<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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 / /.
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE FEE
- -------------------------------------------------------------------------------------------------
Mortgage Notes............... $100,000,000 $1,000 $100,000,000 $34,483
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
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 Unaudited Pro Forma
Combined Financial Data; Summary
Historical 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 Unaudited
Pro Forma Combined Financial Data;
Summary Historical Consolidated
Financial Data; Risk Factors; The
Company; Capitalization; Pro Forma
Consolidated Financial Data; Selected
Historical 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;
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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 23, 1995
PROSPECTUS
$100,000,000
[LOGO] AMERICAN RICE, INC.
% MORTGAGE NOTES DUE 2005
---------------------------
The % Mortgage Notes due 2005 (the "Mortgage Notes") are being offered (the
"Offering") by American Rice, Inc. ("ARI" or the "Company"). The Mortgage Notes
will bear interest at the rate of % per annum, payable semiannually in cash
in arrears on each and , commencing ,
1995, and will mature on , 2005. The Company will not be required to
make any mandatory redemption or sinking fund payments with respect to the
Mortgage Notes prior to maturity.
The Mortgage Notes will not be redeemable prior to , 2000,
except that prior to , 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 ,
2000, 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. 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 aggregate principal amount thereof, plus accrued and unpaid interest to the
date of repurchase.
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) deeds of trust and a mortgage creating security
interests in the Company's rice processing facilities in Freeport, Texas,
Maxwell, California, and Stuttgart, Arkansas; (ii) a pledge of the capital stock
of the Company and the Company's subsidiaries, the ERLY Intercompany Notes (as
defined) and the Subsidiary Intercompany Notes (as defined); and (iii) a pledge
of the Company's registered trademarks. At March 31, 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 no
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................. 100.0% % %
Total............................. $100,000,000 $ $
</TABLE>
- ------------------
(1) Plus accrued interest, if any, from , 1995.
(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
$ .
---------------------------
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 , 1995, in New York, New York.
---------------------------
JEFFERIES & COMPANY, INC.
, 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 not necessarily
complete. 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.
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. Unless otherwise expressly stated,
information presented on a pro forma combined basis gives effect to the
Acquisition as if it had occurred on April 1, 1990.
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.
Historically, approximately 70% of the Company's gross profit has been
attributable to its 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 rice
consuming markets domestically, 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()@. 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 of 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. EBITDA increased on a pro forma combined basis from $11.7 million
in fiscal 1992 and $15.8 million in fiscal 1993, when the two companies were
1
<PAGE> 8
competing, to $22.8 million in fiscal 1995, the first full year of operations
after the Acquisition. Management believes that the Acquisition 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.
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.
The Company's Board of Directors has adopted a resolution authorizing
management to sell 39 acres of land in Houston, Texas. The proceeds of any such
sale, when and if it occurs, will be used for working capital, general corporate
purposes and to reduce outstanding Indebtedness. Management believes that the
net realizable value of this property exceeds its current carrying value of
approximately $18.3 million.
The Mortgage Notes will be secured by, among other things, the Company's
rice processing facilities located in Freeport, Texas and Maxwell, California
and the Company's registered U.S. trademarks. On June 2, 1995, the Company
obtained preliminary appraisals from American Appraisal Associates, Inc. and
Jack K. Mann, Inc. of its rice processing facilities in Freeport, Texas and
Maxwell, California, 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. Final appraisals are expected to be completed on or before June
30, 1995.
2
<PAGE> 9
THE OFFERING
Securities Offered.................. $100.0 million aggregate principal
amount of % Mortgage Notes due 2005.
Maturity............................ , 2005.
Interest Payment Dates.............. The Mortgage Notes will bear interest
at the rate of % per annum,
payable semiannually in cash in arrears
on each and ,
commencing , 1995.
Security............................ The Mortgage Notes will be secured by
the Collateral (as defined), 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 (as defined), 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) 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; (v) 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 (vi) a
pledge of all proceeds of the foregoing
(including insurance). See "Description
of Mortgage Notes -- Security."
Mandatory Redemption................ None.
Optional Redemption................. The Mortgage Notes will not be
redeemable prior to , 2000,
except that prior to , 1998,
3
<PAGE> 10
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
, 2000, 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 aggregate principal
amount thereof, plus accrued and unpaid
interest to the date of repurchase.
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. At March
31, 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
no outstanding senior Indebtedness
other than the Mortgage Notes.
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 the principal amount thereof, plus
accrued and unpaid interest to the date
of repurchase, with the net
4
<PAGE> 11
proceeds of certain Asset Sales (as
defined). See "Description of Mortgage
Notes -- Certain Covenants."
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 UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary unaudited pro forma combined
financial data for the years ended March 31, 1991 to 1994 and historical
consolidated financial data for the year ended March 31, 1995. 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, following which purchase Comet distributed its
equity interest in ARI to ERLY. As a result, the Company's historical financial
data prior to the Acquisition reflects the historical operations of Comet rather
than Pre-Acquisition ARI. Historical consolidated financial data of the Company
contained in this Prospectus are not directly comparable between fiscal years.
Accordingly, the pro forma combined financial data presented below give effect
to the Acquisition as if it had occurred on April 1, 1990. The balance sheet
data below give effect to the Offering as if it had been completed on March 31,
1995. The financial data presented below do not purport to represent what the
Company's results of operations actually would have been if the Acquisition or
the Offering had occurred at the beginning of the periods indicated or will be
for any future periods. The pro forma combined financial data is presented here
for purposes of additional information and should not be viewed as a substitute
for the Company's summary historical consolidated financial data. The
information in the table should be read in conjunction with "Pro Forma
Consolidated Financial Data," "Selected Historical 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>
YEAR ENDED MARCH 31,(1)
------------------------------------------------------------
1991 1992(2) 1993(2) 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER HUNDREDWEIGHT DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................................................. $381,496 $342,815 $309,136 $311,264 $373,050
Gross profit............................................... 39,872 25,143 33,959 40,732 40,814
Selling, general and administrative expenses............... 21,287 20,388 23,813 23,728 23,235
EBITDA(3).................................................. 26,239 11,723 15,751 22,195 22,751
EBIT....................................................... 19,841 5,765 10,678 17,848 18,501
OTHER FINANCIAL DATA:
Gross profit margin........................................ 10.5% 7.3% 11.0% 13.1% 10.9%
EBITDA margin.............................................. 6.9 3.4 5.1 7.1 6.1
EBIT margin................................................ 5.2 1.7 3.5 5.7 5.0
Depreciation and amortization(4)........................... $ 6,398 $ 5,958 $ 5,073 $ 4,347 $ 4,250
Capital expenditures....................................... 3,753 1,289 3,413 2,875 3,562
Hundredweight of rice sold(5).............................. 21,945 19,197 18,894 18,475 22,304
Net sales per hundredweight................................ $ 17.38 $ 17.86 $ 16.36 $ 16.85 $ 16.73
PRO FORMA CREDIT STATISTICS:
EBITDA to pro forma cash interest expense, net(6)................................. 2.0x 2.0x
Pro forma total debt to EBITDA.................................................... 4.6 4.5
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1995
-----------------------
PRO
HISTORICAL FORMA
---------- --------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................................... $ 1,864 $ 566
Current assets............................................................................... 89,736 88,438
Total assets................................................................................. 177,500 189,819
Total debt................................................................................... 89,237 102,939
Total stockholders' equity................................................................... 44,212 43,327
</TABLE>
- ---------------
(1) For discussion of assumptions and adjustments underlying the pro forma
financial data, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Pro Forma Combined Results of
Operations" and "Pro Forma Consolidated Financial Data."
(2) For a discussion of the various factors affecting operating results during
the periods 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 -- Pro Forma Combined Results of Operations."
(3) 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.
(4) Excludes amortization of deferred financing costs included in interest
expense.
(5) A hundredweight is equivalent to 100 pounds. A metric ton is equivalent to
22.046 hundredweight.
(6) 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 $8.5 million earning 5.0% per
annum. EBITDA to pro forma cash interest expense, net of pro forma total
interest income would be 2.4x in fiscal 1995. For discussion of assumptions
and adjustments underlying the pro forma financial data, see "Pro Forma
Consolidated Financial Data."
6
<PAGE> 13
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth summary historical consolidated financial
data of the Company for the years ended March 31, 1991 to 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 summary historical 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, 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 of ARI was accounted for as a
purchase by Comet of Pre-Acquisition ARI, the Company's historical consolidated
financial data prior to the Acquisition reflects the historical operations of
Comet rather than Pre-Acquisition ARI. 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 "Selected Historical 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)
-------------------------------------- ------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------
1991 1992(2) 1993(2) 1994 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND PER HUNDREDWEIGHT DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.................................... $218,919 $214,090 $169,617 $284,464 $373,050
Gross profit................................. 17,767 11,684 8,363 36,418 40,814
Selling, general and administrative
expenses................................... 7,646 8,419 10,779 21,497 23,235
EBITDA(3).................................... 14,889 7,828 1,497 19,839 22,751
EBIT......................................... 12,046 5,190 (316) 16,017 18,501
OTHER FINANCIAL DATA:
Gross profit margin.......................... 8.1% 5.5% 4.9% 12.8% 10.9%
EBITDA margin................................ 6.8 3.7 0.9 7.0 6.1
EBIT margin.................................. 5.5 2.4 -- 5.6 5.0
Depreciation and amortization(4)............. $ 2,843 $ 2,638 $ 1,813 $ 3,822 $ 4,250
Capital expenditures......................... 2,923 772 2,651 2,844 3,562
Hundredweight of rice sold(5)................ 15,114 14,463 12,918 17,114 22,304
Net sales per hundredweight.................. $ 14.48 $ 14.80 $ 13.13 $ 16.62 $ 16.73
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION ARI(1)
----------------------------------------------------
PERIOD
FROM
YEAR ENDED MARCH 31, APRIL 1, 1993
-------------------------------------- TO MAY 26,
1991 1992 1993 1993(1)
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS 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
EBITDA(3).................................... 3,912 4,308 13,606 2,356
EBIT......................................... 547 1,178 10,536 1,863
OTHER FINANCIAL DATA:
Gross profit margin.......................... 7.6% 7.9% 13.9% 15.7%
EBITDA margin................................ 2.0 2.4 7.7 8.7
EBIT margin.................................. 0.3 0.7 6.0 6.9
Depreciation and amortization(4)............. $ 3,365 $ 3,130 $ 3,070 $ 493
Capital expenditures......................... 830 517 762 31
Hundredweight of rice sold(5)................ 14,058 12,026 12,645 1,361
Net sales per hundredweight.................. $ 14.12 $ 14.65 $ 13.97 $ 19.86
</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 -- Historical Results of Operations."
(3) 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.
(4) Excludes amortization of deferred financing costs included in interest
expense.
(5) A hundredweight is equivalent to 100 pounds. A metric ton is equivalent to
22.046 hundredweight.
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 March 31, 1995, ARI had Indebtedness
(including the current portion thereof) of approximately $89.2 million,
including approximately $31.0 million of borrowings under the Company's
Revolving Credit Loan. A portion of the net proceeds of the Offering will be
used to repay $86.3 million of ARI's existing Indebtedness, including all
amounts outstanding under the Revolving Credit Loan. See "Use of Proceeds." At
March 31, 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 the Mortgage Notes and ARI's stockholders' equity
would have been approximately $43.3 million. See "Capitalization." ARI may incur
additional Indebtedness in the future, including Indebtedness under the
Revolving Credit Loan. See "Description of Certain Indebtedness."
The degree to which the Company is leveraged could have important
consequences to holders of the Mortgage Notes, including 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; and
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) 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 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."
8
<PAGE> 15
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 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.
9
<PAGE> 16
ABILITY TO REALIZE ON COLLATERAL
The Mortgage Notes will be secured by the Collateral, which includes (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) 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; (v) 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 (vi) 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 rights of the Trustee (as defined) 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 (as
defined). 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
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
10
<PAGE> 17
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. On June 2,
1995, the Company obtained preliminary appraisals of the Freeport Facility and
the Maxwell Facility 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.
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
11
<PAGE> 18
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.
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."
12
<PAGE> 19
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 Company's principal executive offices are located at 16825 Northchase
Drive, Suite 1600, Houston, Texas 77060, telephone number (713) 873-8800.
13
<PAGE> 20
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)....................................... $ 26.0
Repayment of Term Loan(2)................................................... 55.0
Repayment of Maxwell Mortgage(3)............................................ 1.0
Intercompany loan to ERLY(4)................................................ 10.5
Estimated fees and expenses................................................. 4.5
Cash for working capital.................................................... 3.0
------
Total.................................................................. $100.0
======
</TABLE>
- ---------------
(1) Proceeds will be used to repay Indebtedness outstanding under the Company's
$47.5 million Revolving Credit Loan. The Company anticipates executing an
amendment to the Revolving Credit Loan, effective as of June 1, 1995. The
amended Revolving Credit Loan bears interest at the prime rate of interest
plus 0.5% and will mature on May 24, 1996 (the "Revolving Credit Loan"). The
outstanding loan balance on the Revolving Credit Loan at March 31, 1995 was
approximately $31.0 million and at May 31, 1995 was approximately $20.5
million. The Company anticipates that the outstanding balance will be
increased by approximately $4.5 million prior to the Closing Date, which
amount will be further increased by a borrowing of approximately $1.0
million to fund a payment to ERLY under the Company's Tax Sharing Agreement
(as defined). 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 June 30, 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 " % ERLY
Intercompany Note"), which will bear interest at the same interest rate as
the Mortgage Notes and mature one year and one day prior to the Maturity
Date (as defined). ERLY will use the proceeds of the loan from the Company
to facilitate the repurchase of ERLY common stock warrants and repay a loan
by Internationale Nederlanden (U.S.) Capital Corporation ("ING Capital") to
ERLY Juice Inc., a wholly owned subsidiary of ERLY that has discontinued its
operations, which note bears interest at the prime rate of interest plus
2.0% and matures on April 1, 1996. See "Certain Relationships and Related
Transactions -- Transactions with Affiliates." ING Capital may be deemed to
be an affiliate of the Company. See "Security Ownership of Certain
Beneficial Owners and Management."
14
<PAGE> 21
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 31, 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>
MARCH 31, 1995
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS............................................. $ 1,864 $ 566
======== ========
CURRENT DEBT:
Revolving Credit Loan............................................... $ 30,998 $ --
Short-term notes(1)................................................. 2,939 2,939
Current portion of long-term debt................................... 6,727 --
-------- --------
Total current debt.......................................... 40,664 2,939
-------- --------
LONG-TERM DEBT, LESS CURRENT MATURITIES:
% Mortgage Notes due 2005......................................... -- 100,000
Term Loan........................................................... 47,785 --
Maxwell Mortgage.................................................... 788 --
-------- --------
Total long-term debt, less current maturities............... 48,573 100,000
-------- --------
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................................................... 13,352 12,467
Cumulative foreign currency translation adjustments................. (748) (748)
-------- --------
Total stockholders' equity.................................. 44,212 43,327
-------- --------
TOTAL CAPITALIZATION.................................................. $ 133,449 $ 146,266
======== ========
</TABLE>
- ---------------
(1) Consists of $2.9 million payable by ARI-Vinafood, of which $1.9 million is
due in U.S. dollars at the earlier of 90 days or upon collection of customer
documentary letters of credit and the remaining $1.0 million is due in
Vietnamese dong 90 days from the date of the notes. See "Description of
Certain Indebtedness -- ARI-Vinafood Short-Term Notes."
15
<PAGE> 22
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
Historical 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 (203) 12,141
Interest income(2)............................................ (727) (1,591) (2,318)
Other income.................................................. (153) -- (153)
-------- ------- --------
Pre-tax income.............................................. 6,115 1,794 7,909
Provision for income taxes(3)................................. 2,202 646 2,848
-------- ------- --------
Net earnings................................................ $ 3,913 $ 1,148 $ 5,061
======== ======= ========
</TABLE>
- ---------------
<TABLE>
<S> <C> <C>
(1) The pro forma adjustment to interest expense is computed as follows:
$100.0 million of Mortgage Notes............................................... $11,250
$2.9 million of 15% short-term notes........................................... 441
Pro forma cash interest expense................................................ 11,691
Less: interest expense related to existing debt................................ (12,344)
Amortization of $4.5 million of deferred financing costs related to the
Offering....................................................................... 450
Pro forma adjustment to interest expense....................................... $ (203)
(2) The pro forma adjustment to interest income is computed as follows:
$10.5 million of % ERLY Intercompany Note.................................... $ 1,181
$11.9 million of 6.0% ERLY Intercompany Note (as defined)...................... 714
$8.5 million of 5.0% pro forma average cash balance............................ 423
Pro forma total interest income................................................ 2,318
Less: interest income related to existing ERLY Intercompany Notes and other
investments.................................................................... (727)
Pro forma adjustment to interest income........................................ $ 1,591
Pro forma cash interest expense, net of pro forma interest income on average
cash
balance........................................................................ $11,268
Pro forma cash interest expense, net of pro forma total interest income........ $ 9,373
(3) The pro forma income tax expense is computed based on an assumed effective tax
rate of 36%.
</TABLE>
16
<PAGE> 23
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 $ (1,298) $ 566
Other current assets...................................... 87,872 -- 87,872
-------- -------- --------
Total current assets................................. 89,736 (1,298) 88,438
Property, plant and equipment, net........................ 41,386 -- 41,386
Other assets(1)........................................... 46,378 13,617 59,995
-------- -------- --------
Total assets......................................... $ 177,500 $ 12,319 $ 189,819
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Total debt(2)............................................. $ 89,237 $ 13,702 $ 102,939
Other liabilities(3)...................................... 44,051 (498) 43,553
Total stockholders' equity(3)............................. 44,212 (885) 43,327
-------- -------- --------
Total liabilities and stockholders' equity........... $ 177,500 $ 12,319 $ 189,819
======== ======== ========
</TABLE>
- ---------------
<TABLE>
<S> <C>
(1) Reflects the following adjustments to other assets:
Deferred financing costs related to the Offering............... $ 4,500
% ERLY Intercompany Note..................................... 10,500
Debt issuance costs related to existing debt................... (1,383)
--------
Increase in other assets.................................... $ 13,617
========
(2) Reflects the following adjustments to total debt:
Reduction of existing debt..................................... $ (86,298)
Issuance of the Mortgage Notes................................. 100,000
--------
Increase in total debt...................................... $ 13,702
========
(3) Reflects write-off of debt issuance costs on existing debt, net of related income
taxes.
</TABLE>
17
<PAGE> 24
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth selected historical consolidated financial
data of the Company for the years ended March 31, 1991 to 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 historical 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, 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 historical consolidated financial data prior to the
Acquisition reflects the historical operations of Comet rather than
Pre-Acquisition ARI. Accordingly, historical 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)
-------------------------------- --------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------
1991 1992(2) 1993(2) 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS, PER SHARE AND PER
HUNDREDWEIGHT DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............................... $218,919 $214,090 $169,617 $284,464 $373,050
Gross profit............................ 17,767 11,684 8,363 36,418 40,814
Selling, general and administrative
expenses.............................. 7,646 8,419 10,779 21,497 23,235
EBITDA(3)............................... 14,889 7,828 1,497 19,839 22,751
EBIT.................................... 12,046 5,190 (316) 16,017 18,501
Management fees......................... 1,925 1,925 2,100 1,096 922
Earnings (loss) before extraordinary
items................................. 716 (5,638) (11,265) 3,465 3,913
Primary earnings (loss) per share before
extraordinary items(4)................ -- -- -- $ (0.45) $ (0.83)
OTHER FINANCIAL DATA:
Gross profit margin..................... 8.1% 5.5% 4.9% 12.8% 10.9%
EBITDA margin........................... 6.8 3.7 0.9 7.0 6.1
EBIT margin............................. 5.5 2.4 -- 5.6 5.0
Depreciation and amortization(5)........ $ 2,843 $ 2,638 $ 1,813 $ 3,822 $ 4,250
Capital expenditures.................... 2,923 772 2,651 2,844 3,562
Hundredweight of rice sold.............. 15,114 14,463 12,918 17,114 22,304
Net sales per hundredweight............. $ 14.48 $ 14.80 $ 13.13 $ 16.62 $ 16.73
Ratio of earnings to fixed charges(6)... 1.4x -- -- 1.5x 1.4x
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 1,991 $ 1,057 $ 2,740 $ 1,721 $ 1,864
Current assets.......................... 76,661 76,335 32,681 86,448 89,736
Total assets............................ 143,102 124,602 74,325 175,070 177,500
Total debt.............................. 88,709 81,160 47,953 95,084 89,237
Total stockholders' equity.............. 25,596 19,304 12,699 40,299 44,212
</TABLE>
- ---------------
(Footnotes on following page)
18
<PAGE> 25
<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 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
EBITDA(3).................................. 3,912 4,308 13,606 2,356
EBIT....................................... 547 1,178 10,536 1,863
Management fees............................ 300 300 119 --
Earnings (loss) before extraordinary
items.................................... (5,777) (5,432) 3,250 888
OTHER FINANCIAL DATA:
Gross profit margin........................ 7.6% 7.9% 13.9% 15.7%
EBITDA margin.............................. 2.0 2.4 7.7 8.7
EBIT margin................................ 0.3 0.7 6.0 6.9
Depreciation and amortization(5)........... $ 3,365 $ 3,130 $ 3,070 $ 493
Capital expenditures....................... 830 517 762 31
Hundredweight of rice sold................. 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(7)...... -- -- 1.4x 1.9x
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................................. 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 -- Historical Results of Operations."
(3) 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.
(4) 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.
(5) Excludes amortization of deferred financing costs included in interest
expense.
(6) 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.
(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, 1991 and 1992, earnings were inadequate to cover fixed
charges by $6.0 million and $5.4 million, respectively.
19
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Historical 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 historically have accounted for approximately 70% of the
Company's gross profit and 60% of net sales, is relatively constant and margins
are typically higher than those for commodity rice products. Demand for
commodity rice products, which historically have accounted for approximately 30%
of the Company's gross profit and 40% of net sales, 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.
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 historical 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. Accordingly, adjustments have been made to key
elements of the operating data to give effect to the Acquisition as if it had
occurred on April 1, 1990. The combined results are presented in "Pro Forma
Combined Results of Operations" below, followed by a discussion of year-to-year
variations in the data. Pro forma combined results are considered by management
to be more relevant to an understanding of operations than the discussion of
historical results which follows the pro forma combined results of operations
discussion.
PRO FORMA COMBINED RESULTS OF OPERATIONS
Management believes that the pro forma combined results more accurately
reflect the operating results of the Company than historical results because (i)
a joint marketing agreement between the ARI Cooperative and Comet was
implemented in 1986, (ii) Comet owned at least 48% of ARI's voting stock since
1988 and (iii) there were significant intercompany transactions between Comet
and ARI in periods prior to May 26, 1993. The following table sets forth
unaudited pro forma combined financial data of ARI and Pre-Acquisition
20
<PAGE> 27
ARI for the years ended March 31, 1991 to 1994, and the Company's historical
consolidated financial data for the year ended March 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER HUNDREDWEIGHT DATA)
<S> <C> <C> <C> <C> <C>
NET SALES:
ARI (Comet until Acquisition)....... $218,919 $214,090 $169,617 $284,464 $373,050
Pre-Acquisition ARI................. 198,462 176,201 176,619 27,025 --
Intercompany eliminations........... (35,885) (47,476) (37,100) (225) --
-------- -------- -------- -------- --------
Total.......................... $381,496 $342,815 $309,136 $311,264 $373,050
======== ======== ======== ======== ========
Hundredweight of rice sold.......... 21,945 19,197 18,894 18,475 22,304
Net sales per hundredweight......... $ 17.38 $ 17.86 $ 16.36 $ 16.85 $ 16.73
NET SALES BY REGION:
United States and Canada............ $123,293 $128,601 $123,410 $112,062 $129,271
Middle East......................... 124,493 91,466 114,050 101,984 91,449
Caribbean, Mexico and South
America........................... 85,740 80,236 48,829 39,669 84,806
Asia................................ 5,989 1,375 670 42,838 49,963
Europe.............................. 16,753 16,617 10,765 6,659 13,632
Africa.............................. 6,154 11,493 9,490 7,925 3,864
Other(1)............................ 19,074 13,027 1,922 127 65
-------- -------- -------- -------- --------
Total.......................... $381,496 $342,815 $309,136 $311,264 $373,050
======== ======== ======== ======== ========
GROSS PROFIT:
ARI (Comet until Acquisition)....... $ 17,767 $ 11,684 $ 8,363 $ 36,418 $ 40,814
Pre-Acquisition ARI................. 15,023 13,982 24,580 4,243 --
Pro forma adjustments(2)............ 7,438 (413) 648 -- --
Intercompany eliminations........... (356) (110) 368 71 --
-------- -------- -------- -------- --------
Total.......................... $ 39,872 $ 25,143 $ 33,959 $ 40,732 $ 40,814
======== ======== ======== ======== ========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
ARI (Comet until Acquisition)....... $ 7,646 $ 8,419 $ 10,779 $ 21,497 $ 23,235
Pre-Acquisition ARI................. 14,776 13,104 14,163 2,380 --
Pro forma adjustments(3)............ (1,135) (1,135) (1,129) (149) --
-------- -------- -------- -------- --------
Total.......................... $ 21,287 $ 20,388 $ 23,813 $ 23,728 $ 23,235
======== ======== ======== ======== ========
EBITDA:
ARI (Comet until Acquisition)....... $ 14,889 $ 7,828 $ 1,497 $ 19,839 $ 22,751
Pre-Acquisition ARI................. 3,912 4,308 13,606 2,356 --
Pro forma adjustments(4)............ 7,438 (413) 648 -- --
-------- -------- -------- -------- --------
Total.......................... $ 26,239 $ 11,723 $ 15,751 $ 22,195 $ 22,751
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) In fiscal 1991 and fiscal 1992, other sales include significant bulk sales
of rice to exporters for which the final destination was not known by the
Company.
(2) Pro forma adjustments represent the effect on cost of sales and gross profit
of eliminating LIFO adjustments recorded by Pre-Acquisition ARI in fiscal
1991, 1992 and 1993. These pro forma adjustments are made so that the
inventory accounting of Pre-Acquisition ARI is on a consistent basis with
the inventory accounting used by Comet and ARI subsequent to the
Acquisition.
(3) Pro forma adjustments are to: (i) eliminate ERLY management fees recorded by
Comet and Pre-Acquisition ARI of ($2.2 million), ($2.2 million), ($2.2
million) and ($0.3 million) in fiscal 1991, 1992, 1993 and 1994,
respectively, (ii) record ERLY management fees under the management
agreement entered into at the Acquisition of $0.9 million per year in fiscal
1991 to fiscal 1993, and $0.2 million in fiscal 1994, and (iii) record
amortization of trademarks recorded in the Acquisition amounting to $0.2
million per year in fiscal 1991 to fiscal 1993, and $0.03 million in fiscal
1994.
(4) Pro forma adjustments are to record the effect of eliminating LIFO
adjustments of $7.4 million, ($0.4 million) and $0.6 million in fiscal 1991,
1992 and 1993, respectively.
21
<PAGE> 28
Year Ended March 31, 1995 Compared with the Year Ended March 31, 1994 -- Pro
Forma Combined
Net Sales. The Company's net sales improved $61.8 million, or 19.9%, to
$373.1 million in fiscal 1995 from $311.3 million in fiscal 1994 due to
increases in export sales, which accounted for $44.6 million, and increases in
domestic sales, which accounted for $17.2 million. Export sales improved $44.6
million primarily due to higher volume, which increased by approximately six
million equivalent rough rice hundredweight. Approximately 73% of the increase
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 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 higher average prices. Average
domestic prices increased 12.0% due 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 $0.1 million, or 0.2%, from $40.7
million in fiscal 1994 to $40.8 million in fiscal 1995. As a percentage of net
sales, gross profit decreased from 13.1% in fiscal 1994 to 10.9% in fiscal 1995
as a result of reduced prices when Japanese demand abated while the average cost
of rough rice milled for markets in the United States, the Caribbean, Mexico and
South America increased.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.5 million, or 2.1%, from $23.7 million in
fiscal 1994 to $23.2 million in fiscal 1995. As a percentage of net sales,
selling, general and administrative expenses decreased from 7.6% in fiscal 1994
to 6.2% in fiscal 1995 as a result of higher sales without corresponding
increases in fixed selling and administrative expenses.
EBITDA. As a result of the foregoing, EBITDA increased $0.6 million, or
2.5%, from $22.2 million in fiscal 1994 to $22.8 million in fiscal 1995. As a
percentage of net sales, EBITDA decreased from 7.1% in fiscal 1994 to 6.1% in
fiscal 1995.
Year Ended March 31, 1994 Compared with the Year Ended March 31, 1993 -- Pro
Forma Combined
Net Sales. The Company's net sales improved $2.2 million, or 0.7%, to
$311.3 million in fiscal 1994 from $309.1 million in fiscal 1993. Export sales
increased by $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 ARI'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 increased $6.7 million, or 19.9%, from $34.0
million in fiscal 1993 to $40.7 million in fiscal 1994. As a percentage of 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 the Haitian and Puerto
Rican markets.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.1 million, or 0.4%, from $23.8 million in
fiscal 1993 to $23.7 million in fiscal 1994. As a percentage of net sales,
selling, general and administrative expenses decreased from 7.7% in fiscal 1993
to 7.6% in fiscal 1994.
EBITDA. As a result of the foregoing, EBITDA improved $6.4 million, or
40.9%, from $15.8 million in fiscal 1993 to $22.2 million in fiscal 1994. As a
percentage of net sales, EBITDA increased from 5.1% in fiscal 1993 to 7.1% in
fiscal 1994.
Year Ended March 31, 1993 Compared with the Year Ended March 31, 1992 -- Pro
Forma Combined
Net Sales. Net sales declined $33.7 million, or 9.8%, from $342.8 million
in fiscal 1992 to $309.1 million in fiscal 1993. 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.
22
<PAGE> 29
The Company was a major supplier to Iraq from the 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. In fiscal 1993, the Company's export sales declined by $28.5 million
while domestic sales declined by $5.2 million. 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, resulting in increased combined gross profit
in fiscal 1993 in spite of a 3.9% decrease in the average net sales price per
hundredweight. Domestic sales declined due to a reduction in average sales price
per hundredweight of 14.8%. This was caused, in part, by reduced export business
that resulted in increased competition within the entire U.S. rice industry for
domestic business. In addition, greater sales of rough rice, which typically
sells at prices lower than milled rice, contributed to lower net sales in fiscal
1993.
Gross Profit. Gross profit increased $8.9 million, or 35.1%, from $25.1
million in fiscal 1992 to $34.0 million in fiscal 1993. As a percentage of net
sales, gross profit increased from 7.3% in fiscal 1992 to 11.0% in fiscal 1993
as a result of the transfer of Comet's highest margin export business from the
Greenville Facility to the Freeport Facility and reduced costs from
consolidation of the business into a single facility. The Puerto Rico operation
did not contribute significant gross profit due to expenses associated with the
closure of the Company's milling and packaging facilities in Puerto Rico.
However, in order to maintain a market in Puerto Rico, the Company shipped bulk
milled rice to be packed under the Company's brand names in Puerto Rico by a
third party. Operations in Jamaica suffered losses due to a continuation of
preferential tariffs by the Jamaican government, causing a competitive
disadvantage for commercial sales of U.S. grown rice.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.4 million, or 16.8%, from $20.4 million in
fiscal 1992 to $23.8 million in fiscal 1993. As a percentage of net sales,
selling, general and administrative expenses increased from 5.9% in fiscal 1992
to 7.7% in fiscal 1993 as a result of an increase in the allowance for doubtful
accounts of approximately $2.9 million and lower sales without proportionate
decreases in fixed selling and administrative expenses.
EBITDA. As a result of the foregoing, EBITDA improved $4.1 million, or
34.4%, from $11.7 million in fiscal 1992 to $15.8 million in fiscal 1993. As a
percentage of net sales, EBITDA increased from 3.4% in fiscal 1992 to 5.1% in
fiscal 1993.
Year Ended March 31, 1992 Compared with the Year Ended March 31, 1991 -- Pro
Forma Combined
Net Sales. The Company's net sales declined $38.7 million, or 10.1%, from
$381.5 million in fiscal 1991 to $342.8 million in fiscal 1992. Export sales
decreased by $44.0 million while domestic sales increased by $5.3 million.
Despite higher average export prices, export sales decreased as a result of
lower volume sold. Total export sales volume in hundredweight decreased
approximately 18.8%, accounting for $48.6 million, while prices increased 1.8%,
partially offsetting the decline by $4.6 million. Lower volume was primarily the
result of lower export volume for the entire U.S. rice industry caused by the
U.S. trade embargo imposed on sales to Iraq commencing in August 1990. The
Company was a major supplier to Iraq from the Greenville Facility and the $44.0
million export sales decline in fiscal 1992 included a $21.5 million export
sales decline attributable to the loss of Iraq as a customer in fiscal 1991.
Domestic sales improved principally as a result of higher volume and higher
average prices. Total domestic sales volume in hundredweight for fiscal 1992
increased approximately 1.2% and accounted for $1.6 million of the increase
while average price increases accounted for $3.7 million of the improvement.
Gross Profit. Gross profit decreased $14.8 million, or 36.9%, from $39.9
million in fiscal 1991 to $25.1 million in fiscal 1992 due to lower volume and
lower margins. As a percentage of net sales, gross profit decreased from 10.5%
in fiscal 1991 to 7.3% in fiscal 1992 as a result of higher fixed processing
costs per hundredweight sold and a more competitive domestic milling and sales
environment. The embargo of trade with Iraq caused an $8.5 million reduction of
gross profit in fiscal 1992 from fiscal 1991. Decreased volume at
23
<PAGE> 30
the Company's Puerto Rico processing facility and inventory adjustments and
dispositions made in preparation for closing the facility in fiscal 1992 also
contributed to this decline.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.9 million, or 4.2%, from $21.3 million in
fiscal 1991 to $20.4 million in fiscal 1992. As a percentage of net sales,
selling, general and administrative expenses increased from 5.6% in fiscal 1991
to 5.9% in fiscal 1992 as a result of lower net sales without proportionate
decreases in fixed selling and administrative expenses.
EBITDA. As a result of the foregoing, EBITDA declined $14.5 million, or
55.3%, from $26.2 million in 1991 to $11.7 million in 1992. As a percentage of
net sales, EBITDA declined from 6.9% in fiscal 1991 to 3.4% in fiscal 1992.
HISTORICAL RESULTS OF OPERATIONS
Year Ended March 31, 1995 Compared with the Year Ended March 31,
1994 -- Historical
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. 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.
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
while the average cost of rough rice milled for markets in the United States,
the Caribbean, Mexico and South America increased.
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.
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.
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 -- Historical
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. As a result of the Acquisition, 10 months of ARI sales were
combined with Comet in fiscal 1994 while fiscal 1993 included only Comet sales.
See " -- Pro Forma Combined Results of Operations" for combined net sales
figures. Export sales increased due to higher volume and higher average prices.
Total export sales volume in hundredweight in fiscal 1994 increased
approximately 58.6% and accounted for $54.1 million of the increase while
increases in average prices of 24.1% accounted for $35.3 million. Average price
increases were caused by increases in the proportion of branded products as a
result of the Acquisition and volume increases resulted from exports by CVI and
exports to Japan and Haiti. CVI's total net sales more than tripled in fiscal
1994 to $10.1 million due to increases in customer demand for rice
24
<PAGE> 31
products with more exacting specifications. Domestic sales increased primarily
due to increases in rough rice sales of $2.0 million and an increase in the
average price of domestic milled rice of 28.0% due to higher margin sales to an
expanded customer base resulting from the Acquisition.
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.
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.
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. As a
percentage of net sales, EBITDA increased from 0.9% in fiscal 1993 to 7.0% 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. 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 -- Historical
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 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, 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 export sales for Comet 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.
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 costs 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
25
<PAGE> 32
continued preferential tariffs imposed by the Jamaican government causing a
competitive disadvantage for commercial sales of U.S. grown rice.
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.
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.
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. In fiscal 1995, the Company generated cash of
approximately $9.5 million from its operating activities primarily as a result
of earnings and a decrease in inventories, partially offset by an increase in
accounts receivable. The Company had a net cash outflow of approximately $3.5
million from its investing activities in fiscal 1995 principally for capital
expenditures. The Company also had a net cash outflow of approximately $5.9
million from its financing activities relating to principal repayments under its
credit facilities. The Company's Board of Directors has adopted a resolution
authorizing management to sell 39 acres of land in Houston, Texas. The proceeds
of any such sale, when and if it occurs, will be added to working capital and
may be used to reduce outstanding Indebtedness. Management believes that the net
realizable value of this property exceeds its current carrying value of
approximately $18.3 million.
