 40
SECTION 19. Termination. This Agreement shall terminate at the
close of business on the Expiration Date. Notwithstanding the foregoing, this
Agreement will terminate on any earlier date when either (a) all Warrants have
been exercised or (b) the ERLY Note has been repaid in full prior to any payment
or other default thereunder.
SECTION 20. Governing Law. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Texas and for all purposes shall be construed in accordance
with the laws of said State.
SECTION 21. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, ARI and any other registered holders of the Warrant Certificates or
shares any legal or equitable right, remedy or claim under this Agreement; but
this Agreement shall be for the sole and exclusive benefit of the Company and
ARI and any other registered holders of the Warrant Certificates or Shares. The
foregoing notwithstanding, the holders of the Mortgage Notes are expressly
agreed to be beneficiaries of this Agreement to the extent set forth herein.
SECTION 22. Automatic Exercise Following ERLY Default. ARI
agrees to exercise the Warrants in full as soon as practicable following any
ERLY Default. This provision is expressly agreed to for the benefit of the
holders of the Mortgage Notes, and may not be waived or amended without the
prior written consent of the holders of a majority in aggregate principal amount
of such Mortgage Notes.
SECTION 23. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and such counterparts shall together constitute but
one and the same instrument.
B-17
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
ERLY INDUSTRIES INC.
By:
Title:
SEAL
Attest:
- ---------------------------------
AMERICAN RICE, INC.
By:
Title:
SEAL
Attest:
- ---------------------------------
B-18
<PAGE> 42
[ATTACHMENT I TO EXHIBIT B, CONTINUED]
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK (OR
OTHER SECURITIES) ISSUABLE UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, (II) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THIS CORPORATION, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT
IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT
AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, JULY 31, 2003
No. W- 256,370 WARRANTS
WARRANT CERTIFICATE
ERLY INDUSTRIES INC.
This Warrant Certificate certifies that American Rice, Inc.,
or registered assigns, is the registered holder of 256,370 Warrants (the
"warrants") expiring July 31, 2003, to purchase the Common Stock (the "Common
Stock") of ERLY Industries Inc. (The "Company"). Each Warrant entitles the
holder to purchase from the Company after 9:00 a.m. New York time, on August 24,
1995 and before 5:00 p.m. New York time on July 31, 2003 (the "Expiration Date")
one fully paid and nonassessable share of Common Stock of the Company at the
initial Exercise Price, subject to adjustment in certain events (the "Exercise
Price"), of $0.01 upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but only subject to the
conditions set forth herein and in the Warrant Agreement (as hereinafter
defined). Payment of the Exercise Price may be made in cash, or by certified or
official bank check payable to the order of the Company, or any combination of
such cash or check. As used herein, "Shares" refers to the Common Stock of the
Company and, where appropriate, to the other securities or property issuable
upon exercise of a Warrant as provided for in the
B-19
<PAGE> 43
Warrant Agreement upon the happening of certain events. The Exercise Price and
(in certain more limited instances) the number of Shares purchasable upon
exercise of the Warrants are subject to adjustment upon the occurrence of
certain events set forth in the Warrant Agreement. In the event that upon any
exercise of Warrants evidenced hereby, the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
to the holder hereof or his assignee a new Warrant Certificate evidencing the
number of Warrants not exercised. No adjustment shall be made for any dividends
on any Shares issuable upon exercise of this Warrant.
No Warrant may be exercised after 5:00 P.M., New York time, on
the Expiration Date, or prior to an ERLY Default (as defined in the Warrant
Agreement). All Warrants evidenced hereby shall after the Expiration Date be
void. As provided in the Warrant Agreement, the holder of this Warrant must
exercise it upon the occurrence of an ERLY Default.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to a Warrant Agreement dated
as of August 24, 1995 (the "Warrant Agreement"), which Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price set forth above may, subject to certain
conditions, be adjusted. No fractional shares will be issued upon exercise of a
Warrant; instead, in such cases the Company will issue a check for any such
Share.
Warrant Certificates, when surrendered at an office or agency
of the Company, by the registered holder thereof in person or by a legal
representative duly authorized in writing may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of
B-20
<PAGE> 44
any distribution to the holder(s) hereof, and for all purposes, and the Company
shall not be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK (OR OTHER SECURITIES) ISSUABLE UPON EXERCISE THEREOF MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, (II) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH
ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (III) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY
SATISFACTORY TO COUNSEL FOR THIS CORPORATION, THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO
HEREIN.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: ERLY INDUSTRIES INC.
Attest:
By:
Title:
- ------------------------------
Secretary
B-21
<PAGE> 45
[ATTACHMENT I TO EXHIBIT B, CONTINUED]
[FORM OF ELECTION TO PURCHASE]
(To be executed upon exercise of Warrant.)
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase ____________ Shares
and herewith tenders in payment for such Shares cash or a certified or official
bank check payable to the order of ERLY INDUSTRIES INC. in the amount of
$_____________, all in accordance with the terms hereof. The undersigned
requests that a certificate for such Shares be registered in the name of
________________ whose address is _____________________________ and that such
certificate be delivered to _____________________ whose address is
_________________________. If said number of Shares is less than all of the
Shares purchasable hereunder, the undersigned requests that a new Warrant
Certificate representing the remaining balance of the Shares be registered in
the name of ________________ whose address is _____________________________ and
that such Certificate be delivered to _____________________ whose address is
- -------------------------.
Dated: Signature:
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
(Insert Social Security or Other
Identifying Number of Holder)
B-22
<PAGE> 46
[ATTACHMENT I TO EXHIBIT B, CONTINUED]
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________ hereby
sells, assigns and transfers unto _______________________
- ----------------------------------------------------------------.
(Please print name and address of transferee)
This Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ______________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
(Insert Social Security or Other
Identifying Number of Assignee)
B-23
<PAGE> 47
EXHIBIT C
6% ERLY INTERCOMPANY NOTE
[Attached]
C-1
<PAGE> 48
EXHIBIT D
FORM OF OPINION OF COUNSEL
i. [New Entity] is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and CORPORATE authority to
own and to operate its properties and to carry on its business;
ii. all of the outstanding capital stock of [New Entity] has
been validly authorized and issued and is fully paid and nonassessable, is
owned by the Pledgor, directly or indirectly, free and clear of any security
interest, claim, lien or encumbrance, other than the security interests created
by the Pledge Agreement, and there are no outstanding rights, warrants or
options to acquire, or instruments convertible into or exchangeable for, any
shares of capital stock or other equity interest in [New Entity];
iii. (A) Pledgor has the requisite corporate power and
CORPORATE authority to create, deliver and perfect the security interests
created under the Pledge Agreement; (B) the Pledge Agreement has been duly
authorized, executed and delivered by Pledgor and constitutes the valid and
binding obligation of Pledgor enforceable against it in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights and remedies of creditors and the effect of general equitable principles,
whether such enforceability is considered in a proceeding in equity or at law,
and the discretion of the court before which any proceeding therefor may be
brought; (C) after giving effect to the [merger] [consolidation] [sale or
transfer of all or substantially all assets], and assuming the Collateral Agent
is holding the certificates and notes representing the Pledged Collateral (WITH
APPROPRIATE STOCK POWERS AND PROPER ENDORSEMENTS, AS APPLICABLE) in the State of
New York, the Pledge Agreement will create a valid and perfected security
interest in the Pledged Collateral (including, without limitation, all of the
Equity Interests and intercompany notes of [New Entity]) in favor of the
Collateral Agent, on behalf and for the benefit of the Holders of Mortgage
Notes, subject to no other consensual security interest in favor of any other
person (other than liens in favor of the lender under the Revolving Credit Loan
that are junior to the lien created in favor of the Trustee), and no filings or
recordings will be required in order to perfect or maintain the security
interests created under the Pledge Agreement in such Pledged Collateral; and
iv. the consummation of the [merger] [consolidation] [sale or
transfer of all or substantially all assets] does not (A) conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument (IDENTIFIED TO US AS MATERIAL BY THE
Pledgor, the Issuer and [New Entity]) to which the Pledgor, the Issuer or [New
Entity] is a party by which the Pledgor, the Issuer or [New Entity] is bound or
to which any of the property or assets of the Pledgor, the Issuer or [New
Entity] is subject, except for such conflicts, breaches, violations or defaults
as would not have a material adverse effect on the business, condition
(financial or other), results of operations or properties of the Pledgor and its
subsidiaries taken as a whole; nor will such action result in any violation of
the provisions of the respective
D-2
<PAGE> 49
charter or by-laws of the Pledgor, the Issuer or [New Entity]; nor will such
action result in any violation of any application law or statute or any
applicable order, rule or regulation known to us of any court or governmental
agency or body having jurisdiction over the Pledgor and its subsidiaries or any
of their respective properties, or (B) TO OUR BEST KNOWLEDGE, result in the
creation of any lien upon any of the properties or assets of the Pledgor, the
Issuer or [New Entity] (other than liens created by the Pledge Agreement).
D-3
<PAGE> 50
EXHIBIT E
FORM OF CONSOLIDATED NET WORTH
The undersigned, _______________ and ________________, respectively the
President and Chief Financial Officer of American Rice, Inc., a Texas
corporation (The "Pledgor"), certify that they are authorized to execute this
Certificate in the name and on behalf of THE Pledgor, and further certify as
follows (capitalized terms used but not defined herein have the respective
meanings assigned to them in the Pledge Agreement, dated August __, 1995
(the "Pledge Agreement"), between the Pledgor and the Collateral Agent):
a. We are familiar with the historical and current financial
condition of [name of Issuer merging, consolidating or
transferring assets] (the "Issuer") that proposes to [merge or
consolidate with] [sell or transfer all or substantially all
of its assets to] [New Entity] (the "Successor Issuer")
Pursuant to Section 7(a)(vii) of the Pledge Agreement.
b. For the purposes of this Certificate, we have reviewed
other financial information and forecasts relating to the
Issuer and the Successor Issuer prepared by the management
of the issuer and the Successor issuer, which we believe (as
to the historical financial information) fairly present the
historical financial position and results of operations of the
Issuer and the Successor Issuer as of the dates and for the
periods presented and (in the case of the forecasts) were
based upon reasonable assumptions and provide reasonable
estimations of future performance, although any forecasts are
necessarily uncertain of fulfillment. We know of no facts or
circumstances arising subsequent to the dates as of which such
information and projections were prepared that would
materially alter such conclusions.
Based upon the foregoing, we have reached the conclusions
that, after giving effect to the transactions contemplated by Section 7(a)(vii)
of the Pledge Agreement, the Consolidated Net Worth of the Successor Issuer is
equal to or greater than the Consolidated Net Worth of the Issuer prior to such
[consolidation or merger][transfer of assets].
WITNESS the signatures of the undersigned,
this _____ day of______, 199_.
-------------------------
President
-------------------------
Chief Financial Officer
E-1
<PAGE> 1
EXHIBIT 4.12
ERLY PLEDGE AGREEMENT
THIS ERLY PLEDGE AGREEMENT (this "Agreement") is made and
entered into as of August 24, 1995 by ERLY INDUSTRIES INC., a California
corporation (the "Pledgor"), having its principal office at 10990 Wilshire
Boulevard, Suite 1800, Los Angeles, California 90024, in favor of U.S. TRUST
COMPANY OF TEXAS, N.A., a national banking association, having an office at 500
North Akard, Suite 2100, Dallas, Texas, 75201-3320, trustee under the Indenture
referred to below as collateral agent (the "Collateral Agent") for the holders
(the "Holders") of the Pledgor's 13% Mortgage Notes due 2002 With Contingent
Interest of American Rice, Inc., a Subsidiary of the Pledgor. Capitalized terms
used and not defined herein shall have the meanings given to such terms in the
Indenture referred to below.
W I T N E S S E T H:
WHEREAS, the Pledgor is the legal and beneficial owner of all
of the issued and outstanding shares of capital stock set forth on Schedule I
hereto (the "Pledged Shares") of American Rice, Inc., a Texas corporation (the
"Issuer"); and
WHEREAS, the Issuer and the Collateral Agent, as trustee, have
entered into that certain indenture dated as of August 24, 1995 (as amended,
amended and restated, supplemented or otherwise modified from time to time, the
"Indenture"), pursuant to which the Issuer has issued or will issue
$100,000,000 in aggregate principal amount of 13% Mortgage Notes due 2002
(together with any notes issued in replacement thereof or in exchange or
substitution therefor, the "Mortgage Notes"); and
WHEREAS, the terms of the Indenture require that the Pledgor
(i) pledge to the Collateral Agent for the ratable benefit of the Holders of
Mortgage Notes, and grant to the Collateral Agent for the ratable benefit of
the Holders of Mortgage Notes a security interest in, the Pledged Collateral
(as defined herein) and (ii) execute and deliver this Agreement in order to
secure the payment and performance by the Issuer of all of the Obligations of
the Issuer under the Indenture, and the Mortgage Notes (the "Obligations").
<PAGE> 2
AGREEMENT
NOW, THEREFORE, in consideration of the premises, and in order
to induce the Holders of Mortgage Notes to purchase the Mortgage Notes, the
Pledgor hereby agrees with the Collateral Agent for its benefit and the ratable
benefit of the Holders of Mortgage Notes as follows:
SECTION 1. Pledge. The Pledgor hereby pledges to the
Collateral Agent for its benefit and for the ratable benefit of the Holders of
Mortgage Notes, and grants to the Collateral Agent for the ratable benefit of
the Holders of Mortgage Notes, a continuing first priority security interest in
all of its right, title and interest in the following (the "Pledged
Collateral"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares, and all products and proceeds of any of the Pledged Shares,
including, without limitation, all dividends (to the extent dividends are
not otherwise used to repay indebtedness under the 6% ERLY Intercompany
Note), cash, options, warrants, rights, instruments, subscriptions and
other property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
Pledged Shares or any of the foregoing; and
(b) all additional shares of, and all securities convertible into
and all warrants, options or other rights to purchase, Capital Stock of,
or other Equity Interests in, the Issuer from time to time acquired by the
Pledgor in any manner, and the certificates representing such additional
shares and Equity Interests (any such additional shares and Equity
Interests and other items shall constitute part of the Pledged Shares
under and as defined in this Agreement), and all products and proceeds of
any of the foregoing, including, without limitation, all dividends, cash,
options, warrants, rights, instruments, subscriptions, and other property
or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the foregoing;
provided, however, that the Pledged Shares shall not include 200,000
shares of the Issuer's Class B Preferred Stock so long as such shares are
pledged to the holders of the Issuer's Class C Preferred Stock (the
"Excluded Shares").
SECTION 2. Security for Obligations. This Agreement secures
the prompt and complete payment and performance when due (whether at stated
maturity, on redemption, by acceleration or otherwise) of all Obligations of
the Issuer under the Indenture and the Mortgage Notes (including, without
limitation, interest and any other Obligations accruing after the date of any
filing by the Issuer of any petition in bankruptcy or the commencement of any
bankruptcy, insolvency or similar proceeding with respect to the Issuer) and
under the Collateral Documents.
SECTION 3. Delivery of Pledged Collateral. Pledgor hereby
agrees that all certificates or instruments representing or evidencing the
Pledged Collateral shall be immediately delivered
2
<PAGE> 3
to and held at all times by the Collateral Agent pursuant hereto in the State
of New York and shall be in suitable form for transfer by delivery, or issued
in the name of Pledgor and accompanied by instruments of transfer or assignment
duly executed in blank and undated, and in either case having attached thereto
all requisite federal or state stock transfer tax stamps, all in form and
substance satisfactory to the Collateral Agent.
SECTION 4. Representations and Warranties. The Pledgor
represents and warrants that:
(a) The execution, delivery and performance by the Pledgor of this
Agreement are within the Pledgor's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene, or
constitute a default under, any provision of applicable law or regulation
or of the certificate of incorporation or bylaws of the Pledgor or the
Issuer or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Pledgor or the Issuer, or result in the
creation or imposition of any Lien on any assets of the Pledgor, other
than the Lien contemplated hereby.
(b) The Pledged Shares have been duly authorized and validly issued
and are fully paid and non-assessable.
(c) The Pledged Shares constitute the percentage of each class of
the authorized, issued and outstanding Equity Interests of the Issuer as
shown on Schedule I and constitute all of the shares of Equity Interests
of the Issuers beneficially owned by the Pledgor, except for the Excluded
Shares.
(d) The Pledgor is the legal, record and beneficial owner of the
Pledged Collateral, free and clear of any Lien or claims of any Person
except for the security interest created by this Agreement.
