SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission file
March 31, 1996 Number 0-17039
American Rice, Inc.
(Exact name of registrant as specified in its charter)
Texas 76-0231626
(State of Incorporation) (I.R.S. Employer
Identification No.)
16825 Northchase, Suite 1600
Houston, Texas 77060
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 873-8800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $1.00 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of June 21, 1996, 2,443,692 shares of the Registrant's Common Stock, par
value $1 per share, were outstanding, and the aggregate market value of the
outstanding Common Stock, $1 par value, of the Registrant held by non-
affiliates of the Registrant as of June 17, 1996, based on the average bid and
asked prices for these shares on the NASDAQ System, was $3,540,067.
Documents Incorporated by Reference
Portions of the 1996 Proxy Statement to Shareholders are incorporated by
reference in Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. []
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AMERICAN RICE, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Part I
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Item 1: Business See page 1
Item 2: Properties See page 12
Item 3: Legal Proceedings See page 12
Item 4: Submission of Matters to a See page 13
Vote of Security Holders
Part II
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Item 5: Market for the Company's See page 13
Common Stock and Related
Stockholder Matters
Item 6: Selected Financial Data See page 13
Item 7: Management's Discussion See page 16
and Analysis of Financial
Condition and Results of
Operations
Item 8: Consolidated Financial See page F - 1
Statements
Item 9: Changes in and Disagreements See page 21
with Accountants on Accounting
and Financial Disclosure
Part III
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Item 10: Directors and Executive See page 22
Officers of the Company
Item 11: Executive Compensation See Proxy Statement
Item 12: Security Ownership of Certain See Proxy Statement
Beneficial Owners and
Management
Item 13: Certain Relationships See Proxy Statement
and Related Transactions
Part IV
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Item 14: Exhibits, Financial Statement
Schedules and Reports on
Form 8-K
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PART I
Item 1. Business
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Recent Events
In June 1996, the Company entered into an agreement to acquire a domestic and
foreign olive business from Campbell Soup Company. Assets to be acquired
include domestic inventories and fixed assets and all of the outstanding
common stock of a Spanish company which comprises the foreign olive business.
The purchase price is expected to be approximately $38 million, which will be
funded primarily from ARI's credit facilities. The acquisition, which is
expected to close in July 1996, will be accounted for as a purchase, and the
results of operations of the acquired business will be included in the
Company's consolidated financial statements after that date.
Background
The business of ARI dates back to 1901 when the predecessor company to Comet
Rice, Inc. ("Comet") was formed in Beaumont, Texas. Comet Rice, named after
the appearance of Haley'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 a rice processing facility in Maxwell, California (the
"Maxwell Facility"). This facility remains the Company's primary milling
facility in the California rice producing region. Early subsequently changed
its name to ERLY Industries Inc. ("ERLY") in 1985.
In 1986, Comet and American Rice, Inc., a Texas agricultural cooperative
marketing association formed in 1969 and 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, 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
Page 1<PAGE>
additional 33% of the voting power of ARI (the "Acquisition"). As a result of
the Acquisition, ERLY holds 81% of the voting power of the Company.
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 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.
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 20% of the total U.S. rice crop and is the only marketer of rice
in the world with significant sources of rough rice and milling facilities in
the two major rice producing regions of the United States as well as certain
strategic locations overseas. This allows ARI to moderate the impact of
regional trade imbalances caused by climate and geopolitical factors on
operating performance. The Company is able to maximize its margins by
purchasing rice grown domestically and abroad to take advantage of regional
cost and supply availabilities.
Approximately 60% of the Company's net sales consist 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 and abroad, 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 1973, 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.
In 1994 ARI 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 product source will enable it to
increase its market share in certain key regions as well as provide a
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competitive product under its existing brand names to major rice consuming
markets in Asia and South America.
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. 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 150 pounds per person on a worldwide basis, with Asia
having the highest per capita annual consumption at approximately 225 pounds
and the United States with one of the lowest at 28 pounds.
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 to
approximately 15 million metric tons. 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 17%, respectively, of the world rice trade.
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 of a high quality and sells at
premium prices relative to Asian rice. Based on statistics compiled by the
United States Department of Agriculture ("U.S.D.A."), exports of 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. estimates that the United States exported 2.7
million metric tons of rice in 1995.
Page 3<PAGE>
International trade has been impacted favorably by the effects of the General
Agreement on Tariff and Trade ("GATT"). Signatory countries, including the
United States, the European Union, Japan, and South Korea 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 imported approximately 400,000 metric
tons of rice in 1995, and its imports are scheduled to increase 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 ten years and
must meet a minimum 10% per item reduction. Management believes that the net
effect of GATT will be to stimulate additional medium grain rice production 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 have grown from 6% of the U.S. population in 1970 to 26% in 1990
and are projected by the U.S. Census Bureau to increase to 38% of the U.S.
population by 2020. For example, the Hispanic communities in the Southwest,
and the Asian communities in California, each of which have grown
significantly since 1985, consume over three times the average per capita
amount of rice consumed in the United States. 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.
Approximately 50% to 60% of rice produced in the United States is consumed
domestically. Approximately 70% of U.S. consumption is for food use or direct
consumption. Rice used in food processing accounts for approximately 19% of
total U.S. rice consumption while the remainder is used in the production of
beer.
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
Page 4<PAGE>
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.
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.
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.
Page 5<PAGE>
The Company plans to continue to expand into new markets and increase its
share in certain of its existing markets. The following table summarizes the
regional concentrations of net sales of ARI during the past three years:
Year ended March 31,
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1996 1995 1994
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(in thousands)
United States and Canada $141,868 $129,271 $102,624
Export Sales:
Middle East 117,359 91,449 89,782
Caribbean, Mexico, and
South America 64,654 84,806 38,935
Asia 49,453 49,963 42,838
Europe 18,111 13,632 6,260
Africa 2,275 3,864 4,012
Other 55 65 13
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Total Export Sales 251,907 243,779 181,840
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Total Sales $393,775 $373,050 $284,464
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See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for discussion concerning export sales for ARI.
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 36% of
net sales in fiscal 1996. 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%.
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.
Certain ethnic groups represent some of the fastest growing segments of the
rice business in the United States. Management believes that ARI's 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
Page 6<PAGE>
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 five 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 special
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 30% of net sales in fiscal 1996.
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 during the last 15 years.
Overall, Abu Bint(R) is the number one brand with a market share of
approximately 16% of the total Saudi Arabian market, three times larger than
that of its closest competitor.
Historically, the rice ARI sold in Saudi Arabia was processed and packed in
the United States and shipped to Saudi Arabia. In 1994, ARI entered into an
agreement with AJWA/RMTI, an operator of a receiving, processing, storage and
bagging facility in Jeddah, Saudi Arabia, to receive bulk rice from ARI and
pack Abu Bint(R) on an exclusive basis and under strict ARI quality
supervision. By shipping rice in bulk to AJWA/RMTI, ARI has reduced vessel
loading and freight costs while providing market competitiveness even better
customer service and product freshness. Rice products exported to Saudi Arabia
by ARI are marketed to various wholesalers and retailers through a number of
major distributors.
Historically, ARI has also had significant sales in Turkey and Iran.
Caribbean, Mexico and South America. This region accounted for 16% of net
sales in fiscal 1996. 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 Haiti, Jamaica and The Netherlands
Antilles.
The Company is the largest processor and marketer of rice to Haiti, one of the
seven largest importers of U.S. grown rice, with annual imports in excess of
125,000 metric tons for each of the last five years.
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
Page 7<PAGE>
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, Ltd., is the second
largest processor and one of the largest branded retail and food service
marketers in the country.
Asia. Asia accounted for 13% of net sales in fiscal 1996. For the twelve-month
period ended July 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 impaired Japan's 1993 rice crop.
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 imported approximately 400,000 metric tons of rice
in 1995, and its imports are scheduled to increase each year to 758,000 metric
tons by 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 Japanese
imports.
In 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 rice
and related products at rice processing facilities in the Can Tho province of
Vietnam. ARI owns 55% of ARI-Vinafood and also earns a royalty of 3.5% on all
export sales from Vietnam by ARI-Vinafood. 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 Partner
after the fifth year of operation.
ARI's participation in ARI-Vinafood has allowed 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 gives 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
Page 8<PAGE>
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 portion of these rough
rice purchases are made under pre-harvest agreements. Pre-harvest agreements
generally provide for delivery of rough rice from specified acreage at a price
per hundredweight determined by the terms of the agreements. Generally, the
price per hundredweight is determined based on local market conditions
occurring between the time of harvest and on or after delivery to the buyers.
ARI also obtains domestic rough rice through competitive bidding in all rice
producing states. In addition to purchasing domestic rough rice, ARI obtains
milled rice from other U.S. and foreign rice suppliers as needed.
The Chicago Board of Trade maintains a futures and options market in rough
rice. ARI buys and sells futures and options contracts as a mechanism to
manage a portion of its rough rice requirements.
The Company procures rice from a variety of locations, including five of the
six significant U.S. rice growing states; Texas, Louisiana, Mississippi,
Arkansas, and California.
Southern Facilities. ARI's principal Southern rice processing facility is
located in Freeport, Texas (the "Freeport Facility"). The 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. 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 1995, ARI invested approximately $1.5 million to
upgrade the Freeport Facility. ARI installed state-of-the-art equipment which
increased the production capacity of the mill by approximately 1.2 million
hundredweight per year and substantially improved yields, thereby reducing
ARI's production cost per hundredweight.
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 first leased by Comet in 1991 and recently extended, is
an older milling facility that 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
Page 9<PAGE>
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 operates an ocean-going vessel to service the Caribbean area
facilities. These facilities provide ARI with competitive advantages in
loading, transportation and labor costs as well as in customer service and
product freshness.
Competition
Competition is based upon brand name recognition, quality, product
availability, product innovation and price. On a global basis, ARI competes
with approximately 15 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).
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. 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.
Regulation
Although ARI is not involved in rice farming, certain government regulations
affecting U.S. rice farmers have a significant impact on the cost and
Page 10<PAGE>
availability of ARI's principal raw material, rough rice. Substantially all
U.S. rice is grown under the influence of U.S. government programs.
In April 1996, the Federal Agriculture Improvement and Reform Act ("1996 Farm
Bill") was enacted to replace its 1990 predecessor, the Food, Agriculture,
Conservation and Trade Act of 1990 ("1990 Farm Bill"). The 1996 Farm Bill
provides marketing loans and agricultural market transition payments (as
defined) to qualifying farmers for seven years beginning with the 1996 crop.
The agricultural market transition payments range on a declining scale from
$2.75 per cwt for the 1996 crop to $2.03 per cwt in 2002 and replace similar
payments of the 1990 Farm Bill. Unlike the predecessor bill payments, the
agricultural market transition payments are fixed without reference to price
levels. Other key provisions of the new law include the elimination of acreage
reduction incentives and increased flexibility of farmers to change among
different commodities as market conditions warrant.
The changes introduced by the 1996 Farm Bill may have a significant impact on
the supply and price levels of U.S. grown rice. Surveys of rice farmers by the
U.S.D.A. indicate total planted acreage in the U.S. may decline somewhat in
1996. Prices of rough rice have trended somewhat higher in anticipation of a
shorter supply. Management believes any possible adverse effect of these
developments will be of limited duration because over the longer term (i)
domestic prices should adjust to a point of economic equilibrium with imports,
which will 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 as a result of the 1996 Farm Bill may 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, 1996, the Company had 613 employees in domestic operations and
approximately 500 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.
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.
Page 11<PAGE>
Item 2. Properties.
- ------- -----------
The following table summarizes the principal properties owned and/or occupied
by the Company and its subsidiaries:
<TABLE>
<CAPTION>
Owned or Leased
Type of Floor Space Expiration
Location Facility Square Footage Date of Lease
- ------------------------------------ --------------- -------------- ------------------
<S> <C> <C> <C
Administrative Offices:
Houston, Texas Office 46,400 Leased 1997
Los Angeles, California Office 4,000 Leased 2001
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 2001
Laffiteau, Haiti Plant/Warehouse 30,024 Leased 2001
Spanish Town, Jamaica Plant/Warehouse 29,000 Leased 1998
Can Tho, Vietnam (2) Plant/Warehouse 250,000 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.
Item 3. 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 matters
noted below. While the results of such litigation cannot be predicted with
certainty, the Company believes that the resolution of such legal proceedings,
including the matters noted below, will not have a material adverse effect on
the consolidated financial position or consolidated results of operations of
ARI.
The Company and ERLY have been named as codefendants in a lawsuit filed in the
district court of Harris County, Texas. This is a dispute between the general
partner of a proposed real estate development and G.D. Murphy and D.A. Murphy,
Chairman and President, respectively, of ARI and ERLY. Damages sought are in
the range of $10 million plus attorneys' fees and punitive damages. ARI and
ERLY are named as defendants in the lawsuit because of their actions to obtain
restraining orders to prevent threatened foreclosures on ERLY common stock
pledged as collateral by G.D. Murphy and to stop interference by the plantiff
in the lawsuit with ARI's mortgage note financing (see Note 4 of notes to
Consolidated Financial Statements), as well as certain other alleged
activities. The Company and ERLY believe they have valid defenses in this case
and that damages, if any, will not have a material effect on the Company's
financial condition; however, as with any litigation, the ultimate outcome is
Page 12<PAGE>
unknown. Accordingly, no provision for any liability that might result from
this litigation has been made in the accompanying consolidated financial
statements.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
None
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders
- ------- --------------------------------------------------------------
Matters.
--------
The shares of ARI Common Stock, $1.00 par value ("ARI Common Stock"), are
traded on the automated quotation system of the National Association of
Securities Dealers ("NASDAQ") "Small Capitalization Market" under the symbol
"RICE". The high and low trade prices per share of the ARI Common Stock for
each quarter during the period commencing April 1, 1994 through March 31,
1996, are set forth below. Such quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
High Trade Low Trade
Prices Prices
---------- ---------
Fiscal Year 1995
- ----------------
Quarter Ended June 30, 1994 $ 5.31 $ 1.88
Quarter Ended September 30, 1994 4.25 2.75
Quarter Ended December 31, 1994 3.75 1.00
Quarter Ended March 31, 1995 3.13 1.25
Fiscal Year 1996
- ----------------
Quarter Ended June 30, 1995 $ 3.25 $ 2.75
Quarter Ended September 30, 1995 3.25 2.00
Quarter Ended December 31, 1995 2.25 1.25
Quarter Ended March 31, 1996 2.38 1.38
ARI has not paid any dividends with respect to the ARI Common Stock. No
dividends can be paid without the consent of ARI's lenders and current loan
agreements prohibit payment of dividends. There were 4,228 holders of record
of the ARI Common Stock on June 1, 1996.
Item 6 Selected Financial Data.
- ------ -----------------------
The following table sets forth selected historical consolidated financial data
of the Company for the years ended March 31, 1992 through 1996, and for
American Rice, Inc. prior to the Acquisition ("Pre-Acquisition ARI") for the
years ended March 31, 1992 and 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,
Page 13<PAGE>
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
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 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, 1992 and 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 table 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 Form 10-K.
Page 14<PAGE>
<TABLE>
<CAPTION
Year Ended March 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(in thousands, except per share and per
hundredweight data)
<S> <C> <C> <C> <C> <C
Operating Data:
Net sales $393,775 $373,050 $284,464 $169,617 $214,090
Gross profit 38,050 40,814 36,418 8,363 11,684
Selling, general and
administrative expenses 24,775 23,235 21,497 10,779 8,419
Earnings (loss) before
extraordinary items (5,894) 3,913 3,465 (11,265) (5,638)
Primary earnings (loss) per
share before extraordinary
items (2) (4.84) (.83) (.45) - -
Other Financial Data:
Gross profit margin 9.7% 10.9% 12.8% 4.9% 5.5%
Depreciation and
amortization (3) $4,372 $4,250 $3,822 $1,813 $2,638
Capital expenditures (4) 3,690 3,562 2,844 2,651 772
Hundredweight of rice sold 20,460 22,304 17,114 12,918 14,463
Net sales per hundredweight $19.25 $16.73 $16.62 $13.13 $14.80
Balance Sheet Data:
Cash $2,803 $1,864 $1,721 $2,740 $1,057
Current assets 124,717 89,736 86,448 32,681 76,335
Total assets 212,161 177,500 175,070 74,325 124,602
Total debt 115,541 89,237 95,084 47,953 81,160
Total stockholders' equity 38,352 44,212 40,299 12,699 19,304
</TABLE>
<TABLE>
<CAPTION>
Pre-Acquisition ARI (1)
-----------------------------------------
Period from Year Ended March 31,
April 1, 1993 to ---------------------
May 26, 1993 1993 1992
------------------ --------- ---------
(in thousands, except per
hundredweight data)
<S> <C> <C> <C>
Operating Data:
Net sales $27,025 $176,619 $176,201
Gross profit 4,243 24,580 13,982
Selling, general and
administrative expenses 2,380 14,163 13,104
Earnings (loss) before
extraordinary items 888 3,250 (5,432)
Other Financial Data:
Gross profit margin 15.7% 13.9% 7.9%
Depreciation and amortization (3) $493 $3,070 $3,130
Capital expenditures 31 762 517
Hundredweight of rice sold 1,361 12,645 12,026
Net sales per hundredweight $19.86 $13.97 $14.65
Balance Sheet Data:
Cash $1,926 $1,251
Current assets 46,050 36,983
Total assets 102,178 95,515
Total debt 64,116 67,196
Total stockholders' equity 16,451 13,201
</TABLE>
Page 15<PAGE>
(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) Represents 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, 1992 and 1993 because
the data presented is that of Comet, which was a wholly-owned subsidiary of
ERLY.
(3) Excludes amortization of deferred financing costs and discount accretion
included in interest expense.
(4) Excludes property acquired through capital leases of $1,054 thousand in
fiscal 1996.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------ --------------------------------------------------------------
Results of Operations.
---------------------
The following discussion should be read in conjunction with "Selected
Financial Data" and the Company's Consolidated Financial Statements and the
notes thereto, included elsewhere in this Form 10-K.
Overview
The Company purchases and processes rough rice into branded and commodity rice
for sale in both international and domestic markets. Demand for branded rice
products, which have accounted for approximately 70% of the Company's net
sales over the last two fiscal years, is relatively constant and margins are
typically higher than those for commodity rice products. Demand for commodity
rice products is relatively constant globally, but demand for U.S. grown
commodity rice is dependent upon supply and its cost relative to other sources
of supply. Supply and costs 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 proportionately
weighted toward the relatively higher margin branded products, (ii)
approximately one-half of the Company's rough rice purchases, excluding rough
Page 16<PAGE>
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 financial data
presented for periods prior to May 26, 1993 reflect only the operations of
Comet. Operating results after May 26, 1993, reflect 10 months of combined
operations in fiscal 1994 and 12 months of combined operations in fiscal 1995
and fiscal 1996.