Capital expenditures in fiscal 1995 were approximately $3.6 million and 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 anticipates executing an amendment to the Revolving Credit
Loan, effective as of June 1, 1995. The amended $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 amended 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 May 31, 1995 the outstanding loan
balance was approximately $20.5 million and the Company anticipates that the
outstanding balance will be increased further to approximately $26.0 million
prior to the Closing Date. 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.
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.
26
<PAGE> 33
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.
Historically, approximately 70% of the Company's gross profit has been
attributable to its 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 rice consuming
markets domestically, 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 of 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.
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.
27
<PAGE> 34
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:
28
<PAGE> 35
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.
29
<PAGE> 36
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.
30
<PAGE> 37
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. Historically,
ARI's domestic and export branded rice has accounted for approximately 70% of
its gross profits.
In fiscal 1995, ARI marketed rice in 44 foreign countries with no foreign
country accounting for more than 14% 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 pro forma
combined net sales of ARI and Pre-Acquisition ARI during the past three years:
PRO FORMA COMBINED NET SALES BY REGION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
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>
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Pro Forma Combined 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 and 36% and 41%
of net sales and gross profits, respectively, on a pro forma combined basis in
fiscal 1994. 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 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.
31
<PAGE> 38
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 markets that represent
approximately 56% of the branded long grain rice consumed in the United States:
ARI'S U.S. BRAND POSITION BY RETAIL 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 and 33% and 26% of net sales and gross profits,
respectively, on a pro forma combined basis in fiscal 1994. 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 dominates all U.S.
grown rice imports 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 and Trading, Ltd., Inc. ("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 a exclusive basis and under
strict ARI quality supervision. By shipping rice in bulk to RMT, ARI will reduce
vessel loading and freight costs. ARI believes
32
<PAGE> 39
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 and approximately
13% and 11% of net sales and gross profit, respectively, on a pro forma combined
basis in fiscal 1994. 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 has recorded on a
pro forma combined basis 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 and 14% and 21% of net sales and gross profit,
respectively, on a pro forma combined basis in fiscal 1994. 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, but ARI's
participation in ARI-Vinafood is subject to a buy-out by the Vietnam
33
<PAGE> 40
Partner after the fifth year of operation. 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.
COMMODITY 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 agreement. 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 ARI 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 purchasing competitively approximately 13% and 43%, respectively, of
ARI's 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 ARI's
1994 sales tonnage.
34
<PAGE> 41
The Company sources rice from a variety of locations, including five of the
six significant U.S. rice growing states. The following table sets forth the
Company's sources of rough rice shown as a proportion of pro forma combined
purchases during the past three years:
PRO FORMA COMBINED SOURCES OF ROUGH RICE BY REGION
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Texas............................. 25% 16% 23%
Louisiana......................... 7 5 4
Mississippi....................... 24 13 13
Arkansas.......................... 9 25 11
California........................ 35 41 39
Vietnam........................... -- -- 10
------ ------ ------
Total........................ 100% 100% 100%
------ ------ ------
------ ------ ------
</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 also 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.
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 BargeCaribe, 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 on June 30, 1995. These facilities
provide ARI with competitive advantages in loading, transportation and labor
costs as well as in customer service and product freshness.
35
<PAGE> 42
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 19%, 8% and 7%, respectively. ARI's share of estimated operating
domestic milling capacity is 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 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
36
<PAGE> 43
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.
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.
37
<PAGE> 44
On June 2, 1995, the Company obtained preliminary appraisals from American
Appraisal Associates, Inc. and Jack K. Mann, Inc. of the Freeport Facility and
the Maxwell Facility, respectively, together with the Company'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. Final
appraisals are expected to be completed on or before June 30, 1995.
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 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.
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<PAGE> 45
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.
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 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
39
<PAGE> 46
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 and Trading Ltd., Inc., 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 and Trading Ltd., Inc. 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.
40
<PAGE> 47
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.
41
<PAGE> 48
(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
42
<PAGE> 49
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 beneficial owner of 37.8% 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.
43
<PAGE> 50
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>
44
<PAGE> 51
<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 1,532,191 shares of ERLY common stock,
representing approximately 37.8% 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 771,000 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.
45
<PAGE> 52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
In October 1994, ARI entered into an agreement with Rice Milling and
Trading, Ltd., Inc. ("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 will begin in June 1995. Although no payments have yet been made to
RMT, future payments are expected to exceed $60,000 annually. 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.
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, which matures one day after the
Maturity Date (as defined), is in the principal amount of $10.0 million and is
payable out of dividends received on the Series B Preferred Stock. This amount
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 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.
ARI entered into a Management Agreement with ERLY on May 25, 1993 pursuant
to which ERLY provides certain marketing, operating and management services to
ARI. In exchange for such services, ARI pays ERLY a monthly management fee. The
management fee is currently $80,000 a month and is adjusted annually based on
the most recently published consumer price index. 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 year 1995, ARI paid ERLY $0.9 million in management fees pursuant to the
Management Agreement.
The Company will lend ERLY $10.5 million in exchange for the % 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 to facilitate the
repurchase of ERLY common stock warrants held by ING Capital and in satisfaction
of $9.6 million of indebtedness owed by ERLY Juice Inc. and guaranteed by ERLY,
to 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.
46
<PAGE> 53
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 prohibit 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
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,
47
<PAGE> 54
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> 55
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 certain provisions of the Indenture does not purport to be
complete 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."
PRINCIPAL, MATURITY AND INTEREST
The Mortgage Notes will be limited in aggregate principal amount to $100.0
million and will mature on , 2005. Interest on the Mortgage Notes
will accrue at the rate of % per annum and will be payable semiannually in
cash in arrears on and of each year, commencing on
, 1995, to holders of record on the immediately preceding
and . Interest on the Mortgage Notes will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal, premium,
if any, and interest 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 or, at the option of the Company, payment of interest may be made by
check mailed to the holders of the Mortgage Notes at their respective addresses
set forth in the register of holders of Mortgage Notes. 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 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) 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; (v) 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; (vi) 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 (vii) a pledge of all proceeds of the foregoing (including
insurance) (collectively, the "Collateral"). The Collateral will not include any
equipment subject
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<PAGE> 56
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.
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. 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 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 lender
under the Revolving Credit Loan (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
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<PAGE> 57
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 or any sale by the Company of any Collateral
permitted under the Indenture, although a junior lien in favor of such lender
shall attach to the proceeds of any such sale, subject to the terms of the
Intercreditor Agreement. 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 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
, 2000. 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
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<PAGE> 58
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 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------------------------ ----------
<S> <C>
2000.............................................................. %
2001.............................................................. %
2002.............................................................. %
2003 and thereafter............................................... 100.0%
</TABLE>
Notwithstanding the foregoing, until , 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 110% of the 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 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 , 2003) of the aggregate principal amount 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 principal amount of Mortgage Notes
or portions thereof 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
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<PAGE> 59
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) 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.
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; and (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 any disposition of property held for sale on the date of the
Indenture, as reflected on the Company's balance sheets contained in its
Consolidated Financial Statements, 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).
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
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<PAGE> 60
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).
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 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 principal amount thereof plus accrued and unpaid interest
thereon to the date of purchase, 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 may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Mortgage Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Mortgage
Notes in accordance with the next paragraph. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
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 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;
(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
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<PAGE> 61
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"; and
(c) 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; (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 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 % ERLY Intercompany Note and
pledged to the Trustee as Collateral for the Mortgage Notes; and (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
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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.
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, 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;
(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;
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(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; and
(viii) 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.
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 Indebtedness as in effect on the date of the
Indenture, (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
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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;
(iii) immediately after such transaction no Default 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).
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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 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. The form of such Guarantee will be attached as an exhibit to
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
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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.
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. 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 on the
Mortgage Notes; (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
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
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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 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 , 2000 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 prior to , 2000,
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 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.
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
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interest 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 and
Liquidated Damages, if any, 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.
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
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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
on any Mortgage Note, (iv) waive an Event of Default in the payment of principal
of or premium, if any, or 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 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 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
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(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.
"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.
"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.
"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
(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
accounts receivable that are backed by letters of credit), (b) 75% of the lower
of the
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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 accounts receivable and inventory
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 Stock" means (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.
"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
Maxwell Deed of Trust, the Stuttgart Mortgage, the Company Pledge Agreement, the
ERLY Pledge Agreement, the Trademark Security Agreement, the Intercreditor
Agreement, if any, 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 loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were 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, 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
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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
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, and (v) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, 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, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"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 same rate as the
Mortgage Notes 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 (the " % ERLY Intercompany Note") and
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(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 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) 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) 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.
"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.
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"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 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.
"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 , 2005.
"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 (but not
loss), together with any related provision for taxes on such gain (but not
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
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extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
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 and (iii) any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"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.
"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 in an aggregate principal amount not to exceed the
Borrowing Base, 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 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); (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
69
<PAGE> 76
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 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.
"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.
70
<PAGE> 77
"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
advances 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 and one or
more Wholly Owned Subsidiaries of such Person.
71
<PAGE> 78
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, as expected to be amended as of June 1, 1995,
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% 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. Termination of the Revolving Credit Loan
during the next 12 months requires the payment of a $475,000 fee. Payments under
the Tax Sharing Agreement to ERLY, previously prohibited, now are allowed to the
extent ARI has a liability computed on a separate return basis, subject to
offsets for amounts due under the % 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 amended Revolving Credit Loan bear interest at
the prime rate of interest plus 0.5%. The Revolving Credit Loan has an option to
borrow at a Eurodollar rate 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 incur additional indebtedness, (ii) to engage in mergers,
acquisitions, divestitures, sales and leasebacks, changes of business or
creation of subsidiaries or joint ventures, (iii) to sell assets outside the
ordinary course of business, (iv) to guarantee or invest in, or make loans or
advances to, other persons or entities, (v) to engage in certain transactions
with affiliates and holders of equity interests and (vi) with respect to the
Company only, to declare or pay dividends or make other distributions with
respect to equity interests. 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), (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 and (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.
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
72
<PAGE> 79
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 March 31, 1995, ARI-Vinafood had obtained loans having no renewal terms from
five foreign lenders in the amount of $2.9 million. Loans representing $1.9
million of the Indebtedness are payable in U.S. dollars at the earlier of 90
days from the date of issuance or upon collection of customer documentary
letters of credit that are pledged to secure such loans. Interest on these two
loans bear interest at a rate of 8.75% per annum. The remaining $1.0 million of
Indebtedness is payable to three Vietnamese banks in Vietnamese dong and is
payable 90 days from the date of the notes. These notes are unsecured and bear
interest at an average rate of 25.2% per annum.
73
<PAGE> 80
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
$100,000,000 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 Corporation ("Ambient")
has rendered certain financial advisory services to the Company, for which it
has received a customary fee. 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.
74
<PAGE> 81
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
</TABLE>
F-1
<PAGE> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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
ARI has 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 carries 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> 91
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> 92
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> 93
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 from continuing operations 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> 94
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> 95
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> 96
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> 97
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> 98
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........................... 13
Use of Proceeds....................... 14
Capitalization........................ 15
Pro Forma Consolidated Financial
Data................................ 16
Selected Historical Consolidated
Financial Data...................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 27
Management............................ 39
Executive Compensation................ 41
Security Ownership of Certain
Beneficial Owners and Management.... 44
Certain Relationships and Related
Transactions........................ 46
Description of Capital Stock.......... 47
Description of Mortgage Notes......... 49
Description of Certain Indebtedness... 72
Underwriting.......................... 74
Legal Matters......................... 74
Experts............................... 74
Index to Financial Statements......... F-1
</TABLE>
$100,000,000
[LOGO]
AMERICAN RICE, INC.
% MORTGAGE NOTES DUE 2005
PROSPECTUS
JEFFERIES & COMPANY, INC.
, 1995
<PAGE> 99
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> 100
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................................. *
Legal Fees and Expenses......................................... *
Accounting Fees and Expenses.................................... *
Financial Advisor Fee........................................... *
Transfer Agent and Registrar.................................... *
Blue Sky Fees and Expenses...................................... *
Miscellaneous................................................... *
--------
Total...................................................... $
========
</TABLE>
- ---------------
* To be supplied by amendment.
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 Form of Underwriting Agreement 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, as Trustee, with respect to the % Mortgage Notes due 2005 of the
Registrant.(2)
4.2 Articles of Incorporation of the Registrant, as amended (included as Exhibit
3.1).(1)
4.3 Bylaws of the Registrant, as amended (included as Exhibit No. 3.2).(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> 101
<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.(2)
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.(2)
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.(2)
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.(2)
4.14 Form of Intercreditor Agreement between the U.S. Trust Company of Texas, N.A.,
Trustee, and the Revolving Credit Lender.(3)
4.15 Form of Environmental Indemnity from the Registrant for the benefit of U.S.
Trust Company of Texas, N.A., Trustee.(3)
5.1 Opinion of Vial, Hamilton, Koch & Knox, L.L.P. regarding the validity of the
Mortgage Notes, including consent.(3)
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)
</TABLE>
II-2
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ ------------------------------------------------------------------------------
<S> <C>
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 to Accounts Financing Agreement, dated effective as of June 1,
1995.(3)
10.24 Form of % ERLY Intercompany Note between the Registrant as payee and ERLY as
maker (attached to Exhibit 4.11 as an exhibit thereto).(2)
10.25 Form of Subsidiary Intercompany Note (attached to Exhibit 4.11 as an exhibit
thereto).(2)
10.26 Form of the 6% ERLY Intercompany Note between the Registrant as payee and ERLY
as maker.(2)
11.1 Computation of Earnings per Share.(2)
12.1 Computation of Ratio of Earnings to Fixed Charges.(2)
21.1 List of Subsidiaries of the Registrant.(2)
23.1 Consent and Report on Schedule 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 to this Registration Statement).(3)
25.1 Statement of Eligibility of Trustee.(3)
</TABLE>
- ---------------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
(b) Financial Statement Schedules
Schedule II. -- Valuation and Qualifying Accounts
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
II-3
<PAGE> 103
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> 104
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 23rd day of June, 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>
Director, Chairman of the , 1995
- --------------------------------------------- Board of Directors
Gerald D. Murphy
/s/ DOUGLAS A. MURPHY President, Chief Executive June 23, 1995
- --------------------------------------------- Officer and Director
Douglas A. Murphy
/s/ RICHARD N. MCCOMBS Executive Vice President of June 23, 1995
- --------------------------------------------- Finance and Administration,
Richard N. McCombs Treasurer, Secretary and
Director (principal
financial
officer)
/s/ S.C. BAIN, JR. Director June 23, 1995
- ---------------------------------------------
S.C. Bain, Jr.
/s/ WILLIAM H. BURGESS Director June 23, 1995
- ---------------------------------------------
William H. Burgess
/s/ JOHN M. HOWLAND Director June 23, 1995
- ---------------------------------------------
John M. Howland
/s/ GEORGE E. PRCHAL Director June 23, 1995
- ---------------------------------------------
George E. Prchal
Senior Vice President of June 23, 1995
/s/ LEE ADAMS International Marketing
- ---------------------------------------------
Lee Adams
/s/ BILL J. MCFARLAND Senior Vice President of June 23, 1995
- --------------------------------------------- Comet
Bill J. McFarland American Marketing Division
/s/ JOHN S. POOLE Senior Vice President of June 23, 1995
- --------------------------------------------- Comet Rice Division
John S. Poole
/s/ C. BRONSON SCHULTZ Vice President of Finance June 23, 1995
- --------------------------------------------- and
C. Bronson Schultz Data Processing
/s/ JOSEPH E. WESTOVER Vice President and June 23, 1995
- --------------------------------------------- Controller
Joseph E. Westover (principal accounting
officer)
</TABLE>
II-5
<PAGE> 105
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-1
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT DESCRIPTION PAGE
------ -------------------------------------------------------------------------------
<S> <C> <C>
1.1 Form of Underwriting Agreement 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, as Trustee, with respect to the % Mortgage
Notes due 2005 of the Registrant.(2)..............................
4.2 Articles of Incorporation of the Registrant, as amended (included
as Exhibit 3.1).(1)...............................................
4.3 Bylaws of the Registrant, as amended (included as Exhibit No.
3.2).(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.(2)...........
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.(2)...
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.(2).....................
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, the Registrant's
Freeport IRBs.(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> 107
<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.(2)...............
4.14 Form of Intercreditor Agreement between the U.S. Trust Company of
Texas, N.A., Trustee, and the Revolving Credit Lender.(3).........
4.15 Form of Environmental Indemnity from the Registrant for the
benefit of U.S. Trust Company of Texas, N.A., Trustee.(3).........
5.1 Opinion of Vial, Hamilton, Koch & Knox, L.L.P. regarding the
validity of the Mortgage Notes, including consent.(3).............
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).................................
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT DESCRIPTION PAGE
------ -------------------------------------------------------------------------------
<S> <C> <C>
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 to Accounts Financing Agreement, dated effective as of
June 1, 1995.(3)..................................................
10.24 Form of % ERLY Intercompany Note between the Registrant as payee
and ERLY as maker (attached to Exhibit 4.11 as an exhibit
thereto).(2)......................................................
10.25 Form of Subsidiary Intercompany Note (attached to Exhibit 4.11 as
an exhibit thereto).(2)...........................................
10.26 Form of the 6% ERLY Intercompany Note between the Registrant as
payee and ERLY as maker.(2).......................................
11.1 Computation of Earnings per Share.(2).............................
12.1 Computation of Ratio of Earnings to Fixed Charges.(2).............
21.1 List of Subsidiaries of the Registrant.(2)........................
23.1 Consent and Report on Schedule 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 to this Registration
Statement).(3)....................................................
25.1 Statement of Eligibility of Trustee.(3)...........................
</TABLE>
- ---------------
(1) Previously filed.
(2) Filed herewith.
(3) To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
AMERICAN RICE, INC.
$100,000,000
__% Mortgage Notes due 2005
UNDERWRITING AGREEMENT
July __, 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 ____% Mortgage due 2005 (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."
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, 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 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").
(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.
(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
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
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<PAGE> 3
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 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, 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
3
<PAGE> 4
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 Securities -- 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 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's Subsidiaries and 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, of its Subsidiaries or
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 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
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
4
<PAGE> 5
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 Indenture 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 of 1939, as amended (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) may be required by
the National Association of Securities Dealers, Inc. and (iv) 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, or ERLY each of the Company its Subsidiaries and ERLY has good
and marketable title, free and clear of all liens, claims,
encumbrances and restrictions, except 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 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
5
<PAGE> 6
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 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
6
<PAGE> 7
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. The pro forma financial data set forth in
the Registration Statement and the Prospectus have been prepared on a
basis consistent with such historical statements, except for the pro
forma adjustments specified therein, and give effect to assumptions
made on a reasonable basis and present fairly the historical and
proposed transactions contemplated by this Agreement, the
7
<PAGE> 8
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 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
8
<PAGE> 9
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 from the Company at a purchase price of ____% of
their principal amount, $100,000,000 aggregate principal amount of the
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, 633 West Fifth Street,
Suite 4000, Los Angeles, California 90071, at 7:00 A.M., Los Angeles
time, on the third business day following the date the Registration
Statement becomes effective (or, if the Company has elected to rely
upon Rule 430A, the third business day after the date of execution of
this Agreement), or 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 same
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.
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
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<PAGE> 10
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 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
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<PAGE> 11
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.
(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
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<PAGE> 12
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; (vii) all reasonable out-of-pocket expenses
incurred by the Underwriter in connection with the offering of the Securities;
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 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
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<PAGE> 13
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 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 8; (ii) certificates of each of the
Company and ERLY, 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 and ERLY issued as
of a recent date by the Secretary of State of the state of
incorporation of each such entity; 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, 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, in the aggregate, a Material Adverse Effect.
(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.
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<PAGE> 14
(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.
(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 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.
(9) The Indenture has been duly
qualified under the Trust Indenture Act of 1939, as amended,
and assuming due authorization, execution and delivery thereof
by the Trustee, constitutes a valid and legally binding
obligation of the Company, enforceable against it in
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
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<PAGE> 15
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 of 1939, as amended (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 may be required by the
National Association of Securities Dealers, Inc. and (iv) 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 Collateral Documents create
valid security interests in favor of the Trustee in the
Collateral described therein for the benefit of the holders of
the Mortgage Notes.
(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
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 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) 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.
(18) 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
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<PAGE> 16
deemed controlling under the law of such states, except as to
validity, creation and perfection of Liens on the Collateral
and matters of procedure and remedies, as to which the
Collateral Documents will be governed by and construed in
accordance with the laws of such states.
(19) The Securities, the Indenture and
the Collateral Documents conform in all material respects to
the descriptions thereof contained in the Prospectus.
(20) 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" of a holding
company, or an "affiliate" thereof within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(21) 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.
(22) 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
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<PAGE> 17
Indenture Act and state securities or Blue Sky laws and
regulations or such as may be required by the NASD.
(23) 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.
(24) 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.
(25) 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; (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) compliance with laws
relating to permissible rates of interest.
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
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<PAGE> 18
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.
(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.
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
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<PAGE> 19
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
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
19
<PAGE> 20
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 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.
20
<PAGE> 21
(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 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.
21
<PAGE> 22
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 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:
Title:
The foregoing Agreement
is hereby confirmed and accepted as of
the date first above written.
JEFFERIES & COMPANY, INC.
By:_____________________________
Name:
Title:
22
<PAGE> 23
Schedule I
THE COMPANY'S OWNERSHIP OF SUBSIDIARY STOCK
23
<PAGE> 24
Schedule II
OUTSTANDING SUBSCRIPTIONS, RIGHTS, WARRANTS, ETC.
24
<PAGE> 1
Exhibit 4.1
AMERICAN RICE, INC.
AND
U.S. TRUST COMPANY OF TEXAS, N.A.
TRUSTEE
_____________________________
INDENTURE
Dated as of August ___, 1995
_____________________________
$100,000,000
___% Mortgage Notes due 2005
<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) .............................................. 7.07
(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) ................................................ 2.12
317 (a)(1) ............................................. 6.08
(a)(2) ............................................. 6.09
(b) ................................................ 2.04
318 (a) ................................................ 11.01
(b) ................................................ N.A.
(c) ................................................ 11.01
</TABLE>
N.A. means not applicable.
*. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.03. Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . 13
Section 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 2
THE MORTGAGE NOTES
Section 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . 15
Section 2.05. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.07. Replacement Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.08. Outstanding Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.09. Treasury Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.10. Temporary Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.02. Selection of Mortgage Notes to Be Redeemed . . . . . . . . . . . . . . . . . 19
Section 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.06. Mortgage Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.07. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.08. Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.09. Offer to Purchase by Application of Excess Proceeds . . . . . . . . . . . . . 21
ARTICLE 4
COVENANTS
Section 4.01. Payment of Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.02. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.03. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.04. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.05. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.06. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.07. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . 27
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock . . . . . . . . . . . . 28
Section 4.10. Repurchase at Option of Holders Upon Asset Sales . . . . . . . . . . . . . . . . . 29
Section 4.11. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.12. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.13. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.14. Repurchase at Option of Holders Upon Change of Control . . . . . . . . . . . . . . 31
Section 4.15. Advances to Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.16. Limitations on Issuance and Sales of Capital Stock of Wholly Owned Subsidiaries . . 32
Section 4.17. Limitations on Issuances of Guarantees of Indebtedness . . . . . . . . . . . . . . 32
Section 4.18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.19. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.20. New Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets . . . . . . . . . . . . . . . . . . . . . 34
Section 5.02. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.05. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.06. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.07. Rights of Holders of Mortgage Notes to Receive Payment . . . . . . . . . . . . . . 39
Section 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.05. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.06. Reports by Trustee to Holders of the Mortgage Notes . . . . . . . . . . . . . . . . 42
Section 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.09. Successor Trustee by Merger, etc . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . 45
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . 45
Section 8.02. Legal Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>
ii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 8.03. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . 46
Section 8.04. Conditions to Legal or Covenant Defeasance . . . . . . . . . 46
Section 8.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions. . . . . . . . . . . . 47
Section 8.06. Repayment to Company . . . . . . . . . . . . . . . . . . . . 48
Section 8.07. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Mortgage Notes . . . . . . . . 49
Section 9.02. With Consent of Holders of Mortgage Notes . . . . . . . . . . 49
Section 9.03. Compliance with Trust Indenture Act . . . . . . . . . . . . . 51
Section 9.04. Revocation and Effect of Consents . . . . . . . . . . . . . . 51
Section 9.05. Notation on or Exchange of Mortgage Notes . . . . . . . . . . 52
Section 9.06. Trustee to Sign Amendments, etc . . . . . . . . . . . . . . . 52
ARTICLE 10
COLLATERAL AND SECURITY
Section 10.01. Collateral Documents . . . . . . . . . . . . . . . . . . . . 52
Section 10.02. Recording and Opinions . . . . . . . . . . . . . . . . . . . 53
Section 10.03. Release of Collateral . . . . . . . . . . . . . . . . . . . . 53
Section 10.04. Certificates of the Company . . . . . . . . . . . . . . . . . 54
Section 10.05. Certificates of the Trustee . . . . . . . . . . . . . . . . . 54
Section 10.06. Authorization of Actions to Be Taken by the Trustee
Under the Collateral Documents Including the
Intercreditor Agreement . . . . . . . . . . . . . . . . . . . 55
Section 10.07. Authorization of Receipt of Funds by the Trustee Under
the Collateral Documents . . . . . . . . . . . . . . . . . . 55
Section 10.08. Termination of Security Interest. . . . . . . . . . . . . . . 55
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . 55
Section 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 11.03. Communication by Holders of Mortgage Notes with Other
Holders of Mortgage Notes . . . . . . . . . . . . . . . . . . 57
Section 11.04. Certificate and Opinion as to Conditions Precedent . . . . . 57
Section 11.05. Statements Required in Certificate or Opinion . . . . . . . . 57
Section 11.06. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . 57
Section 11.07. No Personal Liability of Directors, Officers,
Employees and Stockholders . . . . . . . . . . . . . . . . . 58
Section 11.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 11.09. No Adverse Interpretation of Other Agreements . . . . . . . . 58
Section 11.10. Successors . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 11.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 11.12. Counterpart Originals . . . . . . . . . . . . . . . . . . . . 58
Section 11.13. Table of Contents, Headings, etc . . . . . . . . . . . . . . 58
</TABLE>
iii
<PAGE> 6
EXHIBITS
Exhibit A FORM OF MORTGAGE NOTES
iv
<PAGE> 7
INDENTURE dated as of __________, 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 __% Mortgage
Notes due 2005 (the "Mortgage Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"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.
"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.
"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 (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.
1
<PAGE> 8
"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 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 accounts receivable and
inventory 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 Stock" means (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.
"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
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<PAGE> 9
"person" (as defined above) 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" or "Mortgaged 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.
"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 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, if any, 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 benefit of the Holders,
dated as of the date of this Indenture and substantially in the form attached
as Exhibit ___ 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 loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were 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
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<PAGE> 10
were deducted in computing such Consolidated Net Income, 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 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, and (v) the cumulative effect of a change in
accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date, plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that
by its terms is not entitled to the payment of dividends unless such dividends
may be declared and paid only out of net earnings in respect of the year of
such declaration and payment, but only to the extent of any cash received by
such Person upon issuance of such preferred stock, 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, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount and
expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"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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"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 11.02 hereof 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
Holders of the Mortgage Notes, dated as of the date of this indenture and
substantially in the form of Exhibit ____ 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
aggregate principal amount of $10.5 million, bearing interest at the same rate
as the Mortgage Notes and maturing on December 30, 2004, 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 (the " %
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
aggregate principal amount of $10.0 million, bearing interest at the rate of 6%
per annum and maturing on July 1, 2005 (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 benefit of the Holders, dated
as of the date of this Indenture and substantially in the form attached as
Exhibit ___ hereto, as such agreement may be amended, modified or supplemented
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 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) and (ii) the consolidated interest expense of
such Person and its Subsidiaries (in proportion to the Company's
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<PAGE> 12
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) 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.
"Freeport Deed of Trust" means that certain Leasehold Deed of Trust,
Security Agreement, Fixtures Financing Statement, Mortgage and Assignment of
Rents, Leases and Leasehold Interests executed by the Company for the benefit
of the Trustee and the Holders of the Mortgage Notes, dated as of the date of
this Indenture and substantially in the form of Exhibit ___ 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.
"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
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<PAGE> 13
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.
"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.
"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
with respect to the Revolving Credit Loan), in each case substantially in the
form attached hereto as Exhibit ___.
"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
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<PAGE> 14
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).
"Management Agreement" means that certain Management Agreement dated
as of May 25, 1993 by and between ERLY and the Company.
"Maturity Date" means __________, 2005.
"Maxwell Deed of Trust" means that certain Deed of Trust, Assignment
of Rents and Fixture Filing executed by the Company for the benefit of the
Trustee and the Holders of the Mortgage Notes, dated as of the date of this
Indenture and substantially in the form of Exhibit ____ hereto, as it may be
amended, supplemented or otherwise modified from time to time.
"Mortgage Notes" means the Company's ___% Mortgage Notes due 2005, 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 (but not
loss), together with any related provision for taxes on such gain (but not
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 (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not 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
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<PAGE> 15
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 and (iii)
any reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Revolving Credit Loan" means Indebtedness of the Company under that
certain Accounts Financing Agreement by and between the Company and Congress
Financial Corporation dated as of May 24, 1993, as amended on or before the
date of this Indenture.
"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.
"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, if any, for working capital purposes in an aggregate
principal amount not to exceed the Borrowing Base, provided that any Liens on
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
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<PAGE> 16
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); (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 and 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) is 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 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,
10
<PAGE> 17
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, limited liability company, 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.
"SEC" means the Securities and Exchange Commission.
"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 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 ____ 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
11
<PAGE> 18
(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
advances by the Company, in each case in the form attached as an Exhibit to the
Company Pledge Agreement.
"Tax Sharing Agreement" means that certain Tax Agreement dated May
25, 1993 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.
"Trademark Security Agreement" means that certain Confirmation and
Grant of Security Interest in Trademarks and Trademark Applications executed by
the Company for the benefit of the Trustee and the Holders of the Mortgage
Notes, dated as of the date of this Indenture and substantially in the form of
Exhibit ___ 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 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
</TABLE>
12
<PAGE> 19
<TABLE>
<S> <C>
"Covenant Defeasance" . . . . . . . . . . . . . . . . . . 8.03
"Event of Default" . . . . . . . . . . . . . . . . . . . . 6.01
"Excess Proceeds" . . . . . . . . . . . . . . . . . . . . 4.10
"incur" . . . . . . . . . . . . . . . . . . . . . . . . . 4.09
"Legal Defeasance" . . . . . . . . . . . . . . . . . . . 8.02
"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:
"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;
13
<PAGE> 20
(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.
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.
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<PAGE> 21
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. 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.
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, 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
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).
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<PAGE> 22
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).
(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 and interest on such Mortgage Notes, and
neither the Trustee, any Agent nor the Company shall be
affected by notice to the contrary.
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<PAGE> 23
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 signed by two Officers of
the Company, 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 may charge for its 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.
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 Trustee 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 signed by two
17
<PAGE> 24
Officers of the Company. 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.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Mortgage
Notes, it shall pay the defaulted interest in any lawful manner plus, to the
extent lawful, interest payable on the defaulted interest, 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 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. 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
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.
18
<PAGE> 25
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.
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 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.
19
<PAGE> 26
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 sufficient to pay the
redemption price of and accrued interest 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 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
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 not paid on 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.
20
<PAGE> 27
SECTION 3.07. OPTIONAL REDEMPTION.
(a) The Mortgage Notes shall not be redeemable at the Company's
option prior to , 2000. 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 thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on __________ of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
2003 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding the foregoing, until ________, 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 110% of the 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.
(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.
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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 or 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 or accrue interest after the Purchase Date;
(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).
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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.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF MORTGAGE NOTES.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Mortgage Notes on the dates and in the manner
provided in the Mortgage Notes. Principal, premium, 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, 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 (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.
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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 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. 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 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
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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 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 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:
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(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; and
(c) 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 (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
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 the terms of the Management Agreement and the Tax
Sharing Agreement, as such agreements exist on
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the date of this Indenture; (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 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 ___% ERLY
Intercompany Note and pledged to the Trustee as Collateral for the Mortgage
Notes; and (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.
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 Indebtedness as in effect on the date of this Indenture, (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
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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, 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 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;
(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;
(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
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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; and
(viii) 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; and
(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 any disposition of property held for sale on the date of this
Indenture, as reflected on the Company's balance sheets contained in its
consolidated financial statements, 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).
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
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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).
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 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 principal amount
thereof plus accrued and unpaid interest thereon to the date of purchase, in
accordance with the procedures set forth in Section 3.09 hereof. 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 may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of 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 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.
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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 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 ________, 2003) of the aggregate principal amount 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 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 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
Mortgage Notes or portions 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. ADVANCES TO SUBSIDIARIES.
All advances 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 advances by the Company
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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.
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 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 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
this Indenture. The form of such Guarantee shall be substantially in the form
attached as Exhibit ___ hereto.
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
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state the expiration date for each policy listed. Notwithstanding 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.
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.
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.
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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
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
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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.
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
on, the Mortgage Notes and such default continues for a period of 30
days;
(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;
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(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;
(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.
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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 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.
If an Event of Default occurs on or after ____________, 2000 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 ________ __, 2000 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 in an amount, for each of the years beginning on
______ 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>
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
</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, 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
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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.
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, if any, or interest on,
the Mortgage Notes (including in connection with an offer to purchase);
provided, however, that the Holders of a majority in aggregate 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 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.
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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.
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, 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 interest on 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, 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, 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 Trustee need perform
only those duties that are specifically set forth in this Indenture
and no others, and no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
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(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.
(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.
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(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 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, 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 ________ beginning with the ________
following the date of this Indenture, and for so long as Mortgage Notes remain
outstanding, the Trustee shall mail to the Holders 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,
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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. 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 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 execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise 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
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Section, payments in respect of the principal of, and premium, if any, and
interest 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 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, if any, and interest 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;
(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
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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.
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
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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, 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, 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 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.
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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 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.
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
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the payment of the principal of, premium, 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;
(c) reduce the rate of or change the time for payment of
interest, including default interest, on any Mortgage Note;
(d) waive an Event of Default in the payment of principal of or
premium, if any, or 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;
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(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, if any, or 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 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) through (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 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.
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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.
ARTICLE 10
COLLATERAL AND SECURITY
SECTION 10.01. COLLATERAL DOCUMENTS.
The due and punctual payment of the principal of and interest or
premium 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 Documents (including, without
limitation, the provisions providing for foreclosure and release of Collateral)
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
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Obligations of the Company hereunder, a valid and enforceable perfected first
priority Lien (except as provided in the Collateral Documents) in and on all
the Collateral, in favor of the Trustee for the 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 other Liens
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 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 [______________] in
each year beginning with _________, 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, (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.
(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) and (d) 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 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 ____ 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
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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) 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.
(c) 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.
(d) 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.
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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 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 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
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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
Attention: Vice President of Finance
With a copy to:
_______________________________
_______________________________
_______________________________
Telecopier No.: ______________
Attention: ___________________
If to the Trustee:
U.S. Trust Company of Texas, N.A.
_______________________________
_______________________________
Telecopier No.: ______________
Attention: ___________________
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.
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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.
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 ______, 1994 AMERICAN RICE, INC.
By: _________________________________
Name:
Title:
Attest:
_______________________________ (SEAL)
Dated as of ______, 1994 U.S. TRUST COMPANY OF TEXAS, N.A.
By: _________________________________
Name:
Title:
Attest:
_______________________________ (SEAL)
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===============================================================================
EXHIBIT A
(Face of Mortgage Note)
____% Mortgage Notes Due 2005
No. $__________
AMERICAN RICE, INC.
promises to pay to
or registered assigns,
the principal sum of
Dollars on _________ __, 200_.
Interest Payment Dates: ________ __, and ________ __
Record Dates: ________ __, and ________ __
Dated: _______________ __, 199__
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:__________________________________
===============================================================================
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<PAGE> 67
(Back of Mortgage Note)
___% Mortgage Notes due 2005
Capitalized terms used herein shall have the meanings assigned to them
in this Indenture referred to below unless otherwise indicated.