(e) This Agreement has been duly executed and delivered by the
Pledgor and constitutes a legal, valid and binding obligation of the
Pledgor, enforceable against the Pledgor in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
the rights and remedies of creditors and the effect of general equitable
principles, whether such enforceability is considered in a proceeding in
equity or at law, and the discretion of the court before which any
proceeding therefor may be brought.
(f) Upon the delivery to the Collateral Agent of the Pledged
Collateral and (as to certain proceeds therefrom) the filing of Uniform
Commercial Code (the "UCC") financing statements, the pledge of the
Pledged Collateral pursuant to this Agreement creates a valid and
perfected first priority security interest in the Pledged Collateral,
securing the payment of the Obligations of the Issuer for the benefit of
the Collateral Agent and the Holders of Mortgage Notes, and enforceable as
such against all creditors of the Pledgor and any Persons purporting to
purchase any of the Pledged Collateral from the Pledgor.
3
<PAGE> 4
(g) No consent of any other Person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (i) for the
pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement
or for the execution, delivery or performance of this Agreement by the
Pledgor or (ii) for the exercise by the Collateral Agent of the voting or
other rights provided for in this Agreement or the remedies in respect of
the Pledged Collateral pursuant to this Agreement (except as may be
required in connection with such disposition by laws affecting the
offering and sale of securities).
(h) No litigation, investigation or proceeding of or before any
arbitrator or governmental authority is pending or, to the best knowledge
of the Pledgor, threatened by or against the Pledgor or against any of its
properties or revenues with respect to the execution and delivery of this
Agreement by the Pledgor or performance by the Pledgor of any of the
transactions contemplated hereby.
(i) The pledge of the Pledged Collateral pursuant to this Agreement
is not prohibited by any applicable law or governmental regulation,
release, interpretation or opinion of the Board of Governors of the
Federal Reserve System or other regulatory agency (including, without
limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System).
(j) All information set forth herein relating to the Pledged
Collateral is accurate and complete in all respects.
SECTION 5. Further Assurances. Pledgor will at all times cause
the security interests granted pursuant to this Agreement to constitute valid
perfected first priority security interests in the Pledged Collateral,
enforceable as such against all creditors of Pledgor and (except as otherwise
specifically provided herein) any Persons purporting to purchase any Pledged
Collateral from Pledgor. The Pledgor will, promptly upon request by the
Collateral Agent, execute and deliver or cause to be executed and delivered, or
use its best efforts to procure, all stock powers, proxies, tax stamps,
assignments, instruments and other documents, all in form and substance
satisfactory to the Collateral Agent, deliver any instruments to the Collateral
Agent and take any other actions that are necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect, continue the perfection
of, or protect the first priority of the Collateral Agent's security interest
in, the Pledged Collateral, to protect the Pledged Collateral against the
rights, claims, or interests of third persons, to enable the Collateral Agent
to exercise or enforce its rights and remedies hereunder, or otherwise to
effect the purposes of this Agreement. The Pledgor also hereby authorizes the
Collateral Agent to file any financing or continuation statements with respect
to the Pledged Collateral without the signature of the Pledgor to the extent
permitted by applicable law. The Pledgor will pay all reasonable costs
incurred in connection with any of the foregoing.
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SECTION 6. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Pledged Shares or any part
thereof for any purpose not inconsistent with the terms of this Agreement
or the Indenture; provided, however, that the Pledgor shall not exercise
or shall refrain from exercising any such right if such action would be
inconsistent with or violate any provisions of this Agreement or the
Indenture.
(b) So long as no Event of Default shall have occurred and be
continuing, and subject to the other terms and conditions of the
Indenture, the Pledgor shall be entitled to receive, and to utilize
(subject to the provisions of the Indenture) free and clear of the Lien of
this Agreement, all cash dividends paid from time to time in respect of
the Pledged Shares to the extent payment is permitted under the Indenture.
(c) Any and all (i) dividends, other distributions, interest and
principal payments paid or payable in the form of instruments and/or other
property (other than cash dividends permitted under Section 6(b) hereof)
received, receivable or otherwise distributed in respect of, or in
exchange for, any Pledged Collateral, (ii) dividends and other
distributions paid or payable in cash in respect of any Pledged Shares in
connection with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or
paid-in-surplus, and (iii) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral, shall in each
case be forthwith delivered to the Collateral Agent to hold as Pledged
Collateral and shall, if received by the Pledgor, be received in trust for
the benefit of the Collateral Agent and the Holders of Mortgage Notes, be
segregated from the other property and funds of the Pledgor and be
forthwith delivered to the Collateral Agent as Pledged Collateral in the
same form as so received (with any necessary endorsements).
(d) The Collateral Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to Sections 6(a) and (b) above.
(e) Upon the occurrence and during the continuance of an Event of
Default, (i) all rights of the Pledgor to exercise the voting and other
consensual rights that it would otherwise be entitled to exercise pursuant
to Section 6(a) shall cease, and all such rights shall thereupon become
vested in the Collateral Agent, which, to the extent permitted by law,
shall thereupon have the sole right to exercise such voting and other
consensual rights, and (ii) all cash dividends and other distributions
payable in respect of the Pledged Collateral shall be paid to the
Collateral Agent and the Pledgor's right to receive such cash payments
pursuant to Section 6(b) hereof shall immediately cease.
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(f) Upon the occurrence and during the continuance of an Event of
Default, the Pledgor shall execute and deliver (or cause to be executed
and delivered) to the Collateral Agent all such proxies, dividend and
interest payment orders and other instruments as the Collateral Agent may
reasonably request for the purpose of enabling the Collateral Agent to
exercise the voting and other rights that it is entitled to exercise
pursuant to Section 6(e) above.
(g) All dividends and other distributions or payments that are
received by the Pledgor contrary to the provisions of this Section 6 shall
be received in trust for the benefit of the Collateral Agent and the
Holders, shall be segregated from the other property or funds of the
Pledgor and shall be forthwith delivered to the Collateral Agent as
Pledged Collateral in the same form as so received (with any necessary
endorsements).
SECTION 7. Covenants. The Pledgor covenants and agrees, from
and after the date of this Agreement and until the Obligations have been paid
in full, as follows:
(a) The Pledgor agrees that it will not (i) sell, assign, transfer,
convey or otherwise dispose of, or grant any option or warrant with respect to,
any of the Pledged Collateral without the prior written consent of the
Collateral Agent except to the extent permitted under the Indenture, (ii)
create or permit to exist any Lien upon or with respect to any of the Pledged
Collateral, except for the security interest granted under this Agreement, and
at all times will be the sole beneficial owner of the Pledged Collateral, (iii)
enter into any agreement or understanding that purports to or that may restrict
or inhibit the Collateral Agent's rights or remedies hereunder, including,
without limitation, the Collateral Agent's right to sell or otherwise dispose
of the Pledged Collateral, (iv) take any action, or permit the taking of any
action by the Issuer with respect to the Pledged Collateral the taking of which
would result in a violation of the Indenture or this Agreement, (v) permit the
Issuer to merge or consolidate with or into another person or entity or sell or
transfer all or substantially all of its assets to another person or entity,
except in accordance with the Indenture and unless (x) Pledgor shall have
delivered to the Collateral Agent an Opinion of Counsel substantially in the
form of Exhibit A hereto and a certificate executed by the President and Chief
Financial Officer of Pledgor substantially in the form of Exhibit B hereto and
(y) all outstanding capital stock of the surviving entity in such merger or
consolidation or of the entity to whom such sale or transfer was made, are,
upon such merger or consolidation, pledged hereunder to and deposited with the
Collateral Agent, or (vi) fail to pay or discharge any tax, assessment or levy
on the Pledged Collateral of any nature not later than five days prior to the
date of any proposed sale under any judgment, writ or warrant of attachment
with regard to the Pledged Collateral.
(b) The Pledgor agrees that immediately upon becoming the beneficial
owner of any additional shares of Capital Stock, or Equity Interests of the
Issuer (including as a result of the merger or consolidation of such Issuer
with or into another entity and the release of the Lien on the Excluded Shares)
it will pledge and deliver to the Collateral Agent for its benefit and the
ratable benefit of the Holders and grant to the Collateral Agent for its
benefit and the ratable benefit of the Holders, a continuing first priority
security interest in such shares, or Equity
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Interests (as well as instruments of transfer or assignment duly executed in
blank and undated and any necessary stock transfer tax stamps, all in form and
substance satisfactory to the Collateral Agent). The Pledgor further agrees
that it will promptly deliver to the Collateral Agent a certificate executed by
a principal executive officer of the Pledgor describing such additional shares,
or Equity Interests and certifying that the same have been duly pledged and
delivered to the Collateral Agent hereunder.
SECTION 8. Power of Attorney. In addition to all of the powers
granted to the Collateral Agent pursuant to Section 10.06 of the Indenture, the
Pledgor hereby appoints and constitutes the Collateral Agent as the Pledgor's
attorney-in-fact to exercise all of the following powers upon the occurrence
and at any time during the continuance of an Event of Default: (i) collection
of proceeds of any Pledged Collateral; (ii) conveyance of any item of Pledged
Collateral to any purchaser thereof; (iii) giving of any notices or recording
of any Liens under Section 5 hereof; (iv) making of any payments or taking any
acts under Section 9 hereof and (v) paying or discharging taxes or Liens levied
or placed upon or threatened against the Pledged Collateral, the legality or
validity thereof and the amounts necessary to discharge the same to be
determined by the Collateral Agent in its sole discretion, and such payments
made by the Collateral Agent to become the obligations of the Pledgor to the
Collateral Agent, due and payable immediately without demand. The Collateral
Agent's authority hereunder shall include, without limitation, the authority to
endorse and negotiate, for the Collateral Agent's own account, any checks or
instruments in the name of the Pledgor, execute and give receipt for any
certificate of ownership or any document, transfer title to any item of Pledged
Collateral, sign the Pledgor's name on all financing statements or any other
documents deemed necessary or appropriate to preserve, protect or perfect the
security interest in the Pledged Collateral and to file the same, prepare, file
and sign the Pledgor's name on any notice of Lien, and prepare, file and sign
the Pledgor's name on a proof of claim in bankruptcy or similar document
against the Issuer, and to take any other actions arising from or incident to
the powers granted to the Collateral Agent in this Agreement. This power of
attorney is coupled with an interest and is irrevocable by the Pledgor.
SECTION 9. Collateral Agent May Perform. If the Pledgor fails
to perform any agreement contained herein, the Collateral Agent may itself
perform, or cause performance of, such agreement, and the reasonable expenses
of the Collateral Agent incurred in connection therewith shall be payable by
the Pledgor under Section 14 hereof.
SECTION 10. No Assumption of Duties; Reasonable Care. The
rights and powers granted to the Collateral Agent hereunder are being granted
in order to preserve and protect the Collateral Agent's and the Holders'
security interest in and to the Pledged Collateral granted hereby and shall not
be interpreted to, and shall not, impose any duties on the Collateral Agent in
connection therewith. The Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in
its possession if the Pledged Collateral is accorded treatment substantially
equal to that which the Collateral Agent accords its own property, it being
understood that the Collateral Agent shall not have any responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities,
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tenders or other matters relative to any Pledged Collateral, whether or not the
Collateral Agent has or is deemed to have knowledge of such matters, or (ii)
taking any necessary steps to preserve rights against any parties with respect
to any Pledged Collateral.
SECTION 11. Subsequent Changes Affecting Collateral. The
Pledgor represents to the Collateral Agent and the Holders of Mortgage Notes
that the Pledgor has made its own arrangements for keeping informed of changes
or potential changes affecting the Pledged Collateral (including, but not
limited to, rights to convert, rights to subscribe, payment of dividends,
payments of interest and/or principal, reorganization or other exchanges,
tender offers and voting rights), and the Pledgor agrees that the Collateral
Agent and the Holders of Mortgage Notes shall have no responsibility or
liability for informing the Pledgor of any such changes or potential changes or
for taking any action or omitting to take any action with respect thereto. The
Pledgor covenants that it will not, without the prior written consent of the
Collateral Agent or as otherwise permitted under the Indenture, vote to enable,
or take any other action to permit, the Issuer to issue any capital stock or
other securities or to sell or otherwise dispose of, or grant any option with
respect to, any of the Pledged Collateral or create or permit to exist any Lien
upon or with respect to any of the Pledged Collateral, except for the security
interests granted under this Agreement. The Pledgor will defend the right,
title and interest of the Collateral Agent and the Holders of Mortgage Notes in
and to the Pledged Collateral against the claims and demands of all Persons.
SECTION 12. Remedies Upon Default.
(a) If any Event of Default shall have occurred and be
continuing, the Collateral Agent and the Holders of Mortgage Notes shall
have, in addition to all other rights given by law or by this Agreement or
the Indenture, all of the rights and remedies with respect to the Pledged
Collateral of a secured party under the UCC as in effect in the State of
New York at that time (whether or nor such rights apply to the Pledged
Collateral). The Collateral Agent may, without notice and at its option,
transfer or register, and the Pledgor shall register or cause to be
registered upon request therefor by the Collateral Agent, the Pledged
Collateral or any part thereof on the books of the Issuer into the name of
the Collateral Agent or the Collateral Agent's nominee(s), with or without
any indication that such Pledged Collateral is subject to the security
interest hereunder. In addition, with respect to any Pledged Collateral
that shall then be in or shall thereafter come into the possession or
custody of the Collateral Agent, the Collateral Agent may sell or cause
the same to be sold at any broker's board or at public or private sale, in
one or more sales or lots, at such price or prices as the Collateral Agent
may deem best, for cash or on credit or for future delivery, without
assumption of any credit risk. The purchaser of any or all Pledged
Collateral so sold shall thereafter hold the same absolutely, free from
any claim, encumbrance or right of any kind whatsoever. Unless any of the
Pledged Collateral threatens to decline speedily in value or is or becomes
of a type sold on a recognized market, the Collateral Agent will give
Pledgor reasonable notice of the time and place of any public sale
thereof, or of the time after which any private sale or other intended
disposition is to be made. Any sale of the Pledged Collateral conducted
in conformity with
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reasonable commercial practices of banks, insurance companies, commercial
finance companies, or other financial institutions disposing of property
similar to the Pledged Collateral shall be deemed to be commercially
reasonable. Any requirements of reasonable notice shall be met if such
notice is mailed to the Pledgor as provided below in Section 19.1, at
least ten days before the time of the sale or disposition. Any other
requirement of notice, demand or advertisement for sale is, to the extent
permitted by law, waived. The Collateral Agent or any Holder of Mortgage
Notes may, in its own name or in the name of a designee or nominee, buy
any of the Pledged Collateral at any public sale and, if permitted by
applicable law, at any private sale. All reasonable expenses (including
court costs and reasonable attorneys' fees and disbursements) of, or
incident to, the enforcement of any of the provisions hereof shall be
recoverable from the proceeds of the sale or other disposition of the
Pledged Collateral.
(b) If the Collateral Agent shall determine to exercise its
right to sell any or all of the Pledged Shares pursuant to Section 12(a)
above, and if in the opinion of counsel for the Collateral Agent it is
necessary, or if in the opinion of the Collateral Agent it is advisable,
to have the Pledged Shares or that portion thereof to be sold, registered
under the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), Pledgor will cause the Issuer to (i) execute and
deliver, and cause its directors and officers to execute and deliver, all
at the Issuer's expense, all such instruments and documents, and to do or
cause to be done all such other acts and things as may be necessary or, in
the opinion of the Collateral Agent, advisable to register such Pledged
Shares under the provisions of the Securities Act, (ii) cause the
registration statement relating thereto to become effective and to remain
effective for a period of 180 days from the date of the first public
offering of such Pledged Shares, or that portion thereof to be sold and
(iii) make all amendments thereto and/or to the related prospectus that,
in the opinion of the Collateral Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto.
Pledgor agrees to cause the Issuer to comply with the provisions of the
securities or "Blue Sky" laws of any jurisdiction that the Collateral
Agent shall designate for the sale of the Pledged Shares and to make
available to the Issuer's security holders, as soon as practicable, an
earnings statement (which need not be audited) that will satisfy the
provisions of Section 11(a) of the Securities Act. The Pledgor will cause
the Issuer to furnish to the Collateral Agent such number of copies as the
Collateral Agent may reasonably request of each preliminary and final
prospectus, to notify the Collateral Agent promptly of the happening of
any event as a result of which any then effective prospectus includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of then existing circumstances, and to cause
the Collateral Agent to be furnished with such number of copies as the
Collateral Agent may request of such supplement to or amendment of such
prospectus. The Pledgor will cause the Issuer, to the extent permitted by
law, to indemnify, defend and hold harmless the Collateral Agent and the
Holders of Mortgage Notes from and against all losses, liabilities,
expenses or claims (including reasonable legal expenses and the reasonable
costs of investigation) that the Collateral Agent or the Holders of
Mortgage Notes may incur under
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the Securities Act or otherwise, insofar as such losses, liabilities,
expenses or claims arise out of or are based upon any alleged untrue
statement of a material fact contained in such registration statement (or
any amendment thereto) or in any preliminary or final prospectus (or any
amendment or supplement thereto), or arise out of or are based upon any
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except to the
extent that any such losses, liabilities, expenses or claims arise solely
out of or are based upon any such alleged untrue statement made or such
alleged omission to state a material fact included or excluded on the
written direction of the Collateral Agent. Pledgor will cause the Issuer
to bear all reasonable costs and expenses of carrying out its obligations
hereunder.