Results of Operations
Year Ended March 31, 1996 Compared with the Year Ended March 31, 1995
Net Sales. Net sales increased $20.7 million, or 5.5%, from $373.1 million in
fiscal 1995 to $393.8 million in fiscal 1996. The increase in sales was
composed of $8.1 million in increased export sales and $12.6 million from
increased sales in the U.S. and Canada.
Export sales increased due to higher average prices partially offset by lower
volume. Average export prices increased approximately 23.2%, accounting for
$47.5 million in sales increases. Total export sales volume declined
approximately 4.1 million equivalent rough rice hundredweight's or 16%,
accounting for a $39.4 million sales decline. Export volume was lower
primarily due to lower sales to the Caribbean partially offset by higher sales
to the Middle East. Sales to Asia were approximately the same as the prior
year. Domestic sales were higher primarily due to higher volume.
Gross Profit. Gross profit was 9.7% of sales in fiscal 1996 compared to 10.9%
in fiscal 1995. Gross profit declined $2.7 million, or 6.8%, from
$40.8 million in fiscal 1995 to $38.1 million in fiscal 1996, due primarily to
lower sales to Japan partially offset by increases in gross profit on U.S.
sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.5 million, or 6.6% from $23.2 million in
fiscal 1995 to $24.8 million in fiscal 1996. As a percentage of net sales,
selling, general and administrative expenses were approximately the same as
the prior year.
Provision for Loss on Disposal of Properties. ARI has entered into an
agreement to sell its principal property held for sale, which is located two
miles west of downtown Houston. The terms of the agreement require that
certain conditions be met prior to consummation of the sale including
demolition of structures and updated environmental studies. ARI expects to
Page 17<PAGE>
receive net proceeds of approximately $11.2 million from the sale.
Accordingly, the carrying value of the property was reduced to its approximate
net realizable value (after accrual of certain costs) by a non-recurring
charge of $7.2 million in the three months ended December 31, 1995. The
transaction is expected to be consummated in calendar 1996. Management
believes it is in the best interest of ARI to proceed with disposition of the
property in an expeditious manner due to the improvement in liquidity it will
provide and to the Note indenture requirement for sale of the property within
eighteen months of the date of issuance of the notes to avoid certain
penalties. Management expects to invest the sales proceeds in other projects.
Interest. Interest Expense increased $5.1 million from $12.3 million in fiscal
1995 to $17.4 million in fiscal 1996 due to higher average balances
outstanding and higher average interest rates. Interest expense in both
periods includes amortization of capitalized debt issuance costs. Interest
expense in the fiscal 1996 period includes accretion of the $6 million
original issue discount on the Notes. Partially offsetting the increase in
interest expense, interest income increased $1.0 million to $1.8 million due
primarily to the $10.5 million loan to ERLY.
Year Ended March 31, 1995 Compared with the Year Ended March 31, 1994
Net Sales. The Company's net sales increased $88.6 million, or 31.1%, from
$284.5 million in fiscal 1994 to $373.1 million in fiscal 1995. Export sales
increased by $61.9 million while domestic sales increased by $26.7 million.
Export sales improved primarily due to higher volume which increased by
approximately eight million equivalent rough rice hundredweight. Approximately
74% of this increase resulted from sales to the Caribbean, Mexico and South
America with the remaining improvements coming from the Asian and European
markets. 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.
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.
Page 18<PAGE>
Liquidity and Capital Resources
ARI requires liquidity and capital primarily for the purchase of rough rice
and to invest in property, plant and equipment necessary to support
operations. Historically, ARI has financed both working capital and capital
expenditures through internally generated funds and by funds provided by
credit lines.
Inventories increased due to a variety of factors which included generally
higher price levels and higher inventories in Vietnam and for Saudi Arabia
business. 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 AJWA/RMTI, an operator of a receiving,
processing, storage and bagging facility in Jeddah, Saudi Arabia, to receive
bulk rice from ARI and pack rice on a exclusive basis. By shipping rice in
bulk to AJWA/RMTI, ARI reduces vessel loading and freight costs. Shipments to
AJWA/RMTI under this agreement began in June 1995, and shipments to Saudi
merchants from the AJWA/RMTI facility began in October 1995.
The carrying value of the Houston properties was reduced to $13.5 million as a
result of an agreement to sell the property two miles west of downtown
Houston. The sale is expected to be consummated in calendar 1996. The
receivable from ERLY increased primarily due to a $10.5 million loan from the
proceeds of the mortgage notes and its associated interest income.
In a public offering completed in August 1995, ARI issued
$100 million in principal amount of 13.0% mortgage notes due 2002 (the
"Notes"). Portions of the net proceeds of $94 million were used to repay
$53.8 million of existing term debt, to make a $10.5 million 15% loan to ERLY
due 2002, and to reduce borrowings outstanding under the $47.5 million
revolving credit loan. The Notes provide for interest payments semiannually,
accruing fixed interest at an annual rate of 13.0%, an effective yield rate of
14.4%.
In addition to fixed interest, the Notes bear contingent interest of 4.0% of
consolidated cash flow (as defined) up to a limit of $40.0 million of
consolidated cash flow during the fiscal year in which such interest accrues.
Contingent interest accrues in each semiannual period (as defined) in which
consolidated cash flow in such period and the immediately preceding semiannual
period is equal to or greater than $20.0 million. Contingent interest is
payable semiannually, but ARI may elect to defer all or a portion of any such
payment to the extent that (a) the payment of such portion of contingent
interest will cause ARI's adjusted fixed charge coverage ratio (as defined)
for the two consecutive applicable semiannual periods to be less than 2.0:1
and (b) the principal of the Notes corresponding to such contingent interest
has not then matured and become due and payable. Consolidated cash flow (as
defined) for the year ended March 31, 1996 was as follows
Page 19<PAGE>
Consolidated
Cash Flow
----------
(in thousands)
Three Months Ended:
June 30, 1995 $ 5,059
September 30, 1995 4,759
December 31, 1995 3,071
March 31, 1996 5,188
----------
Year Ended March 31, 1996 $18,077
==========
Contingent interest of $447 thousand and zero for the semiannual periods (as
defined) ended June 30, 1995 and December 31, 1995, respectively were accrued
during fiscal 1996. As the applicable fixed charge coverage ratio was less
than 2.0:1, ARI has elected to defer payment of the $447 thousand contingent
interest liability.
Other assets increased primarily as a result of capitalized issuance costs for
the Notes that will be amortized over the life of the Notes through 2002.
The revolving credit loan, which was amended effective June 30, 1995, bore
interest at the prime rate of interest plus 0.5%. This facility was replaced
on June 7, 1996 by a new revolving credit loan discussed below. Funds
available for borrowing under this revolving credit loan at any time could 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 revolving credit loan was primarily collateralized by a first
priority security interest in trade receivables, inventory, and certain key
man life insurance. At March 31, 1996, the outstanding balance on this loan
was $12.5 million and on April 1, 1996 the borrowing base under the loan was
$25.9 million. During the year ended March 31, 1996, ARI's maximum borrowing
under the loan was $34.6 million.
On June 7, 1996 ARI replaced its existing $47.5 million revolving credit loan
with a revolving credit loan from a new lender, Harris Trust and Savings Bank
("Harris"). Funds available for borrowing under this 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),
75% of eligible rough rice inventory, and 70% of eligible finished goods
inventory. The line is collateralized by substantially all of ARI's accounts
receivable and inventory. In addition, this facility contains restrictive
covenants which, among other things, require the attainment of certain
financial ratios and provide limitations on capital expenditures, lease
obligations, and prohibit dividend payments. The line also contains certain
cross default provisions with the Indenture as discussed in Note 4 of Notes to
Consolidated Financial Statements. The Harris revolving credit line bears
interest at ARI's option at either the prime rate or the London Interbank
Offered Rate plus an applicable margin based upon ARI's adjusted funded debt
Page 20<PAGE>
ratio as defined, with outstanding principal and interest due upon termination
of the agreement, which continues in full force and effect until May 31, 1999
or until earlier terminated by ARI upon five days prior written notice
subsequent to May 31, 1997.
The Company intends to satisfy its obligations under the Notes as well as
future capital expenditure and working capital requirements primarily with
cash flow from operations and from funds available under existing and new
revolving lines of credit. Management believes that cash flow from operations
and the line of credit will provide sufficient liquidity to enable it to meet
its currently foreseeable working capital and capital expenditure
requirements.
ARI anticipates funding the acquisition of the olive business and meeting its
additional working capital requirements primarily through expanding the
existing revolving credit facility.
Capital expenditures, limited by the Note indenture to $5.5 million per fiscal
year (with carryover provisions as defined therein) if the consolidated cash
flow (as defined therein) does not exceed $30 million per year, were $4.8
million and $3.6 million for the years ended March 31, 1996 and 1995,
respectively. Management anticipates the $5.5 million limitation will allow
for maintenance of existing facilities and will also support limited growth.
ARI's Preferred B and C stock carries annual cumulative, non-participating
dividends of $5.2 million and $750 thousand respectively. No dividends have
been declared or paid as of March 31, 1996. As of March 31, 1996, the
Preferred B dividends accumulated but not declared are $14.677 million and the
Preferred C dividends accumulated but not declared are $2.125 million
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
The Financial Statements and Supplementary Data are included herein beginning
on Page F - 1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -------- ---------------------------------------------------------------
Financial Disclosure.
---------------------
None
Page 21<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
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) Functions Performed
- ----------------------- ---- ---------- ---------------------------------------------
<S> <C> <C> <C>
Executive Officers:
Gerald D. Murphy 68 32 Chairman of the Board of Directors
Douglas A. Murphy 40 14 President, Chief Executive Officer and Director
Richard N. McCombs 50 12 Executive Vice President of Finance and
Administration; Treasurer, Secretary and
Director
Lee Adams 55 29 Senior Vice President of International Marketing
Bill J. McFarland 59 21 Senior Vice President and President of Comet
American Marketing Division
Kenneth C. McCorkle 47 8 Senior Vice President and President of Early
California Foods
John S. Poole 49 26 Senior Vice President and President of Comet
Rice Division
C. Bronson Schultz 54 22 Vice President of Finance and Data Processing
Joseph E. Westover 51 19 Vice President and Controller
Directors:
Gerald D. Murphy 68 32 Chairman of the Board of Directors
Douglas A. Murphy 40 14 President, Chief Executive Officer and Director
Richard N. McCombs 50 12 Executive Vice President of Finance and
Administration; Treasurer, Secretary and
Director
S.C. Bain, Jr. 47 8 Director
William H. Burgess 79 20 Director
John M. Howland 48 13 Director
George E. Prchal 53 14 Director
</TABLE>
(1)Years with ARI, including past or 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 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.
Page 22<PAGE>
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 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.
Kenneth C. McCorkle has served as Senior Vice President of ARI and President
of Early California Foods since February 1996. He served in various capacities
with ERLY from 1977 to 1985.
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 CAM
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 in 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
Page 23<PAGE>
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.
Item 11. Executive Compensation.
- -------- -----------------------
Pursuant to General Instruction G(3), information concerning executive
compensation is incorporated by reference from ARI's Proxy Statement to be
filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
Pursuant to General Instruction G(3), information concerning security
ownership of certain beneficial owners and management is incorporated by
reference from ARI's Proxy Statement to be filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
Pursuant to General Instruction G(3), information concerning certain
relationships and related transactions is incorporated by reference from ARI's
Proxy Statement to be filed pursuant to Regulation 14A.
Page 24<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ------- -----------------------------------------------------------------
(a) 1. Consolidated Financial Statements Page
--------------------------------- ------
Independent Auditors' Report............................. F - 1
Consolidated Balance Sheets - March 31, 1996 and 1995 ... F - 2
Consolidated Statements of Operations - Years Ended
March 31, 1996, 1995 and 1994 ........................... F - 4
Consolidated Statements of Cash Flows - Years
Ended March 31, 1996, 1995 and 1994 ..................... F - 6
Consolidated Statements of Stockholders' Equity -
Years Ended March 31, 1996, 1995 and 1994 ............... F - 9
Notes to Consolidated Financial Statements .............. F - 11
2. Financial Statement Schedules
-----------------------------
Schedule II - Valuation and Qualifying Accounts......... S - 1
All other schedules are omitted because they are not applicable.
3. Exhibits
--------
3.1 - Articles of Incorporation of ARI, as amended (1)
3.2 - Bylaws of ARI, as amended (1)
4.1 - Forms of Stock Certificate of ARI representing the Common
Stock and the Preferred Stock (1)
4.2 - Articles of Incorporation of ARI, as amended (1)
4.3 - Bylaws of ARI, as amended (1)
4.6 - Loan Agreement dated December 1, 1985, between Brazos Harbor
Industrial Development Corporation and Predecessor ARI (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 (1)
4.8 - Form of Indenture by and among the Registrant and U.S. Trust
Company of Texas with respect to the $100,000,000 American
Rice, Inc. 13% Mortgage Notes due 2002 with Contingent
Page 25<PAGE>
Interest (incorporated by Reference to Exhibit 4.1 of
Registrant's Form S-1 File #33-60539
10.1 - Ground lease dated June 6, 1985, between Brazos River Harbor
Navigation District and Predecessor ARI (1)
10.2 - Lease Agreement dated March 12, 1987, between Friendswood
Development Company and Predecessor ARI (1)
10.3 - Agreement for Construction of Facilities at Freeport, Texas,
dated August 1, 1985, between Borton, Incorporated and
Predecessor ARI (1)
10.4 - Forms of Employment Agreement between Predecessor ARI and
certain senior officers (1)
10.15 - Asset Purchase Agreement dated March 23, 1993, as amended
between ARI, ERLY and Comet (1)
10.16 - Management Agreement dated May 25, 1993, between ERLY and
ARI (1)
10.17 - Tax Agreement dated May 25, 1993, among ARI, ERLY and
Comet (1)
10.18 - Credit Guarantee Agreement dated March 24, 1993, among ARI,
ERLY, the Subsidiary Guarantors and The Chase Manhattan
Bank National Association ("Chase") as Administrative
Agent(1)
10.19 - Warrant Agreement dated May 24, 1993, between Chase and
ARI (1)
10.20 - Warrant Agreement dated May 24, 1993, between TCB and
ARI (1)
10.21 - Accounts Financing Agreement dated May 24, 1993, between ARI
and Congress Financial Corporation (1)
10.22 - Lease dated October 1, 1974, as amended April 9, 1979, by
and between Colusa-Glenn Drier Company and
Comet (1)
10.23 - Secured Credit Agreement between American Rice, Inc. as
Borrower and Harris Trust and Savings Bank (2)
11.1 - Computation of Earnings per Share (2)
21 - Subsidiaries of ARI (2)
27 - Financial Data Schedule (2)
----------------
(1) - Previously filed.
(2) - Filed herewith.
Page 26<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN RICE, INC.
------------------------------
(Registrant)
By: Douglas A. Murphy
------------------------------
Douglas A. Murphy, President,
Chief Executive Officer and Director
June 25, 1996
------------------------------
(Date)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------- ----------------------- ------------------
Douglas A. Murphy President, Chief June 25, 1996
- --------------------- Executive Officer and
Douglas A. Murphy Director
(principal executive officer)
Gerald D. Murphy Chairman of the Board June 25, 1996
- ----------------------
Gerald D. Murphy
John M. Howland Director June 25, 1996
- ---------------------
John M. Howland
S. C. Bain, Jr. Director June 25, 1996
- ---------------------
S. C. Bain, Jr.
William H. Burgess Director June 25, 1996
- ----------------------
William H. Burgess
George E. Prchal Director June 25, 1996
- ----------------------
George E. Prcha
Richard N. McCombs Executive Vice-President June 25, 1996
- ---------------------- Finance & Administration,
Richard N. McCombs Secretary & Treasurer and Director
(principal financial officer)
Joseph E. Westover Vice-President and Controller June 25, 1996
- ---------------------- (principal accounting officer)
Joseph E. Westover
Page 27<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors
American Rice, Inc.
We have audited the accompanying consolidated balance sheets of American Rice,
Inc. and subsidiaries ("ARI") at March 31, 1996 and 1995 and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended March 31, 1996. Our audits also
included the consolidated financial statement schedule listed at Item 14.
These financial statements and financial statement schedule are the
responsibility of ARI's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule
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 consolidated financial statements present fairly, in all
material respects, the financial position of ARI at March 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three
years in the period ended March 31, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, such 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.