1. INTEREST. American Rice, Inc., a Texas corporation (the
"Company"), promises to pay interest on the principal amount of this Mortgage
Note at ___% per annum from ________________, 199_ until maturity. The Company
shall pay interest semi-annually on _________ __ and _________ __ of each year,
or if any such day is not a Business Day, on the next succeeding Business Day
(each an "Interest Payment Date"). Interest on the Mortgage Notes shall accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of issuance; provided that if there is no existing
Default in the payment of 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, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
_____________, 199_. The Company shall pay interest (including post-petition
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 interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest shall be
computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company shall pay interest on the Mortgage
Notes (except defaulted interest) to the Persons who are registered Holders of
Mortgage Notes at the close of business on the _________ __ or _________ __ next
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 this Indenture with respect to defaulted interest.
The Mortgage Notes shall be payable as to principal, premium and interest at the
office or agency of the Company maintained for such purpose within or without
the City and State of New York, or, at the option of the Company, payment of
interest may be made by check mailed to the Holders at their addresses set forth
in the register of Holders, and provided that payment by wire transfer of
immediately available funds shall be required with respect to principal of and
interest and premium on, all Mortgage Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. 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 this 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 ____________, 1995 ("Indenture")
between the Company and the Trustee. The terms of the Mortgage Notes include
those stated in this Indenture and those made part of this 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 this Indenture and such Act for a statement of such
terms. The Mortgage Notes are secured obligations of the Company limited to
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<PAGE> 68
$___ 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
________ __, 2000. 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 ___________ of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______%
2003 and thereafter . . . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to _______ __, 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 110% 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 aggregate principal amount
thereof plus accrued and unpaid interest to the date of purchase (if prior to
________ ___, 199__) or 100% of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (if on or after
_______, 2003) (in either case, the "Change of Control Payment"). Within 10
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 this 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
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offer to all Holders of Mortgage Notes (as "Asset Sale Offer") pursuant to
Section 3.09 of this 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 aggregate principal amount
thereof plus accrued and unpaid interest to the date of purchase, in accordance
with the procedures set forth in this 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 aggregate principal amount 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.
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 this 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 this
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,
this 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 this 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, this 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
this Indenture of any such Holder, or to comply with the requirements of the
SEC in order to effect or maintain the qualification of this Indenture under
the Trust Indenture Act.
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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 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, 4.14 or 5.01
of this Indenture, which failure remains uncured for 30 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 this
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 this Indenture or the
Mortgage Notes except as provided in this 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 this Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Mortgage Notes. The Company is required to deliver to
the Trustee annually a statement regarding compliance with this 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 this
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
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<PAGE> 71
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
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 this 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> 72
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> 73
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 this 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 this 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> 1
EXHIBIT 4.8
Recording at the Request of and
when Recorded Mail Original to:
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Edith R. Perez, Esq.
LEASEHOLD DEED OF TRUST,
FIXTURES FINANCING STATEMENT,
MORTGAGE AND ASSIGNMENT OF RENTS,
LEASES AND LEASEHOLD INTERESTS
(TEXAS)
THIS LEASEHOLD DEED OF TRUST, FIXTURES FINANCING STATEMENT,
MORTGAGE AND ASSIGNMENT OF RENTS, LEASES AND LEASEHOLD INTERESTS (this "Deed of
Trust") is made and entered into as of _________, 1995 by and among AMERICAN
RICE, INC., a Texas corporation ("Grantor"), _______ ________________________,
an individual, as trustee hereunder ("Trustee"), and U.S. TRUST COMPANY OF
TEXAS, N.A., in its capacity as trustee under the Indenture (as hereinafter
defined) ("Beneficiary").
Recitals
A. Beneficiary and Grantor are the parties to that
certain Indenture dated as of _________, 1995 (the "Indenture"). Unless
otherwise defined, capitalized terms are used in this Deed of Trust as they are
defined in the Indenture.
B. Grantor has, under the Indenture, issued its ____%
Mortgage Notes due 2005 (the "Notes") in the aggregate principal amount of
$100,000,000.
C. The Indenture requires that the obligations of
Grantor under the Notes and the Indenture be secured by liens and security
interests covering certain property of Grantor. In connection therewith,
Grantor is executing and delivering this Deed of Trust in accordance with the
Indenture.
NOW, THEREFORE, in consideration of the foregoing recitals and
in consideration of the sum of Ten and No/100 Dollars ($10.00) and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor agrees as follows:
ARTICLE I. - GRANT OF DEED OF TRUST
1.01 Grant of Deed of Trust. Grantor for itself and its
successors and assigns, covenants and agrees with Trustee and Beneficiary that
at the time of the execution and delivery of this Deed of Trust, Grantor is the
true and lawful holder of a leasehold interest in and has the right, full power
and lawful authority to, and does hereby, mortgage, pledge, assign, bargain,
hypothecate, convey, grant, transfer, warrant and set over unto Trustee, and
also to the Substitute Trustee as hereinafter defined, all of Grantor's right,
title and interest in and to all of the following property,
<PAGE> 2
subject only to Liens permitted under the Indenture and the permitted
encumbrances set forth on Exhibit "A-1" attached hereto (collectively, the
"Permitted Encumbrances"):
(a) the lessee's interest (including, without limitation,
all present and future rights to possession and use, and all present and future
options and other rights to purchase) under that certain Ground Lease and
Definitive Agreement Regarding Port Facilities, dated as of June 6, 1985, by
and between Brazos River Harbor Navigation District, as lessor, and Grantor, as
lessee, as evidenced by that certain Memorandum of Ground Lease recorded in
Volume 851, Page 26 of the Official Records of Brazoria County, Texas,
including all eight amendments thereto (the "Lease"), covering the real
property described on Exhibit "A" hereto and by this reference incorporated
herein together with all privileges and appurtenances thereto, and all right,
title and interest (including any reversionary interest) now and/or hereafter
owned, claimed, held or acquired by Grantor, its successors and assigns, in and
to (i) the whole or any part of the above described real property (including
all mineral rights and interests of Grantor relating thereto), and/or (ii) any
easements, ways, alleys and rights of ingress and egress appurtenant to the
above described real property, and/or (iii) any and all strips, gores or pieces
of land abutting, bounding, adjoining, adjacent and/or contiguous to the above
described real property (whether owned or claimed by deed, limitations or
otherwise) and/or (iv) any street or road adjacent and/or contiguous to the
above described real property and/or (v) all air rights with respect thereto
(said property, rights and interests described in this Section 1.01(a) being
herein collectively referred to as the "Land"), and (2) Grantor's right of
election (the "365(h) Election") to remain in possession under Section 365(h)
of the Bankruptcy Code, as amended from time to time (the "Bankruptcy Code"),
or any replacement therefor, in the event that the lessor or landlord
thereunder is a debtor thereunder and rejects the Lease (herein collectively
called the "Encumbered Lease");
(b) any and all buildings, constructions, pipelines and
other improvements now or hereafter placed on the Land, as well as all
appurtenances, betterments and additions thereto; all and singular the rights,
privileges, hereditaments, and appurtenances in any wise incident or
appertaining to the Land and/or the improvements thereon, including, without
limitation, any and all rights to (i) utilities, utility lines, utility
commitments, utility connections, utility capacity, capital recovery charges,
impact fees and other fees heretofore paid in connection with same, (ii)
reimbursements or other rights pertaining to utilities or utility services
provided to the Land and/or the improvements thereon and (iii) the present or
future use or availability of waste water facilities, waste water capacity,
water, water and storm drainage or other utility facilities to the extent same
pertain to or benefit the Land and/or the improvements thereon, including
without limitation all reservations of or commitments or letters covering any
such use in the future, whether now owned or hereafter acquired;
(c) any and all furniture, fixtures, structures,
improvements, equipment, machinery (including, without limitation, any and all
equipment and machinery used for processing rice and/or rice products),
appliances, construction materials, personal property, supplies, tools,
paintings, sculptures, murals, art work, books, records and files, and now or
hereafter or from time to time situated on or in or used in connection with the
Land and/or the improvements thereon, whether or not affixed to the realty,
including, but not limited to, lighting, heating, electrical, ventilating, air
conditioning, sprinkling, mechanical and plumbing materials, fixtures, supplies
and equipment; water and power systems; engines; boilers; furnaces; elevators;
pipes; ducts; conduits; motors; refrigeration plants; awnings; shrubbery;
ranges; ovens; refrigerators; cabinets; dishwashers; disposals; carpeting, and
all after-acquired property in the same categories; and all additions and/or
accessions to, and all renewals, substitutions and replacements of any of the
foregoing, and all other
2
<PAGE> 3
things of whatsoever kind and in any way or at any time belonging or
appurtenant to, or used in connection with, any of the other Trust Property (as
hereinafter defined);
(d) the leasehold under that certain Lease Agreement,
dated September 30, 1994, between Grantor, as Landlord, and Comet Ventures,
Inc., as tenant, and any and all other leases and leasehold rights now held or
hereafter acquired by Grantor for use in connection with or belonging or
appertaining to any of Grantor's real property now or hereafter subject to the
lien of this Deed of Trust;
(e) any and all additions, betterments and improvements
hereafter acquired or constructed upon or in connection with any other
property, real or personal, now or at any time hereafter subject to the lien of
this Deed of Trust;
(f) any and all easements, rights of way, servitudes,
surface rights, interests in land, permits, licenses, grants affecting land,
and all amendments thereof, relating or appurtenant to the Land and/or any of
the improvements, fixtures, personal property, easements, rights, interests
and/or other items described in Sections 1.01(a) through (e) above, now owned
or hereafter acquired, including without limitation, all franchises,
privileges, immunities, powers, rights, ordinances, permits, licenses, grants,
leases, consents, possessory and prescriptive rights of Grantor in, on, over,
under, across and through lands, roads, highways, railroads, canals, channels,
waterways, ditches, bridges or structures, or elsewhere, together with
Grantor's interest (now owned or hereafter acquired) in all fixtures,
improvements and personal property now or hereafter from time to time situated
on, in, over, under, across or through, attached to or used in connection with
such Trust Property and all rights and appurtenances incident thereto;
(g) all of the estate, interest, right, title, other
claim or demand, both in law and in equity, including claims or demands with
respect to any insurance policies or the proceeds of any insurance in effect
with respect thereto, which Grantor now has or may hereafter acquire in any of
said property described in Sections 1.01(a) through (f) above, and any other
proceeds from any sale or disposition thereof which Grantor now has or may
hereafter acquire and any and all awards made for the taking of eminent domain,
or by any proceeding or purchase in lieu thereof, of the whole or any part of
such property;
(h) any and all rights, powers, franchises, privileges,
immunities, permits and licenses now or hereafter owned or possessed by Grantor
that now or at any time hereafter may be necessary for, or appurtenant to, the
use, operation, management, maintenance, renewal, alteration or improvement of
any of the other Trust Property; and
(i) with respect to the Land and all of the improvements,
fixtures, personal property, easements, rights, interests and/or other items
described in Sections 1.01(a) through (h) above, all and singular the
tenements, hereditaments and appurtenances belonging or in any wise
appertaining to such property, or any part thereof, now owned or hereafter
acquired, including, without limitation, all reversions, remainders, proceeds,
rents, revenues, issues, earnings, income, products and profits thereof, and
all the right, title, interest and claim whatsoever, at law as well as in
equity, of Grantor in and to the above described property (all of said
property, rights and interests described in Sections 1.01(a) through (i) above
are hereinafter collectively referred to herein as the "Trust Property").
3
<PAGE> 4
The Trust Property and the Security Agreement Collateral (as hereinafter
defined) are hereby defined as "Collateral", as that term is used in the
Indenture.
TO HAVE AND TO HOLD the Trust Property unto Trustee and also
unto the Substitute Trustee, and the assigns of Trustee or Substitute Trustee,
and Grantor does hereby bind Grantor and the heirs, legal representatives,
successors and assigns of Grantor to warrant and forever defend all and
singular the Trust Property unto Trustee and also unto the Substitute Trustee,
and unto the assigns of Trustee or Substitute Trustee, and against every person
or party whomsoever claiming or to claim the same, or any part thereof by,
through or under Grantor, subject, however, to the Permitted Encumbrances.
This conveyance is made in trust, however, for the purpose of
securing in such order of priority as Beneficiary may elect, the indebtedness
and obligations described in Section 1.03 hereof.
1.02 Status of Title. The leasehold estate created by the
Encumbered Lease is not subject to any Liens other than this Deed of Trust and
the Permitted Encumbrances. The Lease is in full force and effect without
default by any of the parties thereto, and Grantor is the holder of the
lessee's or tenant's interest thereunder. Grantor has good right to grant and
convey the Trust Property to Trustee for the benefit of Beneficiary and will
warrant and defend the same to Trustee, Beneficiary and their respective
successors and assigns against the lawful claims and demands of all persons as
provided herein. Grantor agrees to protect, preserve and defend Trustee's and
Beneficiary's interests in the Trust Property and title thereto as provided
herein; to appear and defend this Deed of Trust in any action or proceeding
affecting or purporting to affect the Trust Property, the lien or security
interest of this Deed of Trust thereon, or any of the rights of Trustee or
Beneficiary hereunder, and to pay all reasonable costs and expenses incurred by
Trustee or Beneficiary in or in connection with any such action or proceeding,
including reasonable attorneys' fees, whether or not any such action or
proceeding progresses to judgment and whether or not brought by or against
Trustee or Beneficiary. Trustee and Beneficiary shall be reimbursed for any
such reasonable costs and expenses in accordance with the provisions of this
Deed of Trust and the other Collateral Documents. Trustee or Beneficiary may,
but shall not be under any obligation to, appear or intervene in any such
action or proceeding and retain counsel therein and defend the same or
otherwise take such action therein as it be advised and may settle or
compromise the same and, in that behalf and for any of such purposes, may
expend and advance such sums of money as it reasonably may deem necessary, and
shall be reimbursed therefor in accordance with the provisions of this Deed of
Trust and the other Collateral Documents.
1.03 Obligations Secured. This Deed of Trust is made in
trust, however, for the purpose of securing all of the Obligations of Grantor
under the Indenture, the Notes, this Deed of Trust and the other Collateral
Documents. Grantor shall pay and perform the Obligations at the times and
places and in the manner specified in the Notes and the Indenture. This Deed
of Trust shall secure unpaid balances of all loans and other such extensions of
credit made under the Collateral Documents after this Deed of Trust is
recorded, whether made pursuant to an obligation of Beneficiary to make such
loans or extensions or otherwise. Such Obligations and other extensions of
credit may or may not be evidenced by notes executed pursuant to the Indenture.
All future advances will have the same priority as the original advance. Any
agreement hereafter made by Grantor and Trustee or Beneficiary pursuant to this
Deed of Trust shall be superior to the rights of the holder of any intervening
lien or encumbrance to the extent allowed by law.
4
<PAGE> 5
1.04 After-Acquired Property. If Grantor hereafter
acquires (a) any property that is of the kind or nature described in Section
1.01 hereof and is or is intended to become a part thereof, or (b) an interest
in any of the Trust Property greater than the interest now held, then such
property or interest shall, immediately upon such acquisition, become subject
to the lien of this Deed of Trust as fully and completely and with the same
effect as though now owned by Grantor and specifically described herein,
without need for the delivery and/or recording of a supplement to this Deed of
Trust or any other instrument; but nevertheless Grantor shall from time to
time, if requested by Trustee or Beneficiary, execute and deliver any and all
such further assurances, conveyances and assignments thereof as Trustee or
Beneficiary may reasonably require for the purpose of expressly and
specifically subjecting to the lien of this Deed of Trust any and all such
property or interest.
ARTICLE II. - COVENANTS CONCERNING THE TRUST PROPERTY
2.01 Taxes and Governmental Impositions.
(a) Payment. Subject to Section 2.01(b), Grantor will
pay, or cause to be paid, promptly, when and as due, all taxes, assessments,
charges, fees, fines and impositions of every nature whatsoever charged,
imposed, levied or assessed or to be charged, imposed, levied or assessed upon
or against the Trust Property or any part thereof, or upon the interest of
Trustee or Beneficiary in the Trust Property, as well as all income taxes
(excluding income taxes of Trustee or Beneficiary), assessments and other
governmental charges lawfully levied and imposed by the United States or any
state, county, municipality or other taxing authority in respect of the Trust
Property or any part thereof or any charge that, if unpaid, would or could
become a lien or charge upon the Trust Property, or any part thereof (the
"Impositions").
(b) Contests. Grantor shall have the right, before the
occurrence of any delinquency of any Imposition, to contest or object to the
amount or validity of any such Imposition by appropriate legal proceedings, but
such right shall not be deemed or construed in any way as relieving, modifying
or extending Grantor's covenant to pay any such Imposition at the time and in
the manner provided in Section 2.01(a) hereof, unless Grantor has given prior
written notice to Beneficiary of Grantor's intent so to contest or object to an
Imposition, and unless: (i) the legal proceedings shall operate conclusively to
prevent the sale of the Trust Property, or any part thereof, to satisfy such
Impositions prior to final determination of such proceedings; or (ii) Grantor
shall furnish a good and sufficient bond or surety in the amount of the
Impositions that are being contested plus any interest and penalty that may be
imposed thereon and that could become a lien against the Trust Property and in
a manner to stay or prevent the sale, or other security reasonably satisfactory
to Beneficiary; or (iii) Grantor shall have provided a good and sufficient
undertaking as may be required or permitted by law to accomplish a stay of such
proceedings; or (iv) Grantor shall have paid such Impositions under protest and
is suing to recover any refunds thereof. Subject to the foregoing, and if
Beneficiary shall so request, within sixty (60) days after the date when an
Imposition is due and payable, Grantor shall deliver to Beneficiary evidence
reasonably acceptable to Beneficiary showing the payment of such Imposition.
In the event that Grantor contests or objects to an Imposition in accordance
with the foregoing, then Trustor shall promptly and diligently proceed to
resolve the dispute concerning the Imposition in a manner not prejudicial to
Beneficiary or its rights hereunder.
(c) Payment by Beneficiary. Beneficiary shall have the
right, after demand to Grantor, to pay any Imposition after the date such
Imposition shall have become due if Grantor's failure to pay such Imposition
constitutes or would constitute, with the giving of notice by Beneficiary
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<PAGE> 6
or the passage of time, an Event of Default hereunder, unless Grantor shall be
contesting such Imposition pursuant to Section 2.01(b) hereof, and to add to
the Obligations the amount so paid, together with interest thereon from the
date of such payment at the rate of interest on overdue principal set forth in
[Section 4.01] of the Indenture (the "Default Rate"), and nothing herein
contained shall affect such right and such remedy. Any sums paid by
Beneficiary or Trustee in discharge of any Impositions shall be (i) a future
advance hereunder and a lien on the Trust Property secured hereby prior to any
right or title to, interest in, or claim upon the Trust Property subordinate to
the lien of this Deed of Trust, and (ii) payable on demand.
(d) No Credit. Grantor shall not claim, demand or be
entitled to receive any credit or credits towards the satisfaction of this Deed
of Trust or on any interest payable thereon for any taxes assessed against the
Trust Property or any part thereof, and shall not claim any deduction from the
taxable value of the Trust Property by reason of this Deed of Trust.
2.02 Mechanic's and Other Liens. Grantor will not suffer
any mechanic's, laborer's, materialmen's, statutory or other lien or any
security interest or encumbrance to be created or to remain outstanding (other
than Permitted Encumbrances).
2.03 Utilities. Grantor will pay, or cause to be paid,
when due any charges for utilities, whether public or private, with respect to
the Trust Property or any part thereof.
2.04 Insurance.
(a) Maintenance. Grantor will obtain and maintain
insurance with respect to the Trust Property in accordance with the provisions
of the Indenture. From and after the entry of judgment of foreclosure, all
rights and powers of Beneficiary to settle or participate in the settlement of
losses under policies of insurance or to hold and disburse or otherwise control
use of insurance proceeds shall continue in Beneficiary as judgment creditor or
mortgagee until confirmation of sale.
(b) Proceeds. If the Trust Property is materially
damaged or destroyed, Grantor shall give prompt notice thereof to Beneficiary
and all insurance proceeds shall (except as otherwise provided in [Section
4.16] of the Indenture) be paid to Beneficiary to be applied in accordance with
[Section _______] of the Indenture, Grantor hereby assigning such proceeds to
Beneficiary.
2.05 Condemnation. Immediately upon obtaining knowledge
of the institution of any proceedings for the condemnation of the Trust
Property, or any material portion thereof, Grantor will notify Beneficiary of
the pendency of such proceedings. Grantor hereby assigns, transfers and sets
over unto Beneficiary its entire interest in all condemnation proceeds and the
same shall be applied in accordance with the provisions of [Section ____] of
the Indenture.
2.06 Restoration. Restoration of any of the Trust
Property after partial or complete casualty or condemnation shall be performed
in accordance with the applicable provisions of the Indenture.
2.07 Care of the Trust Property.
(a) Preservation and Maintenance. Grantor will preserve
and maintain the Trust Property in accordance with the provisions of the
Indenture.
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<PAGE> 7
(b) Notice of Damage. If the Trust Property or any part
thereof is materially damaged by fire or any other cause, Grantor will give
prompt written notice thereof to Beneficiary.
(c) Right to Inspect. Beneficiary or its representative
is hereby authorized, with reasonable advance notice to Grantor, to enter upon
and inspect the Trust Property at any time during normal business hours.
ARTICLE III. - THE LEASE
3.01 Status of Lease. Grantor represents and warrants that: (a)
Grantor has not executed or entered into any modifications or amendments of the
Lease either orally or in writing, other than written amendments that have been
disclosed to Beneficiary in writing; (b) the Lease is in full force and effect,
unmodified by any writing or otherwise, except as previously disclosed by
Grantor to Beneficiary; (c) all rent and other charges reserved in the Lease
have been paid to the extent they are payable to the date hereof; (d) Grantor
enjoys the quiet and peaceful possession of the property demised by the Lease;
(e) Grantor is not in default in any material respect under any of the terms
thereof; and (f) to Grantor's knowledge, no event has occurred that, with the
giving of notice or the passage of time or both, would constitute such a
default or would entitle Grantor or any other party under the Lease to cancel
the same or otherwise avoid its obligations.
3.02 Performance of Lease. Grantor agrees: (a) to promptly and
faithfully observe, perform and comply in all material respects with all the
terms, covenants and provisions of the Lease on its part to be observed,
performed and complied with, at the times set forth therein; (b) to give
Beneficiary immediate notice of any material default by anyone under the Lease;
and (c) to furnish to Beneficiary such additional information and evidence as
Beneficiary may reasonably request in writing concerning the due observance,
performance and compliance with the terms, covenants and provisions of the
Lease. No release or forbearance of any of Grantor's obligations under the
Lease shall release Grantor from any of its obligations under this Deed of
Trust, including its obligations with respect to the payment of rent and
performance of all of the terms and provisions of the Lease to be performed by
Grantor.
3.03 Cure by Beneficiary. In the event of any default by Grantor
in the performance of any of its obligations under the Lease, including,
without limitation, any default in the payment of rent and other charges and
impositions payable by the tenant thereunder that Beneficiary determines could
constitute, with the giving of notice or the passage of time, an Event of
Default hereunder, then, in each and every case, Beneficiary may, at its option
and without notice (but without any obligation to do so), cause the default or
defaults to be remedied and otherwise exercise any and all of the rights of
Grantor thereunder in the name of and on behalf of Grantor. Grantor shall, on
demand, reimburse Beneficiary for all advances made and expenses incurred by
Beneficiary in curing any such default (including, without limitation,
reasonable attorneys' fees), together with interest thereon at the highest rate
payable from time to time on the Obligations, from the date that an advance is
made or expense is incurred, to and including the date the same is paid.
3.04 No Merger of Estates. It is hereby agreed that the fee title
and the leasehold estate in the property demised by the Lease shall not merge
but shall always be kept separate and distinct, notwithstanding the union of
such estates in the landlord thereunder, Grantor or a third party, whether by
purchase or otherwise. If Grantor acquires the fee title or any other estate,
title or interest in the Land, or any part thereof, the lien of this Deed of
Trust shall attach to, cover and be a lien upon such
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acquired estate, title or interest and such estate, title or interest shall
thereupon be and become a part of the Trust Property with the same force and
effect as if specifically encumbered herein. Grantor agrees to execute all
instruments and documents that Beneficiary may reasonably require to ratify,
confirm and further evidence Beneficiary's lien on the acquired estate, title
or interest. Furthermore, Grantor hereby appoints Beneficiary its true and
lawful attorney-in-fact to execute and deliver all such instruments and
documents in the name and on behalf of Grantor. This power, being coupled with
an interest, shall be irrevocable as long as any Obligations remain unpaid.
3.05 No Assignment of Lease. Anything herein to the contrary
notwithstanding, this Deed of Trust shall not constitute an assignment of the
Lease within the meaning of any provisions thereof prohibiting its assignment
and Beneficiary shall have no liability or obligation thereunder by reason of
its acceptance of this Deed of Trust.
3.06 Maintenance of Lease. Grantor will not, except upon
expiration of the Lease, surrender its leasehold estate under the Lease, nor
terminate or cancel the Lease. Grantor shall not agree to any amendment of the
Lease without the prior written consent of Beneficiary, which shall not be
unreasonably withheld.
3.07 Treatment of Lease in Bankruptcy.
(a) 365(h) Election. If the lessor under the Lease (the
"Lessor") rejects or disaffirms, or seeks or purports to reject or disaffirm,
the Lease pursuant to any bankruptcy law, then Grantor shall not, except as
otherwise provided in this paragraph, exercise the 365(h) Election, or any
comparable right provided under any other bankruptcy law. To the extent
permitted by law, Grantor shall not suffer or permit the termination of the
Lease or relinquishment of its possession of its leasehold by exercise of the
365(h) Election or otherwise without Beneficiary's consent. Grantor
acknowledges that because the Lease is a primary element of Beneficiary's
security for the Obligations secured hereunder, it is not anticipated that
Beneficiary would consent to termination of the Lease. If Grantor makes any
365(h) Election in violation of this Deed of Trust, then such 365(h) Election
shall be void and of no force or effect.
(b) Assignment to Beneficiary. Grantor hereby assigns to
Beneficiary the 365(h) Election with respect to the Lease. Grantor
acknowledges and agrees that the foregoing assignment of the 365(h) Election
and related rights is one of the rights that Beneficiary may use at any time to
protect and preserve Beneficiary's other rights and interests under this Deed
of Trust. Grantor further acknowledges that exercise of the 365(h) Election in
favor of terminating the Lease would constitute waste prohibited by this Deed
of Trust. Grantor acknowledges and agrees that the 365(h) Election is in the
nature of a remedy available to Grantor under the Lease, and is not a property
interest that Grantor can separate from the Lease as to which it arises.
Therefore, Grantor agrees and acknowledges that exercise of the 365(h) Election
in favor of preserving the right to possession under the Lease shall not be
deemed to constitute Beneficiary's taking or sale of the Trust Property (or any
element thereof) and shall not entitle Grantor to any credit against the
Obligations secured hereunder or otherwise impair Beneficiary's remedies.
(c) Scope of Collateral. Grantor acknowledges that if
the 365(h) Election is exercised in favor of Grantor's remaining in possession
under the Lease, then Grantor's resulting occupancy rights, as adjusted by the
effect of Section 365 of the Bankruptcy Code, shall then be part of the Trust
Property and shall be subject to the lien of this Deed of Trust.
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ARTICLE IV. - ASSIGNMENT OF RENTS
4.01 Assignment of Rents and Leases. As additional
consideration for the Obligations and subject to the remaining terms and
provisions set forth in this Article IV, Grantor hereby assigns, transfers and
sets over absolutely and unconditionally to Beneficiary, Trustee and to their
respective successors and assigns, all of Grantor's rights in, to and under the
following:
(a) all leases or subleases (if any) written or oral, now
in existence or hereafter arising and all agreements for the use and occupancy
of all or any portion of the Trust Property (the "Leases");
(b) any and all guaranties of the obligations of the
tenants (the "Tenants") under any of such Leases; and
(c) the immediate and continuing right to collect and
receive all of the rents, income, receipts, revenues, issues and profits now
due or that may become due or to which Grantor may now or hereafter (whether
during any applicable period of redemption, or otherwise) become entitled or
may demand or claim, arising or issuing from or out of the Leases, or from or
out of the Trust Property or any part thereof (collectively, the "Rents").
4.02 Grantor's Limited License. Provided that no Event of
Default hereunder exists and no event has occurred that with notice, or lapse
of time, or both would constitute an Event of Default hereunder, Grantor shall
have the right under a license granted hereby and Beneficiary hereby grants to
Grantor a license to collect, but not more than one month in advance, all of
the Rents arising from or out of the Leases or any renewals or extensions
thereof, or from or out of the Trust Property or any part thereof, but only as
trustee for the benefit of Beneficiary. Grantor shall apply the Rents so
collected first to payment of any and all amounts due and payable under the
Indenture. Thereafter, so long as no Event of Default hereunder exists and no
event has occurred that with notice, or lapse or time or both would constitute
an Event of Default hereunder, Grantor may use the Rents in any manner not
inconsistent with the Indenture. The license granted hereby shall be revoked
automatically upon the occurrence of an Event of Default hereunder.
4.03 Limitation. The acceptance by Beneficiary of the
assignment provided in this Article IV, together with all of the rights,
powers, privileges and authority created in this Article IV or elsewhere in
this Deed of Trust, shall not, prior to entry upon and taking possession of the
Trust Property by Beneficiary, be deemed or construed to constitute Beneficiary
a "mortgagee in possession" nor thereafter or at any time or in any event
obligate Beneficiary to appear in or defend any action or proceeding relating
to the Leases, the Rents or the Trust Property or to take any action hereunder
or to expend any money or incur any expenses or perform or discharge any
obligation or responsibility for any security deposits or other deposits
delivered to Grantor by any Tenant and not assigned and delivered to
Beneficiary, nor shall Beneficiary be liable in any way for any injury or
damage to person or property sustained by any person or persons, firm or
corporation in or about the Trust Property.
4.04 Remedies. If an Event of Default hereunder has
occurred and during the continuance thereof, in addition to all other rights
and remedies of Beneficiary as set forth under Article V hereof, Beneficiary
shall have the following rights and remedies:
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(a) Possession and/or Collection of Rent. Beneficiary,
without first being required to (i) foreclose, (ii) take any actions to
foreclose, (iii) institute any legal proceedings of any kind whatsoever or (iv)
exercise any other actions or remedies hereunder or at law or in equity, shall
have the exclusive right and power (but not the obligation) (A) to enter upon
and take possession of the Trust Property or any part thereof, (B) to rent or
re-rent the same, either in the name of Beneficiary or Grantor and/or (C) to
receive all Rents from the Trust Property. Beneficiary shall apply any Rents
received by Beneficiary first, to the costs and expenses incurred by
Beneficiary in protecting and operating the Trust Property (as more fully set
forth in Section 4.05 below), and next, to the payment of the Obligations in
such manner and in such order of priority as Beneficiary shall determine. Any
such action by Beneficiary shall not operate as a waiver of the Event of
Default hereunder in question, or as an affirmance of any Leases or of the
rights of any Tenant in the event title to that part of the Trust Property
covered by the Leases or held by the Tenant should be acquired by Beneficiary
or other purchaser at a foreclosure sale. The right of Beneficiary to receive
all Rents from the Trust Property upon the occurrence and during the
continuance of any Event of Default hereunder shall be applicable whether or
not Beneficiary has entered upon, foreclosed, taken any actions to foreclose or
taken possession of the Trust Property, whether or not Beneficiary has
instituted any legal proceedings of any kind whatsoever, or whether or not
Beneficiary has otherwise attempted to exercise any other actions or remedies
hereunder or at law or in equity. If any such Rents are paid to or received by
Grantor, Grantor shall hold same in trust for Beneficiary and immediately pay
the same to Beneficiary, without the necessity of any request or demand
therefor. Until receipt from Beneficiary of notice of the occurrence of an
Event of Default hereunder, all Tenants of the Leases and any successors to the
leasehold interest of such Tenants may pay Rents directly to Grantor, but after
notice of the occurrence of any Event of Default hereunder and during the
continuance of same, Grantor covenants to and shall hold all Rents paid to
Grantor in trust for Beneficiary. Grantor hereby authorizes and directs all
Tenants of the Leases herein described, and any successors to the leasehold
interest of said Tenants, upon receipt of any notice from Beneficiary stating
that an Event of Default hereunder has occurred, to pay to Beneficiary the
Rents due and to become due under said Leases. Grantor agrees that said
Tenants shall have the right to rely upon any such notice and request by
Beneficiary without any obligation or right to inquire as to whether an Event
of Default hereunder actually exists hereunder and notwithstanding any notice
from or claim of Grantor to the contrary, and Grantor shall have no right or
claim against said Tenants for any such Rents so paid by the Tenants to
Beneficiary. In such event, receipt by Beneficiary of Rents from such Tenants
or their successors shall be a release of such Tenants or their successors to
the extent of all amounts so received by Beneficiary.
(b) Management. Beneficiary, at its option, may take
over and assume the management, operation and maintenance of the Trust Property
and perform all acts necessary and proper and expend such sums out of the
income of the Trust Property as may be needful in connection therewith, in the
same manner and to the same extent as Grantor theretofore might do, including
the right to enter into new leases, to cancel or surrender existing Leases, to
alter or amend the terms of existing Leases, to renew existing Leases or to
make concessions to Tenants. Grantor hereby releases all claims against
Beneficiary arising out of such management, operation and maintenance, except
the liability of Beneficiary to account as hereinafter set forth.
4.05 Application of Income. Beneficiary shall, after
payment of all proper charges and expenses, including reasonable compensation
to any managing agent as it shall select and employ, and after the accumulation
of a reserve to meet taxes, assessments and insurance as herein required in
requisite amounts, credit the net amount of income received by it from the
Trust Property by virtue of this absolute assignment to any amounts due and
owing to it by Grantor under the terms hereof, but
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the manner of the application of said net income and what items shall be
credited shall be determined in the sole discretion of Beneficiary. Without
impairing its rights hereunder, Beneficiary may, at its option, at any time and
from time to time, release to Grantor Rents received by Beneficiary, or any
portion of such Rents. Beneficiary shall not be liable for its failure to
collect, or its failure to exercise diligence in the collection of Rents, but
shall be accountable only for Rents that Beneficiary shall actually receive.
Beneficiary shall not be accountable for more monies than it actually receives
from the Trust Property nor shall it be liable for failure to collect Rents.
4.06 Merger. There shall be no merger of the leasehold
estates created by the Leases with the fee estate of the Land without the prior
written consent of Beneficiary.
4.07 Term. This absolute assignment shall remain in full
force and effect so long as the Obligations or any part thereof to Beneficiary
remains unpaid or unsatisfied, in whole or in part.
4.08 Actions of Trustee. All provisions hereof shall
inure to the benefit of and all actions authorized hereunder shall be
exercisable by Trustee or the Substitute Trustee at Beneficiary's request.
4.09 PARTIES INTENT. AS BETWEEN BENEFICIARY AND GRANTOR,
AND ANY PERSON OR ENTITY CLAIMING THROUGH OR UNDER GRANTOR, OTHER THAN ANY
TENANT UNDER ANY OF THE LEASES (OR THE SUCCESSOR OF ANY SUCH TENANT) WHO HAS
NOT RECEIVED ANY NOTICE OF AN EVENT OF A DEFAULT HEREUNDER, THE ASSIGNMENT
CONTAINED IN THIS ARTICLE IV IS INTENDED TO BE ABSOLUTE, UNCONDITIONAL AND
PRESENTLY EFFECTIVE AND THESE PROVISIONS ARE INTENDED SOLELY FOR THE BENEFIT OF
EACH TENANT UNDER ANY OF THE LEASES (OR THE SUCCESSOR OF ANY SUCH TENANT) AND
SHALL NEVER INURE TO THE BENEFIT OF GRANTOR OR ANY PERSON CLAIMING THROUGH OR
UNDER GRANTOR, OTHER THAN A TENANT UNDER ANY OF THE LEASES (OR THE SUCCESSOR OF
ANY SUCH TENANT) WHO HAS NOT RECEIVED SUCH NOTICE. IT SHALL NEVER BE NECESSARY
FOR BENEFICIARY TO INSTITUTE LEGAL PROCEEDINGS OF ANY KIND WHATSOEVER OR TO
TAKE ANY OTHER ACTIONS HEREUNDER OR AT LAW OR IN EQUITY TO ENFORCE THE
PROVISIONS OF THIS ARTICLE IV.