(c) In view of the fact that federal and state securities laws
may impose certain restrictions on the method by which a sale of the
Pledged Collateral may be effected after an Event of Default, Pledgor
agrees that upon the occurrence or existence of any Event of Default, the
Collateral Agent may, from time to time, attempt to sell all or any part
of the Pledged Collateral by means of a private placement, restricting the
prospective purchasers to those who will represent and agree that they are
purchasing for investment only and not for distribution. In so doing, the
Collateral Agent may solicit offers to buy the Pledged Collateral, or any
part of it, for cash, from a limited number of investors who might be
interested in purchasing the Pledged Collateral. The Pledgor acknowledges
and agrees that any such private sale may result in prices and terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have
been made in a commercially reasonable manner. The Collateral Agent shall
be under no obligation to delay a sale of any of the Pledged Collateral
for the period of time necessary to permit the Issuer to register such
securities for public sale under the Securities Act, or under applicable
state securities laws, even if an Issuer agrees to do so.
(d) The Pledgor further agrees to use its best efforts to do or
cause to be done all such other acts as may be necessary to make such sale
or sales of all or any portion of the Pledged Collateral pursuant to this
Section 12 valid and binding and in compliance with any and all other
applicable requirements of law. The Pledgor further agrees that a breach
of any of the covenants contained in this Section 12 will cause
irreparable injury to the Collateral Agent and the Holders of Mortgage
Notes, that the Collateral Agent and the Holders of Mortgage Notes have no
adequate remedy at law in respect of such breach and, as a consequence,
that each and every covenant contained in this Section 12 shall be
specifically enforceable against the Pledgor, and the Pledgor hereby
waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that no
Default or Event of Default has occurred under the Indenture.
SECTION 13. Irrevocable Authorization and Instruction to the
Issuer. With respect to the Pledged Collateral, the Pledgor hereby authorizes
and instructs the Issuer to comply with any instruction received by it from the
Collateral Agent that (i) states that an Event of Default has occurred and (ii)
is otherwise in accordance with the terms of this Agreement, without any
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other or further instructions from the Pledgor, and the Pledgor agrees that the
Issuer shall be fully protected in so complying.
SECTION 14. Fees and Expenses. The Pledgor will upon demand pay
to the Collateral Agent the amount of any and all reasonable fees and expenses
(including, without limitation, the reasonable fees and disbursements of its
counsel, of any investment banking firm, business broker or other selling agent
and of any other experts and agents retained by the Collateral Agent) that the
Collateral Agent may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Pledged Collateral, (iii) the
exercise or enforcement of any of the rights of the Collateral Agent and the
Holders of Mortgage Notes hereunder or (iv) the failure by the Pledgor to
perform or observe any of the provisions hereof.
SECTION 15. Security Interest Absolute. All rights of the
Collateral Agent and the Holders of Mortgage Notes and the security interests
created hereunder, and all obligations of the Pledgor hereunder, shall be
absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture, any
Mortgage Note, any Collateral Document or any other agreement or
instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations under the indenture and the
Mortgage Notes, or any other amendment or waiver of or any consent to any
departure from the Indenture;
(c) any exchange, surrender, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any of the Obligations under the
Indenture and the Mortgage Notes; or
(d) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Pledgor in respect of such
Obligations or of this Agreement.
SECTION 16. Application of Proceeds. Upon the occurrence and
during the continuance of an Event of Default, the proceeds of any sale of, or
other realization upon, all or any part of the Pledged Collateral and any cash
held shall be applied by the Collateral Agent in the following order of
priorities, subject to the terms of the Intercreditor Agreement:
first, to payment of the reasonable expenses of such sale or other
realization, including reasonable compensation to agents and legal counsel for
the Collateral Agent, and all reasonable expenses, liabilities and advances
incurred or made by the Collateral Agent in connection therewith, and any other
unreimbursed fees and expenses for which the Collateral Agent is to be
reimbursed pursuant to Section 14 hereof;
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second, to the ratable payment (based on the principal amount of
Mortgage Notes deemed by the Indenture to be outstanding at the time of
distribution) of accrued but unpaid interest on such outstanding Mortgage
Notes;
third, to the ratable payment (based on the principal amount of
Mortgage Notes deemed by the Indenture to be outstanding at the time of
distribution) of unpaid principal of such outstanding Mortgage Notes;
fourth, to the ratable payment (based on the principal amount of
Mortgage Notes deemed by the Indenture to be outstanding at the time of
distribution) of all other Obligations, until all Obligations shall have been
paid in full; and
finally, to payment to the Pledgor or its successors or assigns, or
as a court of competent jurisdiction may direct, of any surplus then remaining
from such proceeds.
SECTION 17. Uncertificated Securities. Notwithstanding anything
to the contrary contained herein, if any Pledged Shares (whether now owned or
hereafter acquired) are uncertificated Pledged Shares, the Pledgor shall
promptly notify the Collateral Agent, and shall promptly take all actions
required to perfect the security interest of the Collateral Agent under
applicable law (including, in any event, under Sections 8-313 and 8-321 of the
New York Uniform Commercial Code). The Pledgor further agrees to take such
actions as the Collateral Agent deems necessary or desirable to effect the
foregoing and to permit the Collateral Agent to exercise any of its rights and
remedies hereunder, and agrees to provide an Opinion of Counsel satisfactory to
the Pledgee with respect to any such pledge of uncertificated Pledged Shares
promptly upon request of the Collateral Agent.
SECTION 18. Certain Waivers.
(a) In addition to any other waivers herein, the Pledgor
waives to the greatest extent it may lawfully do so, and agrees that it
shall not at any time insist upon, plead or in any manner whatever claim
or take the benefit or advantage of, any appraisal, valuation, stay,
extension, marshalling of assets, redemption or similar law, or exemption,
whether now or at any time hereafter in force, which may delay, prevent or
otherwise affect the performance by the Pledgor of its obligations under,
or the enforcement by the Collateral Agent of, this Agreement, and any
right to require the Collateral Agent to proceed against the Issuer or any
other Person or to proceed against or exhaust any other Collateral held at
any time before exercising rights under this Agreement. The Pledgor hereby
waives diligence, presentment and demand (whether for nonpayment or
protest or of acceptance, maturity, extension of time, change in nature or
form of the Obligations, acceptance of further security, release of
further security, composition or agreement arrived at as to the amount of,
or the terms of the Obligations, notice of adverse change in the Issuer's
or any other Person's financial condition or any other fact which might
materially increase the risk to Pledgor) with respect to any of the
Obligations or all other demands whatsoever and waives the benefit of all
provisions of law which are or might be in conflict with the terms
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of this Agreement. The Pledgor further agrees that its obligations under
this Agreement shall not be subject to any counterclaims, offsets or
defenses against the Collateral Agent, any Holder or the Issuer of any
kind which may arise in the future. The Pledgor hereby authorizes the
Collateral Agent, for the benefit of the Holders of Mortgage Notes, in its
sole discretion and without notice to or demand upon the Pledgor and
without otherwise affecting the obligations of the Pledgor hereunder from
time to time to take and hold other collateral in addition to the Pledged
Collateral for payment of any Obligations, or any part thereof, and to
exchange, enforce or release such other collateral or any part thereof and
to accept and hold any endorsement or guaranty of payment of the
Obligations, or any part thereof and to release or substitute any endorser
or guarantor or any other Person granting security for or in any other way
obligated upon any Obligations or any part thereof.
(b) The Pledgor hereby waives, and agrees that it will
not assert or otherwise claim, any right of contribution, reimbursement,
repayment, indemnity or subrogation under or in respect of this Agreement,
whether arising by any payment made hereunder, by agreement or otherwise
until final payment in full of the Obligations.
(c) If the Collateral Agent may, under applicable law,
proceed to realize its benefits and the benefits of the Holders under the
Indenture or any of the Collateral Documents giving the Collateral Agent
or the Trustee a Lien upon any Collateral, whether owned by the Issuer or
by any other Person, either by judicial foreclosure or by non-judicial
sale or enforcement, the Collateral Agent may, at its sole option,
determine which of its remedies or rights it may pursue without affecting
any of the rights and remedies of the Collateral Agent or the Holders
under this Agreement. If, in the exercise of any of such rights and
remedies, the Collateral Agent or any Holder shall forfeit any of their
rights or remedies, including their right to enter a deficiency judgment
against the Issuer or any other Person, whether because of any applicable
laws pertaining to "election of remedies" or the like, Pledgor hereby
consents to such action by the Collateral Agent or any Holder and, to the
extent permitted by applicable law, waives any claim based upon such
action, even if such action by the Collateral Agent or any Holder shall
result in a full or partial loss of any rights of subrogation,
indemnification, contribution or reimbursement which Pledgor might
otherwise have had but for such action or the terms herein. Any election
of remedies which results in the denial or impairment of the right of the
Collateral Agent or any Holder to seek a deficiency judgment against the
Issuer shall not impair the Pledgor's obligations hereunder.
SECTION 19. Miscellaneous Provisions.
Section 19.1 Notices. All notices, approvals, consents
or other communications required or desired to be given hereunder shall be in
the form and manner as set forth in Section 11.02 of the Indenture, and
delivered to the addresses set forth in the preamble to this Agreement.
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Section 19.2 Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Pledgor to the Collateral
Agent to take any action or omit to take any action under this Agreement, the
Pledgor shall deliver to the Collateral Agent an Officer's Certificate and/or
an Opinion of Counsel in accordance with the requirements of Sections 11.04 and
11.05 of the Indenture.
Section 19.3 No Adverse Interpretation of Other
Agreements. This Agreement may not be used to interpret another pledge,
security or debt agreement of the Pledgor, the Issuer, or any subsidiary of any
thereof. No such pledge, security or debt agreement may be used to interpret
this Agreement.
Section 19.4 Severability. The provisions of this
Agreement are severable, and if any clause or provision shall be held invalid
or unenforceable in whole or in part in any jurisdiction, then such invalidity
or unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
Section 19.5 No Recourse Against Others. No director,
officer, employee, stockholder or affiliate, as such, of the Pledgor or the
Issuer shall have any liability for any obligations of the Pledgor under this
Agreement or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Holder of Mortgage Notes, by accepting a
Mortgage Note, waives and releases all such liability. The waiver and release
are part of the consideration for the issue of the Mortgage Notes.
Section 19.6 Headings. The headings of the Articles and
Sections of this Agreement have been inserted for convenience of reference
only, are not to be considered a part hereof and shall in no way modify or
restrict any of the terms or provisions hereof.
Section 19.7 Counterpart Originals. This Agreement may
be signed in two or more counterparts. Each signed copy shall be an original,
but all of them together represent one and the same agreement. Each counterpart
may be executed and delivered by telecopy, if such delivery is promptly
followed by the original manually signed copy sent by overnight courier.
Section 19.8 Benefits of Agreement. Nothing in this
Agreement, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Holders of Mortgage Notes, any
benefit or any legal or equitable right, remedy or claim under this Agreement.
Section 19.9 Amendments, Waivers and Consents. Any
amendment or waiver of any provision of this Agreement and any consent to any
departure by the Pledgor from any provision of this Agreement shall be
effective only if made or given in compliance with all of the terms and
provisions of the Indenture necessary for amendments or waivers of, or consents
to any departure by the Pledgor from any provision of the Indenture or any
Collateral
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<PAGE> 15
Document, as applicable, and neither the Collateral Agent nor any Holder of
Mortgage Notes shall be deemed, by any act, delay, indulgence, omission or
otherwise, to have waived any right or remedy hereunder or to have acquiesced
in any Default or Event of Default or in any breach of any of the terms and
conditions hereof. Failure of the Collateral Agent or any Holder of Mortgage
Notes to exercise, or delay in exercising, any right, power or privilege
hereunder shall not operate as a waiver thereof. No single or partial exercise
of any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Collateral Agent or any Holder of Mortgage Notes of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy that the Collateral Agent or such Holder of Mortgage Notes
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.
Section 19.10 Interpretation of Agreement. Time is of the
essence in each provision of this Agreement of which time is an element. All
terms not defined herein or in the Indenture shall have the meaning set forth
in the applicable UCC, except where the context otherwise requires. To the
extent a term or provision of this Agreement conflicts with the Indenture and
is not dealt with herein with more specificity, the Indenture shall control
with respect to the subject matter of such term or provision. Acceptance of or
acquiescence in a course of performance rendered under this Agreement shall not
be relevant to determine the meaning of this Agreement even though the
accepting or acquiescing party had knowledge of the nature of the performance
and opportunity for objection.
Section 19.11 Continuing Security Interest; Transfer of
Mortgage Notes. This Agreement shall create a continuing security interest in
the Pledged Collateral and shall (i) remain in full force and effect until the
payment in full of all the Obligations under the Indenture and the Mortgage
Notes and all the fees and expenses owing to the Collateral Agent, (ii) be
binding upon the Pledgor, its successors and assigns, and (iii) inure, together
with the rights and remedies of the Collateral Agent hereunder, to the benefit
of and be binding upon the Collateral Agent, the Holders of Mortgage Notes and
their respective successors, transferees and assigns.
Section 19.12 Reinstatement. This Agreement shall continue to
be effective or be reinstated if at any time any amount received by the
Collateral Agent or any Holder of Mortgage Notes in respect of the Obligations
is rescinded or must otherwise be restored or returned by the Collateral Agent
or any Holder of Mortgage Notes upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Issuer or the Pledgeor or upon the
appointment of any receiver, intervenor, conservator, trustee or similar
official for the Issuer or the Pledgor or any substantial part of its assets,
or otherwise, all as though such payments had not been made.
Section 19.13 Survival of Provisions. All representations,
warranties and covenants of the Pledgor contained herein shall survive the
execution and delivery of this Agreement, and shall terminate only upon the
full and final payment and performance by the Pledgor of the Obligations under
the Indenture and the Mortgage Notes.
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<PAGE> 16
Section 19.14 Waivers. The Pledgor waives presentment and
demand for payment of any of the Obligations, protest and notice of dishonor or
default with respect to any of the Obligations, and all other notices to which
the Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
Section 19.15 Authority of the Collateral Agent.
(a) The Collateral Agent shall have and be entitled to exercise
all powers hereunder that are specifically granted to the Collateral Agent
by the terms hereof, together with such powers as are reasonably incident
thereto. The Collateral Agent may perform any of its duties hereunder or
in connection with the Pledged Collateral by or through agents or
employees and shall be entitled to retain counsel and to act in reliance
upon the advice of counsel concerning all such matters. Neither the
Collateral Agent nor any director, officer, employee, attorney or agent of
the Collateral Agent shall be responsible for the validity, effectiveness
or sufficiency hereof or of any document or security furnished pursuant
hereto. The Collateral Agent and its directors, officers, employees,
attorneys and agents shall be entitled to rely on any communication,
instrument or document believed by it or them to be genuine and correct
and to have been signed or sent by the proper person or persons. The
Pledgor agrees to indemnify and hold harmless the Collateral Agent, the
Holders of Mortgage Notes and any other Person from and against any and
all costs, expenses (including the reasonable fees and disbursements of
counsel (including, the allocated costs of inside counsel)), claims and
liabilities incurred by the Collateral Agent, the Holders of Mortgage
Notes or such Person hereunder, unless such claim or liability shall be
due to willful misconduct or gross negligence on the part of the
Collateral Agent, the Holders of Mortgage Notes or such Person.
(b) The Pledgor acknowledges that the rights and
responsibilities of the Collateral Agent under this Agreement with respect
to any action taken by the Collateral Agent or the exercise or
non-exercise by the Collateral Agent of any option, right, request,
judgment or other right or remedy provided for herein or resulting or
arising out of this Agreement shall, as between the Collateral Agent and
the Holders of Mortgage Notes, be governed by the Indenture and by such
other agreements with respect thereto as may exist from time to time among
them, but, as between the Collateral Agent and the Pledgor, the Collateral
Agent shall be conclusively presumed to be acting as agent for the Holders
of Mortgages Note with full and valid authority so to act or refrain from
acting, and the Pledgor shall be entitled to rely on the action of the
Collateral Agent and will not be obligated or entitled to make any inquiry
respecting such authority.