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
June 17, 199
Page F-1<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
March 31 1996 1995
---------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $2,803 $1,864
Accounts receivable, net 33,541 33,423
Inventories:
Finished goods 26,535 17,108
Raw materials 44,489 33,097
Prepaid expenses 832 793
Deferred income taxes 2,982 3,451
Net assets of Houston properties held for sale 13,535 -
--------- ---------
Total current assets 124,717 89,736
Net assets of Houston properties held for sale - 18,767
Other assets 20,587 15,710
Receivable from ERLY 24,795 11,901
Property, plant and equipment, net 42,062 41,386
--------- ---------
Total assets $212,161 $177,500
========= =========
Continued on next page
See notes to consolidated financial statement
Page F-2<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Thousands of Dollars, except per share amounts)
March 31 1996 1995
---------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $19,826 $33,937
Accounts payable 39,627 23,535
Accrued expenses 13,606 10,837
Income taxes payable to ERLY - 1,037
Current portion of long-term debt 106 6,727
--------- ---------
Total current liabilities 73,165 76,073
Long-term debt 95,609 48,573
Deferred income taxes 5,035 8,616
Minority interest - 26
Commitments and contingencies (Note 8) - -
Stockholders' equity:
Preferred stock, $1.00 par value; 4,000,000
shares authorized;
Series A-777,777 convertible shares issued
and outstanding, liquidation preference
of $19,989 778 778
Series B- 2,800,000 convertible shares issued
and outstanding, liquidation preference of
$14,000 2,800 2,800
Series C- 300,000 shares issued
and outstanding, liquidation preference of
$1,500 300 300
Common stock, $1.00 par value; 10,000,000
shares authorized; 2,443,892 shares
issued and outstanding 2,444 2,444
Additional paid-in capital 25,286 25,286
Retained earnings 7,458 13,352
Cumulative foreign currency translation
adjustments (714) (748)
--------- ---------
Total stockholders' equity 38,352 44,212
--------- ---------
Total liabilities and stockholders' equity $212,161 $177,500
========= =========
See notes to consolidated financial statement
Page F-3<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Note 1)
(Thousands of Dollars)
Years Ended March 31 1996 1995 1994
---------------------------------------------------------------------
Net sales $393,775 $373,050 $284,464
Cost of sales 355,725 332,236 248,046
--------- --------- ---------
Gross profit 38,050 40,814 36,418
Selling, general and
administrative expenses 24,775 23,235 21,497
Provision for loss on
disposal of properties 7,200 - -
--------- --------- ---------
Earnings from operations 6,075 17,579 14,921
Interest expense 17,438 12,344 9,884
Interest income (1,773) (727) (818)
Other (income) expense (381) (153) 560
Earnings on equity investment - - (426)
--------- --------- ---------
Earnings (loss) before income taxes
and extraordinary item (9,209) 6,115 5,721
Income tax provision (benefit) (3,315) 2,202 2,256
--------- --------- ---------
Earnings (loss) before
extraordinary item (5,894) 3,913 3,465
Extraordinary item
Gain on debt restructuring,
net of income taxes - - 9,318
--------- --------- ---------
Net earnings (loss) (5,894) 3,913 12,783
Preferred stock dividend requirements (5,930) (5,930) (4,942)
--------- --------- ---------
Net earnings (loss) applicable
to common stock ($11,824) ($2,017) $7,841
========= ========= =========
Continued on following page
See notes to consolidated financial statement
Page F-4<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Note 1)
Years Ended March 31 1996 1995 1994
---------------------------------------------------------------------
Primary earnings (loss) per
applicable common and
common equivalent share (Note 2):
Loss before extraordinary item ($4.84) ($.83) ($.45)
Extraordinary item - - 2.90
--------- --------- ---------
Net earnings (loss) ($4.84) ($.83) $2.45
========= ========= =========
Fully diluted earnings (loss)
per applicable common and
common equivalent share (Note 2):
Earnings (loss) before
extraordinary item ($4.84) ($.83) $.35
Extraordinary item - - 1.15
-------- --------- ---------
Net earnings (loss) ($4.84) ($.83) $1.50
======== ========= =========
See notes to consolidated financial statements
Page F-5<PAGE>
<TABLE>
<CAPTION>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Note 1)
(Thousands of Dollars)
Years Ended March 31 1996 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ($5,894) $ 3,913 $12,783
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) in operating activities:
Depreciation 4,021 3,894 3,621
Amortization of debt issue costs and trademarks 1,743 2,511 1,462
Mortgage note discount accretion 322 - -
Provision for loss on disposal of property 7,200 - -
Loss on sales of property 12 48 1,211
Extraordinary item - gain
on debt restructuring, net of income taxes - - (9,318)
Earnings on equity investment - - (426)
Deferred tax provision (3,112) 1,986 651
Provision for loss on accounts receivable 163 - 3,245
Changes in assets and liabilities that
provided (used) cash:
Accounts receivable (281) (11,201) (2,665)
Inventories (20,819) 8,003 (23,712)
Prepaid expenses (39) (187) (706)
Income taxes payable to ERLY (1,037) (419) 1,456
Other assets 11 (679) (1,572)
Accounts payable 14,124 (199) 4,770
Accrued expenses 2,769 3,279 (2,642)
Receivable from ERLY (2,394) (1,402) (519)
--------- -------- --------
Net cash provided by (used in)
operating activities (3,211) 9,547 (12,361)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions (3,690) (3,562) (2,844)
Proceeds from sales of assets 49 48 2,923
Loan to ERLY (10,500) - -
Cash acquired in acquisition of
American Rice, Inc. - - 12,608
-------- -------- --------
Net cash provided by (used in)
investing activities (14,141) (3,514) 12,687
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable (14,111) 1,061 (7,596)
Proceeds from issuance of mortgage notes 94,000 - -
Proceeds from issuance of long-term debt 339 - 65,300
Repayment of long-term debt (55,314) (6,908) (58,955)
Mortgage notes issuance costs (6,631) - -
Decrease in subordinated debt - - (106)
Other, net 8 (43) 12
-------- -------- ---------
Net cash provided by (used in)
financing activities 18,291 (5,890) (1,345)
- -------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 939 143 (1,019)
CASH AND CASH EQUIVALENTS:
Beginning of the period 1,864 1,721 2,740
-------- -------- ---------
End of the period $2,803 $1,864 $1,721
======== ======== =========
<FN>
See notes to consolidated financial statements
</TABLE>
Page F-6<PAGE>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
SUPPLEMENTAL SCHEDULE OF INVESTING AND FINANCING ACTIVITIES
(Note 1)
(Thousands of Dollars)
Year
Ended
March 31,
1996
---------------------------------------------------------------------
Property acquired through capital leases $1,054
=========
Year
Ended
March 31,
1994
---------------------------------------------------------------------
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
=========
See notes to consolidated financial statement
Page F-7<PAGE>
<TABLE>
<CAPTION>
AMERICAN RICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Note 1)
(Thousands of Dollars)
Cumulative
Foreign Total
Additional Retained Currency Stock -
Preferred Common Paid-in Earnings Translation Holders'
Stock Stock Capital (Deficit) Adjustments Equity
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
Net loss - - - (5,894) - (5,894)
Foreign currency
translation adjustments - - - - 34 34
--------- --------- --------- --------- --------- ---------
Balance March 31, 1996 $3,878 $2,444 $25,286 $7,458 ($714) $38,352
========= ========= ========= ========= ========= =========
<FN>
See notes to consolidated financial statements
</TABLE>
Page F-8<PAGE>
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 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 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
Page F-9<PAGE>
market vary from country to country and include sales to government agencies
and commercial importers, as well as through wholesalers and international
brokers. ARI is significantly affected by market factors including domestic
and foreign supply and demand. These market factors are influenced by a
variety of external forces including governmental actions, crop yields and
weather. Although ARI is not involved in rice farming, certain legislation
affecting rice farmers can have a significant impact on the cost and
availability of rough rice. As discussed in Note 3, in June 1996 ARI executed
a definitive agreement to purchase an olive business from Campbell Soup
Company.
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.
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:
Year ended March 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
Revolving notes (in millions):
Borrowings $406.8 $355.3 $289.9
Repayments 420.9 354.2 297.5
Payments for interest
and financing fees (in millions) $ 14.0 $ 9.2 $ 9.8
Payments for federal and state
income taxes (in thousands) $1,269 $ 635 $ 344
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
Page F-10<PAGE>
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. In fiscal 1996, ARI entered into an
agreement to sell this property and reduced the carrying value of the property
to its approximate net realizable value (after the accrual of certain costs)
by a non-recurring charge of $7.2 million in the quarter ended December 31,
1995. The transaction is expected to be consummated in calendar 1996 after
the completion of demolition of existing structures and updated environmental
studies.
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, as amended,
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. All payments owed by ARI will
be offset against ERLY's principal and interest payment obligations under the
15% loan to ERLY (see Note 14). 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 or decrease the loss per share ("antidilution").
Earnings applicable to common stock reflect dividends in the amount of $5.9
million for the years ended March 31, 1996 and 1995, respectively, and $4.9
million for the period from May 27, 1993 to March 31, 1994 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
Page F-11<PAGE>
or $750,000. The mortgage note and the revolving credit agreement currently
prohibit the payment of any dividends (see Note 4).
The weighted average number of shares (in thousands) included in the earnings
per share calculation are summarized as follows:
Year Ended March 31,
----------------------------------
1996 & 1995 1994
---------------- ----------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Common Stock 2,444 2,444 2,444 2,444
Preferred Stock - Series A - - 778 778
Preferred Stock - Series B - - - 4,741
------- ------- ------- -------
2,444 2,444 3,222 7,963
======= ======= ======= =======
Impairment of Long-Lived Assets - In March 1995, the Financial Accounting
Standards Board issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This standard
provides guidance on the carrying value of long-lived assets, and is effective
in fiscal 1997 for ARI. Management believes that adopting the new standard
will not have a material effect on the consolidated financial statements.
Fair Value of Financial Instruments - ARI's financial instruments consist
primarily of cash, trade accounts and notes receivable, accounts and notes
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. It is not practicable to estimate
the fair value of the notes receivable from ERLY (Note 14) because of their
related party nature. The fair value of the $100 million principal amount of
13% mortgage notes was approximately $92 million as of March 31, 1996, based
on a dealer quote.
Stock-Based Compensation - In October 1995, The Financial Accounting Standards
Board issued Statement No. 123, "Accounting for Stock-Based Compensation,"
which is effective in fiscal 1997. As permitted by the new standard, ARI will
continue applying accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and include additional footnote disclosures, as
necessary.
Foreign Currency Translation - All assets and liabilities of operations
outside the United States are translated from the functional currency to the
reporting currency at the foreign exchange rates in effect at year end.
Revenues and expenses for the year are translated at average exchange rates
during the year. Such translation gains and losses are not included in
determining net income but are accumulated and reported as a separate
component of stockholders' equity. Net realized and unrealized gains or
losses resulting from foreign currency transactions, including translations of
local currencies to the functional currency are credited or charged to income.
Page F-12<PAGE>
The U.S. dollar is currently the functional currency for all operations except
Vietnam, where the Vietnamese dong is the functional currency.
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, 1996 and for the year then
ended.
3. ACQUISITION
In June 1996, the Company entered into an agreement to acquire a domestic and
foreign olive business from Campbell Soup Company. Assets to be acquired
include domestic inventories and fixed assets and all of the outstanding
common stock of a Spanish company which comprises the foreign olive business.
The purchase price is expected to be approximately $38 million, which will be
funded primarily from ARI's credit facilities. The acquisition, which is
expected to close in July 1996, will be accounted for as a purchase, and the
results of operations of the acquired business will be included in the
Company's consolidated financial statements after that date.
4. NOTES PAYABLE AND LONG-TERM DEBT
In a public offering completed in August, 1995, ARI issued
$100 million in principal amount of 13.0% mortgage notes due 2002 (the
"Notes"). Portions of the net proceeds of $94 million were used to repay
$53.8 million of existing term debt, to make a $10.5 million 15% loan to ERLY
Industries Inc. due 2001, and to reduce borrowings outstanding under the $47.5
million revolving credit loan. The Notes were issued pursuant to an indenture
between ARI and U.S. Trust Company of Texas, N.A. (the "Indenture").
The Notes provide for interest payments semiannually, mature on July 31, 2002,
and are non callable by ARI prior to July 31, 1999, after which date the Notes
are callable at the option of ARI, in whole or in part, at any time upon not
less than 30 nor more than 60 days notice, at 107.0% of the principal amount,
declining ratably to par on or after July 31, 2001. Except under certain
changes of control, upon remarketing of the industrial revenue bonds, or asset
sales, as defined in the Indenture, ARI is not required to make mandatory
redemption payments on the Notes. The Notes accrue fixed interest at an
annual rate of 13.0%, an effective yield rate of 14.4%.
In addition to fixed interest, the Notes bear contingent interest of 4.0% of
consolidated cash flow (as defined) up to a limit of $40.0 million of
consolidated cash flow during the fiscal year in which such interest accrues.
Contingent interest accrues in each semiannual period (as defined) in which
consolidated cash flow in such period and the immediately preceding semiannual
period is equal to or greater than $20.0 million. Contingent interest is
payable semiannually, but ARI may elect to defer all or a portion of any such
payment to the extent that (a) the payment of such portion of contingent
interest will cause ARI's adjusted fixed charge coverage ratio (as defined)
Page F-13<PAGE>
for the two consecutive applicable semiannual periods to be less than 2.0:1
and (b) the principal of the Notes corresponding to such contingent interest
has not then matured and become due and payable.
The Notes are secured by (a) a first or second priority security interest in
substantially all of ARI's property, plant and equipment (including related
leasehold interests), (b) a first priority security interest in 39 acres of
land in Houston, Texas held for sale, (c) a pledge agreement creating first
priority security interests in the capital stock of ARI held by ERLY (other
than 200,000 shares of ARI's Series B preferred stock pledged to the holders
of ARI's Series C preferred stock), (d) the ERLY notes receivable and (e) 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 ARI.
The Notes 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 ARI, including borrowings under the revolving credit loans.
The Indenture includes covenants that in certain instances restrict, among
other things, (a) the payment of dividends, (b) the redemption of equity
interests of ARI, (c) the payment on or redemption of indebtedness subordinate
to the Notes, (d) certain investments (as defined), (e) the incurrence of
certain indebtedness and issuance of preferred stock, (f) certain transactions
with affiliates and (g) certain mergers, consolidations or sales of assets.
In addition, the Indenture contains certain limitations on capital
expenditures, operating lease obligations and rice contract polices and
procedures. The Indenture and the revolving credit loans described below
contain cross default provisions.
The revolving credit loan, which was amended effective June 30, 1995, bore
interest at the prime rate of interest (8.25% at March 31, 1996) plus 0.5% and
was terminated on June 7, 1996 when the new revolving credit loan agreement
described below was executed. Funds available for borrowing under this
revolving credit loan at any time could 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 revolving credit
loan was primarily collateralized by a first priority security interest in
trade receivables, inventory, and certain key man life insurance. At March 31,
1996 and 1995, the outstanding balance on this loan was $12.5 million and $31
million, respectively.
On June 7, 1996 ARI replaced its existing $47.5 million revolving credit loan
with a $47.5 million revolving credit loan from a new lender, Harris Trust and
Savings Bank ("Harris"). Funds available for borrowing (including letters of
credit of up to $20.0 million) under this 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), 75% of
eligible rough rice inventory, and 70% of eligible finished goods inventory.
The line is collateralized by substantially all of ARI's accounts receivable
and inventory. In addition, this facility contains restrictive covenants
which, among other things, require the attainment of certain financial ratios
and provide limitations on capital expenditures, lease obligations, and
prohibit dividend payments. The line also contains certain cross default
provisions with the Indenture as discussed above. The Harris revolving credit
Page F-14<PAGE>
line bears interest at ARI's option at either the prime rate or the London
Interbank Offered Rate plus an applicable margin based upon ARI's adjusted
funded debt ratio as defined, with outstanding principal and interest due upon
termination of the agreement, which continues in full force and effect until
May 31, 1999 or until terminated with five days written notice from ARI
subsequent to May 31, 1997.
As of March 31, 1996, approximately $7.3 million in short-term notes had been
obtained from various foreign lenders to finance inventory. These notes will
mature on or before June 18, 1996, bear interest at rates ranging from 6.95%
to 23.4% per year and are non-recourse to ARI.
Long-term debt consisted of the following:
March 31, March 31,
1996 1995
--------- ---------
(in thousands)
13% Mortgage Notes $ 100,000
Less unamortized discount (5,678)
Chase Manhattan Bank $23,755
Internationale Nederlanden Bank N.V. 23,755
Texas Commerce Bank 6,842
Other notes-capital leases 1,393 948
--------- ---------
Total Debt 95,715 55,300
Less current maturities 106 6,727
--------- ---------
Total Long-term debt $ 95,609 $ 48,573
========= =========
ARI's long-term debt maturities are as follows (in thousands):
Year ended March 31, Long-Term Debt Capital Leases
------------------- -------------- --------------
1997 $ - $ 106
1998 34 577
1999 34 122
2000 34 137
2001 34 112
Thereafter 100,204 -
5. 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 rights of holders of preferred stock, to
Page F-15<PAGE>
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, 1996, 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 $14.677 million at March 31, 1996 (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 200,000
shares of the preferred stock to former term lenders (see Note 7).
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 $2.125 million at March 31, 1996 (Note 2).
Page F-16<PAGE>
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 debt agreements currrently prohibit the payment of any dividends (see
Note 4).
ARI issued warrants to former term lenders to purchase up to 155,000 shares of
ARI Common Stock at $5.00 per share. The warrants expire May 26, 2001.
6. TAXES ON INCOME
The provision (benefit) in lieu of taxes on income consists of:
Year ended March 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
(in thousands)
U. S. taxes currently payable $ - $ 94 $ 1,456
Deferred U. S. taxes (3,112) 1,986 651
State income taxes (203) 122 149
--------- --------- ---------
($3,315) $2,202 $2,256
========= ========= =========
Temporary differences which give rise to deferred tax assets and liabilities
are as follows:
March 31,
---------------------------------------
1996 Deferred Tax 1995 Deferred Tax
------------------ ------------------
Asset Liability Asset Liability
-------- -------- -------- --------
(in thousands)
Property, plant and equipment $ $7,650 $ $10,113
Allowance for doubtful accounts
and other reserves 679 - 1,085 -
Change in tax accounting principles 971 - 1,779 -
Alternative minimum tax credit 1,471 - 1,683 -
Net operating loss carryovers 2,296 - 221 -
Other 180 - 180 -
-------- -------- -------- --------
$5,597 $7,650 $ 4,948 $10,113
======== ======== ======== ========
Page F-17<PAGE>
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 (benefit) in lieu of taxes is as follows:
Year Ended March 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(in thousands)
Earnings from continuing
operations before income
taxes and extraordinary items ($9,209) $6,115 $ 5,721
========= ========= =========
Statutory taxes ($3,131) $2,079 $ 2,002
Amortization of trademarks 126 135 90
Non-deductible entertainment and other (107) (134) 15
State income taxes (203) 122 149
--------- --------- ---------
Provision for taxes on income ($3,315) $2,202 $ 2,256
========= ========= =========
Effective tax rate 36.0% 36.0% 39.4%
========= ========= =========
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, 1996, operating loss carryforwards for federal tax
return purposes totaled approximately $6.3 million. 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 between 2007 and
2011.
7. EXTRAORDINARY ITEM
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 was reflected in the ARI financial statements as a reduction in the
receivable from ERLY.
8. COMMITMENTS AND CONTINGENCIES
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 matters
Page F-18<PAGE>
noted below. While the results of such litigation cannot be predicted with
certainty, the Company believes that the resolution of such legal proceedings,
including the matters noted below, will not have a material adverse effect on
the consolidated financial position or consolidated results of operations of
ARI.
The Company and ERLY have been named as codefendants in a lawsuit filed in the
district court of Harris County, Texas. This is a dispute between the general
partner of a proposed real estate development and G.D. Murphy and D.A. Murphy,
Chairman and President, respectively, of ARI and ERLY. Damages sought are in
the range of $10 million plus attorneys' fees and punitive damages. ARI and
ERLY are named as defendants in the lawsuit because of their actions to obtain
restraining orders to prevent threatened foreclosures on ERLY common stock
pledged as collateral by G.D. Murphy and to stop interference by the plantiff
in the lawsuit with ARI's mortgage note financing (see Note 4), as well as
certain other alleged activities. The Company and ERLY believe they have valid
defenses in this case and that damages, if any, will not have a material
effect on the Company's financial condition; however, as with any litigation,
the ultimate outcome is unknown. Accordingly, no provision for any liability
that might result from this litigation has been made in the accompanying
consolidated financial statements.