ARTICLE V. - DEFAULTS AND REMEDIES
5.01 Events of Default. An Event of Default shall mean
the occurrence of any Event of Default under the Indenture, which Events of
Default are incorporated herein by this reference.
5.02 Performance of Defaulted Acts. From and after the
occurrence of an Event of Default hereunder, Beneficiary may, but need not,
make any payment or perform any act herein required of Grantor in any form and
manner deemed expedient, including, without limitation, making full or partial
payments of principal or interest on prior encumbrances, if any, and
purchasing, discharging, compromising or settling any tax lien or other prior
lien or title or claim thereof, or redeeming from any tax sale or forfeiture
affecting the Trust Property or contesting any tax or assessment. All moneys
paid for any of the purposes herein authorized and all expenses paid or
incurred in connection therewith, including reasonable attorneys' fees
(including fees of in house
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counsel), shall be included among the Obligations and shall be due and payable
upon demand and with interest thereon from the date of such payment or expense
at the Default Rate. Inaction of Beneficiary shall never be considered as a
waiver of any right accruing to it hereunder on account of any default on the
part of Grantor. Beneficiary, in making any payment hereby authorized relating
to taxes or assessments, may do so according to any bill, statement or estimate
procured from the appropriate public office without inquiry into the accuracy
of such bill, statement or estimate or into the validity of any tax,
assessment, sale, forfeiture, tax lien or title or claim thereof.
5.03 Remedies of Beneficiary. If the Obligations are
fully paid and performed as and when the same become due, and if all of
Grantor's covenants and agreements herein are fully kept and performed, then
this conveyance shall thereupon become of no further force and effect and shall
be released by Beneficiary or other holder(s) of the Obligations in accordance
with the terms of the Indenture. But in case there occurs any Event of Default
hereunder, then Beneficiary may, at its election by or through Trustee or
otherwise, exercise any or all of the rights, remedies and recourses as set
forth in this Article V.
5.04 Acceleration of Obligations. Beneficiary may declare
the entirety of the Obligations, including the Notes herein described and all
principal, accrued interest, court costs and attorneys' fees hereunder,
immediately due and/or payable, without notice of intention to accelerate,
notice of acceleration, presentment, protest, demand or action of any nature
whatsoever (each of which hereby is expressly waived by Grantor), whereupon the
same shall become immediately due and payable.
5.05 Foreclosure. Beneficiary may sell or offer for sale
the Trust Property in such portions, order and parcels as Beneficiary may
determine, with or without having first taken possession of the same, to the
highest bidder for cash at public auction. Such sale shall be made at the
courthouse of the county wherein the Land (or any of that portion thereof to be
sold) is situated (whether the parts or parcels thereof, if any, in different
counties are contiguous or not, and without the necessity of having any
personal property that is subject to this Deed of Trust present at such sale)
on the first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m.
after posting a written or printed notice or notices of the place, the earliest
time at which the sale will begin and terms of the sale of the Trust Property
for twenty-one (21) days prior to the date of the sale at the courthouse door
of the county in which the sale is to be made and at the courthouse door of any
other county in which a portion of the Trust Property may be situated and
filing a copy of such notice(s) in the office of the county clerk in each of
such counties, and by serving written notice of the proposed sale at least
twenty-one (21) days preceding the date of sale by certified mail on each
debtor obligated to pay the Obligations according to the records of
Beneficiary. Service of such notice shall be completed upon deposit of the
notice, enclosed in an envelope, properly stamped and addressed to such debtor
at the most recent address as shown by the records of Beneficiary, in a post
office or official depository under the care and custody of the United States.
It is agreed that the posting and transmittal of notices may be performed by
Trustee, Beneficiary, or by any person acting for them. In lieu of the
foregoing, the sale may be accomplished by following the procedures permitted
or required by Section 51.002 of the Texas Property Code, as same may be
amended from time to time, relating to the sale of real estate and/or by the
Texas Uniform Commercial Code-Secured Transactions (same being Chapter 9 of the
Texas Business and Commerce Code) relating to the sale of personal property
collateral after default by a debtor (as said Section and Chapter may now exist
or may hereafter be amended or succeeded), or by any other present or
subsequent articles or enactments relating to the same. Nothing contained in
this Section 5.05 shall be construed to limit in any way Trustee's rights to
sell the Trust Property by private sale if, and to the extent, that such
private sale is permitted under
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the laws of the State of Texas or by public or private sale after entry of
judgment by any court of competent jurisdiction ordering the same. At any such
sale (a) whether made under power herein contained, Section 51.002 of the Texas
Property Code, the Texas Uniform Commercial Code-Secured Transactions, any
other legal requirement or by virtue of any judicial procedure or any other
legal right, remedy or recourse, it shall not be necessary for Trustee to have
physically present, or to have constructive possession of, the Trust Property
(Grantor hereby covenanting and agreeing to deliver to Trustee any portion of
the Trust Property not actually or constructively possessed by Trustee
immediately upon demand by Trustee), and the title to and right of possession
of any such property shall pass to the purchaser thereof as completely as if
the same had been actually present and delivered to purchaser at such sale; (b)
each instrument of conveyance executed by Trustee shall contain a general
warranty of title, binding upon Grantor; (c) each and every recital contained
in any instrument of conveyance made by Trustee shall conclusively establish
the truth and accuracy of the matters recited therein, including, without
limitation, nonpayment of the Obligations, advertisement and conduct of such
sale in the manner provided herein and otherwise by law and appointment of any
successor to Trustee hereunder; (d) any and all prerequisites to the validity
thereof shall be conclusively presumed to have been performed; (e) the receipt
of Trustee or of such other party or officer making the sale shall be a
sufficient discharge to the purchaser or purchasers for his or their purchase
money and no such purchaser or purchasers, or his or their assigns or personal
representatives, shall thereafter be obligated to see to the application of
such purchase money or be in any way answerable for any loss, misapplication or
nonapplication thereof; (f) to the fullest extent permitted by law, Grantor
shall be completely and irrevocably divested of all of its right, title,
interest, claim and demand whatsoever, either at law or in equity, in and to
the property sold and such sale shall be a perpetual bar, both at law and in
equity, against Grantor, and against any and all other persons claiming or to
claim the property sold or any part thereof, by, through or under Grantor; and
(g) to the extent and under such circumstances as are permitted by law,
Beneficiary may be a purchaser at any such sale.
5.06 Application of Proceeds of Foreclosure Sale. The
proceeds of any foreclosure sale of the Trust Property shall be distributed and
applied in the following order or priority: first, on account of all costs and
expenses incident to the foreclosure proceedings, including all such sums
expended under the terms of this Article V; second, all other items that under
the terms hereof constitute Obligations in accordance with the Indenture; and
third, any excess to Grantor, its successors and assigns, as their rights may
appear.
5.07 Possession. Upon the occurrence of an Event of
Default hereunder, Beneficiary shall, at its option, have the right, acting
through its agents or attorneys, to enter upon and take possession of the Trust
Property, expel and remove any persons, goods, or chattels, occupying or upon
the same, and to collect or receive all the rents, issues and profits thereof,
and to manage and control the same, and to lease the same or any part thereof
from time to time, and, after deducting all reasonable attorney's fees
(including charges for inside counsel), and all reasonable expenses incurred in
the protection, care, maintenance, management and operation of the Trust
Property, apply the remaining net income upon the Obligations or upon any
deficiency decree entered in any foreclosure proceedings. If Grantor remains
in possession of all or any part of the Trust Property after an Event of
Default and without Beneficiary's prior written consent thereto, Grantor shall
be considered a tenant at sufferance, and Beneficiary may invoke any and all
legal remedies to dispossess Grantor, including, specifically, one or more
actions for forcible entry and detainer, trespass to try title and writ of
restitution. Nothing contained in the foregoing sentence shall, however, be
construed to impose any greater obligation or any prerequisites to acquiring
possession
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of the Trust Property after an Event of Default that would have existed in the
absence of such sentence.
5.08 Appointment of Receiver. Beneficiary may, upon, or
at any time after commencement of foreclosure of the lien and security interest
provided for herein or any legal proceedings hereunder, make application to a
court of competent jurisdiction as a matter of strict right and without notice
to Grantor or regard to the adequacy of the Trust Property as security for the
repayment of the Obligations, for appointment of a receiver of the Trust
Property, and Grantor hereby irrevocably consents to such appointment. Any
such receiver shall have all the usual powers and duties of receivers in
similar cases, including the full power to rent, maintain and otherwise operate
the Trust Property upon such terms as may be approved by such court, and shall
apply all income from the Trust Property in accordance with the provisions
governing proceeds set forth herein.
5.09 Additional Provisions Relating to a Sale of the Trust
Property. The following provisions shall also apply with regard to
Beneficiary's rights and remedies hereunder:
(a) the Trust Property may be sold in one or more parcels
and in such manner and order as Trustee, at the direction of Beneficiary, may
elect, it being expressly understood and agreed that the right of sale arising
out of any Event of Default shall not be exhausted by any one or more sales but
other and successive sales may be made until all of the Trust Property has been
sold or until the Obligations have been fully satisfied. As among the various
counties in which items of the Trust Property may be situated, sales in such
counties may be conducted in any order that Trustee may deem expedient; and any
one or more of such sales may be conducted in the same month, or in successive
or different months, as Trustee may deem expedient;
(b) to the fullest extent permitted by law, Grantor
hereby irrevocably and unconditionally waives and releases (i) all benefits
that might accrue to Grantor by any present or future law exempting the Trust
Property from attachment, levy, or sale on execution or providing for any
appraisement, valuation, stay of execution, exemption from civil process,
redemption or extension of time for payment; (ii) all notices of any Event of
Default (except as may be provided for under the terms hereof) or of
Beneficiary's or Trustee's election to exercise or his actual exercise of any
right, remedy or recourse provided for under this Deed of Trust; and (iii) any
right to appraisal or marshalling of assets or a sale in inverse order of
alienation;
(c) in case Beneficiary shall have proceeded to invoke
any right, remedy or recourse permitted under this Deed of Trust and shall
thereafter elect to discontinue or abandon the same for any reason, Beneficiary
shall have the unqualified right so to do and, in such event, Grantor and
Beneficiary shall be restored to their former positions with respect to the
Obligations, the Trust Property and otherwise, and the rights, remedies,
recourses and powers of Beneficiary shall continue as if same had never been
invoked; and
(d) Beneficiary shall have the right to become the
purchaser at the sale or sales of the Trust Property hereunder or pursuant to
any other means, and shall have the right to be credited on the amount of its
bid therefor all of the Obligations due and owing as of the date of said sale.
5.10 Installment Foreclosure. If default is made in the
payment of any installment constituting a part of the Obligations or any of the
Notes secured by this instrument, or in payment of any other part of such
Obligations, Beneficiary shall have the option to proceed with foreclosure in
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satisfaction of such item or items, either through the courts or by directing
Trustee or the Substitute Trustee to proceed with a foreclosure, conducting the
sale as herein provided and without declaring the whole debt or all of the
Obligations due, and in such event, the sale may be made subject to the
unmatured part of the Obligations, but as to the unmatured part of the
Obligations, this Deed of Trust shall remain in full force and effect just as
though no sale had been made under the provisions of this paragraph. Multiple
sales may be made hereunder without exhausting the right of sale for any
unmatured part of the Obligations, it being the purpose hereof to provide for a
foreclosure and sale of the Trust Property, in whole or in part, for any
matured portion of the Obligations without exhausting the power of foreclosure
and the power to sell the Trust Property, in whole or in part, for any other
part of the Obligations, whether then matured or subsequently maturing.
5.11 Substitute Trustee. In case of the resignation of
Trustee, or the inability (through death or otherwise), refusal or failure of
Trustee to act, or at the option of Beneficiary or the holder(s) of a majority
of the Obligations for any other reason (which reason need not be stated), a
substitute Trustee (herein referred to as the "Substitute Trustee") may be
named, constituted and appointed by Beneficiary or the holder(s) of a majority
of the Obligations, without formality other than an appointment and designation
in writing, which appointment and designation shall be full evidence of the
right and authority to make the same and of all facts therein recited, and this
conveyance shall vest in the Substitute Trustee the title, powers and duties
herein conferred on Trustee originally named herein, and the conveyance of the
Substitute Trustee to the purchaser(s) at any sale of the Trust Property or any
part thereof shall be equally valid and effective. The right to appoint a
Substitute Trustee shall exist as often and whenever from any of said causes,
Trustee, original or Substitute, resigns or cannot, will not or does not act,
or Beneficiary or the holder(s) of a majority of the Obligations desires to
appoint a new Trustee. No bond shall ever be required of Trustee, original or
Substitute. The recitals in any conveyance made by Trustee, original or
Substitute, shall be accepted and construed in court and elsewhere as prima
facie evidence and proof of the facts recited, and no other proof shall be
required as to the request by Beneficiary or the holder(s) of a majority of the
Obligations to Trustee to enforce this Trust, or as to the notice of or holding
of the sale, or as to any particulars thereof, or as to the resignation of
Trustee, original or Substitute, or as to the inability, refusal or failure of
Trustee, original or Substitute, to act, or as to the election of Beneficiary
or the holder(s) of a majority of the Obligations to appoint a new Trustee, or
as to appointment of a Substitute Trustee, and all prerequisites of said sale
shall be presumed to have been performed; and each sale made under the powers
herein granted shall be a perpetual bar against Grantor and the heirs, personal
representatives, successors and assigns of Grantor. Trustee, original or
substitute, is hereby authorized and empowered to appoint any one or more
persons as attorney-in-fact to act as Trustee under it and in its name, place
and stead in order to take any actions that Trustee is authorized and empowered
to do hereunder, such appointment to be evidenced by an instrument signed and
acknowledged by said Trustee, original or Substitute; and all acts done by said
attorney-in-fact shall be valid, lawful and binding as if done by said Trustee,
original or Substitute, in person.
5.12 Rights Cumulative. No remedy or right of Beneficiary
shall be exclusive of, but each such remedy or right shall be in addition to,
every other remedy or right now or hereafter existing at law or in equity. No
delay in the exercise or omission to exercise of any remedy or right accruing
on any default shall impair any such remedy or right or be construed to be a
waiver of any such default or an acquiescence therein, nor shall it affect any
subsequent default of the same or a different nature. Every such remedy or
right may be exercised concurrently or independently, and when and as often as
may be deemed expedient by Beneficiary. Grantor agrees that without affecting
the liability of any person for payment of the Obligations or affecting the
lien of this Deed of Trust
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<PAGE> 16
upon the Trust Property or any part thereof Beneficiary may at any time and
from time to time, on request of Grantor, without notice to any person liable
for payment of any Obligations, extend the time or agree to alter the terms of
payment of such indebtedness. Acceptance by Beneficiary of any payment in an
amount less than the amount then due on the Obligations shall be deemed an
acceptance on account only, and the failure to pay the entire amount then due
shall continue to be an Event of Default hereunder. At any time thereafter and
until the entire amount then due on the debt has been paid, Beneficiary shall
be entitled to exercise all rights conferred upon it in this Deed of Trust upon
the occurrence of an Event of Default hereunder.
5.13 Protective Advances. All advances, disbursements and
expenditures made or incurred by Beneficiary before and during a foreclosure,
and at any time prior to sale, and, where applicable, after sale, and during
the pendency of any related proceedings, for the following purposes, in
addition to those otherwise authorized by this Deed of Trust (collectively
"Protective Advances"), shall have the benefit of the following provisions:
(a) all advances by Beneficiary in accordance with the
terms of this Deed of Trust to: (i) preserve, maintain, repair, restore or
rebuild the improvements upon the Trust Property; (ii) preserve the lien of
this Deed of Trust or the priority hereof; or (iii) enforce this Deed of Trust;
(b) payments by Beneficiary of: (i) principal, interest
or other obligations in accordance with the terms of any senior deed of trust
or other prior lien or encumbrance on the Trust Property; (ii) real estate
taxes and assessments, general and special and other taxes and assessments of
any kind or nature whatsoever that are assessed or imposed upon the Trust
Property or any part thereof; (iii) other obligations authorized by this Deed
of Trust; or (iv) with court approval, any other amounts in connection with
other liens, encumbrances or interests reasonably necessary to preserve the
status of title to the Trust Property (the payments described in this
subparagraph 5.13(b) shall be subject to the Permitted Encumbrances);
(c) advances by Beneficiary in settlement or compromise
of any claims asserted by claimants under senior deeds of trust or any other
prior liens;
(d) reasonable attorneys' fees and other costs incurred
(including charges for inside counsel): (i) in connection with the foreclosure
of this Deed of Trust; (ii) in connection with any action, suit or proceeding
brought by or against Beneficiary for the enforcement of this Deed of Trust or
arising from the interest of Beneficiary hereunder; or (iii) in preparation for
or in connection with the commencement, prosecution or defense of any other
action that could materially adversely affect the lien of this Deed of Trust or
the Trust Property; and
(e) expenses incurred and expenditures made by
Beneficiary for any one or more of the following: (i) premiums for casualty
and liability insurance paid by Beneficiary whether or not Beneficiary or a
receiver is in possession, if reasonably required, in reasonable amounts, and
all renewals thereof; (ii) repair or restoration of damage or destruction in
excess of available insurance proceeds or condemnation awards; (iii) payments
deemed by Beneficiary to be required for the benefit of the Trust Property or
required to be made by the owner of the Trust Property under any grant or
declaration of easement, easement agreement, agreement with any adjoining land
owners or instruments creating covenants or restrictions for the benefit of or
affecting the Trust Property; and (iv) shared or common expense assessments
payable to any association or corporation in which the owner of the Trust
Property is a member in any way affecting the Trust Property.
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All Protective Advances shall be additional Obligations
secured by this Deed of Trust, and shall become immediately due and payable
upon demand and with interest thereon from the date of the advance until paid
at the Default Rate. This Deed of Trust shall be a lien for all Protective
Advances as to subsequent purchasers and judgment creditors from the time this
Deed of Trust is recorded.
All Protective Advances shall, except to the extent, if any,
that any of the same is clearly contrary to or inconsistent with applicable
law, apply to and be included in:
(a) any determination of the amount of indebtedness
secured by this Deed of Trust at any time;
(b) the indebtedness found due and owing to Beneficiary
upon foreclosure and any subsequent supplemental judgments, orders,
adjudications or finding by the court of any additional indebtedness becoming
due;
(c) determination of amounts deductible from sale
proceeds;
(d) application of income in the hands of any receiver or
Beneficiary in possession; and
(e) computation of any deficiency judgment pursuant to
applicable law.
5.14 Environmental Matters.
(a) Compliance. Grantor shall comply in all material
respects with all local, state, and federal environmental laws, ordinances,
rules, regulations, and requirements applicable to the Trust Property
(collectively, "Environmental Laws"). If Grantor fails to so comply, after
notice to Grantor and a reasonable opportunity to comply, and if such failure
by Grantor could constitute an Event of Default hereunder, Beneficiary may
(without limiting any other rights and remedies of Beneficiary) protect its
secured interest by causing compliance of the Trust Property at Grantor's
expense. Any amounts expended by Beneficiary to cause such compliance with
Environmental Laws shall be paid by Grantor to Beneficiary on demand, with
interest on all such amounts expended from the date of the expenditure until
paid at the Default Rate.
(b) Hazardous Substances.
(i) "Hazardous Substances" shall mean: (A) those
substances included within the definitions of hazardous substances, hazardous
materials, toxic substances, or solid waste in CERCLA, RCRA, the Hazardous
Materials Transportation Act (49 U.S.C. Sections 1801 et seq.), or any other
federal, state, or local laws, and in the regulations promulgated pursuant to
such laws; (B) those substances listed in the United States Department of
Transportation Table (49 C.F.R. 172.101 and amendments) or by the Environmental
Protection Agency (or any successor agency) as hazardous substances (40 C.F.R.
Part 302 and amendments); (C) such other substances, materials, and wastes that
are or that become regulated under applicable Environmental Laws; and (D) any
material, waste, or substance that is (1) petroleum; (2) friable asbestos; (3)
polychlorinated biphenyls; (4) designated as a hazardous substance pursuant to
Section 311 of the Clean Water Act (33 U.S.C. Sections 1251 et seq.) or listed
pursuant to Section 307 of the Clean Water Act (33 U.S.C. 1317); (5) flammable
explosives; or (6) radioactive materials.
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<PAGE> 18
(ii) Grantor shall promptly remove and clean up,
or otherwise deal with, any Hazardous Substances located on the Trust Property
if any Environmental Laws so require the same. If Grantor fails to so comply
after notice and a reasonable opportunity to comply, Beneficiary may, if such
failure by Grantor could constitute an Event of Default hereunder, either
declare this Deed of Trust to be in default or protect its secured interest by
causing such Hazardous Substances to be remediated to levels that are minimally
acceptable to all applicable regulators or agencies having jurisdiction over
the Trust Property at Grantor's expense.
(iii) Grantor shall keep the Trust Property free of
(A) any Hazardous Substances, if any Environmental Laws so require the same,
and (B) any lien other than Permitted Encumbrances imposed pursuant to any
Environmental Laws.
(iv) Grantor shall notify Beneficiary promptly of
Grantor's discovery of (A) the release of any Hazardous Substance
("Contamination") on the Trust Property or any property so situated as to pose
a material risk that such Hazardous Substance may spread onto the Trust
Property ("Adjacent Property"), and/or (B) any past or present material
violation of any Environmental Law on the Trust Property or any Adjacent
Property.
(v) Grantor unconditionally assigns, transfers,
and sets over to Beneficiary all of Grantor's claims and rights to the payment
of damages that may arise from (A) any Contamination on the Trust Property
caused by the spread of such Contamination from any Adjacent Property and/or
(B) the violation of any Environmental Law on any Adjacent Property (the
"Assigned Environmental Rights"). Until the occurrence of an Event of Default
hereunder, Grantor shall (without limiting any other rights and remedies of
Beneficiary) have the right to receive such payments. If an Event of Default
hereunder has occurred and is continuing, Beneficiary shall have the right to
elect either of the following options (which election Beneficiary may change
from time to time):
1. Beneficiary may proceed against the
owner of such Adjacent Property (or the receiver, trustee, custodian, or other
party) in Grantor's name or in Beneficiary's name as agent for Grantor.
Grantor agrees to cooperate with Beneficiary in such action and shall execute
any and all documents required in furtherance of such action; or
2. At Beneficiary's option, Grantor may
proceed in Grantor's and Beneficiary's behalf in which event Beneficiary may
participate in any such proceedings and Grantor from time to time shall deliver
to Beneficiary all instruments that Beneficiary requests or may require to
permit such participation (provided that if the original of any such instrument
need not be delivered to Beneficiary in order to permit such participation,
Grantor may deliver to Beneficiary a copy of the same).
However, Beneficiary shall not initiate such a
proceeding, nor involve itself in such an already existing proceeding, unless
Grantor shall have failed to proceed in Grantor's and Beneficiary's behalf
promptly upon receiving notice from Beneficiary to do so. Grantor shall, at
its expense, diligently prosecute any such proceedings, deliver to Beneficiary
copies of all papers served in connection with any such proceedings, and
consult and cooperate with Beneficiary and its respective attorneys and agents
in carrying on the prosecution of any such proceedings. Grantor shall not
settle any such proceeding without Beneficiary's consent, which consent shall
not be unreasonably withheld. This assignment constitutes a present,
irrevocable, and unconditional assignment of the foregoing claims, rights, and
remedies, and shall continue in effect until the Obligations have been
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<PAGE> 19
satisfied in full. Any amounts that Beneficiary receives as damages arising
out of any Contamination of the Trust Property or the violation of any
Environmental Law on any Adjacent Property shall be applied first to
Beneficiary's costs and expenses (including, without limitation, reasonable
attorneys' fees) (including charges for inside counsel) incurred in connection
with the exercise of the Assigned Environmental Rights.
(c) Asbestos. Grantor shall not install nor permit to be
installed on or in the Trust Property friable asbestos or any substance
containing asbestos except as permitted by federal or state regulations
respecting such material, and with respect to any such material currently
present on or in the Trust Property, Grantor, at its expense, shall promptly
either (i) remove any material that such regulations deem hazardous and require
to be removed or (ii) otherwise comply with such federal and state regulations.
If Grantor shall fail to so remove or otherwise comply, Beneficiary may, after
notice to Grantor and a reasonable opportunity to comply, and if such failure
by Grantor could constitute an Event of Default hereunder, do whatever is
necessary to eliminate such substances from the Trust Property to the extent
required by applicable law or otherwise comply with the applicable law,
regulation, or order, and the costs thereof, together with interest thereon
from the date of such payment at the Default Rate, shall be added to the
Obligations secured by this Deed of Trust. Grantor shall give Beneficiary and
its agents and employees access to the Trust Property to remove, remediate,
encapsulate or otherwise treat such asbestos or substances. Grantor shall
defend, indemnify and save Beneficiary harmless from all costs and expenses
(including consequential damages) asserted or proven against Beneficiary by any
party, as a result of the presence of such substances, and any required removal
or compliance with regulations. The foregoing indemnification shall survive
repayment of the Notes.
(d) Environmental Inspections. Beneficiary may, at any
time after the occurrence of an Event of Default hereunder, enter the Trust
Property to ascertain its environmental condition and in so doing may sample
building materials, take soil samples, test borings and otherwise inspect the
Trust Property. The costs and expenses paid or incurred by Beneficiary in
connection with such inspections and activities shall be reimbursed by Grantor
and shall constitute additional Obligations secured by this Deed of Trust.
(e) Limitation on Breaches. Notwithstanding anything in
this Deed of Trust to the contrary, no failure by Grantor to comply with any
obligations imposed pursuant to this Section 5.14 shall constitute a breach by
Grantor under this Section 5.14 unless and until Grantor fails either to:
(i) within thirty (30) days of receipt of notice
of such failure, cure such failure; or
(ii) where such failure can, in the reasonable
judgment of Grantor, be cured, but, in such reasonable judgment, cannot be
cured within such thirty (30) day period, provide Beneficiary within such
thirty (30) day period with a written plan for completing such cure, which plan
shall set forth (A) the actions to be taken by Grantor to complete such cure;
(B) the estimated cost of such actions; and (C) the estimated date for
completing such cure and implementation of such plan, such implementation to be
completed pursuant to the terms thereof but in no event later than one year
following submittal of such plan, or such longer period as is acceptable to
Beneficiary in its reasonable judgment.
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<PAGE> 20
5.15 Multiple Collateral.
(a) No recovery of any judgment by Beneficiary and no
levy of an execution under any judgment upon the Trust Property or upon any
property of Grantor encumbered by any other Collateral Document shall affect in
any manner or to any extent the lien of this Deed of Trust upon the Trust
Property or any part thereof, and any liens, rights, powers and remedies of
Beneficiary shall continue unimpaired.
(b) Grantor agrees that it shall not at any time insist
upon, plead, seek or in any manner whatever claim or take any benefit or
advantage of a judgment, declaration or a determination that:
(i) the Trust Property or any other property of
Grantor encumbered by a Collateral Document represents, on an individual basis,
an allocable portion of the then outstanding aggregate principal amount of the
Notes or the Obligations;
(ii) a surplus results from an action taken by
Beneficiary against the Trust Property or any other property of Grantor
encumbered by a Collateral Document to recover the Obligations or any portion
thereof, unless the Obligations have been satisfied and paid in full;
(iii) the lien of this Deed of Trust or of any
other Collateral Document has been released, unless the Obligations have been
satisfied and paid in full;
(iv) a deficiency judgment with respect to any
action taken by Beneficiary against the Trust Property or any other property of
Grantor encumbered by a Collateral Document extinguishes all or any portion of
the remaining Obligations, or precludes Beneficiary from proceeding against the
Trust Property or to satisfy such remaining Obligations; or
(v) Beneficiary's commencement, prosecution, or
taking to judgment of any action (including, without limitation, Beneficiary's
acceptance of a deed in lieu of foreclosure) or Beneficiary's application for
or use of any remedy (including, without limitation, the appointment of a
receiver for the Trust Property or any other property of Grantor encumbered by
a Collateral Document) against the Trust Property or any other property of
Grantor encumbered by a Collateral Document precludes or bars Beneficiary
(under a "single action" rule, "security first" rule or similar rule) from
commencing, prosecuting or taking to judgment any other action or applying for
or using any remedy against the Trust Property or any other property of Grantor
encumbered by a Collateral Document.
(c) Beneficiary may, at its option, in such order, and
utilizing such combinations of remedies with respect to the Trust Property
and/or any other property of Grantor encumbered by a Collateral Document as
Beneficiary shall so elect, pursue its remedies against (i) the Trust Property,
individually, or any other property of Grantor encumbered by a Collateral
Document, individually; (ii) the Trust Property and any combination of the
other property of Grantor encumbered by a Collateral Document; (iii) the Trust
Property and all of the other property of Grantor encumbered by a Collateral
Document; or (iv) all or any combination of the other property of Grantor
encumbered by a Collateral Document, in separate proceedings or in one
proceeding in any order which Beneficiary deems appropriate.
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ARTICLE VI. - GENERAL PROVISIONS
6.01 Release. Beneficiary shall release this Deed of
Trust and the lien hereof by proper instrument in accordance with the terms of
the Indenture. Beneficiary shall have no obligation to record any release
instrument.
6.02 Grantor. This Deed of Trust and all provisions
hereof, shall extend to and be binding upon Grantor and all persons claiming
under or through Grantor. Whenever in this Deed of Trust there is reference
made to any of the parties hereto, such reference shall be deemed to include,
wherever applicable, a reference to the heirs, executors and administrators or
successors and assigns (as the case may be) of Grantor and Beneficiary.
Grantor's successors and assigns shall include, without limitation, a receiver,
trustee or debtor-in- possession of or for Grantor.
6.03 Waiver of Rights. Grantor represents, covenants and
acknowledges that the Trust Property does not constitute agricultural real
estate and forms no part of any property owned, used or claimed by Grantor as a
business or residential homestead, or as exempt from forced sale under the laws
of the State of Texas, and disclaims and renounces all and every such claim
thereto. Grantor waives and will not avail itself of any appraisement,
valuation, stay, moratorium, extension or exemption laws now existing or
hereafter enacted (including, without limitation, all rights under and by
virtue of the homestead exemption laws of the State of Texas). Grantor waives
any right to have the property comprising the Trust Property marshalled upon
any foreclosure and agrees that upon a foreclosure the Trust Property may be
sold as an entirety.
6.04 Additional Documents. Grantor agrees that upon
request of Beneficiary it will from time to time execute, acknowledge and
deliver all such additional instruments and further assurances of title and
will do or cause to be done all such further acts and things as may be
reasonably necessary to effectuate fully the intent of this Deed of Trust.
6.05 Notices. All notices and other communications under
this Deed of Trust shall be in writing, except as otherwise provided in this
Deed of Trust. A notice, if in writing, shall be considered as properly given
if given in accordance with the provisions of the Indenture.
6.06 GOVERNING LAW. THIS DEED OF TRUST, THE DEBTS AND
OBLIGATIONS SECURED HEREUNDER, AND ALL OTHER OBLIGATIONS AND AGREEMENTS OF THE
PARTIES HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK EXCEPT TO THE EXTENT OF PROCEDURAL AND
SUBSTANTIVE MATTERS RELATING ONLY TO THE CREATION, PERFECTION AND/OR
FORECLOSURE OF THE LIENS, ASSIGNMENTS AND/OR SECURITY INTERESTS CREATED HEREIN
AND TO THE ENFORCEMENT OF BENEFICIARY'S RIGHTS AND REMEDIES AGAINST THE TRUST
PROPERTY, WHICH MATTERS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
6.07 Usury Savings. In no event shall any provision of
this instrument, the Notes, or any other instrument evidencing or securing the
Obligations ever obligate Grantor to pay or allow Beneficiary to collect
interest on the Notes or any other Obligations secured hereby at a rate greater
than the maximum non-usurious rate permitted by applicable law (herein referred
to as the "Highest Lawful Rate"), or obligate Grantor to pay any amounts that
would be held or deemed to constitute interest under applicable law which, when
added to the interest payable on the Notes or any other
21
<PAGE> 22
notes secured hereby, would be held to constitute the payment by Grantor of
interest at a rate greater than the Highest Lawful Rate; and this provision
shall control over any provision to the contrary. To the extent the Highest
Lawful Rate is determined by reference to the laws of the State of Texas, the
same shall be determined by reference to the indicated (weekly) rate ceiling
(as defined and described in Texas Revised Civil Statutes Article 5069-1.04, as
amended) at the applicable time in effect.
Without limiting the generality of the foregoing, in the event
the maturity of all or any part of the principal amount of the Obligations
shall be accelerated for any reason, then such principal amount so accelerated
shall be credited with any interest theretofore paid thereon in advance and
remaining unearned at the time of such acceleration. If, pursuant to the terms
of this instrument or the Note, any funds are applied to the payment of any
part of the principal amount of the Obligations prior to the maturity thereof,
then (a) any interest which would otherwise thereafter accrue on the principal
amount so paid by such application shall be canceled, and (b) the Obligations
remaining unpaid after such application shall be credited with the amount of
all interest, if any, theretofore collected on the principal amount so paid by
such application and remaining unearned at the date of said application; and if
the funds so applied shall be sufficient to pay in full all the Obligations,
then Beneficiary shall refund to Grantor all interest theretofore paid thereon
in advance and remaining unearned at the time of such acceleration. Regardless
of any other provision in this instrument, or in any of the written evidences
of the Obligations, Grantor shall never be required to pay any unearned
interest on the Obligations or any portion thereof, and shall never be required
to pay interest thereon at a rate in excess of the Highest Lawful Rate
construed by courts having competent jurisdiction thereof.
6.08 Time of Essence. Time is of the essence of this Deed
of Trust and of every part hereof of which time is an element.
6.09 Severability. If any one or more of the provisions
contained herein shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such illegality or unenforceability shall, at the
option of Beneficiary, not affect any other provision hereof, but this Deed of
Trust shall be construed as if such invalid, illegal or unenforceable provision
had never been contained herein.
6.10 Future Advances. To the extent Beneficiary has bound
itself to make advances pursuant to and subject to the terms of the Indenture,
and the parties hereby acknowledge and intend that all such advances, including
future advances, if any, whenever hereafter made, shall be secured by this Deed
of Trust with the same priority as the initial amounts advanced under the
Indenture and secured by this Deed of Trust.
6.11 Final Agreement of the Parties. In consideration of
the premises and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor hereby confirms and
agrees that this Deed of Trust (including the Exhibits hereto), the Indenture,
the Notes, any guarantees of the Notes executed by any guarantors and all other
loan documents related hereto or thereto executed by any of the parties hereto
or thereto substantially concurrently herewith together constitute a written
"loan agreement" as defined in Section 26.02(a) of the Texas Business and
Commerce Code.
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<PAGE> 23
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Grantor has duly executed and delivered
this Deed of Trust as of the day and year first above written.
AMERICAN RICE, INC.,
a Texas corporation
By:______________________________________
Its______________________________________
By:______________________________________
Its______________________________________
23
<PAGE> 24
STATE OF _______________ )
)
COUNTY OF ______________ )
Before me, the undersigned authority, on this day personally
appeared ___________________, __________________ of American Rice, Inc., known
to me to be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that (s)he executed the same for the purposes and
consideration therein expressed, in the capacity stated, and as the act of said
corporation.
Given under my hand and seal of office this ___ day of
________ 1995.
_________________________________________
Notary Public
Notary's Name (printed):
Notary's commission expires: ____________
STATE OF _________________ )
)
COUNTY OF ________________ )
Before me, the undersigned authority, on this day personally
appeared ___________________, __________________ of American Rice, Inc., known
to me to be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that (s)he executed the same for the purposes and
consideration therein expressed, in the capacity stated, and as the act of said
corporation.
Given under my hand and seal of office this ___ day of
________ 1995.
_________________________________________
Notary Public
Notary's Name (printed):
Notary's commission expires: ____________
<PAGE> 25
Exhibit "A"
[Legal Description]
<PAGE> 26
Exhibit "A-1"
Permitted Encumbrances
<PAGE> 1
Exhibit 4.9
Recording at the Request of and
when Recorded Mail Original to:
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Edith R. Perez, Esq.