Section 19.16 Resignation or Removal of the Collateral Agent.
Until such time as the Obligations under the Indenture and the Mortgage Notes
shall have been paid in full, the Collateral Agent may at any time, by giving
written notice to the Issuer in accordance with the Indenture, resign and be
discharged of the responsibilities hereby created, such resignation to become
effective upon (i) the appointment of a successor Collateral Agent and (ii) the
acceptance of such appointment by such successor Collateral Agent. If a
successor trustee shall be
16
<PAGE> 17
appointed in accordance with the Indenture, such successor shall be the
Collateral Agent hereunder. Simultaneously with its replacement as Collateral
Agent hereunder, the Collateral Agent so replaced shall deliver to its
successor all documents, instruments, certificates and other items of whatever
kind (including, without limitation, the certificates and instruments
evidencing the Pledged Collateral and all instruments of transfer or
assignment) held by it pursuant to the terms hereof. The Collateral Agent that
has resigned shall be entitled to reasonable fees, costs and expenses to the
extent incurred or arising, or relating to events occurring, before its
resignation or removal.
Section 19.17 Release; Termination of Agreement.
(a) Subject to the provisions of Section 19.12 hereof, this
Agreement shall terminate upon full and final payment and performance of
the Obligations under the Indenture and the Mortgage Notes (and upon
receipt by the Collateral Agent of the Pledgor's written certification
that all such Obligations have been satisfied) and payment in full of all
reasonable fees and expenses owing by the Pledgor or the Issuer to the
Collateral Agent. At such time, the Collateral Agent shall, at the
request of the Pledgor, reassign and redeliver to the Pledgor all of the
Pledged Collateral hereunder that has not been sold, disposed of, retained
or applied by the Collateral Agent in accordance with the terms hereof.
Such reassignment and redelivery shall be without warranty by or recourse
to the Collateral Agent, except as to the absence of any prior assignments
by the Collateral Agent of its interest in the Pledged Collateral, and
shall be at the reasonable expense of the Pledgor.
(b) The Pledgor agrees that it will not, except as permitted by
the Indenture, sell or dispose of, or grant any option or warrant with
respect to, any of the Pledged Collateral; provided, however, that if the
Pledgor shall sell any of the Pledged Collateral to the extent permitted
the Indenture, the Collateral Agent shall, at the request of the Pledgor
and subject to requirements of Section 10.03 of the Indenture, release the
Pledged Collateral subject to such sale free and clear of the Lien and
security interest under this Agreement.
Section 19.18 Final Expression. This Agreement, together with
any other agreement executed in connection herewith, is intended by the parties
as a final expression of their Agreement and is intended as a complete and
exclusive statement of the terms and conditions thereof.
Section 19.19 GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL; WAIVER OF DAMAGES.
(i) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED
UNDER THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THE PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS OF MORTGAGE NOTES IN
CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY
OR
17
<PAGE> 18
OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED
TO THE CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
(ii) EXCEPT AS PROVIDED IN THE NEXT PARAGRAPH AND IN
PARAGRAPH (vi) BELOW, THE PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS OF
MORTGAGE NOTES AGREE THAT ALL DISPUTES BETWEEN OR AMONG THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR
FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PLEDGOR, THE COLLATERAL
AGENT AND THE HOLDERS OF MORTGAGE NOTES ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK.
THE PLEDGOR WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT CONSIDERING THE DISPUTE INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS.
(iii) THE PLEDGOR AGREES THAT THE COLLATERAL AGENT SHALL, IN
ITS OWN NAME OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF MORTGAGE NOTES, HAVE
THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE
PLEDGOR OR ITS PROPERTY IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD
FAITH TO ENABLE THE COLLATERAL AGENT TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE
A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL AGENT. THE
PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY
PROCEEDING BROUGHT BY THE COLLATERAL AGENT TO REALIZE ON SUCH PROPERTY, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE COLLATERAL AGENT. THE
PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
WHICH THE COLLATERAL AGENT HAS COMMENCED A PROCEEDING DESCRIBED IN THIS
PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(iv) THE PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS OF
MORTGAGE NOTES EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF,
CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED
IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
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<PAGE> 19
(v) THE PLEDGOR HEREBY IRREVOCABLY DESIGNATES [CT
CORPORATION] AS THE DESIGNEE, APPOINTEE AND AGENT OF THE PLEDGOR TO RECEIVE,
FOR AND ON BEHALF OF THE PLEDGOR, SERVICE OF PROCESS IN ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT. IT IS UNDERSTOOD THAT NOTICE AND A
COPY OF SUCH PROCESS SERVED ON SUCH AGENT, WILL BE FORWARDED PROMPTLY TO THE
PLEDGOR, BUT THE FAILURE OF THE PLEDGOR TO RECEIVE SUCH NOTICE AND COPY SHALL
NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. THE PLEDGOR FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PLEDGOR AT ITS ADDRESS
SET FORTH IN SECTION [11.02] OF THE INDENTURE, SUCH SERVICE TO BECOME EFFECTIVE
FIVE (5) BUSINESS DAYS AFTER SUCH MAILING.
(vi) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
COLLATERAL AGENT OR ANY HOLDER OF MORTGAGE NOTES TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE PLEDGOR IN ANY OTHER JURISDICTION.
(vii) THE PLEDGOR HEREBY AGREES THAT NEITHER THE COLLATERAL
AGENT NOR ANY HOLDER OF MORTGAGE NOTES SHALL HAVE ANY LIABILITY TO THE PLEDGOR
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE
PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS AGREEMENT,
OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS
DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON
THE COLLATERAL AGENT OR SUCH HOLDER OF MORTGAGE NOTES, AS THE CASE MAY BE, THAT
SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE COLLATERAL
AGENT OR SUCH HOLDER OF MORTGAGE NOTES, AS THE CASE MAY BE, CONSTITUTING GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
(viii) THE PLEDGOR WAIVES ALL RIGHTS OF NOTICE AND HEARING OF
ANY KIND PRIOR TO THE EXERCISE BY THE COLLATERAL AGENT OR ANY HOLDER OF
MORTGAGE NOTES OF ITS RIGHTS DURING THE CONTINUANCE OF AN EVENT OF DEFAULT TO
REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY
UPON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS. THE PLEDGOR WAIVES
THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE COLLATERAL AGENT OR ANY
HOLDER OF MORTGAGE NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING
TO OBTAIN POSSESSION OF, REPLEVY, ATTACH OR LEVY UPON
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<PAGE> 20
COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS, TO ENFORCE ANY JUDGMENT OR
OTHER COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL AGENT OR ANY HOLDER OF
MORTGAGE NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING
ORDER OR PRELIMINARY OR PERMANENT INJUNCTION THIS AGREEMENT OR ANY OTHER
AGREEMENT OR DOCUMENT BETWEEN THE PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS
OF MORTGAGE NOTES.
Section 19.20 Acknowledgments. The Pledgor hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement;
(b) neither the Collateral Agent nor any Holder of Mortgage
Notes has any fiduciary relationship to the Pledgor, and the relationship
between the Collateral Agent and the Holders of Mortgage Notes, on the one
hand, and the Pledgor, on the other hand, is solely that of a secured
party and a creditor; and
(c) no joint venture exists among the Holders of Mortgage Notes
or among the Pledgor and the Holders of Mortgage Notes.
[Signature Page Follows]
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<PAGE> 21
[Pledge Agreement Signature Page]
IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have each
caused this ERLY Pledge Agreement to be duly executed and delivered as of the
date first above written.
PLEDGOR:
ERLY INDUSTRIES INC.
a California corporation
By:_______________________________
Name:
Title:
COLLATERAL AGENT:
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Collateral Agent
By:_______________________________
Name:
Title:
21
<PAGE> 22
SCHEDULE I
PLEDGED SHARES
<TABLE>
<CAPTION>
Number of Share
--------- -----
Class of Pledged Certificate Percentage of
-------- ------- ----------- -------------
Issuer Pledged Shares Shares Number Outstanding
------ -------------- ------ ------ -----------
<S> <C> <C> <C> <C>
American Rice,
Inc.
</TABLE>
22
<PAGE> 23
EXHIBIT A
FORM OF OPINION OF COUNSEL
i. [New Entity] is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority to own and to
operate its properties and to carry on its business;
ii. all of the outstanding capital stock of [New Entity] has been
validly authorized and issued and is fully paid and nonassessable , is owned by
the Pledgor, directly or indirectly, free and clear of any security interest,
claim, lien or encumbrance, other than the security interests created by the
Pledge Agreement, and there are no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for, any shares of
capital stock or other equity interest in [New Entity];
iii. (A) Pledgor has the requisite corporate power and corporate
authority to create, deliver and perfect the security interests created under
the Pledge Agreement; (B) the Pledge Agreement has been duly authorized,
executed and delivered by Pledgor and constitutes the valid and binding
obligation of Pledgor enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights and remedies of creditors and the effect of general equitable
principles, whether such enforceability is considered in a proceeding in equity
or at law, and the discretion of the court before which any proceeding therefor
may be brought; (C) after giving effect to the [merger] [consolidation] [sale
or transfer of all or substantially all assets], and assuming the Collateral
Agent is holding the certificates and notes representing the Pledged Collateral
(with appropriate stock powers and proper endorsements, as applicable) in the
State of New York, the Pledge Agreement will create a valid and perfected
security interest in the Pledged Collateral (including, without limitation, all
of the Equity Interests and intercompany notes of [New Entity]) in favor of the
Collateral Agent, on behalf and for the benefit of the Holders of Mortgage
Notes, subject to no other consensual security interest in favor of any other
person, and no filings or recordings will be required in order to perfect or
maintain the security interests created under the Pledge Agreement in such
Pledged Collateral; and
iv. the consummation of the [merger] [consolidation] [sale or
transfer of all or substantially all assets] does not (A) conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument (identified to us as material by the
Pledgor, the Issuer and [New Entity]) to which the Pledgor, the Issuer or [New
Entity] is a party by which the Pledgor, the Issuer or [New Entity] is bound or
to which any of the property or assets of the Pledgor, the Issuer or [New
Entity] is subject except for such conflicts, breaches, violations or defaults
as would not have a material adverse effect on the business, condition
(financial or other), results of operations or properties of the Pledgor and
its subsidiaries taken as a whole, nor will such action result in any violation
of the provisions of the respective charter or by-laws of the Pledgor, the
Issuer or [New Entity], nor will such action result in any violation of any
application law or statute or any applicable order, rule or
<PAGE> 24
regulation known to us of any court or governmental agency or body having
jurisdiction over the Pledgor and its subsidiaries or any of their respective
properties, or (B) to our best knowledge, result in the creation of any lien
upon any of the properties or assets of the Pledgor, the Issuer or [New Entity]
(other than liens created by the Pledge Agreement).
3
<PAGE> 25
EXHIBIT B
FORM OF CONSOLIDATED NET WORTH
The undersigned, _______________ and ________________, respectively the
President and Chief Financial Officer of ERLY Industries Inc., a California
corporation (the "Pledgor"), certify that they are authorized to execute this
Certificate in the name and on behalf of the Pledgor, and further certify as
follows (capitalized terms used but not defined herein have the respective
meanings assigned to them in the Pledge Agreement, dated August 24, 1995 (the
"Pledge Agreement"), between the Pledgor and the Collateral Agent):
a. We are familiar with the historical and current financial
condition of American Rice, Inc., a Texas corporation (the
"Issuer"), which proposes to [merge or consolidate with] [sell or
transfer all or substantially all of its assets to] [New Entity]
(the "Successor Issuer") pursuant to Section 7(a)(vii) of the Pledge
Agreement.
b. For the purposes of this Certificate, we have reviewed other
financial information and forecasts relating to the Issuer and the
Successor Issuer prepared by the management of the Issuer and the
Successor Issuer, which we believe (as to the historical financial
information) fairly present the historical financial position and
results of operations of the Pledgor as of the dates and for the
periods presented and (in the case of the forecasts) were based upon
reasonable assumptions and provide reasonable estimations of future
performance, although any forecasts are necessarily uncertain of
fulfillment. We know of no facts or circumstances arising subsequent
to the dates as of which such information and projections were
prepared that would materially alter such conclusions.
Based upon the foregoing, we have reached the conclusions that, after
giving effect to the transactions contemplated by Section 7(a)(vii) of the
Pledge Agreement, the Consolidated Net Worth of the Successor Issuer is equal
to or greater than the Consolidated Net Worth of the Issuer prior to such
[consolidation or merger] [transfer of assets].
WITNESS the signatures of the undersigned, this _____ day of ______,
199_.
_________________________
President
_________________________
Chief Financial Officer
<PAGE> 1
EXHIBIT 4.14
INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT, dated as of August , 1995, by and between
CONGRESS FINANCIAL CORPORATION (the "Lender", as hereinafter further defined),
as lender under the Revolving Credit Agreement referred to below, and U.S TRUST
COMPANY OF TEXAS, N.A., a national banking association, in its capacity as
trustee for the holders of the Mortgage Notes referred to below issued pursuant
to the Indenture referred to below (the "Trustee", as hereinafter further
defined).
RECITALS:
A. American Rice, Inc., a Texas corporation ("ARI", as hereinafter further
defined), has entered into an Indenture, dated as of the date hereof (the
"Indenture"), pursuant to which ARI has issued its 13% Mortgage Notes due 2002
with Contingent Interest, in the aggregate principal amount of $100,000,000.
B. The obligations of ARI under the Indenture and such Mortgage Notes
issued thereunder are secured by certain mortgages, deeds of trust, assignments
of rents, security interests and liens in certain of ARI's real and personal
property, all as more specifically set forth in the Indenture Security Documents
(as defined below).
C. ARI and the Lender have entered into that certain Accounts Financing
Agreement [Security Agreement], dated as of May 24, 1993, together with
supplements thereto, as amended (the "Revolving Credit Agreement"), pursuant to
which Lender has, on and subject to the terms and conditions thereof, agreed to
make available to ARI loans and other financial accommodations up to the
aggregate principal or face amount not to exceed $47,500,000 at any one time
outstanding.
D. The obligations of ARI under the Revolving Credit Agreement and any
promissory notes issued thereunder are secured by certain mortgages, deeds of
trust, assignments of rents, security interests and liens on substantially all
of the real and personal property of ARI, including certain property or
interests in property which constitute collateral for ARI's obligations to the
Trustee and the holders of the Mortgage Notes.
E. Payment and performance of the obligations of ARI to the Lender under
the Revolving Credit Agreement and any promissory notes issued thereunder are or
may be guaranteed by certain subsidiaries of ARI, certain of which subsidiaries
have granted liens and security interests in certain of their assets to the
Lender to secure their obligations to the Lender.
F. Trustee, for itself and on behalf of the holders of the Mortgage Notes,
and Lender wish to define certain of their respective rights and obligations
with respect to each other and to determine the relative priorities of their
respective liens and security interests in the property and assets of ARI and
its subsidiaries.
G. It is a condition precedent to the underwriting of the Mortgage Notes,
and under the terms of the Revolving Credit Agreement, it is a condition
precedent to further loans and other financial accommodations thereunder, that
the Lender and the Trustee, for itself and on behalf of the holders of the
Mortgage Notes, enter into this Agreement.
<PAGE> 2
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the Lender and the Trustee, for itself
and on behalf of the holders of the Mortgage Notes, agree as follows:
SECTION 1. DEFINITIONS.
1.01 Certain Defined Terms. As used herein, the following terms shall have
the following meanings (all terms defined in this Section 1.01 or in other
provisions of the Agreement in the singular to have the same meaning when used
in the plural and vice versa):
"ARI" shall mean American Rice, Inc., a Texas corporation, and its
successors and assigns.
"Bankruptcy Code" shall mean Title 11 of the United States Code (11 U.S.C.
sec. 101 et seq.), as in effect from time to time, and any successor statute
thereto.
"Capital Stock" shall mean (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Collateral" shall mean all property, interests in property, revenues and
other assets of any Obligor, now owned or hereafter arising or acquired by such
Obligor, in or upon which a Lien is at any time granted to or held by or for the
benefit of the Trustee, the holders of the Mortgage Notes or the Lender pursuant
to any Security Document or otherwise.
"Collateral Account" shall have the meaning given to such term in Section
4.02 hereof.
"Collateral Bank" shall have the meaning given to such term in Section 4.02
hereof.
"Disposition" shall mean the sale, assignment, transfer, lease, conveyance
or other disposition by an Obligor of any item of Collateral, including an
involuntary disposition as a result of casualty or condemnation, but excluding
an Enforcement Action.