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:
Year Ending March 31, Amount
--------------------- -------------
(in thousands)
1997 $2,723
1998 1,981
1999 1,594
2000 1,340
2001 1,130
Thereafter 18,233
ARI incurred total rental expense of approximately $4.2 million, $4.0 million
and $2.4 million for the years ended March 31, 1996, 1995 and 1994,
respectively.
9. 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, as defined, 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, 1996,
1995 and 1994 were $191,000, $1.0 million and $167,000, respectively.
Page F-19<PAGE>
10. EXPORT SALES
Net sales include export sales as follows:
Year ended March 31,
-------------------------------------
1996 1995 1994
--------- --------- ---------
(in thousands)
Middle East $117,359 $91,449 $89,782
Caribbean, Mexico, and
South America 64,654 84,806 38,935
Asia 49,453 49,963 42,838
Europe 18,111 13,632 6,260
Africa 2,275 3,864 4,012
Other 55 65 13
--------- --------- ---------
Total $251,907 $243,779 $181,840
========= ========= =========
Percent of total revenues 64% 65% 64%
========= ========= =========
11. OTHER ASSETS
Other assets consist of the following:
March 31,
-----------------------
1996 1995
--------- ---------
(in thousands)
Trademarks $12,211 $12,562
Investments 284 368
Debt issuance costs 6,897 1,383
Notes receivable 755 662
Other 440 735
--------- ---------
Total $20,587 $15,710
========= =========
Accumulated amortization of trademarks was $2.2 million and $1.8 million at
March 31, 1996 and 1995, respectively.
Page F-20<PAGE>
12. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
March 31,
-----------------------
1996 1995
--------- ---------
(in thousands)
Land $ 277 $ 275
Buildings and improvements 23,497 23,222
Machinery and equipment 39,920 35,782
--------- ---------
Total 63,694 59,279
Less: accumulated depreciation (21,632) (17,893)
--------- ---------
Property, plant and equipment, net $42,062 $41,386
========= =========
13. ACCOUNTS RECEIVABLE
Accounts receivable and allowance for doubtful accounts consisted of the
following:
March 31,
----------------------
1996 1995
--------- ---------
(in thousands)
Accounts receivable - trade $34,982 $35,134
Less allowance for doubtful accounts (1,441) (1,711)
--------- ---------
Net $33,541 $33,423
========= =========
Page F-21<PAGE>
14. TRANSACTIONS WITH RELATED PARTIES
ARI has entered into a number of transactions in the ordinary course of
business with ERLY and its affiliates.
At March 31, 1996 and 1995, amounts due form ERLY are summarized as follows:
March 31,
----------------------
1996 1995
--------- ---------
(in thousands)
15% loan balance $10,500 $
Accrued interest - 15% loan 949
6% loan balance 13,346 11,901
--------- ---------
$24,795 $11,901
========= =========
Net proceeds of $10.5 million of the $100 million notes issued in August,
1995, (Note 4) were used to make a 15% loan to ERLY which is due in 2001.
Under the terms of the 15% loan, ERLY is obligated to pay principal and
interest annually by offsetting payments due ERLY from ARI under the tax
sharing agreement. Such offsets shall be applied first to reduce principal
(up to $.5 million), then to pay interest accrued and payable, and then to
further reduce outstanding principal. ERLY will be responsible for paying
cash to pay principal to the extent such offsets are less than $.5 million and
may defer payment of interest to the extent such offsets are not available for
such payment. The terms of this 15% loan may not be modified without the
consent of a majority of the holders of the Mortgage Notes. As security for
payments due on the 15% loan, ERLY has issued a warrant equivalent to 7.5% of
the then issued and outstanding voting common stock of ERLY, exerciseable at
$0.01 per share after any payment default, which warrant will be reduced
proportionately by the amount of all principal payments made on the 15% loan
and canceled automatically upon payment in full of the principal of the 15%
loan.
In connection with the Acquisition, intercompany payables and receivables were
netted, resulting in an obligation owed to ARI by ERLY that is reflected in a
note receivable from ERLY bearing an interest rate of 6% and maturing in 2002.
In addition, all intercompany transactions not settled quarterly accrued
interest at 6%. The note is payable out of one half of dividends received by
ERLY on the Series B Preferred Stock until the 15% loan to ERLY is paid in
full, at which time the 6% note will be payable by offsets against tax sharing
agreement payments due ERLY from ARI and one-half of any dividends received on
the Series B Preferred Stock.
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
$80 thousand. For the year ended March 31, 1996, no management fees were
incurred by agreement beween the Company and ERLY. The accrual for such fees
Page F-22<PAGE>
was resumed on April 1, 1996. During the years ended March 31, 1995 and 1994,
ARI incurred and paid $923 thousand and $1.1 million, respectively.
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.
15. QUARTERLY INFORMATION (Unaudited)
The following table summarizes the unaudited quarterly information for the
years ended March 31, 1996 and 1995. In the opinion of management, all
adjustments necessary for a fair presentation of the unaudited results for the
periods are included. (In thousands of dollars, except per share amounts)
Quarter Ended June 30 Sep. 30 Dec. 30 Mar. 31 Year
------ ------ ------- ------- -------
1996
- ----
Net Sales $ 86,392 $90,369 $101,440 $115,574 $393,775
Earnings from
Operations 3,766 3,643 (5,049)(1) 3,715 6,075
Earnings(loss) before
income taxes 587 (157) (9,204)(1) (435) (9,209)
Net earnings (loss) 376 (101) (5,891) (278) (5,894)
Net loss per share ($.45) ($.65) ($3.02) ($.72) ($4.84)
1995
- ----
Net Sales $105,706 $78,314 $106,330 $ 82,700 $373,050
Earnings from
Operations 6,051 3,441 3,762 4,325 17,579
Earnings(loss) before
income taxes 3,190 529 1,021 1,375 6,115
Net earnings 2,010 332 644 927 3,913
Net earnings (loss)
per share $ .16 ($.47) ($.34) ($.18) ($.83)
(1) Includes $7.2 million pre-tax provision for loss on disposal of property
held for sale.
Page F-23<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENT SCHEDULE II
AMERICAN RICE, INC.
VALUATION AND QUALIFYING ACCOUNTS
As of March 31
(In thousands)
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:
1996 $1,711 $ 163 $ - $ (433)(a) $1,441
1995 1,798 - - (87)(a) 1,711
1994 2,940 1,245 (2,387)(b) - 1,798
Allowance for doubtful
noncurrent receivables:
1996 $ 471 $ - $ - $ (471)(a) -
1995 4,387 - - (3,916)(a) 471
1994 - 2,000 2,387(b) - 4,387
<FN>
- ----------
(a) Reductions related to accounts receivable written off.
(b) Amounts reclassified between allowance for doubtful accounts and allowance for doubtful
noncurrent receivables.
</TABLE>
<PAGE>
Exhibit 11.1
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Data)
Year Ended March 31 1996 1995 1994
---------------------------------------------------------------------
PRIMARY EARNINGS (LOSS) PER SHARE *
Earnings (loss) before
extraordinary item (5,894) $3,913 $3,465
Extraordinary item - - 9,318
--------- --------- ---------
Net earnings (loss) (5,894) 3,913 12,783
Less dividends on preferred stock:
Series B (5,180) (5,180) (4,317)
Series C (750) (750) (625)
--------- --------- ---------
Earnings (loss) applicable to
common stock ($11,824) ($2,017) $7,841
========= ========= =========
Average common and common equivalent
shares outstanding:
Common 2,444 2,444 2,444
Preferred Series A - - 778
--------- --------- ---------
2,444 2,444 3,222
========= ========= =========
Primary earnings (loss) per share:
Loss before extraordinary item ($4.84) ($.83) ($ .45)
Extraordinary item - - 2.90
--------- --------- ---------
Earnings (loss) per share applicable
to common stock ($4.84) ($.83) $2.45
========= ========= =========
* See Note 4 of Notes to Consolidated Financial Statements. 1994
has been restated for the effects of a 1 for 5 reverse stock split
which occurred in fiscal 1995.
Continued on next pag
<PAGE>
Exhibit 11.1 (Continued)
AMERICAN RICE, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Data)
Year Ended March 31 1996 1995 1994
---------------------------------------------------------------------
FULLY DILUTED EARNINGS PER SHARE *
Earnings (loss) before
extraordinary item ($5,894) $3,913 $3,465
Extraordinary item - - 9,318
--------- --------- ---------
Net earnings (loss) ($5,894) 3,913 12,783
Less dividends on preferred stock:
Series B - - -
Series C (750) (750) (625)
--------- --------- ---------
Earnings applicable to
common stock ($6,644) $3,163 $12,158
========= ========= =========
Average common and common equivalent
shares outstanding:
Common 2,444 2,444 2,444
Preferred Series A 778 778 778
Preferred Series B 5,600 5,600 4,741
--------- --------- ---------
8,822 8,822 7,963
========= ========= =========
Fully diluted earnings per share:
Earnings before extraordinary item ($.75)** $.36** $ .35
Extraordinary item - - 1.15
--------- --------- ---------
Earnings per share applicable
to common stock ($.75)** $.36** $1.50
========= ========= =========
* See Note 4 of Notes to Consolidated Financial Statements. 1994
has been restated for the effects of a 1 for 5 reverse stock split
which 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>
Exhibit 21
AMERICAN RICE, INC. AND SUBSIDIARIES
SUBSIDIARIES OF ARI
Jurisdiction of Percentage
Name Incorporation or Ownership
Organization
Comet Ventures, Inc. California 90%
Comet Rice of Puerto
Rico, Inc. Delaware 100%
Comet Rice of Jamiaca
Limited Jamaica 100%
Rice Corporation of
Haiti, S. A. Haiti 100%
ARI-Vinafood Vietnam 55%
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> YEAR
<CASH> 2,803
<SECURITIES> 0
<RECEIVABLES> 34,982
<ALLOWANCES> 1,441
<INVENTORY> 71,024
<CURRENT-ASSETS> 124,717
<PP&E> 63,694
<DEPRECIATION> 21,632
<TOTAL-ASSETS> 212,161
<CURRENT-LIABILITIES> 73,165
<BONDS> 0
0
3,878
<COMMON> 2,444
<OTHER-SE> 32,030
<TOTAL-LIABILITY-AND-EQUITY> 212,161
<SALES> 393,775
<TOTAL-REVENUES> 393,775
<CGS> 355,725
<TOTAL-COSTS> 355,725
<OTHER-EXPENSES> 22,621
<LOSS-PROVISION> 7,200
<INTEREST-EXPENSE> 17,438
<INCOME-PRETAX> (9,209)
<INCOME-TAX> (3,315)
<INCOME-CONTINUING> (5,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,894)
<EPS-PRIMARY> (4.84)
<EPS-DILUTED> (4.84)
</TABLE>
$47,500,000
SECURED CREDIT AGREEMENT
AMERICAN RICE, INC.
as Borrower
AND
COMET VENTURES, INC.
COMET RICE OF PUERTO RICO, INC.
BARGECARIB, INC.
as Guarantors
AND
HARRIS TRUST AND SAVINGS BANK,
Individually and as Agent
Dated as of June 7, 1996
TABLE OF CONTENTS
SECTION DESCRIPTION PAGE
SECTION 1. THE CREDITS...................................... 1
Section 1.1. The Revolving Credit..........................1
Section 1.2. The Notes.....................................2
Section 1.3. Manner of Borrowing...........................3
Section 1.4. Funding of All Loans..........................3
Section 1.5. Letters of Credit.............................3
Section 1.6. Reimbursement Obligation......................4
Section 1.7. Participation in L/Cs.........................4
Section 1.8. Disbursements for Rent........................5
SECTION 2. INTEREST..........................................5
Section 2.1. Options.......................................5
Section 2.2. Base Rate Portion.............................6
Section 2.3. LIBOR Portions................................6
Section 2.4. Computation...................................6
Section 2.5. Minimum Amounts...............................7
Section 2.6. Manner of Rate Selection......................7
Section 2.7. Change of Law.................................7
Section 2.8. Unavailability of Deposits....................7
Section 2.9. Taxes and Increased Costs.....................8
Section 2.10. Funding Indemnity.............................9
Section 2.11. Lending Branch................................9
Section 2.12. Discretion of Banks as to Manner of Funding...9
SECTION 3. FEES,PAYMENTS,REDUCTIONS,APPLICATIONS AND
NOTATIONS................................10
Section 3.1. Commitment Fee...............................10
Section 3.2. Agent's Fees.................................10
Section 3.3. Voluntary Prepayments........................10
Section 3.4. Mandatory Prepayments........................10
Section 3.5. Terminations.................................10
Section 3.6. Place and Application........................11
Section 3.7. Notations and Requests.......................12
Section 3.8. Capital Adequacy.............................12
SECTION 4. THE COLLATERAL...................................13
SECTION 5. REPRESENTATIONS AND WARRANTIES...................13
Section 5.1. Organization and Qualification...............13
Section 5.2. Subsidiaries.................................13
Section 5.3. Financial Reports............................14
Section 5.4. Litigation; Tax Returns; Approvals...........14
Section 5.5. Regulation U.................................14
Section 5.6. No Default...................................15
Section 5.7. ERISA........................................15
Section 5.8. Security Interests and Debt..................15
Section 5.9. Accurate Information.........................15
Section 5.10. Enforceability...............................15
Section 5.11. No Default Under Other Agreements............15
Section 5.12. Status Under Certain Laws....................15
Section 5.13. Compliance with Laws.........................16
Section 5.14. Federal Food Security Act....................16
SECTION 6. CONDITIONS PRECEDENT.............................16
Section 6.1. All Advances.................................16
Section 6.2. Initial Advance..............................17
SECTION 7. COMPANY COVENANTS................................18
Section 7.1. Maintenance..................................18
Section 7.2. Taxes........................................18
Section 7.3. Maintenance of Insurance.....................19
Section 7.4. Financial Reports............................19
Section 7.5. Inspection and Reviews.......................20
Section 7.6. Consolidation and Merger.....................20
Section 7.7. Transactions with Affiliates and Foreign
Subsidiaries..............................20
Section 7.8. Capital Expenditures.........................21
Section 7.9. Dividends and Certain Other Restricted
Payments..................................21
Section 7.10. Liens........................................21
Section 7.11. Borrowings and Guaranties....................22
Section 7.12. Investments, Loans and Advances..............23
Section 7.13. Sale of Property.............................24
Section 7.14. Notice of Suit, Adverse Change in Business or
Default...................................25
Section 7.15. ERISA........................................25
Section 7.16. Use of Loan Proceeds.........................25
Section 7.17. Conduct of Business and Maintenance of
Existence.................................25
Section 7.18. Compliance with Laws, etc....................26
Section 7.19. New Subsidiaries.............................26
Section 7.20. Environmental Covenant.......................26
Section 7.21. Sale and Leasebacks..........................26
Section 7.22. Adjusted Funded Debt Ratio...................26
Section 7.23. Minimum Interest Coverage Ratio.............27
Section 7.24. Minimum Adjusted Tangible Net Worth..........27
Section 7.25. Minimum Current Ratio........................27
Section 7.26. Federal Food Security Act....................27
SECTION 8. EVENTS OF DEFAULT AND REMEDIES...................28
Section 8.1. Events of Default Defined....................28
Section 8.2. Remedies for Non-Bankruptcy Defaults.........29
Section 8.3. Remedies for Bankruptcy Defaults.............29
Section 8.4. L/Cs.........................................30
SECTION 9. DEFINITIONS......................................30
Section 9.1. Certain Terms Defined........................30
SECTION 10. THE AGENT........................................42
Section 10.1. Appointment and Authorization................42
Section 10.2. Rights as a Bank.............................43
Section 10.3. Standard of Care.............................43
Section 10.4. Costs and Expenses...........................44
Section 10.5. Indemnity....................................44
SECTION 11. THE GUARANTEES...................................44
Section 11.1. The Guarantees...............................44
Section 11.2. Guarantee Unconditional......................44
Section 11.3. Discharge Only Upon Payment in Full; Reinstatement in
Certain Circumstances.....................45
Section 11.4. Subrogation; Limitation on Right of
Recovery..................................46
Section 11.5. Waivers......................................46
Section 11.6. Stay of Acceleration.........................46
SECTION 12. MISCELLANEOUS....................................46
Section 12.1. Holidays.....................................46
Section 12.2. No Waiver, Cumulative Remedies...............46
Section 12.3. Waivers, Modifications and Amendments........47
Section 12.4. Costs and Expenses; Environmental Indemnity..47
Section 12.5. Stamp Taxes..................................48
Section 12.6. Survival of Representations..................49
Section 12.7. Construction.................................49
Section 12.8. Accounting Principles........................49
Section 12.9. Addresses for Notices........................49
Section 12.10. Headings.....................................49
Section 12.11. Severability of Provisions...................49
Section 12.12. Counterparts.................................49
Section 12.13. Binding Nature...............................49
Section 12.14. Participants and Note Assignors..............50
Section 12.15. Assignment of Commitments by Bank............50
Section 12.16. Withholding Taxes............................51
Section 12.17. Jurisdiction; Venue..........................53
Section 12.18. Lawful Rate..................................53
Section 12.19. Governing Law................................54
Section 12.20. Limitation of Liability......................54
Section 12.21. Nonliability of Lenders......................54
Section 12.22. No Oral Agreements...........................54
Signature Page.................................................55
Exhibit A Secured Revolving Credit Note
Exhibit B Borrowing Base Certificate
Exhibit C Compliance Certificate
Exhibit D Environmental Checklist
Exhibit E Permitted Locations
Schedule 5.2 Subsidiaries
Schedule 5.4. Litigation
Schedule 5.13 Compliance with Laws
Schedule 7.12 Existing Loans, Advances and Investments in Subsidiaries
AMERICAN RICE, INC.
SECURED CREDIT AGREEMENT
To each of the Banks party hereto
Gentlemen:
The undersigned, American Rice, Inc., a Texas corporation (the "Company")
applies to you for your several commitments, and you severally agree to such
commitments subject to all of the terms and conditions hereof and on the basis
of the representations and warranties hereinafter set forth, to make a
revolving credit (the "Revolving Credit") available to the Company, all as
more fully hereinafter set forth. Harris Trust and Savings Bank in its
individual capacity is sometimes referred to herein as "Harris", and in its
capacity as Agent for the Banks is hereinafter in such capacity called the
"Agent."
SECTION 1. THE CREDITS.