DEED OF TRUST, LEASEHOLD DEED OF TRUST,
SECURITY AGREEMENT, FIXTURE FILING AND
ASSIGNMENT OF RENTS, LEASES AND LEASEHOLD INTERESTS
(CALIFORNIA)
THIS DEED OF TRUST, LEASEHOLD DEED OF TRUST, SECURITY
AGREEMENT, FIXTURE FILING AND ASSIGNMENT OF RENTS, LEASES AND LEASEHOLD
INTERESTS (this "Deed of Trust") is made and entered into as of __________,1995
by and among AMERICAN RICE, INC., a Texas corporation whose address is 16825
Northchase Drive, Suite 1600, Houston, Texas 77060 ("Trustor"), CHICAGO TITLE
COMPANY, a Missouri corporation whose address is _________________________
("Trustee"), and U.S. TRUST COMPANY OF TEXAS, N.A., whose address is
__________________________________________, in its capacity as trustee under the
Indenture (as hereinafter defined) ("Beneficiary").
Recitals
A. Beneficiary and Trustor are the parties to that certain
Indenture dated as of _________, 1995 (the "Indenture"). Unless otherwise
defined, capitalized terms are used in this Deed of Trust as they are defined in
the Indenture.
B. Trustor has, under the Indenture, issued its ___% Mortgage
Notes due 2005 (the "Notes") in the aggregate principal amount of $100,000,000.
C. The Indenture requires that the obligations of Trustor under
the Notes and the Indenture be secured by liens and security interests covering
certain property of Trustor. In connection therewith, Trustor is executing and
delivering this Deed of Trust in accordance with the Indenture.
NOW, THEREFORE, in consideration of the foregoing recitals and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Trustor agrees as follows:
<PAGE> 2
ARTICLE I - GRANT OF DEED OF TRUST
1.01 Grant of Deed of Trust. Trustor does hereby irrevocably
grant, assign, bargain, convey, transfer, warrant and set over unto Trustee, IN
TRUST, WITH POWER OF SALE, under and subject to the terms and conditions hereof,
for the benefit and security of Beneficiary, all of Trustor's right, title and
interest in and to all of the following property (collectively, the "Trust
Property"), subject only to Liens permitted under the Indenture (the "Permitted
Encumbrances"):
(a) the real property described in Exhibit "A" attached hereto
and by this reference incorporated herein, including, without limitation, and
all air rights with respect thereto (the "Fee Property");
(b) (i) that certain leasehold estate under the lease described
in Exhibit "B" attached hereto covering the real property described therein (the
"Trustor's Tenancy Lease") (said real property and the Fee Property are
hereinafter collectively referred to as the "Land"), and (ii) Trustor's right of
election (the "365(h) Election") to remain in possession under Section 365(h) of
the Bankruptcy Code, as amended from time to time (the "Bankruptcy Code"), or
any replacement therefor, in the event that the lessor or landlord thereunder is
a debtor thereunder and rejects the Trustor's Tenancy Lease (herein collectively
called the "Encumbered Lease");
(c) any and all buildings and all other improvements now on, or
hereafter constructed on, the Land, and all fixtures, construction materials,
goods (including, without limitation, consumer goods, equipment, farm products
and inventory) and other articles of real and personal property which are now or
hereafter affixed to, placed upon or used in connection with the Trust Property;
(d) any and all lands, structures, improvements, tenements and
hereditaments of whatever kind or description and wherever situated, now owned
by, or at any time hereafter acquired by or for, Trustor and contiguous or
appurtenant to the Land, and all other things of whatsoever kind and in any way
or at any time belonging or appurtenant to, or used in connection with, any of
the other Trust Property (including, without limitation, all right, title and
interest of Trustor now owned or hereafter acquired in and to any land lying
within the right-of-way of any street, open or proposed, adjoining the Land, and
any and all sidewalks, alleys and strips of land adjacent to or used in
connection with the Land);
(e) any and all furniture, fixtures, equipment, machinery
(including, without limitation, any and all equipment and machinery used for
processing rice and/or rice products), appliances, construction materials,
personal property, supplies, tools, paintings, sculptures, murals, art work,
books, records and files, and now or hereafter or from time to time situated on
or in or used in connection with the Land and/or the improvements thereon,
whether or not affixed to the realty, including, but not limited to, lighting,
heating, electrical, ventilating, air conditioning, sprinkling, mechanical and
plumbing materials, fixtures, supplies and equipment; water and power systems;
engines; boilers; furnaces; elevators; pipes; ducts; conduits; motors;
refrigeration plants; awnings; shrubbery; ranges; ovens; refrigerators;
cabinets; dishwashers; disposals; carpeting, and all after-acquired property in
the same categories; and all additions and/or accessions to, and all renewals,
substitutions and replacements of any of the foregoing, and all other things of
whatsoever kind and in any way or at any time belonging or appurtenant to, or
used in connection with, any of the other Trust Property;
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(f) any and all rights of Trustor under any leases or other
agreements entered by Trustor (as a "landlord," "sublandlord," "lessor,"
"sublessor" or similar capacity) now in existence or hereafter arising and
providing for the use and occupancy of all or any portion of the Trust Property
(each a "Lease," and collectively the "Leases");
(g) any and all additions, betterments and improvements
hereafter acquired or constructed upon or in connection with any other property,
real or personal, now or at any time hereafter subject to the lien of this Deed
of Trust;
(h) any and all rights, powers, franchises, privileges,
immunities, permits and licenses now or hereafter owned or possessed by Trustor
that now or at any time hereafter may be necessary for, or appurtenant to, the
use, operation, management, maintenance, renewal, alteration or improvement of
any of the other Trust Property;
(i) all income, rents, security or similar deposits, revenues,
issues, royalties, profits, earnings, products and proceeds from any and all of
the Land or any buildings or other improvements thereon (collectively, the
"Rents, Issues and Profits"), together with the right to collect and apply the
same to any indebtedness secured hereunder, subject, however, to the right
hereafter given to Trustor to collect the Rents, Issues and Profits as long as
Trustor is not in default hereunder;
(j) all oil and gas or other mineral rights in or pertaining to
the Land and all royalty, leasehold and other rights of Trustor pertaining
thereto;
(k) all refundable utility, tenant, escrow and governmental
fees and deposits, and all refundable fees and deposits of every other nature;
(l) all water and water rights in or pertaining to the Land,
including, without limitation, shares of stock evidencing the same, and all
deposits made with or other security given to utility companies by Trustor with
respect to the Land or any buildings or other improvements thereon; and
(m) all claims or demands relating to insurance or condemnation
awards which Trustor now has or may hereafter acquire with respect to the Land
or any buildings or other improvements thereon and/or to the Rents, Issues and
Profits, including, without limitation, all advance payments of insurance
premiums made by Trustor with respect thereto.
The Trust Property and the Security Agreement Collateral (as hereinafter
defined) are hereby defined as "Collateral", as that term is used in the
Indenture.
TO HAVE AND TO HOLD the Trust Property unto Trustee, its
successors and assigns forever, FOR THE PURPOSE OF SECURING, in such order of
priority as Trustee and Beneficiary may elect, the indebtedness and obligations
described in Section 1.03 hereof.
1.02 Status of Title; Defense of Actions and Costs. Trustor has
the right to mortgage and convey the Trust Property to Trustee and Beneficiary
and will warrant and defend the same to Trustee and Beneficiary and their
respective successors and assigns against the lawful claims and demands of all
persons. The leasehold estate created by the Trustor's Tenancy Lease is not
subject to any Liens other than this Deed of Trust and the Permitted
Encumbrances. The Trustor's Tenancy Lease is in full force and effect without
default by any of the parties thereto, and Trustor is
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the holder of the lessee's or tenant's interest thereunder. Trustor agrees to
protect, preserve and defend Trustee's and Beneficiary's interests in the Trust
Property and title thereto; to appear and defend this Deed of Trust in any
action or proceeding affecting or purporting to affect the Trust Property, the
lien or security interest of this Deed of Trust thereon, or any of the rights of
Trustee or Beneficiary hereunder, and to pay all costs and expenses incurred by
Trustee or Beneficiary in or in connection with any such action or proceeding,
including reasonable attorneys' fees, whether or not any such action or
proceeding progresses to judgment and whether or not brought by or against
Trustee or Beneficiary. Trustee and Beneficiary shall be reimbursed for any such
costs and expenses in accordance with the provisions of this Deed of Trust and
the other Collateral Documents. Trustee or Beneficiary may, but shall not be
under any obligation to, appear or intervene in any such action or proceeding
and retain counsel therein and defend the same or otherwise take such action
therein as it be advised and may settle or compromise the same and, in that
behalf and for any of such purposes, may expend and advance such sums of money
as it reasonably may deem necessary, and shall be reimbursed therefor in
accordance with the provisions of this Deed of Trust and the other Collateral
Documents.
1.03 Obligations Secured. This Deed of Trust is given for the
purpose of securing all of the Obligations of Trustor under the Indenture, the
Notes, this Deed of Trust, that certain Environmental Indemnity Agreement dated
as of even date herewith made by Trustor in favor of Beneficiary (but only to
the extent provided therein), and the other Collateral Documents. Trustor shall
pay and perform the Obligations at the times and places and in the manner
specified in the Notes and the Indenture. This Deed of Trust shall secure unpaid
balances of all loans and other such extensions of credit made after this Deed
of Trust is recorded, whether made pursuant to an obligation of Beneficiary to
make such loans or extensions or otherwise. Such Obligations and other
extensions of credit may or may not be evidenced by notes executed pursuant to
the Indenture. All future advances will have the same priority as the original
advance. Any agreement hereafter made by Trustor and Beneficiary pursuant to
this Deed of Trust shall be superior to the rights of the holder of any
intervening lien or encumbrance to the extent allowed by law.
1.04 After-Acquired Property. If Trustor hereafter acquires (a)
any property that is of the kind or nature described in Section 1.01 hereof and
is or is intended to become a part thereof, or (b) an interest in any of the
Trust Property greater than the interest now held, then such property or
interest shall, immediately upon such acquisition, become subject to the lien of
this Deed of Trust as fully and completely and with the same effect as though
now owned by Trustor and specifically described herein, without need for the
delivery and/or recording of a supplement to this Deed of Trust or any other
instrument; but nevertheless Trustor shall from time to time, if requested by
Beneficiary, execute and deliver any and all such further assurances,
conveyances and assignments thereof as Beneficiary may reasonably require for
the purpose of expressly and specifically subjecting to the lien of this Deed of
Trust any and all such property or interest.
ARTICLE II - COVENANTS CONCERNING THE TRUST PROPERTY
2.01 Taxes Impositions.
(a) Payment. Subject to Section 2.01(c), Trustor will pay, or
cause to be paid, promptly, when and as due, all taxes, assessments, charges,
fees, fines and impositions of every nature whatsoever charged, imposed, levied
or assessed or to be charged, imposed, levied or assessed upon or against the
Trust Property or any part thereof, or upon the interest of Trustee or
Beneficiary in the Trust Property, including without limitation (i) all material
income taxes, assessments and other
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governmental charges lawfully levied and imposed by the United States or any
state, county, municipality or other taxing or assessing authority in respect of
the Trust Property or any part thereof; (ii) all material non-governmental
levies or assessments such as maintenance charges, owner's association dues,
charges or fees, levies or charges resulting from covenants, conditions and
restrictions affecting the Trust Property or any part thereof; and (iii) any
other material charge that, if unpaid, would or could become a lien or charge
upon the Trust Property, or any part thereof (all of which are hereafter
collectively referred to as the "Impositions").
(b) Alternative Impositions. If at any time after the date
hereof there shall be assessed or imposed (i) a tax or assessment on the Trust
Property in lieu of or in addition to the Imposition payable by Trustor pursuant
to subparagraph (a) above, or (ii) a license fee, tax or assessment imposed on
Trustee or Beneficiary and measured by or based in whole or in part upon the
amount of the outstanding obligation secured hereby (but excluding any state or
federal income or franchise tax), then all such taxes, assessments, or fees
shall be deemed to be included within the term "Impositions" as defined in
subparagraph 2.01(a) above, and Trustor shall pay and discharge the same as
herein provided with respect to the payment of Impositions. Anything to the
contrary herein notwithstanding, Trustor shall have no obligation to pay any
franchise, estate, inheritance, income or excess profits tax levied on Trustee
or Beneficiary other than those imposed solely by reason of such person acting
as Trustee or Beneficiary hereunder.
(c) Contests. Trustor shall have the right, before the
occurrence of any delinquency, to contest or object to the amount or validity of
any such Imposition by appropriate legal proceedings, but such right shall not
be deemed or construed in any way as relieving, modifying or extending Trustor's
covenant to pay any such Imposition at the time and in the manner provided in
Section 2.01(a) hereof, unless Trustor has given prior written notice to
Beneficiary of Trustor's intent so to contest or object to an Imposition, and
unless: (i) the legal proceedings shall operate conclusively to prevent the sale
of the Trust Property, or any part thereof, to satisfy such Impositions prior to
final determination of such proceedings; or (ii) Trustor shall furnish a good
and sufficient bond or surety in the amount of the Impositions that are being
contested plus any interest and penalty that may be imposed thereon and that
could become a lien against the Trust Property and in a manner to stay or
prevent the sale, or other security reasonably satisfactory to Beneficiary; or
(iii) Trustor shall have provided a good and sufficient undertaking as may be
required or permitted by law to accomplish a stay of such proceedings; or (iv)
Trustor shall have paid such Impositions under protest and is suing to recover
any refunds thereof. Subject to the foregoing, and if Beneficiary shall so
request, within sixty (60) days after the date when an Imposition is due and
payable, Trustor shall deliver to Beneficiary evidence reasonably acceptable to
Beneficiary showing the payment of such Imposition. In the event that Trustor
contests or objects to an Imposition in accordance with the foregoing, then
Trustor shall promptly and diligently proceed to resolve the dispute concerning
the Imposition in a manner not prejudicial to Beneficiary or its rights
hereunder.
(d) Payment by Beneficiary. Beneficiary shall have the right,
after demand to Trustor, to pay any Imposition after the date such Imposition
shall have become due, if Trustor's failure to pay such Imposition constitutes
or would constitute, with the giving of notice by Beneficiary or the passage of
time, an Event of Default hereunder, unless Trustor shall be contesting such
Imposition pursuant to Section 2.01(c) hereof, and to add to the Obligations the
amount so paid, together with interest thereon from the date of such payment at
the rate of interest on overdue principal set forth in [Section 4.01] of the
Indenture (the "Default Rate") and nothing herein contained shall affect such
right and such remedy. Any sums paid by Beneficiary or Trustee in discharge of
any Impositions shall be (i) a future advance hereunder and a lien on the Trust
Property secured
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hereby prior to any right or title to, interest in, or claim upon the Trust
Property subordinate to the lien of this Deed of Trust, and (ii) payable on
demand.
(e) No Credit. Trustor shall not claim, demand or be entitled
to receive any credit or credits towards the satisfaction of this Deed of Trust
or on any interest payable thereon for any taxes assessed against the Trust
Property or any part thereof, and shall not claim any deduction from the taxable
value of the Trust Property by reason of this Deed of Trust.
2.02 Mechanic's and Other Liens. Trustor will not suffer any
mechanic's, laborer's, materialmen's, statutory or other lien or any security
interest or encumbrance to be created or to remain outstanding (other than
Permitted Encumbrances).
2.03 Utilities. Trustor will pay, or cause to be paid, when due
any charges for utilities, whether public or private, with respect to the Trust
Property or any part thereof.
2.04 Insurance.
(a) Maintenance. Trustor will obtain and maintain insurance
with respect to the Trust Property in accordance with the provisions of the
Indenture. From and after the entry of judgment of foreclosure, all rights and
powers of Beneficiary to settle or participate in the settlement of losses under
policies of insurance or to hold and disburse or otherwise control use of
insurance proceeds shall continue in Beneficiary as judgment creditor or
mortgagee until confirmation of sale.
(b) Proceeds. If the Trust Property is materially damaged or
destroyed, Trustor shall give prompt notice thereof to Beneficiary and all
insurance proceeds shall (except as otherwise provided in Section 4.10 of the
Indenture) be paid to Beneficiary to be applied in accordance with Section
4.10(b) of the Indenture, Trustor hereby assigning such proceeds to Beneficiary.
2.05 Condemnation. Immediately upon obtaining knowledge of the
institution of any proceedings for the condemnation of the Trust Property, or
any material portion thereof, Trustor will notify Beneficiary of the pendency of
such proceedings. Trustor hereby assigns, transfers and sets over unto
Beneficiary its entire interest in all condemnation proceeds and the same shall
be applied in accordance with the provisions of Section 4.10 of the Indenture.
2.06 Restoration. Restoration of any of the Trust Property
after partial or complete casualty or condemnation shall be performed in
accordance with the applicable provisions of the Indenture.
2.07 Care of the Trust Property.
(a) Preservation and Maintenance. Trustor will preserve and
maintain the Trust Property in accordance with the provisions of the Indenture.
(b) Notice of Damage. If the Trust Property or any part thereof
is materially damaged by fire or any other cause, Trustor will give prompt
written notice thereof to Beneficiary.
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(c) Right to Inspect. Beneficiary or its representative is
hereby authorized, with reasonable advance notice to Trustor, to enter upon and
inspect the Trust Property at any time during normal business hours.
ARTICLE III - ASSIGNMENT OF LEASES AND RENTS
3.01 Assignment of Leases and Rents. As additional
consideration for the Obligations, Trustor hereby absolutely assigns and
transfers to Beneficiary the following:
(a) the Leases;
(b) any and all guaranties of the obligations of the tenants
(the "Tenants") under any of such Leases; and
(c) the immediate and continuing right to collect and receive
all of the Rents, Issues and Profits now due or that may become due or to which
Trustor may now or shall hereafter (whether during any applicable period of
redemption, or otherwise) become entitled or may demand or claim, arising or
issuing from or out of the Leases, or from or out of the Trust Property or any
part thereof.
3.02 Trustor's Limited License. Provided that no Event of
Default hereunder exists and no event has occurred that with notice, or lapse of
time, or both would constitute an Event of Default hereunder, Trustor shall have
the right under a license granted hereby and Beneficiary hereby grants to
Trustor a license to collect, but not more than one month in advance, all of the
Rents arising from or out of the Leases or any renewals or extensions thereof,
or from or out of the Trust Property or any part thereof, but only as trustee
for the benefit of Beneficiary. Trustor shall apply the Rents so collected first
to payment of any and all amounts due and payable under the Indenture.
Thereafter, so long as no Event of Default hereunder exists and no event has
occurred that with notice, or lapse or time or both would constitute an Event of
Default hereunder, Trustor may use the Rents in any manner not inconsistent with
the Indenture. The license granted hereby shall be revoked automatically upon
the occurrence of an Event of Default hereunder.
3.03 Limitation. The acceptance by Beneficiary of the
assignment provided in this Article III, together with all of the rights,
powers, privileges and authority created in this Article III or elsewhere in
this Deed of Trust, shall not, prior to entry upon and taking possession of the
Trust Property by Beneficiary, be deemed or construed to constitute Beneficiary
a "mortgagee in possession" nor thereafter or at any time or in any event
obligate Beneficiary to appear in or defend any action or proceeding relating to
the Leases, the Rents or the Trust Property or to take any action hereunder or
to expend any money or incur any expenses or perform or discharge any obligation
or responsibility for any security deposits or other deposits delivered to
Trustor by any Tenant and not assigned and delivered to Beneficiary, nor shall
Beneficiary be liable in any way for any injury or damage to person or property
sustained by any person or persons, firm or corporation in or about the Trust
Property.
3.04 Performance by Trustor. Trustor shall perform its
obligations under the Leases in accordance with their terms. A default by
Trustor in the performance of any obligation under any Lease, by reason of which
default the Tenant or other party thereunder has the right to cancel such Lease
or to claim any diminution or offset against future Rents, Issues or Profits
shall, at
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the option of Beneficiary, whether or not such rights are exercised by the
Tenant or other party, constitute an Event of Default hereunder to the extent an
Event of Default hereunder would exist under Section 4.01 hereof, and
Beneficiary shall have all the rights and remedies provided hereunder as if such
default had occurred under this Deed of Trust.
3.05 No Merger of Lease. If the estates of all parties to any
Lease shall at any time become vested in one owner, this Deed of Trust and the
lien created hereby shall not be destroyed or terminated by application of the
doctrine of merger, and in such event, Beneficiary shall continue to have and
enjoy all of the rights and privileges of Beneficiary as to the separate
estates. In addition, upon the foreclosure of the lien created by this Deed of
Trust, any Leases then existing and affecting all or any portion of the Trust
Property shall not be destroyed or terminated by application of the law of
merger or as a matter of law or as a result of such foreclosure unless
Beneficiary or any purchaser at any such foreclosure sale shall so elect in
writing. No act by or on behalf of Beneficiary or any such purchaser shall
constitute a termination of any Lease or sublease unless Beneficiary or such
purchaser shall give written notice thereof to such Lessee or sublessee.
ARTICLE IV - DEFAULTS AND REMEDIES
4.01 Events of Default. An Event of Default shall mean the
occurrence of any Event of Default under the Indenture, which Events of Default
are incorporated herein by this reference.
4.02 Performance of Defaulted Acts. From and after the
occurrence of an Event of Default hereunder, Beneficiary may, but need not, make
any payment or perform any act herein required of Trustor in any form and manner
deemed expedient, including, without limitation, making full or partial payments
of principal or interest on prior encumbrances, if any, and purchasing,
discharging, compromising or settling any tax lien or other prior lien or title
or claim thereof, or redeeming from any tax sale or forfeiture affecting the
Trust Property or contesting any tax or assessment. All moneys paid for any of
the purposes herein authorized and all expenses paid or incurred in connection
therewith, including reasonable attorneys' fees (including charges for in-house
counsel), shall be included among the Obligations and shall be due and payable
upon demand and with interest thereon from the date of such payment or expense
at the Default Rate. Inaction of Beneficiary shall never be considered as a
waiver of any right accruing to it hereunder on account of any default on the
part of Trustor. Beneficiary, in making any payment hereby authorized relating
to taxes or assessments, may do so according to any bill, statement or estimate
procured from the appropriate public office without inquiry into the accuracy of
such bill, statement or estimate or into the validity of any tax, assessment,
sale, forfeiture, tax lien or title or claim thereof.
4.03 Remedies. Upon the occurrence of any Event of Default
hereunder, Beneficiary may, at its option:
(a) declare all sums secured hereby to be immediately due and
payable, and the same shall thereupon become immediately due and payable without
any presentment, demand, protest or notice of any kind;
(b) terminate Trustor's right and license to collect the Rents,
Issues and Profits and either in person or by agent, with or without bringing
any action or proceeding, or by a receiver appointed by a court, and without
regard to the adequacy of its security, enter upon and take
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possession of the Trust Property, or any part thereof, in its own name or in the
name of Trustee, and do any acts which it deems necessary or desirable to
preserve the value, marketability or rentability of the Trust Property, or any
part thereof or interest therein, make, modify, enforce, cancel or accept the
surrender of any Lease, take actions which may affect the income therefrom or
protect the security hereof, and with or without taking possession of the Trust
Property, sue for or otherwise collect the Rents, Issues and Profits, including,
without limitation, those past due and unpaid, and apply the same, less costs
and expenses of operation and collection, including, without limitation,
attorneys' fees (including charges for in house counsel), upon any indebtedness
secured hereby, all in such order as Beneficiary may determine. From and after
receipt of written instrument from Beneficiary to pay Rents, Issues and Profits
directly to Beneficiary or another party designated by Beneficiary, each Tenant
shall pay all such payments under its Lease in the manner instructed by
Beneficiary. The entering upon and taking possession of the Trust Property or
any portion thereof, the collection of the Rents, Issues and Profits and the
application thereof as aforesaid, or any of such acts, shall not cure or waive
any default or notice of default hereunder or invalidate any act done in
response to such default or pursuant to such notice, and notwithstanding the
continuance in possession of the Trust Property or the collection, receipt and
application of the Rents, Issues and Profits, Trustee or Beneficiary shall be
entitled to exercise every right provided for in any of the Indenture, the
Notes, or the other Collateral Documents or by law upon the occurrence of any
Event of Default hereunder, including, without limitation, the right to exercise
the power of sale provided herein;
(c) commence an action to foreclose this Deed of Trust as a
mortgage, appoint a receiver, or specifically enforce any of the covenants of
this Deed of Trust;
(d) deliver to Trustee a written declaration of default and
demand for sale, and a written notice of default to cause Trustor's interest in
the Trust Property or any portion thereof to be sold, which notice Trustee or
Beneficiary shall cause to be duly filed for recording in the Official Records
of the County in which the Trust Property is located; and/or
(e) exercise all other rights and remedies provided herein, in
the Indenture, the Notes, the other Collateral Documents or in any other
document or agreement now or hereafter securing all or any portion of the
Obligations, or at law or in equity, or any combination of any such rights or
remedies, to the extent permitted by law.
Upon request by Beneficiary, Trustor shall assemble and make
available to Beneficiary at the Land any of the Trust Property which is not
located on the Land or which has been removed therefrom.
4.04 Foreclosure by Power of Sale. Should Beneficiary elect to
foreclose by exercise of the power of sale contained herein, Beneficiary shall
notify Trustee and shall, if required, deposit with Trustee the original or a
certified copy of this Deed of Trust and such other documents, receipts and
evidences of expenditures made and secured hereby as Trustee may require.
(a) Upon receipt of such notice from Beneficiary, Trustee shall
cause to be recorded and delivered to Trustor such notice of default as may then
be required by law and by this Deed of Trust. At the direction of Beneficiary,
Trustee shall, without demand on Trustor, after lapse of such time as may then
be required by law and after recordation of such notice of default and after
notice of sale has been given as required by law, sell the Trust Property at the
time and place of sale fixed by it in said notice of sale, either as a whole or
in separate lots or parcels or items as Trustee shall deem expedient, and in
such order as it may determine, at public auction to the highest bidder
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for cash in lawful money of the United States payable at the time of sale.
Trustee shall deliver to the purchaser or purchasers at such sale its good and
sufficient deed or deeds conveying the property so sold, but without any
covenant or warranty, express or implied. The recitals in such deed of any
matters or facts shall be conclusive proof of the truthfulness thereof. Any
person, including, without limitation, Trustor, Trustee or Beneficiary, may
purchase at such sale, and Trustor hereby covenants to warrant and defend the
title of such purchaser or purchasers.
(b) After deducting all costs, fees and expenses of Trustee and
of this Deed of Trust, including, without limitation, costs of evidence of title
and attorneys' fees (including charges for in house counsel) of Trustee or
Beneficiary in connection with a sale as provided in subparagraph 4.04(a) above,
Trustee shall apply the proceeds of such sale (i) to the payment of all sums
expended under the terms hereof not then repaid, with accrued interest at the
rate of interest equal to the rate then in effect under the Notes; (ii) to the
payment of all other sums then secured hereby; and (iii) the remainder, if any,
to the person or persons legally entitled thereto.
(c) Trustee may postpone the sale of all or any portion of the
Trust Property by public announcement at the time and place of the scheduled
sale, and from time to time thereafter may postpone such sale by public
announcement at the time fixed by the preceding postponement or subsequent
notice of sale, and without further notice may make such sale at the time fixed
by the last postponement, or may, in its discretion, give a new notice of sale.
(d) To the fullest extent allowed by law, Trustor hereby
expressly waives any right which it may have to direct the order in which any of
the Trust Property shall be sold in the event of any sale or sales pursuant to
this Deed of Trust.
4.05 Rescission of Notice of Default. Beneficiary may from time
to time rescind any notice of default or notice of sale before any Trustee's
sale as provided above, by executing and delivering to Trustee a written notice
of such rescission, which such notice, when recorded, shall constitute a
cancellation of any prior declaration of default and demand for sale. The
exercise by Beneficiary of such right of rescission shall not constitute a
waiver of any breach or default then existing or subsequently occurring, or
impair the right of Beneficiary to execute and deliver to Trustee, as above
provided, other declarations or notices of default to satisfy the obligations of
this Deed of Trust or other Obligations, nor otherwise affect any provision,
covenant or condition of any of the Indenture, the Notes or the Collateral
Documents or any of the rights, obligations or remedies of Trustee or
Beneficiary hereunder or thereunder.
4.06 Appointment of Receiver. If an Event of Default hereunder
shall have occurred and be continuing, Beneficiary, as a matter of right and
without notice to Trustor or to anyone claiming under Trustor, and without
regard to the then value of the Trust Property or the interest of Trustor
therein, shall have the right to apply to any court having jurisdiction to
appoint a receiver or receivers of the Trust Property, or any portion thereof,
and Trustor hereby irrevocably consents to such appointment and waives notice of
any application therefor. Any such receiver or receivers shall have the usual
powers and duties of receivers in like or similar cases and all the powers and
duties of Beneficiary in case of entry as provided in subparagraph 4.03(b)
above, and shall continue as such and exercise all such powers under the date of
confirmation of the sale of the Trust Property, unless such receivership is
sooner terminated.
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4.07 Remedies Not Exclusive; Waiver. Trustee and Beneficiary,
and each of them, shall be entitled to enforce the payment and performance of
any indebtedness or obligations secured hereby and to exercise all rights and
powers under this Deed of Trust or under any other Collateral Document or other
agreement or any laws now or hereafter in force, notwithstanding the fact that
some or all of the indebtedness and obligations secured hereby may now or
hereafter be otherwise secured, whether by mortgage, deed of trust, pledge,
lien, assignment or otherwise. Neither the acceptance of this Deed of Trust nor
its enforcement, whether by court action or pursuant to the power of sale or
other powers contained herein, shall prejudice or in any manner affect Trustee's
or Beneficiary's right to realize upon or enforce any other rights or security
now or hereafter held by Trustee or Beneficiary. Trustee and Beneficiary, and
each of them, shall be entitled to enforce this Deed of Trust and any other
rights or security now or hereafter held by Beneficiary or Trustee in such order
and manner as they or either of them may in their absolute discretion determine.
No remedy herein or by law provided or permitted, but each shall be cumulative
and in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity. Every power or remedy given by any of the
Collateral Documents to Trustee or Beneficiary, or to which either of them may
be otherwise entitled, may be exercised, concurrently or independently, from
time to time and as often as may be deemed expedient by Trustee or Beneficiary,
and either of them may pursue inconsistent remedies. By exercising or by failing
to exercise any right, option or election hereunder, Beneficiary shall not be
deemed to have waived any provision hereof or to have released Trustor from any
of the obligations secured hereby unless such waiver or release is in writing
and signed by Beneficiary. The waiver by Beneficiary of Trustor's failure to
perform or observe any term, covenant, or condition referred to or contained
herein to be performed or observed by Trustor shall not be deemed to be a waiver
of such term, covenant or condition or any subsequent failure of Trustor to
perform or observe the same or any other such term, covenant or condition
referred to or contained herein, and no custom or practice which may develop
between Trustor and Beneficiary during the term hereof shall be deemed a waiver
of or in any way affect the right of Beneficiary to insist upon the performance
by Trustor of the obligations secured hereby in strict accordance with the terms
hereof or any other Collateral Document.
4.08 Request for Notice. Trustor hereby requests a copy of any
notice of default and requests that any notice of sale hereunder be mailed to it
at the address set forth above or at such other address or addresses as Trustor
may designate pursuant to Paragraph 6.06 hereof. Otherwise, neither Trustee nor
Beneficiary is under any obligation to notify any person or entity of any action
or proceeding of any kind in which Trustor, Beneficiary and/or Trustee shall be
a party, or of any pending sale under any other deed of trust, except as may
otherwise be required by law.
4.09 Multiple Collateral.
(a) No recovery of any judgment by Trustee or Beneficiary and
no levy of an execution under any judgment upon the Trust Property or upon any
property of Trustor encumbered by any other Collateral Document shall affect in
any manner or to any extent the lien of this Deed of Trust upon the Trust
Property or any part thereof, or any liens, rights, powers and remedies of
Trustee or Beneficiary shall continue unimpaired.
(b) Trustor agrees that it shall not at any time insist upon,
plead, seek or in any manner whatever claim or take any benefit or advantage of
a judgment, declaration or a determination that:
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(i) the Trust Property or any other property of Trustor
encumbered by a Collateral Document represents, on an individual basis, an
allocable portion of the then outstanding aggregate principal amount of the
Notes or the Obligations;
(ii) a surplus results from an action taken by Trustee or
Beneficiary against the Trust Property or any other property of Trustor
encumbered by a Collateral Document to recover the Obligations or any portion
thereof, unless the Obligations have been satisfied and paid in full;
(iii) the lien of this Deed of Trust or of any other Collateral
Document has been released, unless the Obligations have been satisfied and paid
in full;
(iv) a deficiency judgment with respect to any action taken by
Trustee or Beneficiary against the Trust Property or any other property of
Trustor encumbered by a Collateral Document extinguishes all or any portion of
the remaining Obligations, or precludes Trustee or Beneficiary from proceeding
against the Trust Property or to satisfy such remaining Obligations; or
(v) Trustee's or Beneficiary's commencement, prosecution, or
taking to judgment of any action (including, without limitation, Trustee's or
Beneficiary's acceptance of a deed in lieu of foreclosure) or Trustee's or
Beneficiary's application for or use of any remedy (including, without
limitation, the appointment of a receiver for the Trust Property or any other
property of Trustor encumbered by a Collateral Document) against the Trust
Property or any other property of Trustor encumbered by a Collateral Document
precludes or bars Trustee or Beneficiary (under a "single action" rule,
"security first" rule or similar rule) from commencing, prosecuting or taking to
judgment any other action or applying for or using any remedy against the Trust
Property or any other property of Trustor encumbered by a Collateral Document.
(c) Beneficiary may, at its option, in such order, and utilizing
such combinations of remedies with respect to the Trust Property and/or any
other property of Trustor encumbered by a Collateral Document as Beneficiary
shall so elect, pursue its remedies against (i) the Trust Property,
individually, or any other property of Trustor encumbered by a Collateral
Document, individually; (ii) the Trust Property and any combination of the other
property of Trustor encumbered by a Collateral Document; (iii) the Trust
Property and all of the other property of Trustor encumbered by a Collateral
Document; or (iv) all or any combination of the other property of Trustor
encumbered by a Collateral Document, in separate proceedings or in one
proceeding in any order which Beneficiary deems appropriate.
4.10 Rights Cumulative. No remedy or right of Beneficiary shall be
exclusive of, but each such remedy or right shall be in addition to, every other
remedy or right now or hereafter existing at law or in equity. No delay in the
exercise or omission to exercise of any remedy or right accruing on any default
shall impair any such remedy or right or be construed to be a waiver of any such
default or an acquiescence therein, nor shall it affect any subsequent default
of the same or a different nature. Every such remedy or right may be exercised
concurrently or independently, and when and as often as may be deemed expedient
by Beneficiary. Trustor agrees that without affecting the liability of any
person for payment of the Obligations or affecting the lien of this Deed of
Trust upon the Trust Property or any part thereof Beneficiary may at any time
and from time to time, on request of Trustor, without notice to any person
liable for payment of any Obligations, extend the time or agree to alter the
terms of payment of such indebtedness. Acceptance by Beneficiary of any payment
in an amount less than the amount then due on the Obligations shall be deemed an
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<PAGE> 13
acceptance on account only, and the failure to pay the entire amount then due
shall continue to be an Event of Default hereunder. At any time thereafter and
until the entire amount then due on the debt has been paid, Beneficiary shall be
entitled to exercise all rights conferred upon it in this Deed of Trust upon the
occurrence of an Event of Default hereunder.