"Enforcement Action" shall mean, after the declaration of an Indenture
Default by the Trustee or the holders of the Mortgage Notes, or after the
declaration of a Revolver Default by Lender (a) the commencement of any
foreclosure proceeding or the taking of any other enforcement action (whether on
the basis of a Financing Document, by subrogation or otherwise) against, or the
taking of possession or control of, any Collateral (other than the taking of any
action contemplated by Section 4.01 or 4.02 hereof) or (b) the taking of any
other action (whether on the basis of a Financing Document, by subrogation or
otherwise) which, in the case of Priority Revolver Collateral, directly
interferes with the Lien of the Lender thereon or, in the case of Priority
Indenture Collateral, directly interferes with the Lien of the Trustee or the
holder of any Mortgage Note thereon.
"Enforcement Event" shall mean a Revolver Default or an Indenture Default.
"ERLY" shall mean ERLY Industries, Inc., a California corporation, and its
successors and assigns.
"Financing Documents" shall mean the Revolving Credit Documents and the
Indenture Documents.
"Freeport IRB's" shall mean those certain $13,300,000 Variable Rate Demand
Marine Terminal Revenue Bonds, Series 1985 (American Rice, Inc. Project) issued
by Brazos Harbor Industrial Development Corporation on December 16, 1985.
"Indenture" shall mean the Indenture as defined in the Recitals, as it may
be amended, amended and restated, renewed, extended, restructured, supplemented
or otherwise modified from time to time and any indenture, credit agreement,
loan agreement or note purchase agreement that refinances, refunds or otherwise
replaces such Indenture and specifically provides that it is an "Indenture"
hereunder.
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"Indenture Default" shall mean an "Event of Default" under and as defined
in the Indenture or any Indenture Security Document.
"Indenture Documents" shall mean the Indenture, each Mortgage Note, each
Indenture Security Document and each other agreement, instrument or other
document now or at any time hereafter evidencing any Indenture Obligation, or
guarantying, or providing security for, the payment or performance of any
Indenture Obligation.
"Indenture Obligations" shall mean all present and future obligations,
liabilities and indebtedness of any Obligor under the Indenture Documents, of
every kind nature and description, including, without limitation, the
obligations of ARI to pay the principal, interest, premium, Accreted Value (as
defined in the Indenture), Liquidated Damages (as defined in the Indenture),
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the Indenture Documents.
"Indenture Security Documents" shall mean the documents listed on Schedule
1 hereto and any additional documents at any time executed to reflect the grant
by any Obligor, to or for the benefit of any holder of a Mortgage Note or the
Trustee, of a Lien on any property, interests in property, revenues or other
assets of such Obligor as collateral security for any Indenture Obligations, as
the same now exist or may at any time be amended, restated, supplemented,
renewed or otherwise modified or replaced from time to time.
"Intercompany Loan Notes" shall mean the ERLY Intercompany Notes and the
Subsidiary Intercompany Notes, each as defined in the Indenture as in effect on
the date hereof. Such term shall not, however, include any Intercompany Trade
Notes.
"Intercompany Loans" shall mean the intercompany loans evidenced by the
Intercompany Loan Notes.
"Intercompany Trade Debt" shall mean all indebtedness, obligations and
liabilities of any Obligor to one or more other Obligors arising out of or
relating to the sale or other disposition of Inventory (as defined in the
definition of Priority Revolver Collateral below) or rendition of services in
connection with the purchase, sale, processing, storage or distribution of
Inventory by one Obligor to such other Obligor(s).
"Intercompany Trade Notes" shall mean all promissory notes at any time
evidencing any Intercompany Trade Debt.
"Lender" shall mean Congress Financial Corporation, a California
corporation, and any holder from time to time of the Revolving Credit
Obligations, and their respective successors and assigns.
"Lien" shall mean, with respect to any property, interest in property,
revenues or other assets, any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, right of setoff, encumbrance
(including, but not limited to, easements, rights of way and the like), judgment
lien or other lien (statutory or otherwise), security agreement or transfer
intended as security, including, without limitation, any conditional sale or
other title retention agreement, the interest of a lessor under a capital lease
or any financing lease having substantially the same economic effect as any of
the foregoing.
"Lockbox Accounts" shall have the meaning given to such term in Section
4.01 hereof.
"Lockbox Banks" shall have the meaning given to such term in Section 4.01
hereof.
"Mortgage Note" shall mean any note issued under the Indenture to evidence
the Indenture Obligations.
"Obligors" shall mean ARI, ERLY and each of ARI's Subsidiaries now or
hereafter liable, directly or by guaranty, or as a transferee of Collateral, for
any Secured Obligation.
"Permitted Refinancing Indebtedness" shall have the meaning set forth in
the Indenture, as in effect on the date hereof.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, limited liability company, limited liability
partnership, joint venture, trust, unincorporated organization or government (or
any agency, instrumentality or political subdivision thereof).
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"Priority Indenture Collateral" shall mean:
(a) all of ARI's (or if the Collateral is transferred to a Subsidiary
in accordance with the Indenture, all of such Obligor's) right, title and
interest in the following Collateral, whether now owned or hereafter
arising or acquired and whether now existing or hereafter coming into
existence and wherever located:
(i) all right, title and interest in and to the real and personal
property subject to the Lien of the Maxwell Deed of Trust, the Freeport
Deed of Trust, the Stuttgart Deed of Trust, and the Houston Deed of
Trust (as such terms are defined in the Indenture), as more particularly
described on Schedule 3 hereto (but excluding any such personal property
constituting Priority Revolver Collateral);
(ii) all Capital Stock issued by Subsidiaries of ARI;
(iii) all Intercompany Loan Notes;
(iv) all Trademarks (except to the extent affixed to any Priority
Revolver Collateral);
(v) the Freeport IRB's;
(vi) all replacements, additions, accessions and substitutions for
any of the foregoing that are not part of Priority Revolver Collateral
described in any of clauses (a) through (n) or (p) of the definition of
Priority Revolver Collateral;
(vii) subject to the last sentence of Section 4.02 hereof,
Collateral comprised of the balance from time to time in the Collateral
Account, any investments made from funds available in the Collateral
Account and any income therefrom or interest thereon;
(viii) all proceeds (as defined in the Uniform Commercial Code) now
or hereafter receivable or received upon the sale, exchange, lease,
assignment, licensing or other disposition of, or other realization
upon, any item of Priority Indenture Collateral, whether voluntary or
involuntary, and, to the extent not constituting Priority Revolver
Collateral, whether such proceeds constitute general intangibles,
accounts, equipment (each as defined in the Uniform Commercial Code) or
other assets; and any payment under any insurance, indemnity, warranty
or guaranty and any condemnation award now or hereafter payable with
respect to any item of Priority Indenture Collateral;
(b) all of ERLY's right, title and interest in the Capital Stock of
ARI, whether now owned or hereafter arising or acquired and whether now
existing or hereafter coming into existence, excluding the 200,000 shares
of Class B Preferred Stock of ARI pledged to the holders of Class C
Preferred Stock of ARI prior to the date hereof, so long as such pledge is
in effect, and all proceeds thereof; and
(c) all property of Subsidiaries of ARI in which the Trustee has been
granted a pari passu Lien pursuant to Section 4.17 of the Indenture (as in
effect on the date hereof), other than any such property that constitutes
Priority Revolver Collateral described in any of clauses (a) through (n) or
(p) of the definition of Priority Revolver Collateral.
"Priority Revolver Collateral" shall mean, as to any Obligor (other than
ERLY), all of such Obligor's right, title and interest in the following
Collateral, whether now owned by such Obligor or hereafter arising or acquired
and whether now existing or hereafter coming into existence, and wherever
located:
(a) all Collateral comprised of accounts, contract rights, general
intangibles (each as defined in the Uniform Commercial Code) and
Intercompany Trade Debt of or owed to such Obligor, constituting any right
to payment or other consideration to be received in respect of any
Inventory (as defined below) sold or otherwise disposed of by such Obligor,
whether or not earned by performance, and any Lien to secure such payment
or other consideration, and all monies and other consideration due and to
become due to such Obligor under any guarantee (including a surety bond or
undertaking or letter of credit) of the purchase price or other
consideration to be received in respect of Inventory sold or otherwise
disposed of by such Obligor and all rights of such Obligor as an unpaid
seller of Inventory, including (but not limited to) rescission, replevin,
reclamation and stoppage in transit, and all rights to returned, reclaimed
or repossessed goods (all of the foregoing being herein called collectively
"Inventory Accounts");
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(b) all Collateral comprised of instruments, chattel paper or letters
of credit (each as defined in the Uniform Commercial Code) evidencing,
representing or providing a means for payment of or securing the payment of
any of the Inventory Accounts, including (but not limited to) promissory
notes, drafts, checks, bills of exchange and trade acceptances (herein
collectively called "Inventory Instruments");
(c) all Collateral comprised of inventory or farm products (as defined
in the Uniform Commercial Code), including all goods obtained by such
Obligor in exchange for such inventory or farm products, and any products
made or processed from such inventory and farm products, including, but not
limited to, all raw materials, goods, work-in-process, finished goods,
ingredients, supplies or other materials to be used or consumed in such
Obligor's business (whether or not actually so used or consumed) and boxes,
bags, wrapping materials, crates, shipping materials and other packaging
materials acquired for the purposes of packaging or shipment of any of the
foregoing (whether or not actually so used) (herein collectively called
"Inventory");
(d) all Collateral comprised of documents (as defined in the Uniform
Commercial Code) or other receipts covering, evidencing, representing or
securing Inventory (herein collectively called "Inventory Documents");
(e) to the extent not otherwise constituting Inventory Accounts, all
Collateral comprised of accounts, contract rights, general intangibles (as
defined in the Uniform Commercial Code) and Intercompany Trade Debt of or
owed to such Obligor, constituting any right to payment for, or other
consideration to be received for, any services rendered by such Obligor
(but excluding any Intercompany Loans), and any Lien to secure such payment
or other consideration, and all monies due and to become due to such
Obligor under any guarantee (including a surety bond, undertaking or a
letter of credit) of the purchase price or other consideration to be
received for services rendered by such Obligor (herein called collectively,
"Other Revolver Accounts");
(f) to the extent not otherwise constituting Inventory Instruments,
all Collateral comprised of instruments, chattel paper or letters of credit
(each as defined in the Uniform Commercial Code) evidencing, representing
or providing a means of payment of or securing the payment of any of the
Other Revolver Accounts, including (but not limited to) promissory notes
(other than Intercompany Loan Notes), drafts, checks, bills of exchange and
trade acceptances (herein collectively called "Other Revolver
Instruments");
(g) to the extent not otherwise constituting any of the foregoing
Collateral described in this definition of Priority Revolver Collateral,
all Collateral comprised of a contract or other agreement, purchase order
or sales order of such Obligor for, and all warranties, indemnities, claims
and other choses in action against any Person on account of, any Inventory
or the purchase, sale or other disposition of any Inventory or the
rendition of services by any Obligor, or for any Inventory Accounts, any
Inventory Instruments, any Inventory Documents, any Other Revolver Accounts
or any Other Revolver Instruments, and including without limitation all
claims against any Person for the loss or destruction of, or damage to, or
any interference with, any Inventory, the rendition of services by any
Obligor, any Inventory Instruments, any Inventory Accounts or any other
Collateral described in clauses (a) through (o) of this definition of
Priority Revolver Collateral;
(h) to the extent not otherwise constituting any of the foregoing
Collateral described in this definition of Priority Revolver Collateral,
all Collateral comprised of, evidenced by or represented by bids,
applications, agreements or certificates of any kind whatsoever under any
United States Department of Agriculture or any Commodity Credit Corporation
or other governmental loan, export enhancement or subsidy program, and all
rights to receive any bonus in cash or property, grower certificates,
marketing certificates or other Commodity Credit Corporation or other
government loan program entitlements or benefits assigned to or acquired by
such Obligor in connection with such Obligor's purchase or sale of
Inventory or rendition of services;
(i) to the extent affixed to any Priority Revolver Collateral
(including, without limitation, any Inventory), all Collateral comprised of
Trademarks;
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(j) subject to the last sentence of Section 4.01 hereof, Collateral
comprised of the balance from time to time in each Lockbox Account, any
investments made from each Lockbox Account and any income therefrom or
interest thereon;
(k) the $2,000,000 key man life insurance policy issued by Federal
Kemper Life Assurance Company on May 14, 1993 insuring the life of Gerald
D. Murphy, and any certificates and endorsements with respect thereto, and
any replacement policy insuring the life of Gerald D. Murphy, certificates
or endorsements with respect thereto, as the same may be reissued, amended,
supplemented, replaced or otherwise modified;
(l) any policy of insurance against business interruption, loss of
operating income or extra expense of any Obligor, and any certificates with
respect thereto, or any replacement policy or certificates therefor, as the
same may be reissued, replaced, amended, supplemented or otherwise
modified;
(m) all rights to payments and refunds on account of federal, state,
local or foreign taxes, charges, excises and other duties;
(n) all books, records, ledger cards and computer programs recording
information concerning any of the Priority Revolver Collateral described in
any of clauses (a) through (m), (o) or (p) of this definition of Priority
Revolver Collateral, together with the file cabinets, computer hardware and
storage media or other containers in which the foregoing are stored;
(o) all other Collateral that is not included in the definition of
Priority Indenture Collateral; and
(p) all proceeds, products, offspring, rents, profits, income,
benefits, accessions, substitutions and replacements of and to any of the
Priority Revolver Collateral of such Obligor described in any of clauses
(a) through (o) of this definition of Priority Revolver Collateral
(including, without limitation, any proceeds of property insurance on any
such Priority Revolver Collateral);
provided that, if any Collateral does not constitute Priority Revolver
Collateral described in any of clauses (a) through (o) of this definition, then,
notwithstanding anything to the contrary contained in said clauses, no proceeds,
products, offspring, rents, profits, income, benefits, accessions, substitutions
or replacements of or to any such Collateral (including, without limitation, any
insurance thereon) shall constitute Priority Revolver Collateral for purposes of
this Agreement unless such proceeds are in the form of Priority Revolver
Collateral described in any of clauses (a) through (o) of this definition.
"Revolver Default" shall mean an "Event of Default" under and as defined in
the Revolving Credit Agreement.
"Revolving Credit Agreement" shall mean the Revolving Credit Agreement as
defined in the Recitals, as it may be amended, amended and restated, renewed,
extended, restructured, supplemented or otherwise modified or replaced from time
to time and, if the outstanding indebtedness upon and as of the closing of any
refinancing, refunding or other replacement of such Revolving Credit Agreement
would be Permitted Refinancing Indebtedness, such term shall also mean any
credit agreement, loan agreement, note purchase or other agreement or indenture
that refinances, refunds or otherwise replaces such Revolving Credit Agreement.
"Revolving Credit Documents" shall mean the Revolving Credit Agreement,
each Revolving Credit Security Document and each other agreement, instrument or
other document now or at any time hereafter evidencing any Revolving Credit
Obligation, or guarantying, or providing security for, the payment or
performance of any Revolving Credit Obligation.
"Revolving Credit Obligations" shall mean all present and future
obligations, liabilities and indebtedness of any Obligor under the Revolving
Credit Documents, of every kind, nature and description, including, without
limitation, all obligations of any Obligor to pay the principal of and interest
on any loan made, and reimbursement obligations with respect to any letter of
credit arranged or issued, under the Revolving Credit Agreement, and all fees,
charges, expenses, indemnifications, penalties, reimbursements, damages and
other liabilities and any other amounts at any time owing to Lender under any
Revolving Credit Document.
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"Revolving Credit Security Documents" shall mean the documents listed on
Schedule 2 hereto, and any additional documents at any time executed by any
Obligor to reflect the grant to or for the benefit of the Lender of a Lien on
any property, interests in property, revenues or other assets of such Obligor as
collateral security for any Revolving Credit Obligations, as the same now exist
or may at any time be amended, restated, supplemented, renewed or otherwise
modified or replaced from time to time.
"Secured Obligations" shall mean the Revolving Credit Obligations and the
Indenture Obligations.
"Security Documents" shall mean the Indenture Security Documents and the
Revolving Credit Security Documents.
"Subordinate Indenture Liens" shall have the meaning given such term in
Section 2.01(a) hereof.
"Subordinate Revolver Liens" shall have the meaning given to such term in
Section 2.01(b) hereof.
"Subsidiary" shall mean with respect to any Person, (i) any corporation,
association or other business entity of which more than fifty (50%) percent of
the total voting power of shares of Capital Stock entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (A) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (B) the only general partners of which are such Person or of
one or more Subsidiaries of such Person (or any combination thereof). Such term
shall include, as to ARI, without limitation, Comet Rice of Puerto Rico, Inc., a
Delaware corporation, Comet Ventures, Inc., a California corporation, Rice
Corporation of Haiti, S.A., a Haitian corporation, Comet Rice of Jamaica, Ltd.,
a Jamaican corporation, and each of their respective successors and assigns.