Section 1.1. The Revolving Credit. (a) Subject to all of the terms and
conditions hereof, the Banks agree to extend a Revolving Credit to the
Company, which may be availed of by the Company in its discretion from time to
time, be repaid and used again, during the period from the date hereof to and
including the Termination Date. The Revolving Credit may be utilized by the
Company in the form of loans (individually a "Revolving Credit Loan" and
collectively the "Revolving Credit Loans") and L/Cs (as hereinafter defined)
provided that the sum of (i) the aggregate principal amount of the Revolving
Credit Loans, (ii) the Reimbursement Obligations (as hereinafter defined),
(iii) and the maximum amount available to be drawn under all L/Cs (other than
documentary L/Cs supporting the purchase of Eligible Inventory) plus, (iv) 30%
of the maximum amount available to be drawn under all documentary L/Cs
supporting the purchase of Eligible Inventory outstanding at any one time
shall not exceed the lesser of (aa) the Revolving Credit Commitments or (bb)
the Borrowing Base as then determined and computed. The maximum amount of the
Revolving Credit, which each Bank agrees to extend to the Company, shall be as
set forth opposite its signature hereto under the heading "Revolving Credit
Commitment". The obligations of the Banks hereunder are several and not joint
and no Bank shall under any circumstances be obligated to extend credit under
the Revolving Credit in excess of its Revolving Credit Commitment or its
Commitment Percentage of the credit outstanding hereunder. Notwithstanding
any other provision of this Agreement to the contrary, the Required Banks
shall have the right from time to time to establish reserves against the
amount of Revolving Credit that the Company may otherwise request hereunder in
such amounts and with respect to such matters as the Required Banks (as
hereinafter defined) shall deem necessary or appropriate in their reasonable
judgment after there has been a material adverse change in circumstances
relating to any or all of such Collateral from those circumstances in
existence on the date of this Agreement or in the condition (financial or
otherwise) of the Company. The amount of such reserves shall be subtracted
from the Borrowing Base when calculating the amount of availability under the
Revolving Credit Commitment. Additionally, the Required Banks may from time
to time reduce the percentages applicable to Eligible Accounts and Eligible
Inventory as they relate to the Borrowing Base if the Required Banks
determines in its reasonable judgment that there has been a material adverse
change in circumstances relating to any or all of such Collateral from those
circumstances in existence on the date of this Agreement or in the condition
(financial or otherwise) of the Company. The Required Banks agrees to give the
Company fifteen (15) Business Days' prior notice of the establishment of any
such reserve or the reduction of any such percentage.
(b) At any time not earlier than 60 days prior to, nor later than 30 days
prior to, the date that is two years before the Termination Date then in
effect (the "Anniversary Date"), the Company may request that the Banks extend
the then scheduled Termination Date to the date one year from such Termination
Date. If such request is made by the Company each Bank shall inform the Agent
of its willingness to extend the Termination Date no later than 30 days after
the Banks receive such request. All Banks must approve in writing received by
the Agent any requested extension, and any Bank's failure to approve a
requested extension in writing during such period shall constitute its refusal
to agree to the requested extension. The Agent agrees that if one or more
Banks refuse a request for an extension hereunder when the Required Banks have
approved a request for extension, then the Agent will make a good faith effort
to replace such nonconsenting Bank or Banks with other banks acceptable to the
Agent and the Company. At any time more than 15 days before such Anniversary
Date the Banks may propose, by written notice to the Company, an extension of
this Agreement to such later date on such terms and conditions as the Banks
may then require. If the extension of this Agreement to such later date is
acceptable to the Company on the terms and conditions proposed by the Banks,
the Company shall notify the Banks of its acceptance of such terms and
conditions no later than the Anniversary Date, and such later date will become
the Termination Date hereunder and this Agreement shall otherwise be amended
in the manner described in the Banks' notice proposing the extension of this
Agreement upon the Agent's receipt of (i) an amendment to this Agreement
signed by the Company and all of the Banks, (ii) resolutions of the Company's
Board of Directors authorizing such extension and (iii) an opinion of counsel
to the Company equivalent in form and substance to the form of opinion
attached hereto as Exhibit E and otherwise acceptable to the Banks.
(c) All Revolving Credit Loans made by the Banks on the same date are
hereinafter referred to as a "Borrowing". Each Borrowing shall be in a
minimum amount of $100,000 and shall be made pro rata from the Banks in
accordance with the amounts of their Revolving Credit Commitments.
Section 1.2. The Notes. All Revolving Credit Loans made by each Bank under
the Revolving Credit shall be evidenced by a Secured Revolving Credit Note of
the Company (individually a "Revolving Credit Note" or "Note" and collectively
the "Revolving Credit Notes" or "Notes") payable to the order of such Bank in
the amount of its Revolving Credit Commitment, each Revolving Credit Note to
be in the form (with appropriate insertions) attached hereto as Exhibit A.
Without regard to the face principal amount of each Revolving Credit Note, the
actual principal amount at any time outstanding and owing by the Company on
account thereof during the period ending on the Termination Date shall be the
sum of all advances then or theretofore made thereon less all principal
payments actually received thereon during such period.
Section 1.3. Manner of Borrowing. The Company shall notify the Agent (which
may be written or oral, but which must be given prior to 11:00 a.m. Chicago
time) of the date (which may, subject to the immediately preceding
parenthetical and subject to Section 2.6 for any LIBOR Portion, be the date on
which such notice is given) upon which it requests that any Revolving Credit
Loan be made to it under the Revolving Credit specifying the amount of each
such Revolving Credit Loan and the Agent shall promptly notify each Bank of
its receipt of each such notice. Subject to all of the terms and conditions
hereof, the proceeds of each Revolving Credit Loan shall be made available to
the Company at the office of the Agent in Chicago and in funds there current
upon receipt by the Agent from each Bank of its pro rata share of such
Revolving Credit Loan, except to the extent any requested Revolving Credit
Loan represents (i) the conversion of an existing Portion or (ii) a
refinancing of a Reimbursement Obligation, in which case each Bank shall
record such conversion or refinancing, as the case may be, on the schedule to
its Revolving Credit Note or in lieu thereof, on its books and records, and
shall effect such conversion or refinancing, as the case may be, on behalf of
the Company in accordance with the provisions of Section 2.3 hereof and 1.10
hereof, respectively. Each Revolving Credit Loan from each Bank shall
initially constitute part of a Base Rate Portion (as hereinafter defined)
except to the extent the Company has otherwise timely elected, all as provided
in Section 2.6 hereof.
Section 1.4. Funding of All Loans. Unless the Agent shall have been
notified by a Bank prior to the date a Loan is to be made hereunder that such
Bank does not intend to make its pro rata share of such Loan available to the
Agent (which notice a Bank shall not be entitled to give unless a condition
precedent to lending has not been satisfied or waived), the Agent may assume
that such Bank has made such share available to the Agent on such date and the
Agent may in reliance upon such assumption make available to the Company a
corresponding amount. If such corresponding amount is not in fact made
available to the Agent by such Bank and the Agent has made such amount
available to the Company, the Agent shall be entitled to receive such amount
from such Bank forthwith upon its demand, together with interest thereon in
respect of each day during the period commencing on the date such amount was
made available to the Company and ending on but excluding the date the Agent
recovers such amount at a rate per annum (the "Fed Funds Rate") equal to the
effective rate charged to the Agent for overnight federal funds transactions
with member banks of the federal reserve system for each day as determined by
the Agent (or in the case of a day that is not a Business Day, then for the
preceding day).
Section 1.5. Letters of Credit.; (a) Subject to all the terms and
conditions hereof, at the Company's request Harris will issue letters of
credit (an "L/C" and collectively the "L/Cs") for the account of the Company
subject to availability under the Revolving Credit, and the Banks hereby agree
to participate therein as more fully described in Section 1.7 hereof. Each
L/C shall be issued pursuant to an application and agreement for letter of
credit (the "L/C Agreement") in Harris' customary form in effect at the time
an L/C is requested. The L/Cs shall consist of documentary letters of credit
and standby letters of credit in an aggregate face amount not to exceed the
lesser of the available amount of the Revolving Credit Commitments or
$20,000,000. Each L/C shall have an expiry date not more than one year from
the date of issuance thereof (but in no event later than the Termination
Date). 100% of the amount available to be drawn under each L/C (other than
documentary L/C's supporting the purchase of Eligible Inventory in which case
such percentage shall be 30%) issued pursuant hereto shall be deducted from
the credit otherwise available under the Revolving Credit. In consideration of
the issuance of standby L/Cs the Company agrees to pay to the Agent for the
ratable account of the Banks a fee (the "L/C Participation Fee") in the amount
per annum equal to the Applicable Margin for LIBOR Portions of the stated
amount of each standby L/C issued hereunder (computed in each case on the
basis of a 360 day year and actual days elapsed). In addition the Company
shall pay Harris for its own account such issuance, drawing, amendment and
other administrative fees in connection with each L/C as may be established by
Harris from time to time (the "L/C Administrative Fees"). All L/C
Participation Fees shall be payable quarterly in arrears on the last day of
each March, June, September and December commencing June 30, 1996 and on the
Termination Date. All L/C Issuance Fees and L/C Administrative Fees shall be
payable on the date of issuance of each L/C hereunder and on the date of each
extension, if any, of the expiry date of each L/C.
(b) The Agent shall give prompt telephone, telex, or telecopy notice to each
Bank of each issuance of, or amendment to, an L/C specifying the effective
date of the L/C or amendment, the amount, the beneficiary, and the expiration
date of the L/C, in each case as established originally or through the
relevant amendment, as applicable, the account party or parties for the L/C,
each Bank's pro rata participation in such L/C and whether the Agent has
classified the L/C as a commercial, performance, or financial letter of credit
for regulatory reporting purposes.
Section 1.6. Reimbursement Obligation. The Company is obligated, and hereby
unconditionally agrees, to pay in immediately available funds to the Agent for
the account of Harris and the Banks who are participating in L/Cs pursuant to
Section 1.7 hereof the face amount of each draft drawn and paid under an L/C
issued by Harris hereunder not later than 11:00 a.m. (Chicago Time) on the
date such drawing is paid by Harris assuming such drawing is paid by Harris
prior to such time, otherwise such payment shall be due on the next Business
Day (the obligation of the Company under this Section 1.6 with respect to any
L/C is a "Reimbursement Obligation"). If at any time the Company fails to pay
any Reimbursement Obligation when due, the Company shall be deemed to have
automatically requested a Base Rate Loan from the Banks hereunder, as of the
maturity date of such Reimbursement Obligation, the proceeds of which Loan
shall be used to repay such Reimbursement Obligation. Such Loan shall only be
made if all conditions precedent set forth in Section 6 hereof are then
satisfied, and shall be subject to availability under the Revolving Credit.
If such Loan is not made by the Banks for any reason, the unpaid amount of
such Reimbursement Obligation shall be due and payable to the Agent for the
pro rata benefit of the Banks upon demand and shall bear interest at the post-
default rate of interest specified in Section 2.2 hereof.
Section 1.7. Participation in L/Cs. Each of the Banks will acquire a risk
participation for its own account, without recourse to or representation or
warranty from Harris, in each L/C upon the issuance thereof ratably in
accordance with its Commitment Percentage. In the event any Reimbursement
Obligation is not paid by the Company pursuant to Section 1.6 hereof, each
Bank will pay to Harris funds in an amount equal to such Bank's Commitment
Percentage of the unpaid amount of such Reimbursement Obligation. The
obligation of the Banks to Harris under this Section 1.7 shall be absolute and
unconditional and shall not be affected or impaired by any Event of Default or
Default that may then be continuing hereunder. Harris shall notify each Bank
by telephone of its amount of such unpaid Reimbursement Obligation
attributable to its Commitment Percentage. If such notice has been given to
each Bank by 12:00 Noon, Chicago time, each Bank agrees to pay Harris in
immediately available and freely transferable funds on the same Business Day.
If such notice is received after 12:00 noon, Chicago time, each Bank agrees to
pay Harris in immediately available and freely transferable funds no later
than the following Business Day. Funds shall be so made available at the
account designated by Harris in such notice to the Banks. Upon the election
by the Banks to treat such funding as additional Revolving Credit Loans
hereunder and payment by each Bank, such Loans shall bear interest in
accordance with Section 2.2 hereof. Harris shall share with each Bank on a
pro rata basis relative to its Commitment Percentage a portion of each payment
of a Reimbursement Obligation (whether of principal or interest) and any L/C
Participation Fee (but not any L/C Issuance Fee or L/C Administrative Fee)
payable by the Company. Any such amount shall be promptly remitted to the
Banks when and as received by Harris from the Company.
Section 1.8. Disbursements for Rent. The Company and the Banks hereby
irrevocably authorize the Agent to, in its discretion, at any time or from
time to time, upon notice to the Company and the Banks, advance Loans (without
regard to Section 6 hereof or borrowing base limitations on the amount of
credit available hereunder) for the purpose of paying any sums then due by the
Company or a Guarantor, as the case may be, to lessors of facilities (other
than amounts that are being contested in good faith and by appropriate
proceedings in a manner sufficient to prevent enforcement of any lien that may
arise in connection therewith and as to which adequate reserves have been
established), in which Collateral is located.
SECTION 2. INTEREST.
Section 2.1. Options. Subject to all of the terms and conditions of this
Section 2, portions of the principal indebtedness evidenced by the Notes (all
of such indebtedness bearing interest at the same rate for the same period of
time being hereinafter referred to as a "Portion") may, at the option of the
Company, bear interest with reference to the Base Rate (the "Base Rate
Portions") or with reference to the Adjusted LIBOR Rate ("LIBOR Portions"),
and Portions may be converted from time to time from one basis to the other.
All of the indebtedness evidenced by the Notes which is not part of a LIBOR
Portion shall constitute a single Base Rate Portion. The foregoing to the
contrary notwithstanding, only Base Rate Portions shall be available hereunder
from the date hereof through and including the 120th day from the date hereof
and thereafter the Company may, in accordance with the terms and conditions
hereof, elect LIBOR Portions hereunder. All of the indebtedness evidenced by
the Notes which bears interest with reference to a particular Adjusted LIBOR
Rate for a particular Interest Period shall constitute a single LIBOR Portion.
The Company promises to pay interest on each Portion at the rates and times
specified in this Section 2.
Section 2.2. Base Rate Portion. Each Base Rate Portion shall bear interest
(which the Company promises to pay at the times herein provided), at the rate
per annum equal to the lesser of (a) the Highest Lawful Rate, or (b) the rate
per annum determined by adding the Applicable Margin (as hereinafter defined)
to the Base Rate as in effect from time to time, provided that if a Base Rate
Portion is not paid when due (whether by lapse of time, acceleration or
otherwise), such Portion shall bear interest (which the Company promises to
pay at the times hereinafter provided), whether before or after judgment, for
the period from the date such Portion became due and until payment in full
thereof, at the rate per annum equal to the lesser of (a) the Highest Lawful
Rate, or (b) the rate per annum determined by adding 2% to the interest rate
which would otherwise be applicable thereto from time to time. Interest on
the Base Rate Portions shall be payable monthly in arrears on the last
Business Day of each month in each year and at maturity of the Notes and
interest after maturity shall be due and payable upon demand.
Section 2.3. LIBOR Portions. Each LIBOR Portion shall bear interest (which
the Company promises to pay at the times herein provided) for each Interest
Period selected therefor at a rate per annum equal to the lesser of (a) the
Highest Lawful Rate, or (b) the rate per annum equal to the Adjusted LIBOR
Rate for such Interest Period plus the Applicable Margin, provided that if any
LIBOR Portion is not paid when due (whether by lapse of time, acceleration or
otherwise) such Portion shall bear interest (which the Company promises to pay
at the times hereinafter provided) whether before or after judgment, for the
period from the date such Portion became due and until payment in full
thereof, through the end of the Interest Period then applicable thereto at the
rate per annum equal to the lesser of (a) the Highest Lawful Rate, or (b) the
rate per annum determined by adding 2% to the interest rate otherwise
applicable thereto, and effective at the end of such Interest Period such
LIBOR Portion shall automatically be converted into and added to the
applicable Base Rate Portion and shall thereafter bear interest at the
interest rate applicable to the applicable Base Rate Portion after default.
Interest on each LIBOR Portion shall be due and payable on the last Business
Day of each Interest Period applicable thereto and, if an Interest Period is
longer than three months, then at the end of each three month period and at
the end of such Interest Period, and interest after maturity shall be due and
payable upon demand. The Company shall notify the Agent on or before 11:00
a.m. Chicago time on the third Business Day preceding the end of an Interest
Period applicable to a LIBOR Portion whether such LIBOR Portion is to continue
as a LIBOR Portion, in which event the Company shall notify the Agent of the
new Interest Period selected therefor, and in the event the Company shall fail
to so notify the Agent, such LIBOR Portion shall automatically be converted
into and added to the applicable Base Rate Portion as of and on the last day
of such Interest Period. The Agent shall promptly notify each Bank of each
notice received from the Company pursuant to the foregoing provisions.
Anything contained herein to the contrary notwithstanding, the obligation of
the Banks to create, continue or effect by conversion any LIBOR Portion shall
be conditioned upon the fact that at the time no Default or Event of Default
shall have occurred and be continuing.
Section 2.4. Computation. Interest on the Base Rate Portions shall be
computed on the basis of a year of 365/366 days for the actual number of days
elapsed, and all other interest on the Notes and all fees, charges and
commissions due hereunder shall be computed on the basis of a year of 360 days
for the actual number of days elapsed.
Section 2.5. Minimum Amounts. Each LIBOR Portion shall be in a minimum
amount of $1,000,000.00.
Section 2.6. Manner of Rate Selection. The Company shall notify the Agent
by 11:00 a.m. Chicago time at least three Business Days prior to the date upon
which it requests that any LIBOR Portion be created or that any part of a Base
Rate Portion be converted into a LIBOR Portion (such notice to specify in each
instance the amount thereof and the Interest Period selected therefor) and the
Agent shall promptly advise each Bank of each such notice. If any request is
made to convert a LIBOR Portion into a Base Rate Portion, such conversion
shall only be made so as to become effective as of the last day of the
Interest Period applicable thereto. All requests for the creation,
continuance or conversion of Portions under this Agreement shall be
irrevocable. Such requests may be written or oral and the Agent is hereby
authorized to honor telephonic requests for creations, continuances and
conversions received by it from any person purporting to be a person
authorized to act on behalf of the Company hereunder, the Company hereby
indemnifying the Agent and the Banks from any liability or loss ensuing from
so acting.