4.11 Protective Advances. All advances, disbursements and
expenditures made or incurred by Beneficiary before and during a foreclosure,
and before and after judgment of foreclosure, and at any time prior to sale,
and, where applicable, after sale, and during the pendency of any related
proceedings, for the following purposes, in addition to those otherwise
authorized by this Deed of Trust or by applicable law (collectively "Protective
Advances"), shall have the benefit of all applicable provisions of law,
including those referred to below:
(a) all advances by Beneficiary in accordance with the terms of
this Deed of Trust to: (i) preserve, maintain, repair, restore or rebuild the
improvements upon the Trust Property; (ii) preserve the lien of this Deed of
Trust or the priority hereof; or (iii) enforce this Deed of Trust;
(b) payments by Beneficiary of: (i) principal, interest or other
obligations in accordance with the terms of any senior deed of trust or other
prior lien or encumbrance on the Trust Property; (ii) real estate taxes and
assessments, general and special and other taxes and assessments of any kind or
nature whatsoever that are assessed or imposed upon the Trust Property or any
part thereof; (iii) other obligations authorized by this Deed of Trust; or (iv)
with court approval, any other amounts in connection with other liens,
encumbrances or interests reasonably necessary to preserve the status of title
to the Trust Property;
(c) advances by Beneficiary in settlement or compromise of any
claims asserted by claimants under senior deeds of trust or any other prior
liens;
(d) reasonable attorneys' fees and other costs incurred (including
charges for in house counsel): (i) in connection with the judicial or
nonjudicial foreclosure of this Deed of Trust; (ii) in connection with any
action, suit or proceeding brought by or against Beneficiary for the enforcement
of this Deed of Trust or arising from the interest of Beneficiary hereunder; or
(iii) in preparation for or in connection with the commencement, prosecution or
defense of any other action that could materially adversely affect the lien of
this Deed of Trust or the Trust Property;
(e) expenses deductible from proceeds of sale; and
(f) expenses incurred and expenditures made by Beneficiary for any
one or more of the following: (i) premiums for casualty and liability insurance
paid by Beneficiary whether or not Beneficiary or a receiver is in possession,
if reasonably required, in reasonable amounts, and all renewals thereof, without
regard to the limitation to maintain insurance in effect at the time any
receiver or mortgagee takes possession of the Trust Property; (ii) repair or
restoration of damage or destruction in excess of available insurance proceeds
or condemnation awards; (iii) payments deemed by Beneficiary to be required for
the benefit of the Trust Property or required to be made by the owner of the
Trust Property under any grant or declaration of easement, easement agreement,
agreement with any adjoining land owners or instruments creating covenants or
restrictions for the benefit of or affecting the Trust Property; and (iv) shared
or common expense assessments payable to any association or corporation in which
the owner of the Trust Property is a member in any way affecting the Trust
Property.
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All Protective Advances shall be additional Obligations secured by
this Deed of Trust, and shall become immediately due and payable upon demand and
with interest thereon from the date of the advance until paid at the Default
Rate. This Deed of Trust shall be a lien for all Protective Advances as to
subsequent purchasers and judgment creditors from the time this Deed of Trust is
recorded.
All Protective Advances shall, except to the extent, if any, that
any of the same is clearly contrary to or inconsistent with the applicable
provisions of law, apply to and be included in:
(a) any determination of the amount of indebtedness secured by
this Deed of Trust at any time;
(b) the indebtedness found due and owing to Beneficiary in the
judgment of foreclosure and any subsequent supplemental judgments, orders,
adjudications or findings by the court of any additional indebtedness becoming
due after such entry of judgment, it being agreed that in any foreclosure
judgment, the court may reserve jurisdiction for such purpose; and
(c) application of income in the hands of any receiver or
mortgagee in possession.
ARTICLE V - ADDITIONAL COVENANTS
REGARDING THE TRUSTOR'S TENANCY LEASE
5.01 Status of Lease. Trustor represents and warrants that: (a)
Trustor has not executed or entered into any modifications or amendments of the
Trustor's Tenancy Lease, either orally or in writing, other than written
amendments that have been disclosed to Beneficiary in writing; (b) the Trustor's
Tenancy Lease is in full force and effect, unmodified by any writing or
otherwise, except as previously disclosed by Trustor to Beneficiary; (c) all
rent and other charges reserved in the Trustor's Tenancy Lease have been paid to
the extent they are payable to the date hereof; (d) Trustor enjoys the quiet and
peaceful possession of the property demised by the Trustor's Tenancy Lease; (e)
Trustor is not in default in any material respect under any of the terms of the
Trustor's Tenancy Lease; and (f) no event has occurred that, with the giving of
notice or the passage of time or both, would constitute such a default or would
entitle Trustor or any other party under the Trustor's Tenancy Lease to cancel
the same or otherwise avoid its obligations.
5.02 Performance of Lease. Trustor agrees: (a) to promptly and
faithfully observe, perform and comply in all material respects with all the
terms, covenants and provisions of the Trustor's Tenancy Lease on its part to be
observed, performed and complied with, at the times set forth therein; (b) to
give Beneficiary immediate notice of any material default by anyone under the
Trustor's Tenancy Lease; and (c) to furnish to Beneficiary such additional
information and evidence as Beneficiary may reasonably request in writing
concerning the due observance, performance and compliance with the terms,
covenants and provisions of the Trustor's Tenancy Lease. No release or
forbearance of any of Trustor's obligations under the Trustor's Tenancy Lease
shall release Trustor from any of its obligations under this Deed of Trust,
including its obligations with respect to the payment of rent and performance of
all of the terms and provisions of the Trustor's Tenancy Lease to be performed
by Trustor.
5.03 Cure by Beneficiary. In the event of any default by Trustor
in the performance of any of its obligations under the Trustor's Tenancy Lease,
including, without limitation, any default
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<PAGE> 15
in the payment of rent and other charges and impositions payable by the tenant
thereunder, that Beneficiary determines could constitute, with the giving of
notice or the passage of time, an Event of Default hereunder, then, in each and
every case, Beneficiary may, at its option and without notice (but without any
obligation to do so), cause the default or defaults to be remedied and otherwise
exercise any and all of the rights of Trustor thereunder in the name of and on
behalf of Trustor. Trustor shall, on demand, reimburse Beneficiary for all
advances made and expenses incurred by Beneficiary in curing any such default
(including, without limitation, reasonable attorneys' fees), together with
interest thereon at the highest rate payable from time to time on the
Obligations, from the date that an advance is made or expense is incurred, to
and including the date the same is paid.
5.04 No Merger of Estates. It is hereby agreed that the fee title
and the leasehold estate in the property demised by the Trustor's Tenancy Lease
shall not merge but shall always be kept separate and distinct, notwithstanding
the union of such estates in the landlord thereunder, Trustor or a third party,
whether by purchase or otherwise. If Trustor acquires the fee title or any other
estate, title or interest in the Land covered by the Trustor's Tenancy Lease or
any part thereof, the lien of this Deed of Trust shall attach to, cover and be a
lien upon such acquired estate, title or interest and such estate, title or
interest shall thereupon be and become a part of the Trust Property with the
same force and effect as if specifically encumbered herein. Trustor agrees to
execute all instruments and documents that Beneficiary may reasonably require to
ratify, confirm and further evidence Beneficiary's lien on the acquired estate,
title or interest. Furthermore, Trustor hereby appoints Beneficiary its true and
lawful attorney-in-fact to execute and deliver all such instruments and
documents in the name and on behalf of Trustor. This power, being coupled with
an interest, shall be irrevocable as long as any Obligations remain unpaid.
5.05 No Assignment of Lease. Anything herein to the contrary
notwithstanding, this Deed of Trust shall not constitute an assignment of the
Trustor's Tenancy Lease within the meaning of any provisions thereof prohibiting
its assignment and Beneficiary shall have no liability or obligation thereunder
by reason of its acceptance of this Deed of Trust.
5.06 Maintenance of Lease. Trustor will not surrender its
leasehold estate under the Trustor's Tenancy Lease nor terminate or cancel the
Trustor's Tenancy Lease. Trustor shall not agree to any amendment of the
Trustor's Tenancy Lease without the prior written consent of Beneficiary.
5.07 Treatment of the Lease in Bankruptcy.
(a) 365(h) Election. If the lessor under the Trustor's Tenancy
Lease (the "Lessor") rejects or disaffirms, or seeks or purports to reject or
disaffirm, the Trustor's Tenancy Lease pursuant to any bankruptcy law, then
Trustor shall not, except as otherwise provided in this paragraph, exercise the
election to remain in possession of the premises provided by section 365(h) of
the United States Bankruptcy Code (the "365(h) Election"), or any comparable
right provided under any other bankruptcy law. To the extent permitted by law,
Trustor shall not suffer or permit the termination of the Trustor's Tenancy
Lease or relinquishment of its possession of its leasehold, by exercise of the
365(h) Election or otherwise without Beneficiary's consent. Trustor acknowledges
that because the Trustor's Tenancy Lease is a primary element of Beneficiary's
security for the Obligations secured hereunder, it is not anticipated that
Beneficiary would consent to termination of the Trustor's Tenancy Lease. If
Trustor makes any 365(h) Election in violation of this Deed of Trust, then such
365(h) Election shall be void and of no force or effect.
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<PAGE> 16
(b) Assignment to Beneficiary. Trustor hereby assigns to
Beneficiary the 365(h) Election with respect to the Trustor's Tenancy Lease.
Trustor acknowledges and agrees that the foregoing assignment of the 365(h)
Election and related rights is one of the rights that Beneficiary may use at any
time to protect and preserve Beneficiary's other rights and interests under this
Deed of Trust. Trustor further acknowledges that exercise of the 365(h) Election
in favor of terminating the Trustor's Tenancy Lease would constitute waste
prohibited by this Deed of Trust. Trustor acknowledges and agrees that the
365(h) Election is in the nature of a remedy available to Trustor under the
Trustor's Tenancy Lease and is not a property interest that Trustor can separate
from the Trustor's Tenancy Lease as to which it arises. Therefore, Trustor
agrees and acknowledges that exercise of the 365(h) Election in favor of
preserving the right to possession under the Trustor's Tenancy Lease shall not
be deemed to constitute Beneficiary's taking or sale of the Trust Property (or
any element thereof) and shall not entitle Trustor to any credit against the
Obligations or otherwise impair Beneficiary's remedies.
(c) Scope of Collateral. Trustor acknowledges that if the 365(h)
Election is exercised in favor of Trustor's remaining in possession under the
Trustor's Tenancy Lease, then Trustor's resulting occupancy rights, as adjusted
by the effect of Section 365 of the Bankruptcy Code, shall then be part of the
Trust Property and shall be subject to the lien of this Deed of Trust.
ARTICLE VI - GENERAL PROVISIONS
6.01 Release. Upon written request from Beneficiary, Trustee shall
fully reconvey, without warranty, this Deed of Trust and the lien hereof by
proper instrument in accordance with the terms of the Indenture. The recitals in
any such reconveyance of any matters of facts shall be conclusive proof of the
truthfulness thereof. The grantee in such reconveyance may be described as "the
person or persons legally entitled thereto." Beneficiary shall have no
obligation to record any release instrument.
6.02 Trustor. This Deed of Trust and all provisions hereof, shall
extend to and be binding upon Trustor and all persons claiming under or through
Trustor. Whenever in this Deed of Trust there is reference made to any of the
parties hereto, such reference shall be deemed to include, wherever applicable,
a reference to the heirs, executors and administrators or successors and assigns
(as the case may be) of Trustor, Trustee and Beneficiary. Trustor's successors
and assigns shall include, without limitation, a receiver, trustee or
debtor-in-possession of or for Trustor.
6.03 Additional Documents. Trustor agrees that upon request of
Beneficiary it will from time to time execute, acknowledge and deliver all such
additional instruments and further assurances of title and will do or cause to
be done all such further acts and things as may be reasonably necessary to fully
protect, preserve, perfect and maintain the security of Beneficiary hereunder
and otherwise effectuate the intent of this Deed of Trust.
6.04 Statute of Limitations. To the fullest extent allowed by law,
the right to plead, use or assert any statute of limitations as a plea or
defense or bar of any kind, or for any purpose, to any debt, demand or
obligation secured or to be secured hereby, or to any complaint or other
pleading or proceeding filed, instituted or maintained for the purpose of
enforcing this Deed of Trust or any rights hereunder, is hereby waived by
Trustor.
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6.05 Severability. The invalidity of any one or more covenants,
phrases, clauses, sentences or paragraphs of this Deed of Trust shall not affect
the remaining portions of this Deed of Trust or any part thereof, and the same
shall be construed as if such invalid covenants, phrases, clauses, sentences or
paragraphs, if any, had not been inserted herein. If the lien of this Deed of
Trust is invalid or unenforceable as to any part of the indebtedness secured
hereby, or if the lien is invalid or unenforceable as to any part of the Trust
Property, the unsecured or partially secured portion of such indebtedness shall
be completely paid prior to the payment of the remaining and secured or
partially secured portion of such indebtedness, and all payments made on such
indebtedness, whether voluntary or under foreclosure or other enforcement action
or procedure, shall be considered to have been first paid on and applied to the
full payment of that portion of such indebtedness which is not secured or fully
secured by the lien of this Deed of Trust.
6.06 Notices. Whenever Beneficiary, Trustor or Trustee shall
desire to give or serve any notice, demand, request or other communication with
respect to this Deed of Trust, each such notice, demand, request or other
communication shall be in writing and (except as otherwise provided herein)
shall be effective only if the same is delivered by telex or telecopier, by
personal service, or mailed by registered or certified mail, postage prepaid,
return receipt requested, or in the case of any such notice given or served by
Trustee, in such other manner as may be allowed by law, addressed to the
addresses first above written. Any party may at any time change its address or
telecopier number for such notices by delivering or mailing to the other parties
hereto, as aforesaid, a notice of such change. Notice shall be deemed effective
when sent, unless otherwise specified in the Indenture.
6.07 Waiver of Remedies. By accepting payment of any amount
secured hereby after its due date, or an amount which is less than the amount
then due, or performance of any obligation required hereunder after the date
required for such performance, Beneficiary does not waive its right to require
prompt payment or performance when due of all other amounts or obligations so
secured or declare a default by reason of the failure to so pay or perform.
6.08 Trustee's Powers. At any time or from time to time without
liability therefor and without notice to Trustor, upon written request of
Beneficiary and presentation of the original or certified copies of this Deed of
Trust, and without affecting the personal liability of any person for payment of
the indebtedness secured hereby or the effect of this Deed of Trust upon the
remainder of the Trust Property, Trustee may (a) reconvey any part of the Trust
Property, (b) consent in writing to the making of any map or plat of all or any
part of the Property, (c) join in granting any easement on any part of the Trust
Property, or (d) join in any extension agreement or any agreement subordinating
the lien or charge of this Deed of Trust.
6.09 Beneficiary's Powers. Without affecting the liability of
Trustor or any other person liable for the payment of any obligation secured
hereby, and without affecting the lien or charge of this Deed of Trust upon any
portion of the Trust Property not then or theretofore released as security for
the full amount of all unpaid obligations, Beneficiary may, from time to time
and without notice (a) release any person so liable, (b) extend the maturity or
alter any of the terms of any such obligation, or join in any agreement
modifying the terms of the Indenture or any Collateral Document, (c) waive any
provision hereof or grant other indulgences, (d) release or reconvey, or cause
to be released or reconveyed, at any time at Beneficiary's option, all or any
part of the Trust Property, (e) take or release any other or additional security
for any obligation herein mentioned, (f) make compositions or other arrangements
with debtors in relation thereto, or (g) subordinate the lien or charge of this
Deed of Trust.
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6.10 Substitution of Trustee. Beneficiary may, from time to time
by written instrument executed and acknowledged by Beneficiary and recorded in
the county or counties where the Land is located, and by otherwise complying
with the provisions of California Civil Code Section 2934a or any successor
statute, substitute a successor or successors for Trustee named herein or acting
hereunder.
6.11 Additional Security. If Beneficiary at any time holds
additional security for any of the obligations secured hereby, all such security
shall be taken, considered and held as cumulative, and Beneficiary may enforce
the sale thereof or otherwise realize upon the same, at its option, either
before or concurrently with the exercise of any of its rights or remedies
hereunder or after a sale is made hereunder. The taking of additional security,
execution of partial releases of the security, or any extension of the time of
payment of the indebtedness secured hereby shall not diminish the force, effect
or impair the liability of any maker, surety or endorser for the payment of any
such indebtedness.
6.12 Captions. The captions or headings at the beginning of each
Paragraph hereof are for the convenience of the parties and are not to be
construed as a part of this Deed of Trust.
6.13 Trust Irrevocable; No Offset. The Trust created hereby is
irrevocable by Trustor. No offset or claim that Trustor now has or may in the
future have against Beneficiary or Trustee shall relieve Trustor from paying the
amounts or performing the obligations contained herein or secured hereby.
6.14 Corrections. Trustor shall, upon request of Trustee, promptly
correct any defect, error or omission which may be discovered in the contents of
this Deed of Trust or in the execution or acknowledgment hereof, and will
execute, acknowledge and deliver such further instruments and do such further
acts as may be necessary or as may be reasonably requested by Trustee to carry
out more effectively the purposes of this Deed of Trust, to subject to the lien
and security interest hereby created any of Trustor's properties, rights or
interest covered or intended to be covered hereby, and to perfect and maintain
such lien and security interest.
6.15 Attorneys' Fees. All references to "attorneys' fees" in this
Deed of Trust shall include without limitation such reasonable amounts as may
then be charged by Beneficiary for legal services furnished by attorneys in the
employ of Beneficiary (including charges for in house counsel), at rates not to
exceed those that would be charged by outside attorneys for comparable services.
6.16 Amendments. This Deed of Trust cannot be waived, changed,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of any waiver, change, discharge or
termination is sought.
6.17 Acceptance by Trustee. Trustee accepts this Trust when this
Deed of Trust, duly executed and acknowledged, is made a public record as
provided by law.
6.18 Authorization to Rely. Trustee, upon presentation to it of an
affidavit signed by or on behalf of Beneficiary, setting forth any fact or facts
showing a default by Trustor under any of the terms or conditions of this Deed
of Trust, is authorized to accept as true and conclusive all facts and
statements in such affidavit and to act hereunder in complete reliance thereon.
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6.19 Governing Law. This Deed of Trust, the debts and obligations
secured hereunder, and all other obligations and agreements of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of New York except to the extent of procedural and substantive matters
relating only to the creation, perfection and/or foreclosure of the liens,
assignments and/or security interests created herein and to the enforcement of
Beneficiary's rights and remedies against the Trust Property, which matters
shall be governed by the laws of the State of California.
6.20 Time of Essence. Time is of the essence of this Deed of Trust
and of every part hereof of which time is an element.
6.21 Future Advances. To the extent Beneficiary has bound itself
to make advances pursuant to and subject to the terms of the Indenture, and the
parties hereby acknowledge and intend that all such advances, including future
advances, if any, whenever hereafter made, shall be secured by this Deed of
Trust with the same priority as the initial amounts advanced and secured by this
Deed of Trust.
6.22 Actions by Beneficiary to Preserve. Should an Event of
Default hereunder or any event that could with the passage of time or the giving
of notice constitute an Event of Default hereunder occur, Beneficiary, in its
own discretion, without obligation so to do and without further notice to or
demand upon Trustor and without releasing Trustor from any obligation, may make
or do the same in such manner and to such extent as either may deem necessary to
protect the security hereof. In connection therewith (without limiting
Beneficiary's general powers), Beneficiary shall have and is hereby given the
right, but not the obligation (a) to enter upon and take possession of the Trust
Property, (b) to make additions, alterations, repairs and improvements to the
Trust Property which it may consider necessary or proper to keep the Trust
Property in good condition and repair, (c) to appear and participate in any
action or proceeding affecting or which may affect the security hereof or the
rights or powers of Beneficiary hereunder, (d) to pay, purchase, contest or
compromise any encumbrance, claim, charge, lien or debt which in the judgment of
either may affect or appear to affect the security of this Deed of Trust or be
or appear to affect the security of this Deed of Trust or be or appear to be
prior or superior hereto, and (e) in exercising such powers, to pay necessary
expenses and employ necessary or desirable consultants.
6.23 Reimbursement. Trustor shall pay immediately upon demand all
sums expended for expenses paid or incurred by Beneficiary, including, without
limitation, court costs, expenses for evidence of title, appraisals and surveys,
trustees' fees and attorneys' fees (including charges for in house counsel),
under any of the terms of this Deed of Trust, including, without limitation, the
provisions of Paragraph 6.22 above, together with interest on the amount of each
expenditure from the date of such expenditure at a rate of interest equal to the
rate then in effect under the Indenture, or if the Notes have been repaid, the
rate that would have been in effect under the Indenture.
6.24 Fixture Filing. This Deed of Trust constitutes a fixture
filing under Section 9313 and 9402(6) of the California Uniform Commercial Code,
as amended or recodified from time to time.
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IN WITNESS WHEREOF, Trustor has duly executed and delivered this
Deed of Trust as of the day and year first above written.
AMERICAN RICE, INC.
a Texas corporation
By:____________________________
Its:___________________________
By:____________________________
Its:___________________________
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STATE OF ___________)
) ss.
COUNTY OF___________)
BEFORE ME, a Notary Public, in and for said county and state,
personally appeared the above-named AMERICAN RICE, INC., a Texas corporation, by
________________ , its ________________ who acknowledged that he did sign the
foregoing instrument and that the same is his free act and deed and the free act
and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal
at this ___ day of 1995.
_______________________________
Notary Public
STATE OF ___________)
) ss.
COUNTY OF___________)
BEFORE ME, a Notary Public, in and for said county and state,
personally appeared the above-named AMERICAN RICE, INC., a Texas corporation, by
_________________ , its _________________ who acknowledged that he did sign the
foregoing instrument and that the same is his free act and deed and the free act
and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal
at this ___ day of 1995.
______________________________
Notary Public
<PAGE> 22
Exhibit "A"
Legal Description
<PAGE> 23
Exhibit "B"
Trustor's Tenancy Lease
Lease, dated October 1, 1974, between Colusa-Glenn Drier Company, as Landlord,
and United Rice Growers and Millers (predecessor in interest to Trustor), as
Tenant, as amended by that certain Agreement Amending Lease dated as of April 9,
1979.
<PAGE> 1
EXHIBIT 4.10
Recording at the Request of and
when Recorded Mail Original to:
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Edith R. Perez, Esq.
MORTGAGE AND ASSIGNMENT OF RENTS,
LEASES AND LEASEHOLD INTERESTS
(ARKANSAS)
THIS MORTGAGE AND ASSIGNMENT OF RENTS, LEASES AND LEASEHOLD
INTERESTS (this "Mortgage") is made and entered into as of ____________, 1995
by and between AMERICAN RICE, INC., a Texas corporation, ("Mortgagor"), having
a business address of 16825 Northchase Drive, Suite 1600, Houston, Texas 77060,
and U.S. TRUST COMPANY OF TEXAS, N.A., in its capacity as trustee under the
Indenture (as hereinafter defined), whose mailing address is _________________
________________________________ ("Mortgagee").
Recitals
A. Mortgagee and Mortgagor are the parties to that
certain Indenture dated as of ___________, 1995 (the "Indenture"). Unless
otherwise defined, capitalized terms are used in this Mortgage as they are
defined in the Indenture.
B. Mortgagor has, under the Indenture, issued its
__________% Mortgage Notes due 2005 (the "Notes") in the aggregate principal
amount of $100,000,000.
C. The Indenture requires that the obligations of
Mortgagor under the Notes and the Indenture be secured by liens and security
interests covering certain property of Mortgagor. In connection therewith,
Mortgagor is executing and delivering this Mortgage in accordance with the
Indenture.
NOW, THEREFORE, in consideration of the foregoing recitals and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Mortgagor agrees as follows:
ARTICLE I. - GRANT OF MORTGAGE
1.01 Grant of Mortgage. Mortgagor does hereby mortgage,
pledge, assign, bargain, hypothecate, convey, grant, transfer, warrant and set
over unto Mortgagee with mortgage covenants all of Mortgagor's right, title and
interest in and to all of the following property (collectively, the "Mortgaged
Property") subject only to Liens permitted under the Indenture ("Permitted
Encumbrances"):
<PAGE> 2
(a) the real property located in the City of Stuttgart,
Arkansas County, Arkansas, as more particularly described in Exhibit "A"
attached hereto and by this reference incorporated herein, including, without
limitation, all air rights with respect thereto (the "Land");
(b) any and all buildings and all other improvements now
on, or hereafter constructed on, the Land;
(c) any and all lands, fixtures, structures,
improvements, tenements and hereditaments of whatever kind or description and
wherever situated, now owned by, or at any time hereafter acquired by or for,
Mortgagor and contiguous or appurtenant to the Land, and all other things of
whatsoever kind and in any way or at any time belonging or appurtenant to, or
used in connection with, any of the other Mortgaged Property;
(d) any and all leases and leasehold rights now held or
hereafter acquired by Mortgagor for use in connection with or belonging or
appertaining to any of Mortgagor's real property now or hereafter subject to
the lien of this Mortgage;
(e) any and all additions, betterments and improvements
hereafter acquired or constructed upon or in connection with any other
property, real or personal, now or at any time hereafter subject to the lien of
this Mortgage; and
(f) any and all rights, powers, franchises, easements,
privileges, immunities, permits and licenses now or hereafter owned or
possessed by Mortgagor that now or at any time hereafter may be necessary for,
or appurtenant to, the use, operation, management, maintenance, renewal,
alteration or improvement of any of the other Mortgaged Property.
The Mortgaged Property is hereby defined as "Collateral" as that term is used
in the Indenture.
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, its
successors and assigns forever, for the purpose of securing in such order of
priority as Mortgagee may elect, the indebtedness and obligations described in
Section 1.03 hereof.
1.02 Status of Title. Mortgagor has the right to mortgage
and convey the Mortgaged Property to Mortgagee and will warrant and defend the
same to Mortgagee and its successors and assigns against the lawful claims and
demands of all persons. Mortgagor agrees to protect, preserve and defend
Mortgagee's interest in the Mortgaged Property and title thereto; to appear and
defend this Mortgage in any action or proceeding affecting or purporting to
affect the Mortgaged Property, the lien or security interest of this Mortgage
thereon, or any of the rights of Mortgagee hereunder, and to pay all costs and
expenses incurred by Mortgagee in or in connection with any such action or
proceeding, including reasonable attorneys' fees, whether or not any such
action or proceeding progresses to judgment and whether or not brought by or
against Mortgagee. Mortgagee shall be reimbursed for any such costs and
expenses in accordance with the provisions of this Mortgage and the other
Collateral Documents. Mortgagee, after notice to Mortgagor, may, but shall not
be under any obligation to, appear or intervene in any such action or
proceeding and retain counsel therein and defend the same or otherwise take
such action therein as it be advised and may settle or compromise the same and,
in that behalf and for any of such purposes, may expend and advance such sums
of money as it reasonably may deem necessary, and shall be reimbursed therefor
in accordance with the provisions of this Mortgage and the other Collateral
Documents.
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1.03 Obligations Secured. This Mortgage is given for the
purpose of securing all of the Obligations of Mortgagor under the Indenture,
the Notes, this Mortgage and the other Collateral Documents. Mortgagor shall
pay and perform the Obligations at the times and places and in the manner
specified in the Notes and the Indenture. This Mortgage shall secure unpaid
balances of all loans and other such extensions of credit made after this
Mortgage is recorded, whether made pursuant to an obligation of Mortgagee to
make such loans or extensions or otherwise. Such Obligations and other
extensions of credit may or may not be evidenced by notes executed pursuant to
the Indenture. All future advances will have the same priority as the original
advance. Any agreement hereafter made by Mortgagor and Mortgagee pursuant to
this Mortgage shall be superior to the rights of the holder of any intervening
lien or encumbrance to the extent allowed by law.
1.04 After-Acquired Property. If Mortgagor hereafter
acquires (a) any property that is of the kind or nature described in Section
1.01 hereof and is or is intended to become a part thereof, or (b) an interest
in any of the Mortgaged Property greater than the interest now held, then such
property or interest shall, immediately upon such acquisition, become subject
to the lien of this Mortgage as fully and completely and with the same effect
as though now owned by Mortgagor and specifically described herein, without
need for the delivery and/or recording of a supplement to this Mortgage or any
other instrument; but nevertheless Mortgagor shall from time to time, if
requested by Mortgagee, execute and deliver any and all such further
assurances, conveyances and assignments thereof as Mortgagee may reasonably
require for the purpose of expressly and specifically subjecting to the lien of
this Mortgage any and all such property or interest.
ARTICLE II. - COVENANTS CONCERNING THE MORTGAGED PROPERTY
2.01 Taxes and Governmental Impositions.
(a) Payment. Subject to Section 2.01(b), Mortgagor will
pay, or cause to be paid, promptly, when and as due, all taxes, assessments,
charges, fees, fines and impositions of every nature whatsoever charged,
imposed, levied or assessed or to be charged, imposed, levied or assessed upon
or against the Mortgaged Property or any part thereof, or upon the interest of
Mortgagee in the Mortgaged Property, as well as all income taxes, assessments
and other governmental charges lawfully levied and imposed by the United States
or any state, county, municipality or other taxing authority in respect of the
Mortgaged Property or any part thereof or any charge that, if unpaid, would or
could become a lien or charge upon the Mortgaged Property, or any part thereof
(the "Impositions").
(b) Contests. Mortgagor shall have the right before any
delinquency occurs to contest or object to the amount or validity of any such
Imposition by appropriate legal proceedings, but such right shall not be deemed
or construed in any way as relieving, modifying or extending Mortgagor's
covenant to pay any such Imposition at the time and in the manner provided in
Section 2.01(a) hereof, unless Mortgagor has given prior written notice to
Mortgagee of Mortgagor's intent so to contest or object to an Imposition, and
unless: (i) the legal proceedings shall operate conclusively to prevent the
sale of the Mortgaged Property, or any part thereof, to satisfy such
Impositions prior to final determination of such proceedings; or (ii) Mortgagor
shall furnish a good and sufficient bond or surety in the amount of the
Impositions that are being contested plus any interest and penalty that may be
imposed thereon and that could become a lien against the Mortgaged Property and
in a manner to stay or prevent the sale, or other security reasonably
satisfactory to Mortgagee; or (iii) Mortgagor shall have provided a good and
sufficient undertaking as may be
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<PAGE> 4
required or permitted by law to accomplish a stay of such proceedings; or (iv)
Mortgagor shall have paid such Impositions under protest and is suing to
recover any refunds thereof. Subject to the foregoing, and if Mortgagee shall
so request, within sixty (60) days after the date when an Imposition is due and
payable, Mortgagor shall deliver to Mortgagee evidence reasonably acceptable to
Mortgagee showing the payment of such Imposition.
(c) Payment by Mortgagee. Mortgagee shall have the
right, after demand to Mortgagor, to pay any Imposition after the date such
Imposition shall have become due if Mortgagor's failure to pay such Imposition
constitutes or would constitute, with the giving of notice by Mortgagee or the
passage of time, an Event of Default hereunder unless Mortgagor shall be
contesting such Imposition pursuant to Section 2.01(b) hereof, and to add to
the Obligations the amount so paid, together with interest thereon from the
date of such payment at the rate of interest on overdue principal set forth in
[Section 4.01] of the Indenture (the "Default Rate"), and nothing herein
contained shall affect such right and such remedy. Any sums paid by Mortgagee
in discharge of any Impositions shall be (i) a future advance hereunder and a
lien on the Mortgaged Property secured hereby prior to any right or title to,
interest in, or claim upon the Mortgaged Property subordinate to the lien of
this Mortgage, and (ii) payable on demand.
(d) No Credit. Mortgagor shall not claim, demand or be
entitled to receive any credit or credits towards the satisfaction of this
Mortgage or on any interest payable thereon for any taxes assessed against the
Mortgaged Property or any part thereof, and shall not claim any deduction from
the taxable value of the Mortgaged Property by reason of this Mortgage.
2.02 Mechanic's and Other Liens. Mortgagor will not
suffer any mechanic's, laborer's, materialmen's, statutory or other lien or any
security interest or encumbrance to be created or to remain outstanding (other
than Permitted Encumbrances).
2.03 Utilities. Mortgagor will pay, or cause to be paid,
when due any charges for utilities, whether public or private, with respect to
the Mortgaged Property or any part thereof.
2.04 Insurance.
(a) Maintenance. Mortgagor will obtain and maintain
insurance with respect to the Mortgaged Property in accordance with the
provisions of the Indenture. From and after the entry of judgment of
foreclosure, all rights and powers of Mortgagee to settle or participate in the
settlement of losses under policies of insurance or to hold and disburse or
otherwise control use of insurance proceeds shall continue in Mortgagee as
judgment creditor or mortgagee until confirmation of sale.
(b) Proceeds. If the Mortgaged Property is materially
damaged or destroyed, Mortgagor shall give prompt notice thereof to Mortgagee
and all insurance proceeds shall (except as otherwise provided in Section 4.10
of the Indenture) be paid to Mortgagee to be applied in accordance with Section
4.10(b) of the Indenture, Mortgagor hereby assigning such proceeds to
Mortgagee.
2.05 Condemnation. Immediately upon obtaining knowledge
of the institution of any proceedings for the condemnation of the Mortgaged
Property, or any material portion thereof, Mortgagor will notify Mortgagee of
the pendency of such proceedings. Mortgagor hereby assigns, transfers and sets
over unto Mortgagee its entire interest in all condemnation proceeds and the
same shall be applied in accordance with the provisions of Section 4.10 of the
Indenture.
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2.06 Restoration. Restoration of any of the Mortgaged
Property after partial or complete casualty or condemnation shall be performed
in accordance with the applicable provisions of the Indenture.
2.07 Care of the Mortgaged Property.
(a) Preservation and Maintenance. Mortgagor will
preserve and maintain the Mortgaged Property in accordance with the provisions
of the Indenture.
(b) Notice of Damage. If the Mortgaged Property or any
part thereof is materially damaged by fire or any other cause, Mortgagor will
give prompt written notice thereof to Mortgagee.
(c) Right to Inspect. Mortgagee or its representative is
hereby authorized, with reasonable advance notice to Mortgagor, to enter upon
and inspect the Mortgaged Property at any time during normal business hours.
ARTICLE III. - ASSIGNMENT OF RENTS AND LEASES
3.01 Assignment of Rents and Leases. As additional
consideration for the Obligations, Mortgagor hereby absolutely assigns and
transfers to Mortgagee the following:
(a) all leases or subleases (if any) written or oral, now
in existence or hereafter arising and all agreements for the use and occupancy
of all or any portion of the Mortgaged Property (the "Leases");
(b) any and all guaranties of the obligations of the
tenants (the "Tenants") under any of such Leases; and
(c) the immediate and continuing right to collect and
receive all of the rents, income, receipts, revenues, issues and profits now
due or that may become due or to which Mortgagor may now or shall hereafter
(whether during any applicable period of redemption, or otherwise) become
entitled or may demand or claim, arising or issuing from or out of the Leases,
or from or out of the Mortgaged Property or any part thereof (collectively, the
"Rents").
3.02 Mortgagor's Limited License. Provided that no Event
of Default hereunder exists and no event has occurred that with notice, or
lapse of time or both would constitute an Event of Default hereunder, Mortgagor
shall have the right under a license granted hereby and Mortgagee hereby grants
to Mortgagor a license to collect, but not more than one month in advance, all
of the Rents arising from or out of the Leases or any renewals or extensions
thereof, or from or out of the Mortgaged Property or any part thereof, but only
as trustee for the benefit of Mortgagee. Mortgagor shall apply the Rents so
collected first to payment of any and all amounts due and payable under the
Indenture. Thereafter, so long as no Event of Default hereunder exists and no
event has occurred that with notice, or lapse or time or both would constitute
an Event of Default hereunder, Mortgagor may use the Rents in any manner not
inconsistent with the Indenture. The license granted hereby shall be revoked
automatically upon the occurrence of an Event of Default hereunder.
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<PAGE> 6
3.03 Limitation. The acceptance by Mortgagee of the
assignment provided in this Article III, together with all of the rights,
powers, privileges and authority created in this Article III or elsewhere in
this Mortgage, shall not, prior to entry upon and taking possession of the
Mortgaged Property by Mortgagee, be deemed or construed to constitute Mortgagee
a "mortgagee in possession" nor thereafter or at any time or in any event
obligate Mortgagee to appear in or defend any action or proceeding relating to
the Leases, the Rents or the Mortgaged Property or to take any action hereunder
or to expend any money or incur any expenses or perform or discharge any
obligation or responsibility for any security deposits or other deposits
delivered to Mortgagor by any Tenant and not assigned and delivered to
Mortgagee, nor shall Mortgagee be liable in any way for any injury or damage to
person or property sustained by any person or persons, firm or corporation in
or about the Mortgaged Property.
ARTICLE IV. - DEFAULTS AND REMEDIES
4.01 Events of Default. An Event of Default shall mean
the occurrence of any Event of Default under the Indenture, which Events of
Default are incorporated herein by this reference.
4.02 Performance of Defaulted Acts. From and after the
occurrence of an Event of Default hereunder, Mortgagee may, but need not, make
any payment or perform any act herein required of Mortgagor in any form and
manner deemed expedient, including, without limitation, making full or partial
payments of principal or interest on prior encumbrances, if any, and
purchasing, discharging, compromising or settling any tax lien or other prior
lien or title or claim thereof, or redeeming from any tax sale or forfeiture
affecting the Mortgaged Property or contesting any tax or assessment. All
moneys paid for any of the purposes herein authorized and all expenses paid or
incurred in connection therewith, including reasonable attorneys' fees, shall
be included among the Obligations and shall be due and payable upon demand and
with interest thereon from the date of such payment or expense at the Default
Rate. Inaction of Mortgagee shall never be considered as a waiver of any right
accruing to it hereunder on account of any default on the part of Mortgagor.