"TIA" shall mean the Trust Indenture Act of 1939, as amended, and all rules
and regulations thereunder or issued pursuant thereto.
"Trademarks" shall mean all trade names, trademarks and service marks,
logos, trademark and service mark registrations, and applications for trademark
and service mark registrations of ARI, including, without limitation, all
renewals of trademark and service mark registrations, and all goodwill of the
business associated therewith or symbolized thereby, and all licenses of
tradenames, trademarks or service marks of which ARI is the licensor or
licensee.
"Trustee" shall mean U.S. Trust Company of Texas, N.A., a national banking
association, as Trustee under the Indenture, and any successor or replacement
trustee thereunder.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as the
same may from time to time be in effect in the State of New York.
1.02 Certain Other Terms.
(a) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.
(b) Terms not otherwise defined herein which are defined in the Uniform
Commercial Code shall have the respective meanings given to them in the Uniform
Commercial Code when used herein.
SECTION 2. RELATIVE PRIORITIES; AGREEMENTS REGARDING COLLATERAL.
2.01 Priorities in Collateral. Notwithstanding any provision contained in
any Financing Document to the contrary (but subject to Section 2.02 below), and
notwithstanding the time, order or method of attachment or perfection of the
Liens granted by any Security Document or otherwise securing any of the Secured
Obligations, or the time or order of filing or lien notation or recording of
financing statements, mortgages, deeds of trust or other evidence of Liens, and
notwithstanding anything contained in any such filing, lien notation or recorded
instrument or agreement to which the Lender or the Trustee or the holder of any
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Mortgage Note may now or hereafter be a party, and notwithstanding any provision
of the Uniform Commercial Code or other applicable law:
(a) the Liens on Priority Revolver Collateral securing the Revolving Credit
Obligations, to the extent otherwise valid and enforceable under applicable law,
shall be senior to the Liens on Priority Revolver Collateral, if any, securing
the Indenture Obligations (the "Subordinate Indenture Liens"), and the Trustee,
for itself and on behalf of the holders of the Mortgage Notes, hereby
subordinates any and all Subordinate Indenture Liens to all Liens (to the extent
otherwise valid and enforceable as aforesaid) now or hereafter granted to or
held by the Lender on Priority Revolver Collateral as security for any Revolving
Credit Obligation; and
(b) the Liens on Priority Indenture Collateral securing the Indenture
Obligations, to the extent otherwise valid and enforceable under applicable law,
shall be senior to the Liens on Priority Indenture Collateral securing the
Revolving Credit Obligations (the "Subordinate Revolver Liens"), and the Lender
hereby subordinates any and all Subordinate Revolver Liens to all Liens (to the
extent otherwise valid and enforceable as aforesaid) now or hereafter granted to
or held by the Trustee or the holder of any Mortgage Note on Priority Indenture
Collateral as security for any Indenture Obligation.
Neither the Trustee nor any holder of a Mortgage Note shall challenge the
validity, perfection, priority (as provided herein) or enforceability of the
Lien of the Lender securing the Revolving Credit Obligations, and Lender shall
not challenge the validity, perfection, priority (as provided herein) or
enforceability of the Liens of Trustee or any holder of a Mortgage Note securing
the Indenture Obligations.
2.02 Certain Restrictions on Collateral; No Guaranty by ERLY of Revolving
Credit Obligations.
(a) The Lender agrees for the benefit of the Trustee, for itself and on
behalf of the holders of the Mortgage Notes, that, so long as any Indenture
Obligations are outstanding, it will not take or demand (i) any consensually
granted Lien to secure the Revolving Credit Obligations on (A) any Capital Stock
included in the Priority Indenture Collateral or (B) any assets of ERLY or (C)
any assets of any Subsidiary of ARI other than assets of the type comprising
Priority Revolver Collateral or (ii) any guaranty by ERLY of the Revolving
Credit Obligations.
(b) Anything herein to the contrary notwithstanding, the Trustee agrees for
itself and on behalf of the holders of the Mortgage Notes that no Collateral
shall be taken or demanded by or on behalf of the Trustee or the holder of any
Mortgage Note, except subject to the terms of this Agreement.
2.03 Waivers.
(a) Subordinate Indenture Liens. The Trustee, for itself and on behalf of
the holders of the Mortgage Notes, waives (i) any right it or they may at any
time have to require that the Lender marshall the Priority Revolver Collateral
in favor of the Trustee or such holders, (ii) notice of acceptance of the
subordination and other terms of this Agreement, (iii) reliance by Lender on
this Agreement in extending credit or taking any other action with respect to
any Obligor or (iv) any other right to notice such Person may have except as
expressly provided in this Agreement. The Lender shall have the sole and
exclusive right to take or to fail to take any Enforcement Action with respect
to any Priority Revolver Collateral. If any Priority Revolver Collateral (other
than Trademarks unless the same are affixed to Inventory) is sold or otherwise
transferred in a Disposition permitted under the Revolving Credit Documents or
in any Enforcement Action, but subject to ARI's compliance with Sections 10.03
(a) and (b) and the first paragraph of Section 4.10 of the Indenture in case of
any such Disposition (but not in the case of an Enforcement Action), the
Trustee, for itself and on behalf of the holders of the Mortgage Notes,
unconditionally agrees to release or otherwise obtain the release of any
Subordinate Indenture Lien in favor of it or them on such Collateral (provided
that any such Subordinate Indenture Lien shall continue on a subordinated basis
in the proceeds of such sale) at the time and in connection with such
Disposition or Enforcement Action and, at the sole expense of the Obligors or
the transferee, the Trustee shall deliver or obtain and deliver to the Lender or
transferee of such Priority Revolver Collateral such termination statements and
release documents as such transferee may reasonably request to evidence such
release. The Lender may, in accordance with the Revolving Credit Documents,
require that all
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proceeds of any such Disposition or Enforcement Action with respect to Priority
Revolver Collateral shall be delivered to Lender or deposited in the Lockbox
Account (as the Lender shall determine).
(b) Subordinate Revolver Liens. The Lender waives (i) any right it may at
any time have to require that the Trustee or any holder of any Mortgage Note
marshall the Priority Indenture Collateral in favor of Lender, (ii) notice of
acceptance of the subordination and other provisions of this Agreement, (iii)
reliance by the Trustee or any holder of any Mortgage Note on this Agreement in
purchasing any Mortgage Note or taking any other action with respect to any
Obligor or (iv) any other right to notice the Lender may have except as
expressly provided in this Agreement. The Trustee shall have the sole and
exclusive right to take or to fail to take any Enforcement Action with respect
to any Priority Indenture Collateral and to determine the manner of, and the
order in which, any such Enforcement Actions shall be taken. If any Priority
Indenture Collateral is sold or otherwise transferred in a Disposition permitted
under the Indenture or in any Enforcement Action, subject to ARI's compliance
with all requirements of the Revolving Credit Documents (including obtaining the
Lender's prior written consent) in case of a Disposition (but not in the case of
an Enforcement Action), the Lender unconditionally agrees to release any
Subordinate Revolver Lien on such Collateral (provided that such Subordinate
Revolver Lien shall continue on a subordinated basis in the proceeds of such
sale and provided further that the transferee of such Priority Indenture
Collateral shall have granted to Lender the same rights of inspection, removal,
completion, sale, realization, storage, disposition, processing, handling, use
and occupancy (collectively, "access rights") in favor of Lender provided for
in, and on the terms of, Section 8.01 and, if such Priority Indenture Collateral
includes Trademarks, the rights as to Trademarks under Section 7.01 hereof, at
the time and in connection with such sale or other transfer, but such rights so
granted by the transferee may be required by the transferee to terminate upon
the later of the indefeasible payment of the Revolving Credit Obligations and
the termination of the Revolving Credit Documents. On the request of the
Trustee, but subject to the receipt by the Lender of the grant of rights from
the transferee referred to in the preceding sentence, any such transferee, the
Lender shall, at the sole expense of the Obligors or transferee, deliver to the
transferee of such Priority Indenture Collateral such termination statements and
release documents as such Person may reasonably request to evidence to such
release. The Trustee may, in accordance with the Indenture, require that all
proceeds of any such Disposition or Enforcement Action with respect to Priority
Indenture Collateral shall be deposited in the Collateral Account. In the event
that the Trustee shall grant any non-disturbance agreement to any tenant,
licensee or mortgagee of any portion of the Priority Indenture Collateral
comprising real property or any interest therein, the Lender shall promptly (and
in any event no later than 10 days after requested to do so by the Trustee)
grant a non-disturbance agreement to such tenant, licensee or mortgagee, so long
as such tenant, licensee or mortgagee shall agree that such Person's rights
under such non-disturbance agreement with the Lender are subject to the same
access rights in favor of the Lender as are provided for in, and on the terms
of, Section 8.01 hereof, and otherwise on substantially the same basis as the
non-disturbance agreement granted by the Trustee.
SECTION 3. STANDSTILL.
3.01 Priority Revolver Collateral. Notwithstanding anything in any
Indenture Document to the contrary, until the Revolving Credit Obligations have
been indefeasibly paid in full and the Revolving Credit Documents have been
terminated, neither the Trustee nor the holder of any Mortgage Note shall be
entitled to take any Enforcement Action against any Priority Revolver Collateral
and neither the Trustee nor the holder of any Mortgage Note shall require that
any proceeds of Priority Revolver Collateral be paid to it or deposited into the
Collateral Account. The Subordinate Indenture Liens shall attach to the proceeds
of any sale, transfer or other disposition of the Priority Revolver Collateral
in accordance with the priorities specified in Section 2.01(a) hereof; provided,
however, that subject, in the case of Enforcement Actions, to Section 5 hereof,
the Lender may apply such proceeds to the Revolving Credit Obligations (whether
or not subject to relending) in accordance with the Revolving Credit Documents,
free of any Subordinate Indenture Liens.
3.02 Priority Indenture Collateral. Notwithstanding anything in any
Revolving Credit Document to the contrary, until the Indenture Obligations are
indefeasibly paid in full, the Lender shall not be entitled to take any
Enforcement Action against any Priority Indenture Collateral and shall not
require that any proceeds of Priority Indenture Collateral be paid to it or
deposited into the Lockbox Account. The Subordinate Revolver
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Liens shall attach to the proceeds of any sale, transfer or other disposition of
the Priority Indenture Collateral in accordance with the priorities specified in
Section 2.01(b) hereof; provided, however, that subject, in the case of
Enforcement Actions, to Section 5 hereof, the Trustee or any such holder may
apply such proceeds to the Indenture Obligations in accordance with the
Indenture (as in effect on the date hereof), free of any Subordinate Revolver
Liens.
SECTION 4. LOCKBOX AND COLLATERAL ACCOUNT ARRANGEMENTS.
4.01 Lockbox Account. To the extent required by the Revolving Credit
Documents and notwithstanding anything in any Financing Document to the
contrary, there has been or may be established by one or more Obligors with such
commercial bank or banks as the Lender may approve (each, a "Lockbox Bank"),
cash collateral accounts (each, a "Lockbox Account") in the name of such
Obligor(s) and in the possession and under the exclusive control, until all
Revolving Credit Obligations have been indefeasibly paid in full and the
Revolving Credit Documents have been terminated, of the Lender. The cash
proceeds of any of the Priority Revolver Collateral (including proceeds of
insurance thereon) required to be delivered to the Lender pursuant to the
Revolving Credit Documents may be deposited from time to time into the Lockbox
Accounts or delivered in kind to the Lender. The balance from time to time in
the Lockbox Accounts shall constitute part of the Priority Revolver Collateral
and shall not constitute payment of the Revolving Credit Obligations unless and
until the Lender shall so apply such balance. Until all Revolving Credit
Obligations have been indefeasibly paid in full and the Revolving Credit
Documents have been terminated, the Lender shall be entitled to give to each
Lockbox Bank such instructions regarding the balances in the Lockbox Accounts as
the Lender shall determine in its sole discretion, and, to the extent such
balances are required to be applied to the Revolving Credit Obligations (whether
or not subject to relending), such amounts may be applied to the Revolving
Credit Obligations, free and clear of any Subordinate Indenture Liens. The
Lender shall have no duty to account or other liability to the Trustee or the
holders of any Mortgage Notes for any proceeds of Priority Indenture Collateral
deposited in or transferred to the Lockbox Accounts by any Obligor that are
applied to the Revolving Credit Obligations, unless prior to such application by
Lender, Lender receives written notice from the Trustee identifying with
reasonable specificity such proceeds as part of the Priority Indenture
Collateral.
4.02 Collateral Account. To the extent required in the Indenture Documents
and notwithstanding anything in any Financing Document to the contrary, there
has been or may be established with the Trustee or, at the direction of the
Trustee, such commercial bank as the Trustee may approve (the "Collateral
Bank"), a cash collateral account (the "Collateral Account") in the name and
possession and/or under the control, until all Indenture Obligations have been
indefeasibly paid in full, of the Trustee. The balance in the Collateral Account
shall constitute part of the Priority Indenture Collateral and shall not
constitute payment of the Indenture Obligations unless and until the Trustee
shall so apply such balance or such balance shall be used to redeem the Mortgage
Notes. Until all Indenture Obligations have been indefeasibly paid in full, the
Trustee shall be entitled to give to the Collateral Bank such instructions
regarding the balance in the Collateral Account as the Trustee or the holders of
the Mortgage Notes shall determine in its or their sole discretion, and, to the
extent such balance is required to be applied to an offer to purchase any
Mortgage Notes pursuant to the Indenture (as in effect on the date hereof), such
amounts may be so applied, free of any Subordinate Revolver Liens. Once all
Indenture Obligations have been indefeasibly paid in full, unless the Revolving
Credit Obligations have theretofore been indefeasibly paid in full and the
Revolving Credit Documents terminated, or the Subordinate Revolver Liens on such
cash collateral have been released, the Trustee shall instruct the Collateral
Bank (with a copy to the Lender) to hold the balance remaining in the Collateral
Account to the order of the Lender. The Trustee shall have no duty to account or
other liability to the Lender for any proceeds of Priority Revolver Collateral
deposited in or transferred to the Collateral Account by any Obligor that are
applied to the Indenture Obligations or an offer to purchase Mortgage Notes (in
each case to the extent required pursuant to the Indenture as in effect on the
date hereof), unless prior to such application, the Trustee receives written
notice from the Lender identifying with reasonable specificity such proceeds as
part of the Priority Revolver Collateral.
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4.03 Investments. Any investments made from any Lockbox Account or the
Collateral Account, and any income therefrom or interest thereon, shall
constitute Priority Revolver Collateral and Priority Indenture Collateral,
respectively, for all purposes of this Agreement and the Financing Documents.
None of the Lender, the Trustee or any holder of any Mortgage Notes shall have
any responsibility or liability to any Person for any such investment, and all
such investments shall be for the sole risk of the Obligors.
SECTION 5. APPLICATION OF MONEYS.
5.01 Priority Revolver Collateral. If and to the extent the Lender shall
determine in its discretion to take Enforcement Action against all or any part
of the Priority Revolver Collateral, or in the event of any distribution or
payment of or with respect to such Priority Revolver Collateral in any
proceeding by or against any Obligor under the Bankruptcy Code or similar law,
the proceeds thereof shall be applied as follows:
FIRST, with respect to any Priority Revolver Collateral subject to a
valid Lien (if any) ranking senior in priority to the Liens thereon created
by the Revolving Credit Security Documents, to the payment and satisfaction
of the unpaid obligations secured by such senior Lien until the proceeds of
such Collateral have been applied in full or such Lien is satisfied, as the
case may be;
SECOND, to the Lender in an amount equal to the unpaid Revolving
Credit Obligations, and, in case such proceeds shall be insufficient to pay
such amount in full, for application to the unpaid Revolving Credit
Obligations in the manner specified in the Revolving Credit Documents or as
otherwise determined by the Lender if not so specified;
THIRD, to the extent that Priority Revolver Collateral also
constitutes Collateral under the Indenture Security Documents, to the
Trustee in an amount equal to the unpaid Indenture Obligations and, in case
such proceeds shall be insufficient to pay such amount in full, for
application to the Indenture Obligations in the manner specified in the
Indenture Documents or as otherwise determined by the Trustee or the
holders of the Mortgage Notes if not so specified; and
FOURTH, except to the extent otherwise required by applicable law, to
the respective Obligors or as a court of competent jurisdiction may
otherwise direct.