Section 2.7. Change of Law. Notwithstanding any other provisions of this
Agreement or the Notes, if at any time a Bank shall determine in good faith
that any change in applicable laws, treaties or regulations or in the
interpretation thereof makes it unlawful for such Bank to create or continue
to maintain LIBOR Portions, it shall promptly so notify the Agent (which shall
in turn promptly notify the Company and the other Banks) and the obligation of
such Bank to create, continue or maintain any LIBOR Portion under this
Agreement shall terminate until it is no longer unlawful for such Bank to
create, continue or maintain LIBOR Portions. The Company, on demand, shall,
if the continued maintenance of an LIBOR Portion is unlawful, thereupon prepay
the outstanding principal amount of the LIBOR Portions, together with all
interest accrued thereon and all other amounts payable to the affected Banks
with respect thereto under this Agreement, provided, however, that the Company
may instead elect to convert the principal amount of the affected Portion into
the applicable Base Rate Portion, subject to the terms and conditions of this
Agreement relating to conversion. If a Bank affected by a change in law or
regulation can avoid the effect of such change by changing its lending or
funding branch it shall do so, provided that the same can be accomplished
without unreasonable disadvantage to it.
Section 2.8. Unavailability of Deposits. Notwithstanding any other
provision of this Agreement or the Notes, if prior to the commencement of any
Interest Period, the Required Banks shall determine that United States dollar
deposits in the amount of any LIBOR Portion scheduled to be outstanding during
such Interest Period are not readily available to such Banks in the offshore
interbank market, the Agent shall promptly give notice thereof to the Company
and each other Bank and the obligations of the Banks to create, continue or
effect by conversion any LIBOR Portion in such amount and for such Interest
Period shall terminate until United States dollar deposits in such amount and
for the Interest Period selected by the Company shall again be readily
available in the offshore interbank market.
Section 2.9. Taxes and Increased Costs. With respect to the LIBOR Portions,
if any Bank shall determine in good faith that any change after the date
hereof in any applicable law, treaty, regulation or guideline (including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) or any new law, treaty, regulation or guideline, or any
interpretation of any of the foregoing by any governmental authority charged
with the administration thereof or any central bank or other fiscal, monetary
or other authority having jurisdiction over such Bank or its lending branch or
the Portions contemplated by this Agreement (whether or not having the force
of law) shall:
(a) impose, increase, or deem applicable any reserve, special deposit or
similar requirement against assets held by, or deposits in or for the account
of, or loans by, or any other acquisition of funds or disbursements by, such
Bank which is not in any instance already accounted for in computing the
Adjusted LIBOR Rate;
(b) subject such Bank, the LIBOR Portions or a Note to the extent it evidences
such Portions, to any tax (including, without limitation, any United States
interest equalization tax or similar tax however named applicable to the
acquisition or holding of debt obligations and any interest or penalties with
respect thereto), duty, charge, stamp tax, fee, deduction or withholding in
respect of this Agreement, any LIBOR Portion or a Note to the extent it
evidences such a Portion, except such taxes as may be measured by the overall
net income or gross receipts of such Bank or its lending branches and imposed
by the jurisdiction, or any political subdivision or taxing authority thereof,
in which such Bank's principal executive office or its lending branch is
located;
(c) change the basis of taxation of payments of principal or interest due from
the Company to such Bank hereunder or under a Note to the extent it evidences
any LIBOR Portion (other than by a change in taxation of the overall net
income or gross receipts of such Bank); or
(d) impose on such Bank any penalty with respect to the foregoing or any other
condition regarding this Agreement, its disbursement, any LIBOR Portion or a
Note to the extent it evidences any LIBOR Portion;
and such Bank shall determine that the result of any of the foregoing is to
increase the cost (whether by incurring a cost or adding to a cost) to such
Bank of creating or maintaining any LIBOR Portion hereunder or to reduce the
amount of principal or interest received or receivable by such Bank (without
benefit of, or credit for, any prorations, exemption, credits or other offsets
available under any such laws, treaties, regulations, guidelines or
interpretations thereof), then the Company shall pay on demand to such Bank
from time to time as specified by such Bank such additional amounts as such
Bank shall reasonably determine are sufficient to compensate and indemnify it
for such increased cost or reduced amount. If a Bank makes such a claim for
compensation, it shall provide to the Company a written explanation of the
circumstances giving rise to such claim and a certificate setting forth the
computation of the increased cost or reduced amount as a result of any event
mentioned herein in reasonable detail and conforming to the principles set
forth in Sections 2.11 and 2.12 hereof and such certificate shall be deemed
correct absent manifest error. If a Bank can avoid the effect of any such
change by changing its lending or funding branch, it shall do so provided that
the same can be accomplished without disadvantage to it.
Section 2.10. Funding Indemnity. In the event any Bank shall incur any
loss, cost or expense (including, without limitation, any loss (including loss
of profit), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired or contracted to be acquired
by such Bank to fund or maintain its part of any LIBOR Portion or the
relending or reinvesting of such deposits or other funds or amounts paid or
prepaid to such Bank), as a result of:
(I) any payment of a LIBOR Portion on a date other than the last Business Day
of the then applicable Interest Period for any reason, whether before or after
default, and whether or not such payment is required by any provisions of the
Agreement; or
(ii) any failure by the Company to create, borrow, continue or effect by
conversion a LIBOR Portion on the date specified in a notice given pursuant to
this Agreement; then upon the demand of such Bank, the Company shall pay to
such Bank such amount as will reimburse such Bank for such loss, cost or
expense (computed after giving effect to Sections 2.11 and 2.12 hereof). If a
Bank requests such a reimbursement it shall provide the Company with a
certificate setting forth the computation of the loss, cost or expense giving
rise to the request for reimbursement in reasonable detail and conforming to
the principles set forth in Sections 2.11 and 2.12 hereof and such certificate
shall be deemed correct absent manifest error.
Section 2.11. Lending Branch. Each Bank may, at its option, elect to make,
fund or maintain its loans hereunder at the branches or offices specified on
the signature pages hereof or on any Assignment Agreement executed and
delivered pursuant to Section 12.15 hereof or at such other of its branches or
offices as such Bank may from time to time elect.
Section 2.12. Discretion of Banks as to Manner of Funding. Notwithstanding
any provision of this Agreement to the contrary, each Bank shall be entitled
to fund and maintain its funding of all or any part of its Notes in any manner
it sees fit, it being understood, however, that for the purposes of this
Agreement all determinations hereunder (including determinations under
Sections 2.8, 2.9 and 2.10 hereof) shall be made as if each such Bank had
actually funded and maintained each LIBOR Portion during each Interest Period
applicable thereto through the purchase of deposits in the offshore interbank
market in the amount of its share of such LIBOR Portion, having a maturity
corresponding to such Interest Period and bearing an interest rate equal to
LIBOR for such Interest Period.
SECTION 3. FEES, PAYMENTS, REDUCTIONS, APPLICATIONS AND NOTATIONS.
Section 3.1. Commitment Fee. For the period from the date hereof to and
including the Termination Date, the Company shall pay to the Agent for the
ratable account of the Banks a commitment fee at the rate per annum equal to
the Applicable Margin for the Commitment Fee on the average daily unused
amount of the Revolving Credit Commitments, such fee to be payable quarterly
in arrears on June 30, 1996 and on the last day of each March, June, September
and December thereafter to and including, and on, the Termination Date. For
purposes of this Section, the amount available to be drawn under all L/C's
outstanding hereunder shall be deemed to be usage of the Revolving Credit
Commitments.
Section 3.2. Agent's Fees. The Company shall pay to the Agent for its own
account such fees as are mutually agreed upon by the Company and the Agent
pursuant to the terms of the letter agreement dated May 31, 1996.
Section 3.3. Voluntary Prepayments. Subject to the further provisions of
this Section 3.3 the Company shall have the privilege of prepaying the Notes
in whole or in part (but if in part then in a minimum amount of $100,000 or
any greater amount that is a whole multiple of $10,000) at any time upon
notice to the Agent (such notices, if received subsequent to 12:00 noon
Chicago time on a given day, to be treated as though received at the opening
of business on the next Business Day), which shall promptly so notify the
Banks, by paying to the Agent for the account of the Banks (i) the principal
amount to be prepaid, (ii) if such prepayment prepays a Note in full, accrued
interest thereon to the date fixed for prepayment and (iii) any amount due the
Banks under Section 2.10 hereof.
Section 3.4. Mandatory Prepayments. In the event that the outstanding
principal amount of the Revolving Credit Notes, Reimbursement Obligations,
L/Cs (other than documentary L/Cs supporting the purchase of Eligible
Inventory) and 30% of documentary L/Cs supporting the purchase of Eligible
Inventory shall at any time and for any reason exceed the lesser of the
Revolving Credit Commitments or the Borrowing Base as then determined and
computed, the Company shall immediately and without notice or demand pay over
the amount of the excess to the Agent as and for a mandatory prepayment on the
Revolving Credit Notes and Reimbursement Obligations and, if only L/Cs are
then outstanding, deposit the amount necessary to eliminate such excess into
an account with the Agent which shall be held as additional collateral
security for such L/Cs.
Section 3.5. Terminations. The Company shall have the privilege at any time
and from time to time upon five (5) Business Days' prior written notice to the
Agent (which shall promptly notify the Banks) to ratably terminate the
Revolving Credit Commitments in whole or in part (but if in part then in a
minimum amount of $1,000,000 or an integral multiple thereof); provided,
however, that the Company may not terminate any portion of the Revolving
Credit Commitments in use in the form of L/Cs. The Company shall, on the date
the Revolving Credit Commitments are terminated in whole or in part, prepay
the Revolving Credit Notes and Reimbursement Obligations by the amount, if
any, necessary to reduce their aggregate outstanding principal balance to the
amount to which the Revolving Credit Commitments have been reduced. No
termination of the Revolving Credit Commitments may be reinstated.
Section 3.6. Place and Application. Except as otherwise provided herein,
all amounts payable hereunder shall be made to the Agent at its office at 111
West Monroe Street, Chicago, Illinois (or at such other place as the Agent may
specify) in immediately available and freely transferable funds at the place
of payment. All such payments shall be made without setoff or counterclaim
and without reduction for, and free from, any and all present or future taxes,
levies, imposts, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or political subdivision
or taxing authority thereof. Payments received by the Agent after 12:00 noon
Chicago time shall be deemed received as of the opening of business on the
next Business Day. The Agent shall remit to each Bank its proportionate share
of each payment of principal, interest and fees received by the Agent on the
same Business Day on which it is deemed received in accordance with the
foregoing. In the event the Agent does not remit any amount to any Bank when
required by the preceding sentence, the Agent shall pay to such Bank interest
on such amount until paid at a rate per annum equal to the Fed Funds Rate.
Except as otherwise provided in this Agreement, all payments shall be received
by the Agent for the ratable account of the Banks, and shall be promptly
distributed by the Agent ratably to the Banks, except that payments that
pursuant to the terms hereof are for the use and benefit of the Agent shall be
retained by it for its own account and payments received to reimburse a Bank
for a cost peculiar to that Bank shall be remitted to it. Payments under
Sections 2.9, 2.10 and 3.8 hereof may be made by the Company directly to the
Banks or to the Agent, which shall promptly remit same to the Banks entitled
thereto. Unless the Company otherwise directs, payments applicable to the
principal of the Notes shall be deemed first applied to the applicable Base
Rate Portion until payment in full thereof, with any balance applied to the
applicable LIBOR Portions in the order in which their Interest Periods expire.
All payments (whether voluntary or required) shall be accompanied by any
amount due the Banks under Section 2.10 hereof, but no acceptance of such a
payment without requiring payment of amounts due under Section 2.10 shall
preclude a later demand by the Banks for any amount due them under Section
2.10 in respect of such payment.
Anything contained herein to the contrary notwithstanding, all payments and
collections received in respect of the indebtedness evidenced by the Notes,
the L/Cs or Reimbursement Obligations and all proceeds of the Collateral
received, in each instance, by the Agent or any of the Banks after the
occurrence of an Event of Default shall be remitted to the Agent and
distributed as follows:
(a) first to the payment of any outstanding costs and expenses incurred by the
Agent or any security trustee in monitoring, verifying, protecting, preserving
or enforcing the liens on the Collateral or in protecting, preserving or
enforcing rights under the Credit Agreement, the Security Documents or the
Notes and in any event including all costs and expenses of a character which
the Company has agreed to pay under Section 12.4 hereof (such funds to be
retained by the Agent for its own account unless it has previously been
reimbursed for such costs and expenses by the Banks, in which event such
amounts shall be remitted to the Banks to reimburse them for payments
theretofore made to the Agent);
(b) second to the payment of any outstanding interest or other fees or amounts
due under the Notes, the L/C Agreements, the Security Documents, or this
Agreement other than for principal, ratably as among the Banks in accord with
the amount of such interest and other fees or amounts owing each;
(c) third, to the payment of the principal of the Notes and Reimbursement
Obligations ratably as among the Notes;
(d) fourth, to be held as collateral security for any outstanding L/Cs as
provided in Section 8.4 hereof;
(e) fifth, to the Banks ratably in accord with the amounts of any other
indebtedness, obligations or liabilities of the Company owing to each of them
and secured by the Security Documents unless and until all such indebtedness,
obligations and liabilities have been fully paid and satisfied; and
(f) sixth, to the Company or whoever may be lawfully entitled thereto.
Section 3.7. Notations and Requests. All advances made against the Notes,
the status of all amounts evidenced by the Notes as constituting part of a
Base Rate Portion or LIBOR Portion and the rates of interest and Interest
Periods applicable to such Portions shall be recorded by the Banks on their
books or, at their option in any instance, endorsed on the reverse side of the
Notes and the unpaid principal balances and status, rates and Interest Periods
so recorded or endorsed by the Banks shall be prima facie evidence, absent
manifest error, in any court or other proceeding brought to enforce the Notes
of the principal amount remaining unpaid thereon, the status of the borrowings
evidenced thereby and the interest rates and Interest Periods applicable
thereto. Prior to any negotiation of any Note the Bank holding such Note
shall endorse thereon the status of all amounts evidenced thereby as
constituting part of a Base Rate Portion or LIBOR Portion and the rates of
interest and Interest Periods applicable thereto.
Section 3.8. Capital Adequacy. If any Bank shall determine that there has
been any change in any applicable law, rule or regulation, or any new law,
rule or regulation has been adopted, regarding capital adequacy or any change
in the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof or compliance by such Bank (or its lending office) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Bank's capital as
a consequence of its obligations hereunder or credit extended by it hereunder
to a level below that which such Bank could have achieved but for such law,
rule, regulation, change or compliance (taking into consideration such Bank's
policies with respect to capital adequacy) by an amount deemed by such Bank to
be material, then from time to time as specified by such Bank the Company
shall pay such additional amount or amounts as will compensate such Bank for
such reduction; provided, however, that the Company shall have no obligation
to compensate any Bank for any such amounts incurred more than 180 days before
the date such Bank requests compensation from the Company under this Section.
A certificate of any Bank claiming compensation under this Section 3.8 and
setting forth the additional amount or amounts to be paid to it hereunder in
reasonable detail shall be prima facie evidence thereof absent manifest error.
In determining such amount, such Bank may use any reasonable averaging and
attribution methods.
SECTION 4. THE COLLATERAL.
The Notes and the other obligations of the Company and the Guarantors
hereunder and under the Security Documents shall be secured by valid and
perfected first liens (subject to liens and security interests permitted by
Section 7.10 hereof) on the inventory, accounts, general intangibles
(including patents, trademarks, licenses, copyrights and applications
therefor) to the extent permitted by the Intercreditor Agreement of the
Company and the Guarantors in each instance whether now owned or existing or
hereafter acquired or arising, (collectively the "Collateral") and the Company
and each Guarantor agrees that it will from time to time at the request of the
Agent or the Required Banks execute and deliver such documents and do such
acts and things as the Agent or the Required Banks may reasonably request in
order to provide for or perfect such liens.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to the Banks as to itself and, where the
following representations and warranties apply to Subsidiaries, as to each of
its Subsidiaries, and each Guarantor represents and warrants as to itself, as
follows:
Section 5.1. Organization and Qualification. The Company is a corporation
duly organized and existing under the laws of the State of Texas, has full and
adequate corporate power to carry on its business as now conducted, is duly
licensed or qualified in all jurisdictions wherein the nature of its
activities requires such licensing or qualification and the failure to be so
licensed or qualified would have a material adverse effect upon the business,
operations or financial condition of the Company or the Collateral, has full
right and corporate authority to enter into this Agreement and the other Loan
Documents, to make the borrowings herein provided for, to issue the Notes in
evidence thereof, to encumber its assets as collateral security for such
borrowings and to perform each and all of the matters and things herein and
therein provided for; and this Agreement and the other Loan Documents do not,
nor does the performance or observance by the Company of any of the matters or
things provided for herein or therein contravene any provision of any material
law or any charter or by-law provision or any covenant, indenture or agreement
of or affecting the Company or its Properties.
Section 5.2. Subsidiaries. Each Subsidiary is duly organized and existing
under the laws of the jurisdiction of its incorporation, has full and adequate
corporate power to carry on its business as now conducted and is duly licensed
or qualified in all jurisdictions wherein the nature of its business requires
such licensing or qualification and the failure to be so licensed or qualified
would have a material adverse effect upon the business, operations or
financial condition of such Subsidiary and the Company taken as a whole. The
only Subsidiaries of the Company and each Guarantor are listed on Schedule 5.2
hereto. Each Guarantor has full right, power and authority to execute and
deliver the Loan Documents executed by it and to perform each and all of the
matters and things therein provided for; and the Loan Documents executed by it
do not, nor does the performance or observance by any Guarantor of any of the
matters or things therein provided for, contravene any provision of any
material law or any provision of any charter, articles of incorporation or
bylaws of any Guarantor or any covenant, indenture or agreement of or
affecting any Guarantor or any of such Guarantor's Property.
Section 5.3. Financial Reports. The Company has heretofore delivered to the
Banks a copy of the audit report as of March 31, 1995 of the Company and its
Subsidiaries, and unaudited financial statements (including a consolidated
balance sheet, consolidated statements of income and cash flows, and
comparison to the comparable prior year period) of each of the Company and its
Subsidiaries as of, and for the 12 month period ending March 31, 1996. The
audited financial statements have been prepared in accordance with generally
accepted accounting principles on a consistent basis, except as otherwise
noted therein, with that of the previous fiscal year or period and fairly
reflect the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof, and the results of its operations for
the periods covered thereby. The Company and its Subsidiaries have no
material contingent liabilities other than as indicated on said financial
statements and since said date of March 31, 1995 there has been no material
adverse change in the condition, financial or otherwise, of the Company and
its Subsidiaries that has not been disclosed in writing to the Banks.
Section 5.4. Litigation; Tax Returns; Approvals'. There is no litigation or
governmental proceeding pending, nor to the knowledge of the Company
threatened, against the Company or any Subsidiary which, if adversely
determined, is likely to result in any material adverse change in the
Properties, business and operations of the Company or any Subsidiary, except
as disclosed on Schedule 5.4 hereof. All federal, state and local income tax
returns for the Company required to be filed have been filed on a timely basis
(including any permissible extensions), all amounts required to be paid as
shown by said returns have been paid. There are no pending or, to the best of
the Company's knowledge, threatened objections to or controversies in respect
of the United States federal income tax returns of the Company for any fiscal
year. No authorization, consent, license, exemption or filing (other than the
filing of financing statements and the Trustee under the Indenture) or
registration with any court or governmental department, agency or
instrumentality, is or will be necessary to the valid execution, delivery or
performance by the Company of the Loan Documents.