Mortgagee, in making any payment hereby authorized relating to taxes or
assessments, may do so according to any bill, statement or estimate procured
from the appropriate public office without inquiry into the accuracy of such
bill, statement or estimate or into the validity of any tax, assessment, sale,
forfeiture, tax lien or title or claim thereof.
4.03 Foreclosure. Upon the occurrence of any Event of
Default hereunder and at any time thereafter, Mortgagee shall have any and all
of the rights and remedies available to it, at law or in equity, including
without limitation the right to exercise the STATUTORY POWER OF SALE.
All costs and expenses incurred by Mortgagee in connection
with the foreclosure of the lien of this Mortgage shall be secured hereby,
which costs and expenses may include, without limitation, the following: all
expenditures and expenses that may be paid or incurred by or on behalf of
Mortgagee for reasonable attorneys' fees (including charges for in house
counsel), appraiser's fees, auctioneer's fees or the fees of other
professionals retained by Mortgagee, outlays for documentary and expert
evidence, court costs, stenographers' charges, publication costs, advertising
costs and costs of procuring all such abstracts of title, title searches and
examinations, title insurance policies, and similar data and assurances with
respect to title as Mortgagee may deem to be reasonably necessary either to
prosecute such foreclosure or to evidence to the prospective purchasers at any
foreclosure sale the true conditions of the title to or the value of the
Mortgaged Property. All expenditures and
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expenses of the nature mentioned in this Section 4.03 shall become additional
Obligations and shall be immediately due and payable, with interest thereon at
the rate applicable under the Indenture from and after an Event of Default
hereunder from and after the date when paid or incurred by Mortgagee in
connection with (a) any proceeding, including probate and bankruptcy
proceedings, to which Mortgagee shall be a party, either as plaintiff, claimant
or defendant, by reason of this Mortgage or any Obligations; or (b)
preparations for the foreclosure hereof after accrual of such right to
foreclose whether or not actually commenced; or (c) preparations for the
defense of any threatened suit or proceedings that might materially affect the
Mortgaged Property, whether or not actually commenced.
4.04 Application of Proceeds of Foreclosure Sale. The
proceeds of any foreclosure sale of the Mortgaged Property shall be distributed
and applied in the following order or priority: first, on account of all costs
and expenses incident to the foreclosure proceedings, including all such items
as are mentioned in Section 4.03 hereof; second, all other items that under the
terms hereof constitute Obligations in accordance with the Indenture; and
third, any excess to Mortgagor, or to any other person or persons legally
entitled thereto, as their rights may appear.
4.05 Possession. Upon the occurrence of an Event of
Default hereunder, Mortgagee shall, at its option, have the right, acting
through its agents or attorneys, to enter upon and take possession of the
Mortgaged Property, expel and remove any persons, goods, or chattels, occupying
or upon the same, and to collect or receive all the rents, issues and profits
thereof, and to manage and control the same, and to lease the same or any part
thereof from time to time, and, after deducting all reasonable attorney's fees
(including charges for inside counsel), and all reasonable expenses incurred in
the protection, care, maintenance, management and operation of the Mortgaged
Property, apply the remaining net income upon the Obligations or upon any
deficiency decree entered in any foreclosure proceedings.
4.06 Appointment of Receiver. Upon the occurrence of an
Event of Default hereunder, Mortgagee shall have the right to be placed in
possession of the Mortgaged Property or at its request to have a receiver
appointed, and such receiver, or Mortgagee, if and when placed in possession,
shall have, in addition to any other powers provided in this Mortgage, all
rights, powers, immunities, and duties as provided for under Arkansas law.
4.07 Rights Cumulative. No remedy or right of Mortgagee
shall be exclusive of, but each such remedy or right shall be in addition to,
every other remedy or right now or hereafter existing at law or in equity. No
delay in the exercise or omission to exercise of any remedy or right accruing
on any default shall impair any such remedy or right or be construed to be a
waiver of any such default or an acquiescence therein, nor shall it affect any
subsequent default of the same or a different nature. Every such remedy or
right may be exercised concurrently or independently, and when and as often as
may be deemed expedient by Mortgagee. Mortgagor agrees that without affecting
the liability of any person for payment of the Obligations or affecting the
lien of this Mortgage upon the Mortgaged Property or any part thereof Mortgagee
may at any time and from time to time, on request of Mortgagor, without notice
to any person liable for payment of any Obligations, extend the time or agree
to alter the terms of payment of such indebtedness. Acceptance by Mortgagee of
any payment in an amount less than the amount then due on the Obligations shall
be deemed an acceptance on account only, and the failure to pay the entire
amount then due shall continue to be an Event of Default hereunder. At any
time thereafter and until the entire amount then due on the debt has been paid,
Mortgagee shall be entitled to exercise all rights conferred upon it in this
Mortgage upon the occurrence of an Event of Default hereunder.
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4.08 Protective Advances. All advances, disbursements and
expenditures made or incurred by Mortgagee before and during a foreclosure, and
at any time prior to the transfer of title to the Mortgaged Property pursuant
to the sale, and, where applicable, after transfer of title, and during the
pendency of any related proceedings, for the following purposes, in addition to
those otherwise authorized by this Mortgage (collectively "Protective
Advances"), shall be secured by the lien of this Mortgage including those
referred to below:
(a) all advances by Mortgagee in accordance with the
terms of this Mortgage to: (i) preserve, maintain, repair, restore or rebuild
the improvements upon the Mortgaged Property; (ii) preserve the lien of this
Mortgage or the priority hereof; or (iii) enforce or foreclose this Mortgage;
(b) payments by Mortgagee of: (i) principal, interest or
other obligations in accordance with the terms of any senior mortgage or other
prior lien or encumbrance on the Mortgaged Property; (ii) real estate taxes and
assessments, general and special and other taxes and assessments of any kind or
nature whatsoever that are assessed or imposed upon the Mortgaged Property or
any part thereof; (iii) other obligations authorized by this Mortgage; or (iv)
any other amounts in connection with other liens, encumbrances or interests
reasonably necessary to preserve the status of title to the Mortgaged Property;
(c) advances by Mortgagee in settlement or compromise of
any claims asserted by claimants under senior mortgages or any other prior
liens;
(d) reasonable attorneys' fees and other costs incurred
(including charges for in house counsel): (i) in connection with the
foreclosure of this Mortgage; (ii) in connection with any action, suit or
proceeding brought by or against Mortgagee for the enforcement of this Mortgage
or arising from the interest of Mortgagee hereunder; or (iii) in preparation
for or in connection with the commencement, prosecution or defense of any other
action that could materially adversely affect the lien of this Mortgage or the
Mortgaged Property;
(e) expenses deductible from proceeds of sale; and
(f) expenses incurred and expenditures made by Mortgagee
for any one or more of the following: (i) premiums for casualty and liability
insurance paid by Mortgagee whether or not Mortgagee or a receiver is in
possession, if reasonably required, in reasonable amounts, and all renewals
thereof; (ii) repair or restoration of damage or destruction in excess of
available insurance proceeds or condemnation awards; (iii) payments deemed by
Mortgagee to be required for the benefit of the Mortgaged Property or required
to be made by the owner of the Mortgaged Property under any grant or
declaration of easement, easement agreement, agreement with any adjoining land
owners or instruments creating covenants or restrictions for the benefit of or
affecting the Mortgaged Property; and (iv) shared or common expense assessments
payable to any association or corporation in which the owner of the Mortgaged
Property is a member in any way affecting the Mortgaged Property.
All Protective Advances shall be additional Obligations
secured by this Mortgage, and shall become immediately due and payable upon
demand and with interest thereon from the date of the advance until paid at the
Default Rate. This Mortgage shall be a lien for all Protective Advances as to
subsequent purchasers and judgment creditors from the time this Mortgage is
recorded.
All Protective Advances shall apply to and be included in:
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(a) any determination of the amount of indebtedness
secured by this Mortgage at any time;
(b) the indebtedness found due and owing to Mortgagee
after foreclosure and any subsequent supplemental judgments, orders,
adjudications or finding by any court of any additional indebtedness becoming
due after such foreclosure;
(c) determination of amounts deductible from foreclosure
sale proceeds;
(d) application of income in the hands of any receiver or
mortgagee in possession; and
(e) computation of any deficiency judgment.
4.09 Environmental Matters.
(a) Compliance. Mortgagor shall comply in all material
respects with all local, state, and federal environmental laws, ordinances,
rules, regulations, and requirements (collectively, "Environmental Laws"). If
Mortgagor fails to so comply, after notice to Mortgagor and a reasonable
opportunity to comply, Mortgagee may (without limiting any other rights and
remedies of Mortgagee) protect its secured interest by causing the Mortgaged
Property to so comply at Mortgagor's expense. Any amounts expended by
Mortgagee to cause the Mortgaged Properties to comply with Environmental Laws
shall be paid by Mortgagor to Mortgagee on demand, with interest on all such
amounts expended from the date of the expenditure until paid at the Default
Rate.
(b) Hazardous Substances.
(i) "Hazardous Substances" shall mean: (A) those
substances included within the definitions of hazardous substances, hazardous
materials, hazardous waste, toxic substances, or solid waste in CERCLA, RCRA,
the Hazardous Materials Transportation Act (49 U.S.C. Sections 1801 et seq.),
or any other federal, state, or local laws, and in the regulations promulgated
pursuant to such laws; (B) those substances listed in the United States
Department of Transportation Table (49 C.F.R. 172.101 and amendments) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 C.F.R. Part 302 and amendments); (C) such other substances,
materials, and wastes that are or that become regulated under applicable
Environmental Laws; and (D) any material, waste, or substance that is (1) oil
or petroleum; (2) friable asbestos; (3) polychlorinated biphenyls; (4)
designated as a hazardous substance pursuant to Section 311 of the Clean Water
Act (33 U.S.C. Sections 1251 et seq.) or listed pursuant to Section 307 of the
Clean Water Act (33 U.S.C. 1317); (5) flammable explosives; or (6) radioactive
materials.
(ii) Mortgagor shall promptly remove and clean up,
or otherwise deal with, any Hazardous Substances if any Environmental Laws so
require except to the extent that the failure to remove, clean up or otherwise
deal with such Hazardous Substances would not reasonably be expected to have a
material adverse effect upon the Mortgaged Property. If Mortgagor fails to so
comply after notice and a reasonable opportunity to comply, Mortgagee may
either declare this Mortgage to be in default or protect its secured interest
by causing such Hazardous Substances to be remediated to levels that are
minimally acceptable to all applicable regulators or agencies having or
claiming jurisdiction over the Mortgaged Property at Mortgagor's expense.
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(iii) Mortgagor shall keep the Mortgaged
Property free of (A) any Hazardous Substances, if any Environmental Laws so
require except to the extent that the existence of such Hazardous Substances
would not reasonably be expected to have a material adverse effect upon the
Mortgaged Property, and (B) any lien other than the Permitted Encumbrances
imposed pursuant to any Environmental Laws.
(iv) Mortgagor shall notify Mortgagee promplty
of Mortgagor's discovery of (A) the release of any Hazardous Substance
("Contamination") on the Mortgaged Property or any property so situated as to
pose a material risk that such Hazardous Substance may spread onto the
Mortgaged Property ("Adjacent Property") and/or (B) any past or present
material violation of any Environmental Law on the Mortgaged Property or any
Adjacent Property.
(v) Mortgagor unconditionally assigns, transfers,
and sets over to Mortgagee all of Mortgagor's claims and rights to
the payment of damages that may arise from (A) any Contamination on the
Mortgaged Property caused by the spread of such Contamination from any Adjacent
Property and/or (B) the violation of any Environmental Law on any Adjacent
Property (the "Assigned Environmental Rights"). Until the occurrence of an
Event of Default, Mortgagor shall (without limiting any other rights and
remedies of Mortgagee) have the right to receive such payments. If an Event of
Default has occurred and is continuing, Mortgagee shall have the right to elect
either of the following options (which election Mortgagee may change from time
to time):
1. Mortgagee may proceed against the
owner of such Adjacent Property (or the receiver, trustee, custodian, or other
party) in Mortgagor's name or in Mortgagee's name as agent for Mortgagor.
Mortgagor agrees to cooperate with Mortgagee in such action and shall execute
any and all documents required in furtherance of such action; or
2. At Mortgagee's option, Mortgagor may
proceed in Mortgagor's and Mortgagee's behalf in which event Mortgagee may
participate in any such proceedings and Mortgagor from time to time shall
deliver to Mortgagee all instruments that Mortgagee requests or may require to
permit such participation (provided that if the original of any such instrument
need not be delivered to Mortgagee in order to permit such participation,
Mortgagor may deliver to Mortgagee a copy of the same).
However, Mortgagee shall not initiate such a
proceeding, nor involve itself in such an already existing proceeding, unless
Mortgagor shall have failed to proceed in Mortgagor's and Mortgagee's behalf
promptly upon receiving notice from Mortgagee to do so. Mortgagor shall, at
its expense, diligently prosecute any such proceedings, deliver to Mortgagee
copies of all papers served in connection with any such proceedings, and
consult and cooperate with Mortgagee and its respective attorneys and agents in
carrying on the prosecution of any such proceedings. Mortgagor shall not
settle any such proceeding without Mortgagee's consent, which consent shall not
be unreasonably withheld. This assignment constitutes a present, irrevocable,
and unconditional assignment of the foregoing claims, rights, and remedies, and
shall continue in effect until the Obligations have been satisfied in full.
Any amounts that Mortgagee receives as damages arising out of any Contamination
of the Mortgaged Property or the violation of any Environmental Law on any
Adjacent Property shall be applied first to Mortgagee's costs and expenses
(including, without limitation, reasonable attorneys' fees) (including charges
for in house counsel) incurred in connection with the exercise of the Assigned
Environmental Rights.
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<PAGE> 11
(c) Asbestos. Mortgagor shall not install nor permit to
be installed on or in the Mortgaged Property friable asbestos or any substance
containing asbestos except as permitted by federal or state regulations
respecting such material, and with respect to any such material currently
present on or in the Mortgaged Property shall promptly either (A) remove any
material that such regulations deem hazardous and require to be removed or (B)
otherwise comply with such federal and state regulations, at Mortgagor's
expense. If Mortgagor shall fail to so remove or otherwise comply, Mortgagee
may, after notice to Mortgagor and a reasonable opportunity to comply, do
whatever is necessary to eliminate such substances from the Mortgaged Property
to the extent required by applicable law or otherwise comply with the
applicable law, regulation, or order and the costs thereof, together with
interest thereon from the date of such payment at the Default Rate, shall be
added to the Obligations secured by this Mortgage. Mortgagor shall give
Mortgagee and its agents and employees access to the Mortgaged Property to
remove, remediate, encapsulate or otherwise treat such asbestos or substances.
Mortgagor shall defend, indemnify and save Mortgagee harmless from all costs
and expenses (including consequential damages) asserted or proven against
Mortgagee by any party, as a result of the presence of such substances, and any
required removal or compliance with regulations. The foregoing indemnification
shall survive repayment of the Notes.
(d) Environmental Inspections. Mortgagee may, at any
time after the occurrence of an Event of Default, enter the Mortgaged Property
to ascertain its environmental condition and in so doing may sample building
materials, take soil samples, test borings and otherwise inspect the Mortgaged
Property. The costs and expenses paid or incurred by Mortgagee in connection
with such inspections and activities shall be reimbursed by Mortgagor and shall
constitute additional Obligations secured by this Mortgage.
4.10 Multiple Collateral.
(a) No recovery of any judgment by Mortgagee and no levy
of an execution under any judgment upon the Mortgaged Property or upon any
property of Mortgagor encumbered by any other Collateral Document shall affect
in any manner or to any extent the lien of this Mortgage upon the Mortgaged
Property or any part thereof, and any liens, rights, powers and remedies of
Mortgagee shall continue unimpaired.
(b) Mortgagor agrees that it shall not at any time insist
upon, plead, seek or in any manner whatever claim or take any benefit or
advantage of a judgment, declaration or a determination that:
(i) the Mortgaged Property or any other
property of Mortgagor encumbered by a Collateral Document represents, on an
individual basis, an allocable portion of the then outstanding aggregate
principal amount of the Notes or the Obligations;
(ii) a surplus results from an action
taken by Mortgagee against the Mortgaged Property or any other property of
Mortgagor encumbered by a Collateral Document to recover the Obligations or any
portion thereof, unless the Obligations have been satisfied and paid in full;
(iii) the lien of this Mortgage or of any
other Collateral Document has been released, unless the Obligations have been
satisfied and paid in full, except as provided for in Section 10.03 of the
Indenture;
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(iv) a deficiency judgment with respect
to any action taken by Mortgagee against the Mortgaged Property or any other
property of Mortgagor encumbered by a Collateral Document extinguishes all or
any portion of the remaining Obligations, or precludes Mortgagee from
proceeding against the Mortgaged Property or to satisfy such remaining
Obligations; or
(v) Mortgagee's commencement,
prosecution, or taking to judgment of any action (including, without
limitation, Mortgagee's acceptance of a deed in lieu of foreclosure) or
Mortgagee's application for or use of any remedy (including, without
limitation, the appointment of a receiver for the Mortgaged Property or any
other property of Mortgagor encumbered by a Collateral Document) against the
Mortgaged Property or any other property of Mortgagor encumbered by a
Collateral Document precludes or bars Mortgagee (under a "single action" rule,
"security first" rule or similar rule) from commencing, prosecuting or taking
to judgment any other action or applying for or using any remedy against the
Mortgaged Property or any other property of Mortgagor encumbered by a
Collateral Document.
(c) Mortgagee may, at its option, in such order, and
utilizing such combinations of remedies with respect to the Mortgaged Property
and the other property of Mortgagor encumbered by a Collateral Document as
Mortgagee shall so elect, pursue its remedies against (i) the Mortgaged
Property, individually, or any other property of Mortgagor encumbered by a
Collateral Document, individually; (ii) the Mortgaged Property and any
combination of the other property of Mortgagor encumbered by a Collateral
Document; (iii) the Mortgaged Property and all of the other property of
Mortgagor encumbered by a Collateral Document; or (iv) all or any combination
of the other property of Mortgagor encumbered by a Collateral Document, in
separate proceedings or in one proceeding in any order which Mortgagee deems
appropriate.
ARTICLE V. - GENERAL PROVISIONS
5.01 Release. Mortgagee shall release this Mortgage and
the lien hereof by proper instrument in accordance with the terms of the
Indenture. Mortgagee shall have no obligation to record any release
instrument.
5.02 Mortgagor. This Mortgage and all provisions hereof,
shall extend to and be binding upon Mortgagor and all persons claiming under or
through Mortgagor. Whenever in this Mortgage there is reference made to any of
the parties hereto, such reference shall be deemed to include, wherever
applicable, a reference to the heirs, executors and administrators or
successors and assigns (as the case may be) of Mortgagor and Mortgagee.
Mortgagor's successors and assigns shall include, without limitation, a
receiver, trustee or debtor-in-possession of or for Mortgagor.
5.03 Waiver of Rights. Mortgagor waives and will not
avail itself of any appraisement, valuation, stay, moratorium, extension or
exemption laws now existing or hereafter enacted (including, without
limitation, all rights under and by virtue of any homestead exemption laws and
redemption laws of the State of Arkansas). Mortgagor waives any right to have
the property comprising the Mortgaged Property marshalled upon any foreclosure
and agrees that upon a foreclosure the Mortgaged Property may be sold as an
entirety.
5.04 Additional Documents. Mortgagor agrees that upon
request of Mortgagee it will from time to time execute, acknowledge and deliver
all such additional instruments and further
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assurances of title and will do or cause to be done all such further acts and
things as may be reasonably necessary fully to effectuate the intent of this
Mortgage.
5.05 Notices. All notices and other communications under
this Mortgage shall be in writing, except as otherwise provided in this
Mortgage. A notice, if in writing, shall be considered as properly given if
given in accordance with the provisions of the Indenture.
5.06 Governing Law. This Mortgage, the debts and
obligations secured hereunder, and all other obligations and agreements of the
parties hereunder, shall be governed by and construed in accordance with the
laws of the State of New York, subject only to those laws of the State of
Arkansas that of necessity must apply to methods of foreclosure directly
affecting interests in the Mortgaged Property.
5.07 Time of Essence. Time is of the essence of this
Mortgage and of every part hereof of which time is an
element.
5.08 Severability. If any one or more of the provisions
contained herein shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such illegality or unenforceability shall, at the
option of Mortgagee, not affect any other provision hereof, but this Mortgage
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
5.09 Future Advances. Mortgagee has bound itself and does
hereby bind itself to make advances pursuant to and subject to the terms of the
Indenture, and the parties hereby acknowledge and intend that all such
advances, including future advances whenever hereafter made, shall be a lien
from the time this Mortgage is recorded.
5.10 Security Interest. Without limiting the scope and
effect of any other provision of this Mortgage, to the extent that any of the
property included in the definition of "Mortgaged Property" is of a nature that
a security interest therein may be perfected under the Arkansas Uniform
Commercial Code, this Mortgage shall constitute a security agreement granting
to Mortgagee a security interest therein and Mortgagor hereby grants to
Mortgagee a security interest in and to such property. Mortgagor also agrees,
to the extent that any property included within the definition of "Mortgaged
Property" is or is to become fixtures in the Land: (i) this Mortgage, upon
proper recording, shall constitute a "fixture filing" under the Arkansas
Uniform Commercial Code; (ii) Mortgagor is the record owner of the Land; (iii)
the mailing address of the debtor/Mortgagor is set forth in the initial
paragraph of this Mortgage; and (iv) the address of the secured party/Mortgagee
from which information concerning the security interest may be obtained is set
forth in the initial paragraph of this Mortgage.
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IN WITNESS WHEREOF, Mortgagor has duly executed and delivered
this Mortgage as of the day and year first above written.
AMERICAN RICE, INC.,
a Texas Corporation
By:_____________________________
Its: ___________________________
By:_____________________________
Its:___________________________
<PAGE> 15
STATE OF __________________ )
) SS.
COUNTY OF _________________ )
BEFORE ME, a Notary Public, in and for said county and state,
personally appeared the above-named AMERICAN RICE, INC., a Texas corporation,
by _____________________________________, its ___________________________ who
acknowledged that he did sign the foregoing instrument and that the same is his
free act and deed and the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal at ___________, this ___ day of ______________ 1995.
____________________________________________
Notary Public
STATE OF __________________ )
) SS.
COUNTY OF _________________ )
BEFORE ME, a Notary Public, in and for said county and state,
personally appeared the above-named AMERICAN RICE, INC., a Texas corporation,
by _____________________________________, its ___________________________ who
acknowledged that he did sign the foregoing instrument and that the same is his
free act and deed and the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official
seal at __________, this ___ day of ___________ 1995.
____________________________________________
Notary Public
<PAGE> 16
Exhibit "A"
[Legal Description]
<PAGE> 1
EXHIBIT 4.11
COMPANY PLEDGE AGREEMENT
THIS COMPANY PLEDGE AGREEMENT (this "Agreement") is made and
entered into as of __________ __, 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
_____________________, trustee under the Indenture referred to below as
collateral agent (the "Collateral Agent") for the holders (the "Holders") of
the Pledgor's __% Mortgage Notes due 2005. 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") and (ii) those certain Subsidiary Intercompany Notes (if
any) issued by the Issuers and those certain ERLY Intercompany Notes issued by
ERLY Industries, Inc. ("ERLY") in favor of the Pledgor (the "Pledged Notes");
and
WHEREAS, the Pledgor and the Collateral Agent, as trustee,
have entered into that certain indenture dated as of ________ __, 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 million in aggregate principal amount of __% Mortgage Notes due 2005
(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 Shares and the certificates representing the Pledged
Shares, and all products and proceeds of any of the Pledged Shares,
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 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, 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 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; 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
(e) the Freeport IRB's until such time as such Freeport IRB's are
remarketed in accordance with the Indenture.
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<PAGE> 3
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 Shares have been duly authorized and validly issued
and are fully paid and non-assessable. 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.
(c) The Pledged Shares 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 ___% ERLY
Intercompany Note is evidenced by a promissory note in the form of Exhibit
B hereto; 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.
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<PAGE> 4
(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.
(f) The Pledgor has full power and authority to enter into this
Agreement and has the right to vote, pledge and grant a security interest
in the Pledged Collateral as provided by this Agreement.
(g) 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.
(h) 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.
(i) 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).
(j) 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 this Agreement or any of the
transactions contemplated hereby.
(k) 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).
(l) All information set forth herein relating to the Pledged
Collateral is accurate and complete in all respects.
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<PAGE> 5
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 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 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 have
a material adverse effect on the value of the Pledged Collateral or any
part thereof or 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 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 paid from time to time in respect of
the Pledged Shares.
(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 Shares in connection with a partial or
total liquidation or dissolution or in
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<PAGE> 6
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.
(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) 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
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<PAGE> 7
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 any
Issuer or ERLY with respect to the Pledged Collateral the taking of which would
result in a material impairment of the economic value of the Pledged Collateral
as Collateral or 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 B hereto and a certificate executed by the President and Chief
Financial Officer of Pledgor substantially in the form of Exhibit C 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 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, 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 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.
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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 and at any time
after the occurrence 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 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.
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
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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 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 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 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
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permitted by applicable law, at any private sale. All 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 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
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 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 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
such 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 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
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direction of the Collateral Agent. Pledgor will cause each Issuer to bear
all 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, 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. The Pledgor hereby authorizes and instructs each Issuer and,
with respect to the ERLY Intercompany Notes, 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
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
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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 expenses of such sale or other realization,
including reasonable compensation to agents and counsel for the Collateral
Agent, and all 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
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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. 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 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.
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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
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.
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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 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.
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
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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 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. A successor
trustee shall be appointed in accordance with the Indenture, and 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 fees, costs 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
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
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;
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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.
(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
17
<PAGE> 18
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 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
18
<PAGE> 19
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 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]
19
<PAGE> 20
[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:
20
<PAGE> 21
SCHEDULE I
PLEDGED SHARES
<TABLE>
<CAPTION>
Number of Pledged Share Certificate Percentage of
----------------- ----------------- -------------
Issuer Shares Number Outstanding
------ ------ ------ -----------
<S> <C>
[Name of
Subsidiary] 100%
</TABLE>
21
<PAGE> 22
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 __%, 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
<PAGE> 23
EXHIBIT B
FORM OF ERLY INTERCOMPANY NOTE
_________________ __, ______
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 ____________ (the "Maturity Date") the
principal amount of Nine Million Dollars ($9,000,000.00) together with interest
on the unpaid principal amount at a rate per annum equal to __%, 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.
Until the Maturity Date, any payment due the Maker from the Company
under that certain Tax Agreement dated May 25, 1993 among the Maker, the
Company and Comet Rice, Inc. (the "Tax Agreement") may be set off by the
Company against the obligations of the Maker under this Note after notice (and
notice shall be given by the Company to the Maker within 10 days after receipt
of the notice for payment sent by the Maker to the Company under the Tax
Agreement), and the amount of such setoff shall be deemed to have been paid by
the Maker as a payment on this Note.
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 may the interest paid, or agreed
to be paid, hereunder exceed the maximum amount permitted by applicable law.
<PAGE> 24
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
<PAGE> 25
EXHIBIT C
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 and, to the
best knowledge of such counsel, 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, to the best knowledge of such counsel, 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 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; (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 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 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 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)
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).
<PAGE> 26
EXHIBIT D
FORM OF SOLVENCY CERTIFICATE
The undersigned, _______________ and ________________, respectively the
President and Chief Financial Officer of American Rice, Inc., a Texas
corporation ("Pledgor"), certify that they are authorized to execute this
Certificate in the name and on behalf of 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 ____________ __, 1994
(the "Pledge Agreement"), between Pledgor and Collateral Agent):
a. We are familiar with the historical and current financial
condition of Pledgor and the Issuer including, after the [merger]
[consolidation] [sale or transfer of all or substantially all assets]
described in Section 7(a)(vii) and/or Section 7(a)(ix) of the Pledge
Agreement.
b. For the purposes of this Certificate, we have reviewed other
financial information and forecasts relating to the Pledgor prepared
by the Pledgor's management, 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. We have assumed that the fair saleable value of the
Pledgor's assets is the amount for which all the businesses of the
Pledgor could be sold on the date hereof either as an entirety or
separately (including in any such sale all property and assets used
in the business or businesses sold) and, in either case, on a going
concern basis, without potential tax liabilities arising on sale.
c. In addition to such review, we are familiar with and have
considered information, including the opinions of independent
advisors, as to the fair market values of the Pledgor's assets and
the probable liability, contingent or otherwise, of the Pledgor to
its creditors. We have estimated such values as reliably and as
practicably as possible under the circumstances.
Based upon the foregoing, we have reached the conclusions that, after
giving effect to the transactions contemplated by Section 7(a)(vii) and/or
Section 7(a)(ix) of the Pledge Agreement:
1. The Pledgor does not intend to or believe that it has incurred
or will incur, debts that will be beyond its ability to pay as they mature.
2. The present fair saleable value of the assets of the Pledgor
exceeds the amount that will be required to pay the probable liability on its
existing debts (whether matured or
<PAGE> 27
unmatured, liquidated or unliquidated, absolute, fixed or contingent), as they
become absolute and matured. In determining "present fair saleable value," we
utilized as a guideline amounts we believe would be reached by a willing seller
and a willing buyer under no compulsion to make the sale.
3. The Pledgor does not have unreasonably small capital for it to
carry on its businesses as proposed to be conducted. "Unreasonably small
capital" is dependent upon the nature of the particular business or businesses
conducted or to be conducted, and the statement made in the preceding sentence
is correct based upon anticipated future conduct of the businesses of the
Pledgor.
4. The Pledgor is not incurring obligations or making transfers
under any evidence of indebtedness with the intent to hinder, delay or defraud
any entity to which it is or will become indebted.
WITNESS the signatures of the undersigned, this _____ day of ______,
199_.
_________________________
President
_________________________
Chief Financial Officer
<PAGE> 1
Exhibit 4.12
ERLY PLEDGE AGREEMENT
THIS ERLY PLEDGE AGREEMENT (this "Agreement") is made and
entered into as of , 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 _____________________, trustee under the Indenture referred to below as
collateral agent (the "Collateral Agent") for the holders (the "Holders") of
the Pledgor's % Mortgage Notes due 2005 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 , 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 million
in aggregate principal amount of % Mortgage Notes due 2005 (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, 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) The Pledgor has full power and authority to enter into this
Agreement and has the right to vote, pledge and grant a security interest in
the Pledged Collateral as provided by this 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.
(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 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
(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).
(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 this Agreement or 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 costs incurred in
connection with any of the foregoing.
4
<PAGE> 5
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 have a material
adverse effect on the value of the Pledged Collateral or any part thereof or
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 material impairment of the economic value of the Pledged Collateral
as Collateral or 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 B hereto and a certificate executed by the President and Chief
Financial Officer of Pledgor substantially in the form of Exhibit C 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
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
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benefit of the Holders, a continuing first priority security interest in such
shares, 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 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 and at any time
after the occurrence 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
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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 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
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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
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 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
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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 the
Issuer to bear all 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.
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
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accordance with the terms of this Agreement, without any 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 expenses of such sale or other realization,
including reasonable compensation to agents and counsel for the Collateral
Agent, and all 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 hereby waives any requirement on the part of
the Collateral Agent or any Holder of any of the Mortgage Notes or any of
the Obligations to mitigate the damages resulting from any default under
the Mortgage Notes or any of the Obligations. 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
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set forth in Section 11.02 of the Indenture, and delivered to the addresses set
forth in the preamble to this Agreement.
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
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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 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 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.
15
<PAGE> 16
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.
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 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
16
<PAGE> 17
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. A successor trustee shall be appointed in accordance
with the Indenture, and 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 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 Issuer's written certification that all such
Obligations have been satisfied) and payment in full of all 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 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
17
<PAGE> 18
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.
(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
18
<PAGE> 19
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 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
19
<PAGE> 20
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 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>
Class of Number of Share Percentage
Issuer Pledged Pledged Certificate of
Shares Shares Number Outstanding
<S> <C> <C> <C> <C>
American
Rice, Inc.
</TABLE>
22
<PAGE> 23
EXHIBIT B
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 and, to the
best knowledge of such counsel, 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, to the best
knowledge of such counsel, 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 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; (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 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 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 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) 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).
<PAGE> 24
EXHIBIT C
FORM OF SOLVENCY CERTIFICATE
The undersigned, _______________ and ________________, respectively the
President and Chief Financial Officer of American Rice, Inc., a Texas
corporation ("Pledgor"), certify that they are authorized to execute this
Certificate in the name and on behalf of 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 ____________ __, 1994 (the
"Pledge Agreement"), between Pledgor and Collateral Agent):
a. We are familiar with the historical and current financial condition
of Pledgor and the Issuer including, after the [merger]
[consolidation] [sale or transfer of all or substantially all assets]
described in Section 7(a)(vii) and/or Section 7(a)(ix) of the Pledge
Agreement.
b. For the purposes of this Certificate, we have reviewed other
financial information and forecasts relating to the Pledgor prepared
by the Pledgor's management, 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. We have
assumed that the fair saleable value of the Pledgor's assets is the
amount for which all the businesses of the Pledgor could be sold on
the date hereof either as an entirety or separately (including in any
such sale all property and assets used in the business or businesses
sold) and, in either case, on a going concern basis, without potential
tax liabilities arising on sale.
c. In addition to such review, we are familiar with and have
considered information, including the opinions of independent
advisors, as to the fair market values of the Pledgor's assets and the
probable liability, contingent or otherwise, of the Pledgor to its
creditors. We have estimated such values as reliably and as
practicably as possible under the circumstances.
Based upon the foregoing, we have reached the conclusions that, after
giving effect to the transactions contemplated by Section 7(a)(vii) and/or
Section 7(a)(ix) of the Pledge Agreement:
1. The Pledgor does not intend to or believe that it has incurred or
will incur, debts that will be beyond its ability to pay as they mature.
<PAGE> 25
2. The present fair saleable value of the assets of the Pledgor
exceeds the amount that will be required to pay the probable liability on its
existing debts (whether matured or unmatured, liquidated or unliquidated,
absolute, fixed or contingent), as they become absolute and matured. In
determining "present fair saleable value," we utilized as a guideline amounts we
believe would be reached by a willing seller and a willing buyer under no
compulsion to make the sale.
3. The Pledgor does not have unreasonably small capital for it to
carry on its businesses as proposed to be conducted. "Unreasonably small
capital" is dependent upon the nature of the particular business or businesses
conducted or to be conducted, and the statement made in the preceding sentence
is correct based upon anticipated future conduct of the businesses of the
Pledgor.
4. The Pledgor is not incurring obligations or making transfers under
any evidence of indebtedness with the intent to hinder, delay or defraud any
entity to which it is or will become indebted.
WITNESS the signatures of the undersigned, this _____ day of ______,
199_.
-------------------------
President
-------------------------
Chief Financial Officer
2
<PAGE> 1
EXHIBIT 4.13
CONFIRMATION AND GRANT OF SECURITY INTEREST
IN TRADEMARKS AND TRADEMARK APPLICATIONS
This AGREEMENT (as it may be amended, supplemented or
otherwise modified from time to time, this "Agreement") is dated as of
________________, _____ and is made by American Rice, Inc., a Texas corporation
("ARI"), having its principal place of business at 16825 Northchase Drive,
Suite 1600, Houston, Texas 77060, in favor of and for the benefit of U.S. Trust
Company of Texas, N.A., a national banking association, as Trustee under an
Indenture (defined below) ("Trustee" or "Secured Party"), for its benefit and
for the benefit of the holders of the Mortgage Notes (defined below).