5.02 Priority Indenture Collateral. If and to the extent Trustee or (to the
extent, if any, permitted under and in compliance with the provisions of the
Indenture and this Agreement) the holder of any Mortgage Note shall determine in
its or their respective discretion to take Enforcement Action against all or any
part of the Priority Indenture Collateral, or in the event of any distribution
or payment of or with respect to such Priority Indenture Collateral in any
proceeding by or against any Obligor under the Bankruptcy Code or similar law,
the proceeds thereof shall be applied as follows:
FIRST, with respect to any Priority Indenture Collateral subject to a
valid Lien (if any) ranking senior in priority to the Liens thereon created
by the Indenture Security Documents, to the payment and satisfaction of the
unpaid obligations secured by such senior Lien until the proceeds of such
Collateral have been applied in full or such Lien is satisfied, as the case
may be;
SECOND, to the Trustee in an amount equal to the unpaid Indenture
Obligations, and, in case such proceeds are insufficient to pay such amount
in full, for application to the unpaid Indenture Obligations in the manner
specified in the Indenture Documents or required by law;
THIRD, to the extent that Priority Indenture Collateral also
constitutes Collateral under the Revolving Credit Security Documents, to
the Lender in an amount equal to the unpaid Revolving Credit Obligations
and, in case such proceeds are insufficient to pay such amount in full, for
application to the unpaid Revolving Credit Obligations in the manner
specified in the Revolving Credit Documents or as otherwise determined by
the Lender if not so specified; and
FOURTH, except to the extent otherwise required by applicable law, to
the respective Obligors or as a court of competent jurisdiction may
otherwise direct.
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5.03 Information. The Trustee may from time to time during the conduct of
an Enforcement Action by the Trustee or the holders of the Mortgage Notes
request the Lender to provide the Trustee with a statement of the then unpaid
principal of and interest on loans made under the Revolving Credit Agreement
and, to the best of the Lender's knowledge, all other unpaid amounts
constituting Revolving Credit Obligations as shown on the Lender's books. The
Lender may from time to time during the conduct of an Enforcement Action by
Lender request the Trustee to provide to the Lender a statement of the then
unpaid principal of and interest or premium, if any, due under the Indenture
and, to the best of the Trustee's knowledge, all other unpaid amounts
constituting Indenture Obligations. Neither the Trustee nor the holder of any
Mortgage Note nor the Lender shall have any liability or responsibility to any
Person for the inaccuracy or incompleteness of any information provided
regarding the outstanding Revolving Credit Obligations or Indenture Obligations,
as the case may be, and in no event shall any such information serve to limit or
impair the rights and interests of the Person providing same as against any
other Person including any Obligor.
5.04 Delivery; Turnover. Upon indefeasible payment in full of the Indenture
Obligations, the Trustee, subject to applicable law, shall deliver to the Lender
any Priority Indenture Collateral which is then or thereafter comes into the
possession or control of the Trustee, without representation or warranty and
without recourse. If the Trustee or the holders of any Mortgage Notes receive
the proceeds of any Priority Revolver Collateral, except as provided in Section
4.02, the Trustee or such holders, as the case may be, shall hold such proceeds
in trust for the benefit of and deliver the same promptly to the Lender, without
representation or warranty and without recourse. If the Lender receives the
proceeds of any Priority Indenture Collateral, except as provided in Section
4.01, the Lender shall hold such proceeds in trust for the benefit of the
Trustee and the holders of the Mortgage Notes and deliver the same promptly to
the Trustee, without representation or warranty and without recourse. In the
event of any adverse claim or dispute with respect to any Collateral to be
delivered under this Agreement, the Person in possession or control of such
Collateral may in its discretion continue to possess or control such Collateral
or deposit such Collateral with a court of competent jurisdiction, in each case
until such adverse claim or dispute is resolved or as a court of competent
jurisdiction may direct. In no event shall the Trustee have any duty to the
Lender to take any action at any time to acquire or come into the control of any
Collateral, and in no event shall the Lender have any duty to the Trustee or any
holder of any Mortgage Note to take any action at any time to acquire or come
into the control of any Collateral.
SECTION 6. INSURANCE PROCEEDS AND CONDEMNATION AWARDS.
6.01 Proceeds with Respect to Priority Revolver Collateral. Until the
Revolving Credit Obligations are indefeasibly paid in full and the Revolving
Credit Documents have been terminated, if the Lender shall elect or be required
under the Revolving Credit Documents to permit any Obligor to use (a) any
insurance proceeds received on account of damages to or destruction of all or
any part of the Priority Revolver Collateral, or (b) any award granted in a
condemnation proceeding on account of all or any part of the Priority Revolver
Collateral, the Trustee, for itself and on behalf of the holders of the Mortgage
Notes, shall, upon request from the Lender or the applicable Obligor, release or
obtain the release of any Lien it or they may have on such insurance proceeds or
condemnation award. The Lender shall have the sole and exclusive right to adjust
settlement of, and collect, such insurance proceeds and condemnation awards.
6.02 Proceeds with Respect to Priority Indenture Collateral. Until the
Indenture Obligations are indefeasibly paid in full, if the Trustee shall elect
or be required under the Indenture Documents or the TIA to permit any Obligor to
use (a) any insurance proceeds received on account of damage to or destruction
of all or any part of the Priority Indenture Collateral or (b) any award granted
in a condemnation proceeding on account of all or any part of the Priority
Indenture Collateral, the Lender shall, upon request from the Trustee or the
applicable Obligor, release the Lender's Lien on such insurance proceeds or
condemnation award, provided only that such insurance proceeds or condemnation
award are made available to the relevant Obligor to repair or replace such
Priority Indenture Collateral in accordance with the Indenture Documents or the
TIA, as applicable. The Trustee shall have the sole and exclusive right, subject
to the Indenture Documents and the TIA, to adjust settlement of, and collect,
such insurance proceeds and condemnation awards. To the extent such insurance
proceeds and condemnation awards are required by the Indenture to be applied to
an
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offer to purchase any Mortgage Notes under the Indenture, such insurance
proceeds and condemnation awards may be so applied without regard to the
Subordinate Revolver Lien of the Lender thereon.
SECTION 7. USE OF OBLIGORS' TRADEMARKS.
7.01 Right to Use. Notwithstanding the inclusion of the Trademarks in the
Priority Indenture Collateral, (a) neither the Trustee nor the holder of any
Mortgage Note shall disturb the right, in the case of Inventory, of the Lender
to affix Trademarks to such Collateral, and dispose of such Collateral with the
Trademarks so affixed by it or any Obligor to the extent such Inventory is
acquired or processed prior to or during the ninety (90) day (or longer, if
tolled) period referred to in Section 8.01, and (b) the Lender shall not disturb
the right of the Trustee or the holder of any Mortgage Note to sell or otherwise
dispose of any Trademarks comprising Priority Indenture Collateral to any
Person, so long as such Person shall unconditionally agree that such Person's
rights in such Trademarks are subject and subordinate to the rights of the
Lender under this Section 7.01 and that the Lender is entitled to the same
"nondisturbance" benefits with respect to its rights in such Trademarks as are
provided for in this Agreement; provided, that nothing in this Section 7.01
shall entitle the Trustee or any holder of any Mortgage Note to any greater
rights than are provided in the relevant Security Documents.
SECTION 8. ACCESS.
8.01 Access by Lender. The Lender shall have the right from time to time
during regular operating hours to enter and remain on any premises of any
Obligor in the possession or control of the Trustee or the holder of any
Mortgage Notes to inspect, remove, complete, sell or otherwise deal with or
realize upon the Priority Revolver Collateral located thereon and to store,
handle, process or dispose of any of the Priority Revolver Collateral pursuant
to the rights of the Lender under the Revolving Credit Security Documents, this
Agreement, the Uniform Commercial Code or other applicable law, subject,
however, to the terms of this Section 8.01. The Lender shall be entitled,
subject to the terms set forth below in this Section 8.01, to the extent
applicable, to use and/or occupy premises and equipment of any Obligor
comprising Priority Indenture Collateral after the occurrence of a Revolver
Default for the purpose of taking (i) any of the foregoing actions in a
commercially reasonable manner consistent with prior practices of such Obligor
or (ii) any Enforcement Action; provided, that, if the Trustee or the holder of
any Mortgage Notes is in possession or control of any Priority Indenture
Collateral with respect to which the Lender wishes to exercise its rights under
this Section 8.01, the Lender (a) shall not be entitled to use and/or occupy
such premises and equipment for longer than 90 days following the earlier of (x)
commencement of such use and/or occupancy by the Lender and (y) the Lender's
receipt of notice delivered to the Lender by the Trustee after the Trustee or
such holder has taken possession or control of such Indenture Priority
Collateral directing Lender to remove the Revolver Priority Collateral located
thereon or therein, (b) shall pay to the Trustee, on account of the Indenture
Obligations, without set-off or counterclaim for any part of such 90-day period
after the first 45 days in which the Lender shall use any equipment included in
the Indenture Priority Collateral (such use being without charge for the first
45 days of such 90-day period) an amount, calculated on a per diem basis for
each day of such use, equal to the depreciation expense as to the equipment so
used as provided in Schedule 4 hereto. The 90-day period and the initial 45-day
period shall be tolled during any period that the Lender is subject to any
automatic stay under the Bankruptcy Code or other stay preventing or delaying
its Enforcement Action with respect to property of the relevant Obligor. The
Lender's rights under this Section 8.01 shall terminate upon the later of the
full and indefeasible payment of the Revolving Credit Obligations and the
termination of the Revolving Credit Documents.
SECTION 9. FINANCING DOCUMENTS.
9.01 Modifications. The Lender and the Obligors shall be entitled to amend
or otherwise modify any Revolving Credit Document without any obligation to
obtain the consent of the Trustee or any holder of any Mortgage Note under this
Agreement. The Trustee, the holders of the Mortgage Notes and the Obligors shall
be entitled to amend or otherwise modify any Indenture Document without any
obligation to obtain the consent of the Lender under this Agreement.
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9.02 Transferability. No holder of any of the Secured Obligations shall be
entitled to sell, assign or otherwise transfer its interest in any Secured
Obligations or Financing Document except to the extent such transferee is bound
by the terms hereof. Upon appointment of any successor trustee under the
Indenture, such successor shall acknowledge that it is bound by the terms
hereof.
9.03 Interpretation; Security Documents. Subject to the rights of the
Trustee and the holders of the Mortgage Notes under Sections 2, 3 and 4 hereof,
no action or failure to act by the Lender under any Revolving Credit Security
Document in respect of the Priority Revolver Collateral (including, without
limitation, the exercise of any right or remedy thereunder or any right or
benefit afforded by applicable law to a holder of claims against an Obligor)
shall be deemed to be an interference with the interests of the Trustee or the
holders of the Mortgage Notes in the Priority Indenture Collateral for any
purpose of this Agreement. Subject to the rights of the Lender under Sections 2,
3, 4, 7.01 and 8.01 hereof, no action or failure to act by Trustee or the
holders of the Mortgage Notes under the Indenture Security Documents in respect
of the Priority Indenture Collateral (including, without limitation, the
exercise of any right or benefit afforded by applicable law to a holder of
claims against an Obligor) shall be deemed to be an interference with the
interests of the Lender in the Priority Revolving Collateral for any purpose of
this Agreement.
SECTION 10. DISCLAIMERS; LIMITATIONS.
10.01 No Representations; No Duty to Disclose. The parties hereto have not
made to each other or, in the case of the Lender, to the holders of any Mortgage
Notes, nor do they hereby make to each other or, in the case of the Lender, to
the holders of any Mortgage Notes, any representations or warranties, express or
implied, nor do they assume nor shall they have any liability or duty to each
other, except as specifically provided herein, or, in the case of the Lender, to
the holders of any Mortgage Notes, of any kind, nature of description, including
any representation, warranty, liability or duty with respect to the
enforceability, validity, perfection, priority, value or collectability of any
of the Indenture Obligations or the Revolving Credit Obligations or any
guarantee or collateral which may have been or is ever granted to or held by any
of them in connection with any of the Financing Documents. Each of the parties
hereto and, in the case of the Trustee, for itself and on behalf of the holders
of the Mortgage Notes, has the means to remain fully informed as to the
financial condition and other affairs of each Obligor and its subsidiaries and
affiliates. No party hereto shall have any obligation or duty pursuant to this
Agreement to disclose any such information in its possession to any other party
hereto, but may in its discretion do so without incurring any obligation to do
so in the future.
10.02 No Liability Regarding Offers to Repurchase Mortgage Notes. The
Lender shall have no liability or obligation to the Trustee or any holders of
Mortgage Notes to reserve, set aside, or make any funds available (by loan or
otherwise) for any offer to repurchase, exchange or redeem any Mortgage Notes
which ARI or any Obligor makes or is obligated to make pursuant to the Indenture
or otherwise. Without limiting the foregoing, if any "Net Cash Proceeds" of
"Asset Sales" (as such quoted terms are defined in the Indenture as in effect on
the date hereof) are applied to reduce the Revolving Credit Obligations, the
Lender shall have no obligation or liability to the Trustee or any holder of
Mortgage Notes to reserve, set aside or make any funds available (by loan or
otherwise) for any "Excess Proceeds" (as defined in and pursuant to the
Indenture) or other repurchase offer that ARI becomes obligated to make in
respect of any of all of such Net Cash Proceeds; provided, however, that the
provisions of this Section 10.02 shall not impair the rights of the Trustee or
any holder of Mortgage Notes to treat any failure by ARI to make any required
Excess Proceeds or other repurchase offer as an Event of Default under the
Indenture to the extent so provided therein.
SECTION 11. MISCELLANEOUS.
11.01 Waiver. No failure on the part of the Lender or the Trustee to
exercise, and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
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11.02 Notices. All notices and other communications provided for herein
shall be given or made in writing (including, without limitation, by telex or
telecopy) delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof; or at such other address
as shall be designated by such Person in a notice to each other party.
Notwithstanding anything to the contrary herein or in any Financing Document,
notices and communications to or by any holder of any Mortgage Note with respect
to any matter covered by this Agreement shall be effected solely by the giving
of such notice or communication by or to, as appropriate, the Trustee (who shall
thereupon give notice thereof to the holders of Mortgage Notes, to the extent
required by the Indenture or the TIA, or to the Lender, as applicable). Except
as otherwise provided in this Agreement, all such communications shall be deemed
to have been duly given when transmitted by telex or telecopier or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid.
11.03 Amendments, etc. Except as otherwise expressly provided in this
Agreement, any provision of this Agreement may be amended or modified only by an
instrument in writing signed by the Lender and the Trustee.
11.04 Designation of the Trustee. Pursuant to the terms of the Indenture,
the holders of Mortgage Notes have designated the Trustee as collateral agent to
act on their behalf with respect to all matters covered hereby. The Lender may
refuse to communicate with or deal directly with the holders of Mortgage Notes
and may communicate and deal exclusively with the Trustee, and the Lender may
rely on any actions taken, consents given or statements made by the Trustee with
respect to the matters covered hereby, without inquiry as to the Trustee's
authority. The holders of the Mortgage Notes shall be bound by all agreements,
consents or waivers given or made by the Trustee hereunder or in connection
herewith at any time. Each successor or replacement Trustee shall give notice in
writing to the Lender, with a copy to the predecessor or prior Trustee, if still
in existence, of its appointment as a successor or replacement Trustee.
11.05 Successors and Assigns; No Other Beneficiaries. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. If any lender or group of lenders shall
replace or refinance the credit extended to the Obligors under the Revolving
Credit Agreement, and if the outstanding indebtedness to such lender or group of
lenders upon and as of the closing of such replacement or refinancing would be
Permitted Refinancing Indebtedness, the Trustee shall, upon request of such
lender or group of lenders, enter into intercreditor arrangements with such
lender or group of lenders identical to the terms of this Agreement, with only
such changes as are necessary to reflect the change in parties and credit
facilities. If any lender or group of lenders shall replace or refinance the
credit extended under the Indenture, the Lender shall, upon request of or on
behalf of such lender or group of lenders or any trustee or agent therefor,
enter into intercreditor arrangements with any financial institution trustee or
financial institution agent therefor identical to the terms of this Agreement,
with only such changes as are necessary to reflect the change in parties and
credit facilities. No Person other than the Lender and the Trustee, for itself
and on behalf of the holders of the Mortgage Notes, shall have any rights or
benefits under or by virtue of this Agreement.
11.06 Captions. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
11.07 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.08 Further Assurances. The parties hereto shall deliver such additional
documents and take such additional action as may be reasonably necessary to
effectuate the provisions and purposes of this Agreement. If reasonably
requested by any party, the party receiving such request shall, at the expense
of the party making such request, execute filings or instruments of
subordination to be filed or recorded in accordance with the Uniform Commercial
Code, real property law or other applicable law reflecting the existence of and
consistent with this Agreement and the terms hereof.