Section 5.5. Regulation U. Neither the Company nor any Subsidiary is
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System) and no part of the proceeds of any
Loan made or any L/C issued hereunder will be used to purchase or carry any
margin stock or to extend credit to others for such a purpose.
Section 5.6. No Default. As of the date of this Agreement, the Company is
in full compliance with all of the terms and conditions of this Agreement, and
no Default or Event of Default is existing under this Agreement.
Section 5.7. ERISA. The Company and its Subsidiaries are in compliance in
all material respects with ERISA to the extent applicable to them and have
received no notice to the contrary from the PBGC or any other governmental
entity or agency.
Section 5.8. Security Interests and Debt. There are no security interests,
liens or encumbrances on any of the Property of the Company or any Subsidiary
except such as are permitted by Section 7.10 of this Agreement, and the
Company and its Subsidiaries have no Debt except such as is permitted by
Section 7.11 of this Agreement.
Section 5.9. Accurate Information. No information, exhibit or report
furnished by the Company to the Banks in connection with the negotiation of
the Loan Documents contained any material misstatement of fact or omitted to
state a material fact or any fact necessary to make the statements contained
therein not misleading in light of the circumstances in which made. The
financial projections dated April 15, 1996 furnished by the Company to the
Banks contain to the Company's knowledge and belief, reasonable projections as
of the date hereof relating to future results of operations and the future
financial position of the Company based upon the assumptions stated therein.
Section 5.10. Enforceability. This Agreement and the other Loan Documents
are legal, valid and binding agreements of the Company, enforceable against it
in accordance with their terms, except as enforcement may be limited by (a)
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or
other similar laws or judicial decisions for the relief of debtors or the
limitation of creditors' rights generally; or (b) any equitable principles
relating to or limiting the rights of creditors generally.
Section 5.11. No Default Under Other Agreements. Neither the Company nor
any Subsidiary is in default with respect to any note, indenture, loan
agreement, mortgage, lease, deed, or other agreement to which it is a party or
by which it or its Property is bound, which default could reasonably be
expected to materially and adversely affect the Collateral, the repayment of
the indebtedness, obligations and liabilities under the Loan Documents, any
Bank's or the Agent's rights under the Loan Documents or the Property,
business, operations or condition (financial or otherwise) of the Company and
its Subsidiaries taken as a whole.
Section 5.12. Status Under Certain Laws. Neither the Company nor any of its
Subsidiaries is an "investment company" or a person directly or indirectly
controlled by or acting on behalf of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate"
of a "holding company" or a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
Section 5.13. Compliance with Laws. Except as listed on Schedule 5.13, the
Company and its Subsidiaries each are in material compliance with the
requirements of all federal, state and local laws, rules and regulations
applicable to or pertaining to their Properties or business operations
(including, without limitation, the Occupational Safety and Health Act of
1970, the Americans with Disabilities Act of 1990, and Environmental Laws,
non-compliance with which could reasonably be expected to have a material
adverse effect on the financial condition, Properties, business or operations
of the Company and its Subsidiaries taken as a whole. Except as disclosed in
the materials supplied to the Banks and listed on Schedule 5.13, neither the
Company nor any Subsidiary has received notice to the effect that its
operations are not in compliance with any of the requirements of applicable
Environmental Laws, health and safety statutes and regulations or are the
subject of any governmental investigation evaluating whether any remedial
action is needed to respond to a release of any toxic or hazardous waste or
substance into the environment, which non-compliance or remedial action could
reasonably be expected to have a material adverse effect on the financial
condition, Properties, business or operations of the Company and its
Subsidiaries taken as a whole.
Section 5.14. Federal Food Security Act. The Company has received no notice
given pursuant to Section 1324(e)(1) or (3) of the Federal Food Security Act
and there has not been filed any financing statement or notice, purportedly in
compliance with the provisions of the Federal Food Security Act, purporting to
perfect a security interest in farm products purchased by the Company in favor
of a secured creditor of the seller of such farm products. The Company has
registered pursuant to Section 1324(c)(2)(D) of the Federal Food Security Act,
with the Secretary of State of each State in which are produced farm products
purchased by the Company and which has established or hereafter establishes a
central filing system, as a buyer of farm products produced in such State; and
the Company will maintain each such registration in full force and effect.
SECTION 6. CONDITIONS PRECEDENT.
Section 6.1. All Advances. The obligation of the Banks to make any advance
under the Revolving Credit (including the first advance) shall also be subject
to the conditions precedent that as of the time of the making of each advance
under the Revolving Credit:
(a) each of the representations and warranties set forth herein or in the
Security Documents shall be and remain true and correct as of said time except
that the representations and warranties made in Section 5.3 hereof shall be
deemed to refer to the most recent financial statements delivered to the Banks
pursuant to Section 7.4 hereof; and
(b) the Company shall be in compliance with all of the terms and conditions
hereof and of the Security Documents and no Default or Event of Default shall
have occurred and be continuing.
Any request made by the Company to the Agent for a Loan or L/C hereunder shall
be deemed to constitute a representation and warranty that the foregoing
statements are true and correct.
Section 6.2. Initial Advance. At or prior to the time of the initial
advance under the Revolving Credit, the following conditions precedent shall
also have been satisfied:
(a) The Agent shall have received the following for the account of the Banks
(each to be properly executed and completed) and the same shall have been
approved as to form and substance by the Banks:
(i) the Notes;
(ii) the Security Documents;
(iii) any financing statements requested by the Agent;
(iv) an amendment to the Intercreditor Agreement with the Trustee under the
Indenture substituting the Agent and all the Banks as parties to the
Intercreditor Agreement;
(v) certified copies of the Management Agreement, the Tax Sharing Agreement
and the Indenture;
(vi) copies (executed or certified as may be appropriate) for each Bank of all
legal documents or proceedings taken in connection with the execution and
delivery of this Agreement, the Notes and the Security Documents to the extent
the Agent or its counsel may reasonably request;
(vii) evidence of the maintenance of insurance as required hereby and by the
Security Documents;
(viii) a statement of status for each of the Company and the Guarantors, dated
as of the date no earlier than 30 days prior to the date hereof, from the
office of the secretary of state of the state of its incorporation and each
state in which it is qualified to do business as a foreign corporation;
(ix) copies of the Articles of Incorporation and all amendments thereto, of
each of the Company and the Guarantors certified by the office of the
secretary of state of its respective state of incorporation or organization as
of the date no earlier than the date 30 days prior to the date hereof;
(x) copies of the By-Laws and all amendments thereto, of each of the Company
and the Guarantors certified as true, correct and complete on the date hereof
by the Secretary or Assistant Secretary of the Company and each Guarantor,
respectively;
(xi) copies, certified by the Secretary or Assistant Secretary of each of the
Company and the Guarantors, of corporate resolutions regarding the
transactions contemplated by this Agreement, duly adopted by their respective
Board of Directors, and satisfactory in form and substance to all of the
Banks;
(xii) an incumbency and signature certificate for each of the Company and each
Guarantor satisfactory in form and substance to all of the Banks; and
(xiii) such other documents as the Banks may reasonably require.
(b) The Agent shall have received such current appraisals, reports and
certifications as it may require in order to satisfy itself as to the value of
the Collateral, the financial condition of each of the Company and each
Guarantor and the lack of material environmental or other contingent
liabilities of each of the Company and the Guarantors; including without
limitation an Environmental Checklist in the form of Exhibit D attached hereto
and copies of such environmental assessments and reports as the Banks may
require.
(c) The Agent shall have received for its own account such fees as the Company
has otherwise agreed to pay to the Agent.
(d) All legal matters incident to the transactions contemplated hereby shall
be acceptable to the Agent and its counsel and the Agent shall have received
for the account of the Banks the favorable written opinion of counsel to the
Company and the Guarantors acceptable to the Banks.
(e) The Agent shall have received a pay-off letter in form and substance
satisfactory to the Banks from each of the Existing Lender, including an
agreement to release all liens in favor of all of the Existing Lender.
SECTION 7. COMPANY COVENANTS.
The Company and each Guarantor agrees that, so long as any credit is available
to or in use by the Company hereunder, except to the extent compliance in any
case or cases is waived in writing by the Required Banks:
Section 7.1. Maintenance. The Company and each Guarantor will, and will
cause each Subsidiary to, maintain, preserve and keep its plant, Properties
and equipment in reasonably good repair, working order and condition and will
from time to time make all needed and proper repairs, renewals, replacements,
additions and betterments thereto so that at all times the efficiency thereof
shall be preserved and maintained in all material respects, normal wear and
tear excepted.
Section 7.2. Taxes. The Company and each Guarantor will, and will cause
each Subsidiary to, duly pay and discharge all taxes, rates, assessments, fees
and governmental charges upon or against the Company or its Subsidiaries or
against their respective properties in each case before the same become
delinquent and before penalties accrue thereon unless and to the extent that
the same are being contested in good faith and by appropriate proceedings
diligently conducted and for which adequate reserves in form and amount
reasonably satisfactory to the Required Banks have been established, provided
that the Company and each Guarantor shall pay or cause to be paid all such
taxes, rates, assessments, fees and governmental charges forthwith upon the
commencement of proceedings to foreclose any lien that is attached as security
therefor, unless such foreclosure is stayed by the filing of an appropriate
bond in a manner reasonably satisfactory to the Required Banks.
Section 7.3. Maintenance of Insurance. The Company and each Guarantor will,
and will cause each Subsidiary to, maintain insurance coverage by good and
responsible insurance underwriters in such forms and amounts and against such
risks and hazards as are customary for companies engaged in similar businesses
and owning and operating similar Properties, all in amounts and under policies
containing loss payable clauses to the Agent as its interest may appear (and,
if the Required Banks request, naming the Agent as additional insured therein)
and providing for advance notice to the Agent of cancellation thereof, issued
by sound and reputable insurers and all premiums thereon shall be paid by the
Company and certificates summarizing the same delivered to the Agent. The
Banks hereby acknowledge that maintenance of insurance to the extent required
by the Indenture as in effect on the date hereof shall satisfy the
requirements of this Section 7.3. In any event, the Company and each
Guarantor will maintain insurance on the Collateral as required by the
Security Documents.
Section 7.4. Financial Reports. The Company and each Guarantor will, and
will cause each Subsidiary to, maintain a standard and modern system of
accounting in accordance with sound accounting practice and will furnish to
the Banks and their duly authorized representatives such information
respecting the business and financial condition of the Company, the Guarantors
and their respective Subsidiaries as may be reasonably requested and, without
any request, will furnish to the Banks:
(a) as soon as available, and in any event within 20 days (45 days in the case
of each fiscal quarter end) after the close of each monthly fiscal period of
the Company and its Subsidiaries a copy of the consolidated and consolidating
balance sheet, statement of income and retained earnings, statement of cash
flows for such period of the Company and its Subsidiaries, together with all
such information for the year to date, all in reasonable detail, prepared by
the Company and certified on behalf of the Company by the Company's chief
financial officer or Vice President-Finance;
(b) as soon as available, and in any event within 90 days after the close of
each fiscal year, a copy of the audit report for such year and accompanying
financial statements, including a consolidated balance sheet, a statement of
income and retained earnings, and a statement of cash flows, together with all
footnotes thereto, for the Company and its Subsidiaries, in each case, showing
in comparative form the figures for the previous fiscal year of the Company,
all in reasonable detail, accompanied by an opinion satisfactory to the
Required Banks of Deloitte & Touche or other independent public accountants of
nationally recognized standing selected by the Company and reasonably
satisfactory to the Required Banks, such opinion to indicate that such
statements are made in accordance with generally accepted accounting
principles;
(c) as soon as available, and in any event no later than 45 days after the
close of each fiscal quarter, a Compliance Certificate in the form of Exhibit
C hereto signed on behalf of the Company by its chief financial officer or
Vice President-Finance; and
(d) within 5 days after the end of each month, a Borrowing Base Certificate in
the form of Exhibit B hereto, setting forth a computation of the Company's
Borrowing Base and each Guarantor's Borrowing Base as of that months end date,
certified as correct on behalf of the Company by the Company's chief financial
officer or Vice President-Finance.
Section 7.5. Inspection and Reviews. The Company and each Guarantor shall,
and shall cause each Subsidiary to, permit the Agent and the Banks, by their
representatives and agents, to inspect any of the properties, corporate books
and financial records of the Company, each Guarantor and its respective
Subsidiaries, to review and make copies of the books of accounts and other
financial records of the Company, each Guarantor and its respective
Subsidiaries, and to discuss the affairs, finances and accounts of the
Company, each Guarantor and its respective Subsidiaries with, and to be
advised as to the same by, its officers at such reasonable times and intervals
as the Agent or the Banks may designate. In addition to any other
compensation or reimbursement to which the Agent and the Banks may be entitled
under the Loan Documents, the Company shall pay to the Agent from time to time
upon demand the amount necessary to compensate it for all fees, charges and
expenses incurred by the Agent or its designee in connection with the audits
of Collateral, or inspections or review of the books, records and accounts of
the Company, the Guarantors or any domestic Subsidiary conducted by the Agent
or its designee or any of the Banks; provided, however, that in the absence of
any Event of Default no more than four (4) such audits shall be conducted per
calendar year and the costs and expenses of each such audit shall not exceed
$5,000.
Section 7.6. Consolidation and Merger. The Company and each Guarantor will
not, and will not permit any Subsidiary to, consolidate with or merge into any
Person, or permit any other Person to merge into it, or acquire (in a
transaction analogous in purpose or effect to a consolidation or merger) all
or substantially all the Property of the other Person, or acquire
substantially as an entirety the business of any other Person except as
permitted under Section 7.12 hereof.
Section 7.7. Transactions with Affiliates and Foreign Subsidiaries. Company
shall not, and shall not permit any Subsidiary to, enter into any contract,
agreement or business arrangement with any of its Affiliates on terms and
conditions which are less favorable to the Company or such Subsidiary than
would be usual and customary in similar contracts, agreements or business
arrangements between Persons not affiliated with each other, except that
Company may make the following payments provided that before and after giving
effect to such payments, no Default or Event of Default has occurred or shall
occur: (i) a monthly management fee of not more than Eighty Thousand Dollars
($80,000) to ERLY in each fiscal year of Company, payable monthly in arrears,
to the extent earned and payable pursuant to the Management Agreement, and
(ii) tax sharing payments to ERLY otherwise payable in accordance with the Tax
Sharing Agreement as in effect as of the date hereof; provided, further, that
all such tax sharing payments shall be paid solely by setoff against the ERLY
6% Intercompany Note. The Company further agrees that it shall not, nor shall
it permit any Subsidiary to sell, assign or transfer any of its Properties
(other than cash and cash equivalents) to any non-U.S. Subsidiary or Affiliate
(a) other than sales of Inventory consisting of rough rice, milled rice,
pasta, olives and, in each case, related packaging items including bags and
similar items to the extent the same does not exceed 2% of total consolidated
revenues of the Company and its Subsidiaries, other finished food product
inventory so long as the monthly maximum amount thereof does not exceed 25,000
metric tons and no more than 50% thereof is located in any one country, (b)
sales of inventory to RMTI if and so long as the aggregate outstanding amount
owing by RMTI on account of such purchases does not exceed $500,000 for more
than 15 days and (c) sales of other assets not exceeding $700,000 in any
fiscal year.
Section 7.8. Capital Expenditures. The Company and each Guarantor will not,
and will not permit any Subsidiary to, make any Capital Expenditures during
any fiscal year in excess of the sum of (a) $5,500,000 ($10,000,000 if EBITDA
of the Company for the immediately preceding fiscal year exceeds $30,000,000)
plus (b) the Carryover Amount determined with respect to the immediately
preceding fiscal year.
Section 7.9. Dividends and Certain Other Restricted Payments. The Company
will not (a) declare or pay any dividends or make any distribution on any
class of its capital stock (other than dividends payable solely in its capital
stock) or (b) directly or indirectly purchase, redeem or otherwise acquire or
retire any of its capital stock (except out of the proceeds of, or in exchange
for, a substantially concurrent issue and sale of capital stock), or (c) make
any other distributions with respect to its capital stock.
Section 7.10. Liens. The Company and each Guarantor will not, and will not
permit any Subsidiary to, pledge, mortgage or otherwise encumber or subject to
or permit to exist upon or be subjected to any lien, charge or security
interest of any kind (including any conditional sale or other title retention
agreement and any lease in the nature thereof), on any of its Properties of
any kind or character other than:
(a) liens, pledges or deposits for workmen's compensation, unemployment
insurance, old age benefits or social security obligations, taxes,
assessments, statutory obligations or other similar charges, good faith
deposits made in connection with tenders, contracts or leases to which the
Company, a Guarantor or a Subsidiary is a party or other deposits required to
be made in the ordinary course of business, provided in each case the
obligation secured is not overdue or, if overdue, is being contested in good
faith by appropriate proceedings and adequate reserves have been provided
therefor in accordance with generally accepted accounting principles and that
the obligation is not for borrowed money, customer advances, trade payables or
obligations to agricultural producers;
(b) the pledge of Property for the purpose of securing an appeal or stay or
discharge in the course of any legal proceedings, provided that the aggregate
amount of liabilities of the Company, the Guarantors and their Subsidiaries so
secured by a pledge of Property permitted under this subsection (b) including
interest and penalties thereon, if any, shall not be in excess of $1,000,000
at any one time outstanding;
(c) liens, pledges, mortgages, security interests, or other charges granted to
the Agent;
(d) liens in favor of the Trustee under the Indenture and subject to the
Intercreditor Agreement, liens on the Freeport Facility (as defined in the
Indenture) securing the Freeport IRBs (as defined in the Indenture) and other
liens, mortgage and security interests disclosed on the audited financial
statements referred to in Section 5.3 hereof, except those in favor of the
Existing Lender;
(e) mechanics liens that have been bonded in a manner, for an amount and by a
surety company acceptable to the Required Banks;
(f) liens securing only indebtedness permitted by Sections 7.11(f) and (l) but
only in the Property purchased with the proceeds of such indebtedness and
liens securing indebtedness permitted by Section 7.11(i) hereof but only in
the Property of the relevant Subsidiary incurring such indebtedness;
(g) the interests of lessors in leased Property;
(h) 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; and
(i) 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.