RECITALS
WHEREAS, ARI and Trustee have entered into that certain
Indenture dated as of ________________, _____ (as such agreement may be
amended, supplemented or otherwise modified from time to time, the "Indenture")
pursuant to which Trustee has agreed, among other things, and subject to the
terms and conditions set forth in the Indenture, to act as Trustee with respect
to ARI's issuance of those certain ___% Mortgage Notes due 2005 (the "Mortgage
Notes") for the benefit of the holders of such Mortgage Notes;
WHEREAS, ARI has secured its obligations under the Indenture
by granting to Trustee a security interest in and lien upon certain of ARI's
properties, including the equipment and interests in real property constituting
its rice processing facilities;
WHEREAS, ARI desires to grant and pledge its security
interests (and to confirm and grant its security interest) in the Trademarks
and Licenses (as defined herein) in favor of Trustee, for its benefit and the
benefit of the holders of the Mortgage Notes;
WHEREAS, it is a condition precedent to the effectiveness of
the Indenture and the sale of the Mortgage Notes that this Agreement be
executed and delivered by ARI to Trustee;
WHEREAS, ARI desires to enter into this Agreement to satisfy
the conditions described in the foregoing recital; and
WHEREAS, capitalized terms used herein without definition
shall have the meanings ascribed to them in the Indenture;
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
<PAGE> 2
SECTION 1. GRANT OF SECURITY. ARI hereby grants to
Trustee for its benefit and the benefit of the holders of the Mortgage Notes a
security interest in all right, title and interest of ARI in and to the
following, whether now owned or hereafter acquired (collectively, the
"Collateral") to secure the payment and performance of the Secured Obligations
(as defined in Section 2 below):
(a) all trademarks, service marks, trade names, trade
dress or other indicia of origin, trade styles, logos, trademark and
service mark registrations (including registrations, recordings and
applications, as well as renewals, reissues or extensions thereof, in
the United States Patent and Trademark Office or in any office or
agency of the United States, or any state thereof, or any other
country or political subdivision thereof, or any supranational or
international body), including, without limitation, those
registrations identified in Schedule 1 attached hereto and made a part
hereof, and including without limitation (i) the right to sue or
otherwise recover for any and all past, present and future
infringements and misappropriations thereof, (ii) all income,
royalties, damages and other payments now and hereafter due and/or
payable with respect thereto (including, without limitation, payments
under all licenses entered into in connection therewith, and damages
and payments for past or future infringements thereof), and (iii) all
rights corresponding thereto throughout the world and all other rights
of any kind whatsoever of ARI accruing thereunder or pertaining
thereto, together in each case with the goodwill of the business
connected with the use of, and symbolized by, each such trademark,
service mark, trade name, trade style, or logo, trade dress or other
indicia of trade origin (the "Trademarks"); and
(b) all license or use agreements with any other person
in connection with any of the Trademarks to which ARI is a licensor
under any such license agreement, including, without limitation, the
license and use agreements listed on Schedule 2 attached hereto and
made a part hereof, subject, in each case, to the terms of such
agreements, and the right to prepare for sale, sell and advertise for
sale, all inventory now or hereafter owned by ARI and now or hereafter
covered by such agreements;
(c) all license or use agreements with any other person
in connection with any of the Trademarks to which ARI is a licensee
under any such license agreement, including, without limitation, the
license and use agreements listed on Schedule 3 attached hereto and
made a part hereof, subject, in each case, to the terms of such
agreements, and the right to prepare for sale, sell and advertise for
sale, all inventory now or hereafter owned by ARI and now or hereafter
covered by such agreements (together with the license or use
agreements that are the subject of Section 1(c), the "Licenses");
(d) all know-how and expertise, and all documents and
things embodying the same (and all copyrights and design rights in
such documents and things), including all designs, drawings, patterns
and specifications relating to the
-2-
<PAGE> 3
manufacture, distribution, advertising and sale of products relating
to any collateral, all product specification and quality control
information and manuals used in the manufacture, distribution,
advertising and sale of products sold under or in connection with the
Trademarks, all contracts or agreements for the manufacture or supply
of goods, or materials or components used in the production of goods,
sold under or in connection with the Trademarks, and all customer and
supplier lists; and
(e) all products and proceeds of the foregoing (as such
terms are defined in the Uniform Commercial Code as in effect in the
State of New York (the "UCC")).
SECTION 2. SECURED OBLIGATIONS. This Agreement secures,
and the Collateral is collateral security for, the prompt payment or
performance in full when due, whether at stated maturity, by acceleration or
otherwise, of all obligations, liabilities and indebtedness of every nature of
ARI from time to time owed to Trustee, or the Holders of the Mortgage Notes,
under the Indenture, the Mortgage Notes and the Collateral Documents, including
the principal amount of all debts, claims and indebtedness, accrued and unpaid
interest, premium, if any, and all fees, costs and expenses, whether primary,
secondary, direct, contingent, fixed or otherwise, now and/or from time to time
hereafter owing, due or payable (the "Secured Obligations").
SECTION 3. ARI REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) ARI shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Trustee of any of the
rights hereunder shall not release ARI from any of its duties or obligations
under the contracts and agreements included in the Collateral and (c) Trustee
shall not have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall Trustee be
obligated to perform any of the obligations or duties of ARI thereunder or to
take any action to collect or enforce any claim for payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. ARI
represents and warrants as follows as to itself and its Collateral as to all
countries, unless otherwise specified, in which such Collateral is used:
(a) ARI is the sole, legal and beneficial owner of the
entire right, title and interest in and to the Collateral set forth in
Schedule 1 and Schedule 2, free and clear of any lien, security
interest, option, charge, pledge, license (except for the Collateral
listed on Schedule 2 hereto which shall be subject only to the
Licenses listed in such Schedule 2 or those licenses created hereby),
assignment (conditional or unconditional) or covenant, or any other
encumbrance (other than those as to which releases of security
interests are being delivered to the Trustee on the date hereof and
subordinated Liens securing the Revolving Credit Loan), and no third
party consents
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<PAGE> 4
are required in connection with the security granted in Section 1. No
effective financing statement or other instrument similar in object or
covering all or any part of the Collateral is on file in any recording
office (including, without limitation, the United States Patent and
Trademark Office), except (i) such as may have been filed in favor of
Trustee relating to the Indenture or this Agreement, (ii) those filed
in favor of the lender under the Revolving Credit Loan which are
subject to the Intercreditor Agreement and (iii) those as to which
releases (in form and substance acceptable to Trustee) of security
interests are being delivered to Trustee on the date hereof.
(b) Set forth in Schedule 1 is a complete and accurate
list of all Trademarks owned by ARI. ARI has made all necessary
filings and recordations to protect and maintain its interest in the
Trademarks set forth in Schedule 1, including, without limitation, all
necessary filings and recordings in the United States Patent and
Trademark Office and in each of the foreign jurisdictions set forth
in Schedule 1. Set forth in Schedule 2 is a complete and accurate list
of all Licenses owned by ARI in which ARI is the licensor with respect
to any Trademark. Set forth in Schedule 3 is a complete and accurate
list of all Licenses owned by ARI in which ARI is the licensor with
respect to any Trademark.
(c) Each Trademark set forth in Schedule 1 is subsisting
and has not been adjudged invalid, unregistrable or unenforceable, in
whole or in part, and is valid, enforceable and, with respect to the
United States, is registrable. Each License identified in either
Schedule 2 or Schedule 3 is in writing, validly subsisting and has not
been adjudged invalid or unenforceable, in whole or in part, and is
valid and enforceable. ARI has notified Trustee in writing of all
prior uses of any item of Collateral of which ARI is aware which could
reasonably be expected to lead to such item becoming invalid or
unenforceable, including prior unauthorized uses by third parties and
uses which were not supported by the goodwill of the business
connected with such Collateral.
(d) Neither ARI nor, to the best of its knowledge, its
predecessors in interest, has made any previous assignment, transfer
or agreement constituting a present or future assignment, transfer or
encumbrance of any of the Collateral (other than those in favor of
Trustee and other than those described in clause (a) above. ARI has
not granted any license (other than those listed on Schedule 2
hereto), release, covenant not to sue, or non-assertion assurance to
any person with respect to any part of the Collateral.
(e) ARI and, to the best of its knowledge, each of its
predecessors in interest, has used reasonable and proper statutory
notice in connection with its use of each registered trademark and
service mark.
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<PAGE> 5
(f) Except for the licenses listed on Schedule 2 and
Schedule 3 hereto, ARI has no knowledge of the existence of any third
party right or claim that is likely to be made under any item of
Collateral.
(g) To the best of ARI's knowledge, no claim has been
made and is continuing or threatened that the use by ARI of any item
of Collateral is invalid or unenforceable or that the use by ARI of
any Collateral does or may violate the rights of any person. To the
best of ARI's knowledge, there is currently no infringement or
unauthorized use of any Trademark.
(h) Except for the filing of financing statements under
the UCC and the filing of this Agreement with the United States Patent
and Trademark Office to perfect the security interests granted hereby,
no authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required
for (i) the grant by ARI of the security interests hereunder, (ii) the
perfection of such security interests under U.S. law, (iii) the
execution, delivery and performance by ARI of this Agreement or (iv)
the exercise by Trustee of its rights and remedies hereunder.
(i) ARI and, to the best of its knowledge, each of its
predecessors in interest, has taken all steps necessary in its
reasonable judgment to ensure that all licensed users of any
Collateral use consistent standards of quality in all material
respects in such users' manufacture, distribution and sale of all
products sold under any item of such licensed Collateral and provision
of all services provided under any item of such licensed Collateral.
SECTION 5. FURTHER ASSURANCES. (a) ARI agrees that from time to
time, at its own expense, it will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary
or that Trustee may reasonably request, in order to (i) grant, or confirm the
grant of and continue, perfect and protect any security interest granted or
purported to be granted hereby, including, without limitation, to grant, or
confirm the grant of and continue, perfect and protect any security interest
granted or purported to be granted hereby in any Trademark or License or (ii)
enable Trustee to exercise and enforce its rights and remedies hereunder with
respect to any part of the Collateral. Without limiting the generality of the
foregoing, ARI will execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices with any
governmental body (in the United States or in any foreign jurisdiction), as may
be necessary or desirable, or as Trustee may reasonably request, or as may be
required by the TIA, in order to confirm the grant of, or to perfect and
preserve, the security interests granted or purported to be granted hereby.
(b) ARI hereby authorizes Trustee to file one or more
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral
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<PAGE> 6
without the signature of ARI where permitted by law. A carbon, photographic or
other reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) ARI shall furnish to Trustee from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Trustee may reasonably
request, all in reasonable detail.
(d) ARI agrees that, should it obtain an ownership
interest in any Trademark or License, which is not now a part of the
Collateral, (i) it shall give prompt notice thereof to the Trustee, (ii) the
provisions of Section 1 of this Agreement shall automatically apply thereto,
and (iii) any such Trademark, together with the goodwill of the business
connected with the use of same and symbolized by same, or License, shall
automatically become part of the Collateral. Concurrently with the filing of
an application for registration of any Trademark in the U.S., ARI will execute
and deliver and record in all necessary jurisdictions in the U.S. such
documents and notices as may be necessary or desirable to grant, or confirm the
grant, of the security interest to Trustee. ARI authorizes Trustee to modify
this Agreement by amending Schedules 1 and 2 (and will cooperate with Trustee
in effecting any such amendment) to include any Trademark or License which
becomes part of the Collateral under this Section 5.
(e) With respect to each Trademark, ARI agrees to take
all necessary steps, including, without limitation, in the United States Patent
and Trademark Office, to (i) maintain each such Trademark, (ii) pursue each
such application for trademark or service mark registration now or hereafter
included in the Collateral, including, without limitation, the filing of
responses to actions issued by the United States Patent and Trademark Office,
the filing of applications for renewal, the filing of affidavits under Sections
8 and 15 of the United States Trademark Act, and the participation in
opposition, cancellation or infringement and misappropriation proceedings,
unless ARI shall have previously obtained the prior written consent of Trustee.
ARI agrees to take corresponding steps with respect to each new or acquired
Trademark to which it is now or later becomes entitled, unless ARI shall have
previously obtained the prior written consent of Trustee. Any expenses
incurred in connection with such activities shall be borne by ARI. ARI shall
not discontinue use of or otherwise abandon any Trademark, or abandon any
pending application for registration or registration of any Trademark, unless
ARI shall have previously obtained the prior written consent of Trustee.
(f) ARI agrees to notify Trustee promptly and in writing
if ARI (i) learns that any item of the Collateral may be determined to have
become abandoned or dedicated or (ii) learns of any adverse determination or
the institution of any proceeding (including, without limitation, the
institution of any proceeding in the United States Patent and Trademark Office
or any court) regarding any item of the Collateral.
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<PAGE> 7
(g) In the event that ARI becomes aware that any item of
the Collateral is infringed or misappropriated by a third party, ARI shall
promptly notify Trustee in writing and ARI shall take such actions which,
exercising its best business judgment, Trustee reasonably deems appropriate
under the circumstances to protect such Collateral, including, without
limitation, suing for infringement or misappropriation and for an injunction
against such infringement or misappropriation. Any expense incurred in
connection with such activities shall be borne by ARI.
(h) ARI shall continue to use reasonable and proper
statutory notice in connection with its use in any territory of its registered
trademarks and service marks, and use the notice designation "TM" in connection
with its use of its trademarks and service marks that are not registered in
that territory.
(i) With respect to any item of Collateral, ARI shall
take all steps which it or the Trustee reasonably deems appropriate under the
circumstances to preserve and protect its Collateral, including, without
limitation, taking all reasonable steps to ensure that all licensed users of
any such Collateral use consistent standards of quality in all material
respects in such users' manufacture, distribution and sale of all products sold
under any item of such licensed Collateral and provision of all services
provided under any item of such licensed Collateral.
(j) Upon the request of Trustee, ARI shall use its best
efforts to obtain all necessary consents of third parties to the grant or
perfection of Trustee's security interest in the Collateral or the exercise of
its rights hereunder.
SECTION 6. TRANSFERS AND OTHER LIENS. ARI shall not
(except as otherwise expressly permitted under the Indenture or with the prior
written consent of Trustee):
(a) sell, assign (by operation of law or otherwise),
license or otherwise dispose of any item of, or grant any option or
other interest with respect to, the Collateral or any portion thereof;
(b) create or suffer to exist any lien, security interest
or other charge or encumbrance upon or with respect to any of the
Collateral except for the liens and security interests created or
permitted by the Indenture and this Agreement;
(c) enter into any license, use or other agreement which
impairs the Trustee's security interest in all or any portion of the
Collateral except as permitted by the Indenture; or
(d) take any other action in connection with any of the
Collateral that would impair the value of the interests or rights
thereunder of ARI such that the interests or rights of Trustee in the
Collateral would be impaired.
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<PAGE> 8
SECTION 7. TRUSTEE APPOINTED ATTORNEY-IN-FACT. ARI hereby
irrevocably appoints Trustee as ARI's attorney-in-fact, with full authority
in the place and stead of ARI and in the name of ARI or otherwise, from time
to time in the Trustee's discretion to take any action and to execute any
instrument that Trustee may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation:
(a) to ask for, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for moneys due
and to become due under or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause
(a) above; or
(c) to file any claims or take any action or institute
any proceedings that the Trustee may deem necessary or desirable for
the collection of any payments relating to any of the Collateral or
otherwise to enforce the rights of the Trustee with respect to any of
the Collateral, including a transfer or assignment of any of the
Collateral upon exercise of such remedies;
provided, however, that Trustee shall not exercise its rights under this
Section 7 except upon the occurrence and during the continuation of an Event of
Default. The power of attorney granted herein is coupled with an interest and
shall be irrevocable.
SECTION 8. LICENSE OF COLLATERAL. ARI hereby assigns,
transfers and conveys to Trustee, effective upon the occurrence of any Event of
Default, the rights to use any and all Collateral owned or used by ARI together
with any goodwill associated therewith, all to the extent necessary to enable
Trustee or any successor or assign of Trustee to realize on the Collateral and
to enjoy the benefits of the Collateral as provided for in this Agreement or in
the Indenture. These rights and licenses shall inure to the benefit of all
successors, assigns and transferees of Trustee and their respective successors,
assigns and transferees, whether by voluntary conveyance, operation of law,
assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise.
Such rights and licenses are granted free of charge, without requirement that
any monetary payment whatsoever be made to ARI or any other Person by Trustee
or its successors, assigns or transferees.
SECTION 9. TRUSTEE MAY PERFORM. (a) If ARI fails to
perform any agreement contained herein, then upon notice to ARI, Trustee may
itself perform, or cause performance of, such agreement, and the expenses of
Trustee incurred in connection therewith shall be payable by ARI the Indenture.
(b) Upon the occurrence and during the continuation of an
Event of Default, Trustee shall have the right, but in no way shall be
obligated, to bring suit in its own name or in the name of ARI to enforce
Trustee's or ARI's right in and to any part of
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<PAGE> 9
the Collateral. At the reasonable request of the Trustee, ARI shall do any and
all lawful acts and execute any and all proper documents required by Trustee in
aid of such enforcement. Upon receipt of written demand, ARI shall promptly
reimburse and indemnify the Trustee for all reasonable costs and expenses
incurred by Trustee in the exercise of its rights under this Section 9.
SECTION 10. TRUSTEE'S DUTIES. The powers conferred on Trustee
hereunder are solely to protect the Trustee's interests in the Collateral and
shall not impose any duty upon Trustee to exercise any such powers. Except for
the exercise of reasonable care in the custody of any Collateral in its
possession and the accounting for any moneys actually received by it hereunder,
Trustee shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against any parties or any other rights
pertaining to any Collateral, including any rights to renew any Trademarks.
Trustee shall be deemed to have exercised reasonable care in the custody of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which Trustee accords its own property of like
tenor.
SECTION 11. REMEDIES. If any Event of Default shall have
occurred and be continuing:
(a) ARI shall assign, transfer and convey to Trustee the
rights and licenses to use any and all Trademarks owned or used by
ARI, together with any goodwill associated therewith, all to the
extent necessary to enable Trustee or any successor or assign of
Trustee to realize on the Collateral and to enjoy the benefits of the
Collateral. These rights and licenses shall inure to the benefit of
all successors, assigns and transferees of Trustee and their
respective successors, assigns and transferees, whether by voluntary
conveyance, operation of law, assignment, transfer, foreclosure, deed
in lieu of foreclosure or otherwise. Such rights and licenses shall
be granted free of charge, without requirement that any monetary
payment whatsoever be made to ARI by Trustee.
(b) Trustee may exercise in respect of any of the
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to the Trustee, all the rights and
remedies of a secured party upon default under the UCC (whether or not
the UCC applies to the affected Collateral) and also may (i) exercise
any and all rights and remedies of ARI under or otherwise in respect
of the Collateral, (ii) require ARI to, and ARI hereby agrees that it
shall, at its own expense and upon request of the Trustee, forthwith
assemble all or any part of the documents and things embodying the
Collateral as directed by Trustee and make them available to Trustee
at a place to be designated by Trustee which is reasonably convenient
to both Trustee and ARI, (iii) occupy any premises owned or leased by
ARI where documents and things embodying the Collateral or any part
thereof are assembled for a reasonable period in order to effectuate
the Trustee's rights and remedies hereunder or under
-9-
<PAGE> 10
law, without obligation to ARI in respect of such occupation, and (iv)
without notice except as specified below, sell the Collateral or any
part thereof in one or more parcels at public or private sale, at any
of the Trustee's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Trustee may deem
commercially reasonable. In the event of any sale, assignment, or
other disposition of any of the Collateral, the goodwill of the
business connected with and symbolized by any Collateral subject to
such disposition shall be included, and ARI shall supply to Trustee or
its designee ARI's know-how and expertise, and documents and things
embodying the same, relating to the manufacture, distribution,
advertising and sale of products or the provision of services relating
to any Collateral subject to such disposition, and ARI's customer
lists and other records and documents relating to such Collateral and
to the manufacture, distribution, advertising and sale of such
products and services. ARI agrees that, to the extent notice of sale
shall be required by law, ten days' notice to ARI of the time and
place of any public sale or the time after which any private sale is
to be made shall constitute reasonable notification. Trustee shall
not be obligated to make any sale of any of the Collateral regardless
of notice of sale having been given. Trustee may adjourn any public
or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
(c) All payments received by ARI under or in connection
with the use of any of the Collateral shall be received in trust for
the benefit of Trustee, shall be segregated from other funds of ARI
and shall be forthwith paid over to Trustee in the same form as so
received (with any necessary endorsement).
(d) All payments made under or in connection with or
otherwise in respect of the Collateral and all cash proceeds received
by Trustee in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the
discretion of Trustee, be held by the Trustee as collateral for,
and/or then or at any time thereafter applied in whole or in part by
Trustee to the Secured Obligations. ARI will, at its own expense,
execute and deliver all instruments and take all actions as may be
necessary, or in the opinion of Trustee desirable, to assign, transfer
or convey to Trustee or any purchaser or assignee on any purchase at a
foreclosure sale any or all Collateral.
SECTION 12. AMENDMENTS, WAIVERS, ETC. (a) No amendment
or waiver of any provision of this Agreement, and no consent to any departure
by ARI herefrom, shall in any event be effective unless the same shall be in
writing and signed by Trustee (and, in the case of amendments, by ARI), and, in
the case of a waiver or a consent, then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
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<PAGE> 11
(b) No failure on the part of Trustee to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
SECTION 13. CONTINUING SECURITY INTEREST; TRANSFER OF
MORTGAGE NOTES; RELEASE OF COLLATERAL. (a) This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until the redemption or repayment in full in cash of the
Mortgage Notes pursuant to the Indenture and the repayment of all other Secured
Obligations, (ii) be binding upon ARI, its successors and assigns, and (iii)
inure, together with the rights and remedies of the Trustee hereunder, to the
benefit of Trustee, and its respective successors, transferees and assigns, and
the holders of the Mortgaged Notes, and their respective successors,
transferrers and assigns.
(b) Upon the redemption or repayment in full in cash of
the Mortgage Notes pursuant to the Indenture, the Trustee will, at ARI's
expense, promptly execute and deliver to ARI such documents as ARI shall
reasonably request to evidence such termination of the security interests
granted hereby and their reversion, release and reassignment.
SECTION 14. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY
INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL ARE GOVERNED BY THE LAW OF THE UNITED STATES OR ANY OTHER
JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein
or in the Indenture, terms used in Article 9 of the Uniform Commercial Code are
used herein as therein defined.
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<PAGE> 12
IN WITNESS WHEREOF, ARI has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
AMERICAN RICE, INC.,
a Texas Corporation
By:___________________________
Name:
Title:
Address: 16825 Northchase Drive
Suite 1600
Houston, Texas, 77060
Agreed and consented to as of
the date first above written:
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Trustee under the Indenture
By:______________________________
Name:
Title:
Address:
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<PAGE> 13
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On ______________, before me _______________________, a Notary
Public, personally appeared _____________________________
_______________________________________________________________, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
Witness my hand and official seal.
_________________________________
Notary Public
(Seal)
<PAGE> 14
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On ______________, before me _______________________, a Notary
Public, personally appeared _____________________________
_______________________________________________________________, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
Witness my hand and official seal.
_________________________________
Notary Public
(Seal)
<PAGE> 15
SCHEDULE 1
TRADEMARKS, SERVICE MARKS, TRADE NAMES, TRADE DRESS OR OTHER
INDICIA OF ORIGIN, TRADE STYLES, LOGOS, TRADEMARK AND
SERVICE MARK REGISTRATIONS OWNED BY ARI
15
<PAGE> 16
SCHEDULE 2
LICENSE OR USE AGREEMENTS TO WHICH ARI IS A LICENSOR
16
<PAGE> 17
SCHEDULE 3
LICENSE OR USE AGREEMENTS TO WHICH ARI IS A LICENSEE
17
<PAGE> 1
EXHIBIT 10.26
PROMISSORY NOTE
$10,000,000.00 MAY 25, 1993
AMENDED AUGUST 5, 1994
AMENDED , 1995
FOR VALUE RECEIVED, ERLY Industries Inc., a California corporation (the
"Maker"), promises to pay to the order of American Rice, Inc., a Texas
corporation (the "Payee"), at 16825 Northchase Drive, Suite 1600, Houston, Texas
77060, the principal sum of Ten Million and 00/100 Dollars ($10,000,000.00), in
lawful money of the United States of America, together with interest at the rate
hereinafter provided on the principal balance from time to time remaining unpaid
until this Note shall have been paid in full.
Payment Terms. The unpaid principal balance of this Note and accrued
interest thereon shall be payable as follows:
a. Until the Maturity Date (as defined), up to Two Million Eight
Hundred Thousand and No/100 Dollars ($2,800,000.00) of cash dividends declared
during any calendar year during the term of this Note on the shares of Preferred
Stock, Series B, $1.00 par value, issued by Payee and registered during such
calendar year in the name of Maker (the "Series B Stock") shall be setoff by
Payee against the obligations of Maker under this Note and, as of the date such
cash dividends would otherwise be paid on such Series B Stock, shall be deemed
to have been paid by Maker and applied by Payee by way of setoff as a payment on
this Note.
b. Until the Maturity Date, any payment due Maker by Payee after March
31, 1996 under that certain Tax Agreement, dated May 25, 1993, among Maker,
Payee and Comet Rice, Inc. (the "Tax Agreement") may be setoff by Payee against
the obligations of Maker under this Note after notice (such notice shall be
given by Payee to Maker within 10 days after receipt of the notice for payment
sent by Maker to Payee under the Tax Agreement), and the amount of such setoff
shall be deemed to have been paid by Maker as a payment on this Note.
c. The unpaid principal balance of this Note, together with accrued and
unpaid interest thereon, shall be due and payable on __________, 2005 (the
"Maturity Date").
Until the Maturity Date, all payments under this Note by way of setoff
shall be made solely in the manner described above and in no event shall Maker
have any obligation or liability to make an actual payment in cash or in
property to Payee of the holder hereof unless any cash dividend described in
clause a. above on the Series B Stock or a payment described in clause b. above
under the Tax Agreement is actually received by Maker instead of being setoff by
Payee and then Maker's liability hereunder shall be only to hold such amount in
trust for the benefit of Payee and to pay to Payee as a payment on this Note
such amount that was actually received by Maker. If Maker receives cash
dividends on the Series B Stock during any calendar year in excess of Two
Million Eight Hundred Thousand and No/100 Dollars ($2,800,000.00)
PROMISSORY NOTE - Page 1
<PAGE> 2
or receives any non-cash dividends on the Series B Stock at any time, Payee
shall have no right to setoff or apply as a payment on this Note any of such
dividends and Maker shall have the right in all events to receive and retain
such dividends.
All payments under this Note shall be applied first to accrued and
unpaid interest and then to principal.
Interest Rate. The unpaid principal balance of this Note from
time to time outstanding shall bear interest until this Note shall have been
paid or canceled in accordance with the terms hereof at an annual rate at all
times equal to the lesser of (i) the maximum rate of interest permitted by
applicable law (the "Maximum Rate") or (ii) six percent (6%) compounded calendar
quarterly. Interest shall be computed at a daily rate equal to 1/365th (1/366ths
during leap year) of the applicable annual percentage rate subject to the
limitation that the effective interest rate on this Note may never exceed the
Maximum Rate.
Accrued and unpaid interest computed for and at the end of each
calendar quarterly period during the term of this Note shall, as of the last day
of such calendar quarterly period, be added to the then unpaid principal balance
of this Note and shall bear interest in accordance with the terms of this Note.
Default. Maker shall be in default (a "Default") under this Note if
(A)(i) Maker actually receives a cash dividend on the Series B Stock that in
accordance with the terms and conditions of this Note should have been setoff by
Payee against the obligations of Maker under this Note and applied by Payee by
way of setoff as a payment on this Note and (ii) Maker fails to pay to Payee,
within 30 days after Maker's receipt of written notice from Payee, the amount
described in clause (A) of this paragraph, or (B) Maker fails to pay on the
Maturity Date the principal amount of this Note outstanding, together with
accrued and unpaid interest thereon.
The failure to exercise the foregoing option upon the occurrence of one
or more of the foregoing Defaults shall not constitute a waiver of the right to
exercise the same at any subsequent time in respect of the same Default or any
other Default.
Attorneys' Fees. The undersigned agrees to pay all reasonable
costs of collection incurred by the holder hereof, including but not limited to
reasonable attorneys' fees.
Waiver of Notice and Consent. The undersigned and all other parties now
or hereafter liable for the payment hereof, whether as endorser, guarantor,
surety, or otherwise, severally waive demand, presentment, notice of dishonor,
notice of intention to accelerate the maturity hereof, notice of acceleration of
the maturity hereof, diligence in collecting, grace, notice and protest, and
consent to all extensions which from time to time may be granted by the holder
hereof and to all partial payments hereof.
PROMISSORY NOTE - Page 2
<PAGE> 3
Legal Interest Limitations. All agreements between Maker and the holder
hereof, whether now existing or hereafter arising and whether written or oral,
are hereby expressly limited so that in no contingency or event whatsoever,
whether by reason of the creation of the indebtedness evidenced hereby, or
otherwise, shall the amount paid, or agreed to be paid, to the holder hereof for
the use, forbearance, or detention of the money evidenced hereby or to be loaned
hereunder or otherwise or for the payment or performance of any covenant or
obligation herein or in any other document evidencing, securing, or pertaining
to the indebtedness evidenced hereby, exceed the maximum rate. If from any
circumstance whatsoever fulfillment of any provision hereof or of such other
documents, at the time performance of such provision shall be due, shall involve
transcending the limit of the time performance of such provision shall be due,
shall involve transcending the limit of validity prescribed by law, then ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any such circumstance the holder hereof shall ever receive
as interest or otherwise an amount which would exceed the Maximum Rate, such
amount which would be excessive interest shall be canceled automatically as of
the date of the occurrence of such circumstance, and if theretofore paid,
applied to the reduction of the principal indebtedness of the Maker hereof to
the holder hereof, and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of principal hereof, such excess shall be
refunded to the Maker. All sums paid or agreed to be paid by the Maker hereof
for the use, forbearance or detention of the indebtedness of the Maker to the
holder hereof shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term of such indebtedness
until payment in full in such manner that there will be no violation of
applicable laws pertaining to the Maximum Rate or amount of interest which may
be contracted for, charged or received with respect to such indebtedness. The
terms and provisions of this paragraph shall control and supersede every other
provision of all agreements between the Maker and the holder hereof.
Notice. All notices, requests, demands, and other communications under
this Note shall be in writing and shall be deemed given when delivered
personally or mailed by certified mail, return receipt requested, to the parties
(and shall also be transmitted by facsimile to the persons or entities receiving
copies thereof, at the following addresses) or to such other address as the
party may have specified by notice given to the other party pursuant to this
provision:
a. Maker:
ERLY Industries Inc.
10990 Wilshire Blvd., Suite 1800
Los Angeles, CA 90024
Attn: President
b. Payee:
American Rice, Inc.
16825 Northchase, Suite 1600
Houston, Texas 77060
PROMISSORY NOTE - Page 3
<PAGE> 4
Attn: President
Successors and Assigns. This Note shall inure to the benefit of and be
binding upon Maker, Payee and any holder of this Note and their respective
successors and permitted assigns. Whenever Maker or Payee is referred to in this
Note, such references shall be deemed references to its successors and permitted
assigns and, in the case of Payee, any other holder of this Note. Maker may not
assign its rights, or permit the assumption of its obligations under this Note,
without the prior written consent of Payee.
APPLICABLE LAW. THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAW. VENUE IN ANY
DISPUTE REGARDING THIS NOTE, WHETHER IN FEDERAL OR STATE COURT, SHALL BE IN
HARRIS COUNTY, TEXAS.
Asset Purchase Agreement. This Note is the note referred to in, and
given pursuant to Section 5.06 of that certain Asset Purchase Agreement, dated
march 23, 1993, among Payee, Maker and Comet Rice, Inc.
Validity. The invalidity, illegality, or unenforceability of any
provision of this Note shall not render invalid, illegal, or unenforceable any
other provisions hereof.
Address: ERLY Industries Inc., a California
corporation
10990 Wilshire Boulevard
Suite 1800
Los Angeles, CA 90024 By: _________________________________
Gerald D. Murphy
Its: Chairman
PROMISSORY NOTE - Page 4
<PAGE> 5
ACCEPTED AND AGREED to by
the undersigned as of the day
and year first written:
American Rice, Inc., a Texas
corporation
By: ______________________________
Its: _____________________________
PROMISSORY NOTE - Page 5
<PAGE> 1
EXHIBIT 11.1
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
-------------------
1995 1994
------- -------
(IN THOUSANDS
EXCEPT PER SHARE
DATA)
<S> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE*
Earnings before extraordinary item....................................... $ 3,913 $ 3,465
Extraordinary item....................................................... -- 9,318
------- -------
Net earnings............................................................. 3,913 12,783
Less dividends on preferred stock:
Series B............................................................... (5,180) (4,317)
Series C............................................................... (750) (625)
------- -------
Earnings (loss) applicable to common stock............................... $(2,017) $ 7,841
======= =======
Average common and common equivalent shares outstanding:
Common................................................................. 2,444 2,444
Preferred Series A..................................................... -- 778
------- -------
2,444 3,222
======= =======
Primary earnings (loss) per share:
Loss before extraordinary item......................................... $ (.83) $ (.45)
Extraordinary item..................................................... -- 2.90
------- -------
Earnings (loss) per share applicable to common stock................... $ (.83) $ 2.45
======= =======
FULLY DILUTED EARNINGS PER SHARE*
Earnings before extraordinary item....................................... $ 3,913 $ 3,465
Extraordinary item....................................................... -- 9,318
------- -------
Net earnings............................................................. 3,913 12,783
Less dividends on preferred stock:
Series B............................................................... -- --
Series C............................................................... (750) (625)
------- -------
Earnings applicable to common stock...................................... $ 3,163 $12,158
======= =======
Average common and common equivalent shares outstanding:
Common................................................................. 2,444 2,444
Preferred Series A..................................................... 778 778
Preferred Series B..................................................... 5,600 4,741
------- -------
8,822 7,963
======= =======
Fully diluted earnings per share:
Earnings before extraordinary item..................................... $ .36** $ .35
Extraordinary item..................................................... -- 1.15
------- -------
Earnings per share applicable to common stock.......................... $ .36** $ 1.50
======= =======
</TABLE>
- ---------------
* See Note 4 of Notes to Consolidated Financial Statements. 1994 has been
restated for the effects of a 1 for 5 reverse stock split that occurred in
fiscal 1995.
** 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 statement of operations 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(2)
-------------------------------- -------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------
1991 1992 1993 1994 1995
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes and
extraordinary items................... $ 716 $(5,638) $(11,265) $ 5,721 $ 6,115
Add (deduct):
(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
Interest expense...................... 7,841 8,068 5,232 9,884 12,344
-------- -------- -------- -------- --------
Earnings as adjusted.................. $11,671 $ 5,466 $ (3,956) $15,981 $19,792
======== ======== ======== ======== ========
Fixed charges:
Interest expense...................... $ 7,841 $ 8,068 $ 5,232 $ 9,884 $12,344
Portion of rents representative of the
interest factor.................... 342 429 447 802 1,333
-------- -------- -------- -------- --------
Total fixed charges................... $ 8,183 $ 8,497 $ 5,679 $10,686 $13,677
======== ======== ======== ======== ========
Ratio of earnings to fixed charges(2)... 1.4x --(3) --(3) 1.5x 1.4x
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION ARI(1)
------------------------------------------
PERIOD
FROM
APRIL
1,
1993
YEAR ENDED MARCH 31, 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 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
OR
NAME OF SUBSIDIARY ORGANIZATION
---------------------------------------------------------------- ---------------
<S> <C>
Comet Ventures, Inc. ........................................... California
Comet Rice of Puerto Rico, Inc. ................................ Delaware
Comet Rice of Jamaica Limited .................................. Jamaica
Rice Corporation of Haiti, S.A. ................................ Haiti
American Rice-Vinafood Co. Ltd. ................................ Vietnam
BargeCaribe, Inc. .............................................. Texas
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in this Registration Statement relating to $100 million of
Mortgage Notes due 2005 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 to the reference to us under the heading "Experts" in such
Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule of American Rice, Inc., listed in Item 16. This consolidated financial
statement schedule is the responsibility of the Company'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
June 23, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,864
<SECURITIES> 0
<RECEIVABLES> 35,134
<ALLOWANCES> 1,711
<INVENTORY> 50,205
<CURRENT-ASSETS> 89,736
<PP&E> 59,279
<DEPRECIATION> 17,893
<TOTAL-ASSETS> 177,500
<CURRENT-LIABILITIES> 76,073
<BONDS> 0
<COMMON> 2,444
0
3,878
<OTHER-SE> 37,890
<TOTAL-LIABILITY-AND-EQUITY> 177,500
<SALES> 373,050
<TOTAL-REVENUES> 373,050
<CGS> 332,236
<TOTAL-COSTS> 332,236
<OTHER-EXPENSES> 22,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,344
<INCOME-PRETAX> 6,115
<INCOME-TAX> 2,202
<INCOME-CONTINUING> 3,913
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,913
<EPS-PRIMARY> (.83)
<EPS-DILUTED> (.83)
</TABLE>