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11.09 No Adequate Remedy at Law. The parties acknowledge that no adequate
remedy at law exists for breach of their respective obligations under this
Agreement and therefore that, in the event any party fails to comply with its
obligations hereunder, the other parties hereto shall have the right to obtain
specific performance by the defaulting party of its obligations hereunder or
such other equitable relief as may be available.
11.10 Inconsistencies; Termination. In the event of any inconsistency
between the terms of this Agreement and the terms of any Financing Document,
then, solely as between the Lender and the Trustee, for itself and on behalf of
the holders of the Mortgage Notes, the terms of this Agreement shall control.
This Agreement shall remain in full force and effect until (i) the Indenture
Obligations are indefeasibly paid in full or (ii) the Revolving Credit
Obligations are indefeasibly paid in full and the Revolving Credit Documents
have been terminated, whichever shall first occur; provided, that the
obligations of the parties hereunder arising prior to termination and the
provisions of Section 5.04 shall survive the termination of the other provisions
of this Agreement.
11.11 Severability. The invalidity, illegality or unenforceability in any
jurisdiction of any provision in or obligation under this Agreement shall not
affect or impair the validity, legality or enforceability of the remaining
provisions of or obligations under this Agreement or of such provisions or
obligations in any other jurisdiction.
11.12 Possessory Control. Each party hereto acknowledges that, if such
party shall come in possession of any Collateral as to which perfection or
effectiveness of a Lien may be effected only by possession (including without
limitation the Lockbox Accounts and the Collateral Account), such party shall
hold such Collateral as agent for the other parties hereto having the benefit of
a Lien thereon, subject, in the case of such Collateral held as agent for
Lender, to the restrictions on certain Collateral being held by Lender as set
forth in Section 2.02(a) hereof; provided, that such party shall not by virtue
of this Section 11.12 have any obligation or liability to the other party hereto
or any other Person, and nothing in this Section 11.12 shall impose on such
party any responsibility or duty not otherwise expressly provided in this
Agreement. If such party is the Lender, upon indefeasible payment in full of the
Revolving Credit Obligations and the termination of the Revolving Credit
Documents, the Lender shall deliver such Collateral to the Trustee in accordance
with Section 5.04 hereof. If such party is the Trustee, upon indefeasible
payment in full of the Indenture Obligations, such party shall deliver such
Collateral to the Lender in accordance with Section 5.04 hereof.
11.13 Bankruptcy. Except as expressly provided in the last two sentences of
this Section 11.13, this Agreement shall be applicable both before and after the
filing of any petition by or against any Obligor under the Bankruptcy Code and
all converted or succeeding cases in respect thereof, and all references herein
to an Obligor shall be deemed to apply to a trustee for such Obligor and to such
Obligor as debtor-in-possession. The relative rights of the Lender and the
Trustee, for itself and on behalf of the holders of Mortgage Notes, as provided
in this Agreement in or to any distribution from or in respect of any Collateral
or proceeds thereof shall continue after the filing of any such petition on the
same basis as prior thereto. Notwithstanding the foregoing provisions of this
Section 11.13, no provision of this Agreement (a) requiring that any Person
other than the Lender or the Trustee enter into any "nondisturbance" or similar
arrangement or agree to permit the Lender or the Trustee to enter and remain on
any premises of any Obligor or inspect, remove, complete, sell or otherwise deal
with or realize upon, any collateral or store, handle, process or dispose of any
Collateral (collectively, "third party obligations") or (b) conditioning any
right or remedy of the Lender or the Trustee upon any Person other than the
Lender or the Trustee agreeing to any third party obligations, shall be
applicable after the filing of any petition by or against any Obligor under the
Bankruptcy Code. Nothing in this Agreement shall be deemed to limit (i) the
right or ability of the Lender to raise any objection in a case with respect to
an Obligor under the Bankruptcy Code to the sale, transfer, utilization or other
disposition of any Priority Indenture Collateral or (ii) the right or ability of
the Trustee or any holder of Mortgage Notes to raise any objection in a case
with respect to an Obligor under the Bankruptcy Code to the sale, transfer,
utilization or other disposition of any Priority Revolver Collateral.
11.14 Entire Agreement. This Agreement, together with the Financing
Documents and the documents and instruments contemplated hereby and thereby,
constitute the entire agreement between the parties to the
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subject matter hereof and supersede in their entirety all prior agreements among
the parties with respect to the subject matter.
11.15 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES. EACH PARTY HERETO
HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE
COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
EACH PARTY HERETO 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.
11.16 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Intercreditor Agreement as of the date first above written.
CONGRESS FINANCIAL CORPORATION,
as the Lender
By:
Name:
Title:
Address for Notices:
1133 Avenue of the Americas
New York, New York 10036
Attention: Mr. Mark Fagnani
U.S. TRUST COMPANY OF TEXAS, N.A.
as the Trustee
By:
Name:
Title:
Address for Notices:
-17-
<PAGE> 18
ACKNOWLEDGEMENT AND AGREEMENT
The undersigned hereby acknowledge and consent to the terms and provisions
of the foregoing Intercreditor Agreement. By their signatures below, the
undersigned agree that they will, together with their successors and assigns, be
bound by the provisions hereof.
The undersigned acknowledge and agree that: (i) although they may sign this
Acknowledgement and Agreement, they are not parties to the Intercreditor
Agreement and do not and will not receive any right, benefit, priority or
interest under or because of the existence of the foregoing Intercreditor
Agreement, and (ii) they will execute and deliver such additional documents and
take such additional action as may be necessary or desirable in the opinion of
the Trustee or the Lender to effectuate the provisions and purposes of the
foregoing Intercreditor Agreement.
AMERICAN RICE, INC.
By:
Name:
Title:
COMET RICE OF PUERTO RICO, INC.
By:
Name:
Title:
COMET VENTURES, INC.
By:
Name:
Title:
RICE CORPORATION OF HAITI, S.A.
By:
Name:
Title:
COMET RICE OF JAMAICA, LTD.
By:
Name:
Title:
ERLY INDUSTRIES, INC.
By:
Name:
Title:
-18-
<PAGE> 19
SCHEDULE 1
INDENTURE SECURITY DOCUMENTS
1. Company Pledge Agreement dated as of August , 1995 executed by ARI in favor
of the Trustee.
2. ERLY Pledge Agreement dated as of August , 1995 executed by ERLY in favor
of the Trustee.
3. Leasehold Deed of Trust, Security Agreement, Fixtures Financing Statement,
Mortgage and Assignment of Rents, Leases and Leasehold Interests executed by
ARI for the benefit of the Trustee and the Holders of the Mortgage Notes
encumbering certain property in Freeport, Texas.
4. Deed of Trust, Leasehold Deed of Trust, Security Agreement, Fixture Filing
and Assignment of Rents, Leases and Leasehold Interests executed by ARI for
the benefit of the Trustee and the Holders of the Mortgage Notes encumbering
certain property in Maxwell, California.
5. Mortgage, Security Agreement and Assignment of Rents, Leases and Leasehold
Interests executed by ARI to the Trustee for its benefit and the benefit of
the Holders of the Mortgage Notes encumbering certain property in Stuttgart,
Arkansas.
6. Environmental Indemnity Agreement executed by ARI for the benefit of the
Trustee and the Holders of the Mortgage Notes.
7. Confirmation and Grant of Security Interest in Trademarks and Trademark
Applications and Trademark Licenses executed by ARI for the benefit of the
Trustee and the Holders of the Mortgage Notes.
8. Deed of Trust, Security Agreement, Fixtures Financing Statement, Mortgage and
Assignment of Rents, Leases and Leasehold Interests executed by ARI for the
benefit for the benefit of the Trustee and the Holders of the Mortgage Notes
encumbering certain property in Houston, Texas.
9. UCC and fixture filings.
-19-
<PAGE> 20
SCHEDULE 2
REVOLVING CREDIT SECURITY DOCUMENTS
1. Accounts Financing Agreement [Security Agreement] by and between Congress
Financial Corporation and American Rice, Inc. dated as of May 24, 1993, as
amended by letter agreement re: Amendment No. 1 to Financing Agreements
dated as of June 30, 1995 ("Amendment No. 1") and by letter agreement re:
Amendment No. 2 to Financing Agreements dated as of the date hereof
("Amendment No. 2").
2. Covenant Supplement to Accounts Financing Agreement [Security Agreement] by
and between Congress Financial Corporation and American Rice, Inc. dated as
of May 24, 1993, as amended by Amendment No. 1 and Amendment No. 2.
3. Inventory and Equipment Security Agreement Supplement to Accounts Financing
Agreement [Security Agreement] by and between Congress Financial Corporation
and American Rice, Inc. dated as of May 24, 1993.
4. Letter Re: Inventory Loans from American Rice, Inc. to Congress Financial
Corporation dated as of May 24, 1993, as amended by Amendment No. 1.
5. Trade Financing Agreement Supplement to Accounts Financing Agreement
[Security Agreement] by and between Congress Financial Corporation and
American Rice, Inc. dated as of May 24, 1993, as amended by Amendment No. 1.
6. Assignment of Indemnification Rights and Remedies dated as of May 24, 1993.
7. Guarantee and Waiver of Comet Rice of Puerto Rico, Inc. dated as of May 24,
1993.
8. General Security Agreement of Comet Rice of Puerto Rico, Inc. dated as of
May 24, 1993.
9. General Security Agreement of Comet Ventures, Inc. dated as of May 24, 1993.
10. Guarantee and Waiver of Comet Ventures, Inc. dated as of May 24, 1993.
11. Guarantee and Waiver of Rice Corporation of Haiti dated as of May 24, 1993.
12. Guarantee and Waiver of Comet Rice of Jamaica Ltd. dated as of June 30,
1995.
13. Acknowledgment and Agreement of American Rice, Inc., Comet Rice of Puerto
Rico , Inc., Comet Ventures, Inc. and Rice Corporation of Haiti, S.A. to
Subordination Agreement from ERLY Industries, Inc. and ERLY Juice, Inc.
dated as of May 24, 1993.
14. Deed of Trust, Assignment of Rents, Security Agreement, and Fixture Filing
for the Houston, Texas property from American Rice, Inc. dated as of May 25,
1993, as amended on the date hereof.
15. Leasehold Deed of Trust, Assignment of Rents, Security Agreement, and
Fixture Filing for the Freeport, Texas property from American Rice, Inc.
dated as of May 25, 1993, as amended on the date hereof.
16. Trademark Collateral Assignment and Security Agreement dated as of May 25,
1993 by American Rice, Inc. in favor of Congress Financial Corporation.
17. UCC Financing Statements covering all collateral described in the security
agreements listed herein from American Rice, Inc., Comet Rice of Puerto
Rico, Inc. and Comet Ventures, Inc.
18. All related agreements, documents and instruments from American Rice, Inc.,
Comet Rice of Puerto Rico, Inc., Comet Ventures, Inc., Rice Corporation of
Haiti, S.A. and Comet Rice of Jamaica, Ltd., as required by Congress
Financial Corporation in connection with the above Agreements.
-20-
<PAGE> 21
SCHEDULE 3
REAL ESTATE DESCRIPTIONS FOR
MAXWELL, STUTTGART AND FREEPORT FACILITIES AND HOUSTON PROPERTY
-21-
<PAGE> 22
SCHEDULE 4
EQUIPMENT DEPRECIATION
-22-
<PAGE> 1
EXHIBIT 11.1
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
-----------------
1995 1994
------- ------
<S> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE*
Net earnings............................................................. $ 376 $2,010
Less dividends on preferred stock:
Series B.............................................................. (1,295) (1,295)
Series C.............................................................. (188) (188)
------- ------
(1,483) (1,483)
------- ------
Earnings (loss) applicable to common stock............................... $(1,107) $ 527
======= ======
Average common and common equivalent shares outstanding:
Common................................................................ 2,444 2,444
Preferred Series A.................................................... -- 778
------- ------
2,444 3,222
======= ======
Earnings (loss) per share applicable to common stock.................. $ (.45) $ .16
======= ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
-----------------
1995** 1994**
------ ------
<S> <C> <C>
FULLY DILUTED EARNINGS PER SHARE*
Net earnings............................................................. $ 376 $2,010
Less dividends on preferred stock:
Series C.............................................................. (188) (188)
------ ------
Earnings applicable to common stock...................................... $ 188 $1,822
====== ======
Average common and common equivalent shares outstanding:
Common................................................................ 2,444 2,444
Preferred Series A.................................................... 778 778
Preferred Series B.................................................... 5,600 5,600
------ ------
8,822 8,822
====== ======
Earnings per share applicable to common stock......................... $ .02 $ .21
====== ======
</TABLE>
- ---------------
* See Note 4 to Consolidated Financial Statements.
**This calculation is presented in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraphs 14, 30, and 40 of APB Opinion
No. 15 because it produces an antidilutive result. The Opinion provides that a
computation on a fully diluted basis which results in an improvement in
earnings per share when compared to primary earnings per share (antidilution)
not be taken into account. Therefore fully diluted earnings per share reported
on the income statement are the same as primary earnings per share.
<PAGE> 1
EXHIBIT 12.1
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMET(1) ARI(1)
-------------------------------- ----------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------- THREE MONTHS ENDED
1991 1992 1993 1994 1995 JUNE 30, 1995
------- ------- -------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) before income
taxes and extraordinary
items.......................... $ 716 $(5,638) $(11,265) $ 5,721 $ 6,115 $ 587
Add (deduct):
Minority interest -- losses.... -- -- -- -- -- (135)
(Earnings) loss on equity
investment................... 2,772 2,607 1,630 (426) -- --
Portion of rents representative
of the interest factor....... 342 429 447 802 1,333 369
Interest expense............... 7,841 8,068 5,232 9,884 12,344 3,398
------- ------- -------- ------- ------- -------
Earnings as adjusted........... $11,671 $ 5,466 $ (3,956) $15,981 $19,792 $4,219
======== ======== ========= ======== ======== ===================
Fixed charges:
Interest expense............... $ 7,841 $ 8,068 $ 5,232 $ 9,884 $12,344 $3,398
Portion of rents representative
of the interest factor....... 342 429 447 802 1,333 369
------- ------- -------- ------- ------- -------
Total fixed charges............ $ 8,183 $ 8,497 $ 5,679 $10,686 $13,677 $3,767
======== ======== ========= ======== ======== ===================
Ratio of earnings to fixed
charges(2)..................... 1.4x --(3) --(3) 1.5x 1.4x 1.1x
======== ======== ========= ======== ======== ===================
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION ARI(1)
-------------------------------------------------
PERIOD FROM
YEAR ENDED MARCH 31, APRIL 1, 1993
------------------------------- TO MAY 26,
1991 1992 1993 1993(1)
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Earnings (loss) before income taxes and extraordinary
items.................................................. $(6,008) $(5,432) $ 3,250 $ 888
Add:
Portion of rents representative of the interest
factor............................................... 255 285 296 49
Interest expense....................................... 6,255 6,310 7,167 975
------- ------- ------- -------
Earnings as adjusted................................... $ 502 $ 1,163 $10,713 $ 1,912
======== ======== ======== ===============
Fixed charges:
Interest expense....................................... $ 6,255 $ 6,310 $ 7,167 $ 975
Portion of rents representative of the interest
factor............................................... 255 285 296 49
------- ------- ------- -------
Total fixed charges.................................... $ 6,510 $ 6,595 $ 7,463 $ 1,024
======== ======== ======== ===============
Ratio of earnings to fixed charges(2).................... --(3) --(3) 1.4x 1.9x
======== ======== ======== ===============
</TABLE>
- ---------------
(1) On May 26, 1993, the Company consummated the Acquisition, which was
accounted for as a purchase of ARI by Comet.
(2) The ratio of earnings to fixed charges has been computed based upon net
earnings (loss) before income taxes, earnings (loss) on equity investment,
extraordinary items and fixed charges. Fixed charges consist of interest
expense (including amortization of deferred debt issuance costs) and
one-third of rental expense (the proportion deemed representative of the
interest factor).
(3) Earnings before income taxes and fixed charges for Comet were insufficient
to cover fixed charges for fiscal 1992 and fiscal 1993 by $3.0 million and
$9.6 million, respectively, and for Pre-Acquisition ARI for fiscal 1991 and
fiscal 1992, by $6.0 million and $5.4 million, respectively.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement No. 33-60539 of American Rice, Inc. on Form S-1 of our report dated
May 26, 1995, appearing in the Prospectus, which is part of this Registration
Statement, and of our report dated May 26, 1995 relating to the financial
statement schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Houston, Texas
August 21, 1995