Section 7.11. Borrowings and Guaranties. The Company and each Guarantor
will not, and will not permit any Subsidiary to, issue, incur, assume, create
or have outstanding any Debt or customer advances, nor be or remain liable,
whether as endorser, surety, guarantor or otherwise, for or in respect of any
liability or Debt of any other Person, other than:
(a) indebtedness arising under or pursuant to this Agreement or the other Loan
Documents;
(b) the liability arising out of the endorsement for deposit or collection of
commercial paper received in the ordinary course of business;
(c) trade payables arising in the ordinary course of the Company's business;
(d) customer prepayments not exceeding $2,000,000 in the ordinary course of
business;
(e) indebtedness disclosed on the audited financial statements referred to in
Section 5.3 hereof, except indebtedness in favor of the Existing Lender;
(f) indebtedness (including Capitalized Lease Obligations) incurred to finance
the purchase, or which represents the deferred purchase price, of Property in
an aggregate principal amount not to exceed $1,000,000 in any fiscal year;
(g) indebtedness of the Guarantors to the Company;
(h) indebtedness evidenced by the Mortgage Notes; and
(i) indebtedness of Rice Corporation of Haiti not exceeding $4,000,000 at any
one time outstanding, indebtedness of Comet Rice of Jamaica Limited not
exceeding $2,000,000 at any one time outstanding, indebtedness of Corporation
RICA, S.A. de C.V. not exceeding $3,000,000 at any one time outstanding and
indebtedness of ARI Comet de Mexico S.A. de C.V. not exceeding $3,000,000 at
any one time outstanding in each case owing to local banks in connection with
working capital financing;
(j) Non-Recourse Debt of ARI-Vinafood;
(k) the guarantees by the Guarantors hereunder; and
(l) indebtedness not otherwise permitted under this Section 7.11 not exceeding
$500,000 at any one time outstanding.
Section 7.12. Investments, Loans and Advances. The Company and each
Guarantor will not, and will not permit any Subsidiary to, make or retain any
investment (whether through the purchase of stock, obligations or otherwise)
in or make any loan or advance to, any other Person, other than:
(a) investments in certificates of deposit having a maturity of one year or
less issued by any of the Banks;
(b) marketable obligations of the United States;
(c) Receivables arising in the ordinary course of its business;
(d) existing loans, advances and investments in Subsidiaries shown on Schedule
7.12 hereto;
(e) deposits in commercial banks having capital and surplus of not less than
$100,000,000;
(f) advances to officers and employees of the Company and the Guarantors in
the ordinary course of business;
(g) investments in commercial paper rated P1 by Moody's Investors Service,
Inc. or A1 by Standard & Poor's maturing within 270 days of the date of
issuance thereof;
(h) repurchase agreements and reverse repurchase agreements involving
marketable full faith and credit obligations of the United States of America,
provided that the Company, the Guarantor or the Subsidiary that is a party
thereto shall hold (individually or through an agent or bailee) all securities
relating thereto during the entire term of such agreement;
(i) additional loans and advances from the Company to the Guarantors;
(j) additional investments, loans and advances (in each instance other than
trade accounts) from the Company to Subsidiaries (other than the Guarantors
and ARI-Vinafood) that are required to be evidenced by Subsidiary Intercompany
Notes not exceeding an aggregate amount of $1,000,000;
(k) acquisitions by the Company of substantially all of the assets of
corporations which are engaged in similar lines of business as the Company so
long as (x) the aggregate amount of consideration payable in connection with
such acquisitions does not exceed $5,000,000, (y) no Default or Event of
Default shall exist at the time of any such acquisition or would occur as a
result thereof and (z) prior to any such acquisition the Company shall have
furnished the Banks with pro forma financial information verifying the
condition specified in the immediately preceding clause (y) is true and
correct; and
(l) investments in up to 750 option and open contracts by the Company or its
Subsidiaries in connection with the protection of its commodity inventory
holdings or commitments to buy or sell commodities against adverse price
movements.
Section 7.13. Sale of Property. The Company and each Guarantor will not,
and will not permit any Subsidiary to, sell, lease, assign, transfer or
otherwise dispose of (whether in one transaction or in a series of
transactions) all or a material part of its Property to any other Person;
provided, however, that this Section shall not prohibit:
(a) sales of Inventory in the ordinary course of business;
(b) sales or leases of surplus, obsolete or worn-out machinery and equipment;
and
(c) a sale of the Company's Houston, Texas property.
For purposes of this Section 7.13, "material part" shall mean 5% or more of
the lesser of the book or fair market value of the Property of the Company or
any Guarantor determined at the time of the sale.
Section 7.14. Notice of Suit, Adverse Change in Business or Default. The
Company shall, as soon as possible, and in any event within five (5) days
after the Company learns of the following, give written notice to the Banks of
(a) any proceeding(s) that, if determined adversely to the Company, any
Guarantor or any Subsidiary could reasonably be expected to have a material
adverse effect on the Properties, business or operations of the Company, such
Guarantor or such Subsidiary being instituted or threatened to be instituted
by or against the Company, such Guarantor or such Subsidiary in any federal,
state, local or foreign court or before any commission or other regulatory
body (federal, state, local or foreign); (b) any material adverse change in
the business, Property or condition, financial or otherwise, of the Company,
any Guarantor or any Subsidiary; and (c) the occurrence of a Default or Event
of Default.
Section 7.15. ERISA. The Company and each Guarantor will, and will cause
each Subsidiary to, promptly pay and discharge all obligations and liabilities
arising under ERISA of a character which if unpaid or unperformed might result
in the imposition of a lien against any of its Property and will promptly
notify the Agent of (a) the occurrence of any reportable event (as defined in
ERISA) that could reasonably be expected to result in the termination by the
PBGC of any Plan covering any officers or employees of the Company, any
Guarantor or any Subsidiary any benefits of which are, or are required to be,
guaranteed by PBGC, (b) receipt of any notice from PBGC of its intention to
seek termination of any Plan or appointment of a trustee therefor, and (c) its
intention to terminate or withdraw from any Plan. The Company and each
Guarantor will not, and will not permit any Subsidiary to, terminate any Plan
or withdraw therefrom unless it shall be in compliance with all of the terms
and conditions of this Agreement after giving effect to any liability to PBGC
resulting from such termination or withdrawal.
Section 7.16. Use of Loan Proceeds. The Company and each Guarantor will use
the proceeds of all Loans made or created hereunder solely to refinance
existing Debt, and thereafter to finance its working capital requirements.
Section 7.17. Conduct of Business and Maintenance of Existence. The Company
and each Guarantor will, and will cause each Subsidiary to, continue to engage
in business of the same general type as now conducted by it, and the Company
and each Guarantor will, and will cause each Subsidiary to, preserve, renew
and keep in full force and effect its corporate existence and its rights,
privileges and franchises necessary or desirable in the normal conduct of
business.
Section 7.18. Compliance with Laws, etc. ;The Company and each Guarantor
will, and will cause each of its Subsidiaries to, comply in all material
respects with all applicable laws, rules, regulations and orders, such
material compliance to include (without limitation) (a) the maintenance and
preservation of its corporate existence and qualification as a foreign
corporation, (b) compliance with all rules and regulations promulgated
pursuant to the Occupational Safety and Health Act of 1970, as amended, and
(c) compliance with all applicable Environmental Laws.
Section 7.19. New Subsidiaries. Without the prior written consent of the
Banks, the Company and each Guarantor will not, directly or indirectly, create
or acquire any Subsidiary.
Section 7.20. Environmental Covenant. The Company and each Guarantor will:
(a) use and operate all of its facilities and Properties in compliance with
all Environmental Laws where the failure to do so could reasonably be expected
to have a material adverse effect on the condition, financial or otherwise, of
the Company or any Guarantor, keep all necessary permits, approvals,
certificates, licenses and other authorizations relating to environmental
matters in effect and remain in material compliance therewith, and handle all
hazardous materials in material compliance with all applicable Environmental
Laws;
(b) immediately notify the Agent and provide copies upon receipt of all
written claims, complaints, notices or inquiries relating to the condition of
its facilities and Property or compliance with Environmental Laws, and shall
promptly cure and have dismissed, or take such other actions reasonably
satisfactory to the Banks, any actions and proceedings relating to compliance
with Environmental Laws; and
(c) provide such information and certifications that the Agent may reasonably
request from time to time to evidence compliance with this Section 7.20.
Section 7.21. Sale and Leasebacks. The Company and each Guarantor shall
not, and shall not permit any Subsidiary to, enter into any arrangement with a
bank, insurance company or any other lender or investor providing for the
leasing by the Company, any Guarantor or any Subsidiary of any Property
previously owned by it and which as been or is to be sold or transferred by
such owner to such lender or investor.
Section 7.22. Adjusted Funded Debt Ratio. The Company will not, as of the
last day of any fiscal quarter of the Company during any of the periods
specified below, permit the Adjusted Funded Debt Ratio for the four fiscal
quarters of the Company then ended to exceed:
ADJUSTED FUNDED
DEBT RATIO
FROM AND INCLUDING TO AND INCLUDING SHALL NOT EXCEED
The date hereof 6/30/96 6.2 to 1.0
7/1/96 9/30/96 5.6 to 1.0
10/1/96 and at all
times thereafter 5.25 to 1.0
Section 7.23. Minimum Interest Coverage Ratio. The Company will not, as of
the last day of any fiscal quarter of the Company during any of the periods
specified below, permit its Interest Coverage Ratio for the applicable
Measurement Period then ended to be less than:
INTEREST COVERAGE RATIO
FROM AND INCLUDING TO AND INCLUDING SHALL NOT BE LESS THAN:
The date hereof 6/30/96 1.3 to 1.0
7/1/96 9/30/96 1.5 to 1.0
10/1/96 and at all times
thereafter 1.75 to 1.0
The term "Measurement Period" as used herein shall mean (a) for June 30, 1996,
the fiscal quarter of the Company ending such date, (b) for September 30,
1996, the two fiscal quarters of the Company ending such date, (c) for
December 31, 1996, the three fiscal quarters of the Company ending such date
and (d) for March 31, 1997 and each fiscal quarter end thereafter, the four
fiscal quarters of the Company ending such date.
Section 7.24. Minimum Adjusted Tangible Net Worth. The Company will
maintain Adjusted Tangible Net Worth in an amount not less than (a) Adjusted
Tangible Net Worth of the Company as of March 31, 1996 from the date of this
Agreement through March 31, 1997, and (b) during each fiscal year of the
Company thereafter, an amount equal to the minimum amount required to be
maintained during the immediately preceding fiscal year of the Company plus an
amount equal to 90% of the Company's Net Income (but not less than zero) for
the immediately preceding fiscal year.
Section 7.25. Minimum Current Ratio. The Company will not permit its
Current Ratio to be less than 1.25 to 1 at any time.
Section 7.26. Federal Food Security Act. The Company will register,
pursuant to Section 1324(c)(2)(D) of the Federal Food Security Act, with the
Secretary of State of each State in which are produced farm products purchased
by the Company and which has established or hereafter establishes a central
filing system, as a buyer of farm products produced in such State; and the
Company will maintain each such registration in full force and effect.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
Section 8.1. Events of Default Defined. Any one or more of the following
shall constitute an Event of Default hereunder:
(a) default in the payment of any principal of any Note when due, whether at
the stated maturity thereof or at any time provided for in this Agreement, or
default for a period of three (3) days in the payment when due of any
Reimbursement Obligation, interest, fee, commission, charge or other amount
payable by the Company hereunder;
(b) default in the observance or performance of any covenant set forth in
Sections 7.3, 7.4, 7.5, 7.6, 7.8, 7.9, 7.11, 7.12, 7.13, 7.14, 7.16, 7.22,
7.23, 7.24 or 7.25 hereof or of any covenant in any Security Document dealing
with the use, disposition or remittance of the proceeds of Collateral or the
maintenance of insurance thereon;
(c) default in the observance or performance of any other provision hereof or
of any of the Security Documents that is not remedied or waived by the
Required Banks within 30 days after notice thereof to the Company by the Agent
or by the holder or holders of a Note;
(d) default shall occur under any evidence of indebtedness in an aggregate
principal amount in excess of $250,000 issued, assumed or guaranteed by the
Company or any Guarantor or under any indenture, agreement or other instrument
under which the same may be issued, and such default shall continue for a
period of time sufficient to permit the acceleration of the maturity of any
such indebtedness;
(e) any representation or warranty made herein or in any of the Security
Documents or pursuant hereto or thereto or in connection with any transaction
contemplated hereby proves untrue in any material respect as of the date of
the issuance or making thereof;
(f) any judgment or judgments, writ or writs or warrant or warrants of
attachment, or any similar process or processes in an aggregate amount in
excess of $500,000 shall be entered or filed against the Company, any
Guarantor or any Subsidiary or against any of its respective Property or
assets and remain undischarged, unvacated, unbonded or unstayed for a period
of 30 days;
(g) an event occurs which is specified as an event of default in any of the
Security Documents;
(h) bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or
similar law for the relief of debtors are instituted against the Company, any
Guarantor or any Subsidiary and are not dismissed within 45 days after such
institution or a decree or order of a court having jurisdiction in the
premises for the appointment of a trustee, custodian or receiver for the
Company, any Guarantor or any Subsidiary or for the major part of its
respective Property is entered and the trustee, custodian or receiver
appointed pursuant to such decree or order is not discharged within 45 days
after such appointment, or an order for relief shall be entered in any such
proceeding;
(i) the Company, any Guarantor or any Subsidiary shall institute bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
proceedings for relief under any bankruptcy law or laws for the relief of
debtors or shall consent to the institution of such proceedings against it by
others or to the entry of any decree or order adjudging it bankrupt or
insolvent or approving as filed any petition seeking reorganization under any
bankruptcy or similar law or shall apply for or shall consent to the
appointment of a receiver, custodian or trustee for it or for the major part
of its property or shall make an assignment for the benefit of creditors or
shall take any corporate action authorizing any of the foregoing; or
(j) a Change in Control shall occur.
Section 8.2. Remedies for Non-Bankruptcy Defaults. When any Event of
Default other than any Event of Default described in subsections 8.1(h) or
8.1(i) has occurred and is continuing, the Agent shall, upon request of the
Required Banks, by notice to the Company, take any or all of the following
actions:
(a) terminate the obligation of the Banks to extend any further credit
hereunder on the date (which may be the date thereof) stated in such notice;
(b) declare the principal of and the accrued interest on the Notes and
Reimbursement Obligations to be forthwith due and payable and thereupon the
Notes and Reimbursement Obligations, including both principal and interest,
and all unpaid fees, charges and commissions payable hereunder, shall be and
become immediately due and payable without further demand, presentment,
protest or notice of any kind; and
(c) enforce any and all rights and remedies available hereunder and under the
Security Documents.
Section 8.3. Remedies for Bankruptcy Defaults. When any Event of Default
described in subsection 8.1(h) or 8.1(i) has occurred and is continuing, then
the then unpaid balance of the Notes and Reimbursement Obligations, including
both principal and interest, and all fees, charges and commissions payable
hereunder, shall immediately become due and payable without presentment,
demand, protest or notice of any kind, the obligation of the Banks to extend
further credit pursuant to any of the terms hereof shall immediately terminate
and the Agent may exercise all remedies available to it hereunder and under
the Security Documents.
Section 8.4. L/Cs. Promptly following the acceleration of the maturity of
the Notes and Reimbursement Obligations pursuant to Section 8.2 or 8.3 hereof,
the Company shall immediately pay to the Agent for the benefit of the Banks
the full aggregate amount of all outstanding L/Cs. The Agent shall hold all
such funds and proceeds thereof as additional collateral security for the
obligations of the Company to the Banks under the Loan Documents. The amount
paid under any of the L/Cs for which the Company has not reimbursed the Banks
shall bear interest from the date of such payment at the default rate of
interest specified in Section 2.2 hereof.
SECTION 9. DEFINITIONS.
Section 9.1. Certain Terms Defined. The following terms when used herein
shall have the following meanings; such terms to be equally applicable to both
the singular and plural of the terms defined (capitalized terms defined
elsewhere in this Agreement to have the meanings so ascribed to them in all
provisions of this Agreement):
"Account Debtor" shall mean the Person who is obligated on a Receivable.
"Adjusted Funded Debt" shall mean all Debt (other than the Revolving Credit
except as hereinafter provided) of the Company and its Subsidiaries that has a
final maturity of more than one year from the date of issuance, including
current maturities of such Debt, Capitalized Lease Obligations, and all
guaranteed third party Debt plus an amount equal to the lowest aggregate
principal amount outstanding under the Revolving Credit (or the revolving
credit from the Existing Lender as appropriate) averaged for a period of 15
consecutive days during the most recent twelve months then ended.
"Adjusted Funded Debt Ratio" shall mean the ratio of Adjusted Funded Debt to
EBITDA.
"Adjusted LIBOR Rate" shall mean a rate per annum determined pursuant to the
following formula:
Adjusted LIBOR Rate = LIBOR Rate
-------------------------
100%-Reserve Percentage
"Adjusted Tangible Net Worth" shall mean the sum of all capital stock,
preferred stock, capital in excess of par value and retained earnings of the
entity in question minus the aggregate amount of all equity amounts on account
of notes receivable from shareholders and the total amount of all Intangible
Assets, all determined on a consolidated basis in accordance with generally
accepted accounting principles, consistently applied.
"Affiliate" shall mean any person, firm, corporation or entity (herein
collectively called a "Person") directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another
Person. A Person shall be deemed to control another Person for the purposes
of this definition if such first Person possesses, directly or indirectly, the
power to direct, or cause the direction of, the management and policies of the
second Person, whether through the ownership of voting securities, common
directors, trustees or officers, by contract or otherwise.
"Agent" shall mean Harris Trust and Savings Bank and any successor thereto
appointed pursuant to Section 10.1 hereof.
"Agreement" shall mean this Secured Credit Agreement as supplemented,
modified, restated and amended from time to time.
"Applicable Margin" with respect to the commitment fee payable pursuant to
Section 3.1 hereof and LIBOR Portions and Base Rate Portions, shall mean the
rate specified for such obligation below at each level of Adjusted Funded Debt
Ratio specified below:
Level I Level II Level III Level IV
Adjusted Funded Debt Ratio 1.75<2.50 >2.50 and 3.25 and >4.0
<3.25> <4.0
LIBOR Margin 1.25% 1.75% 2.25% 2.75%
Base Rate Margin 0.0% 0.0% 0.0% 0.0%
Commitment Fee .375% .375% .50% .50%
Not later than ten (10) Business Days after receipt by the Banks of the
Compliance Certificate called for by Section 7.4(c) hereof for the fiscal
quarter ending September 30, 1996, the Agent shall determine the Adjusted
Funded Debt Ratio for the applicable period and shall promptly notify the
Company and the Banks of such determination and of any change in the
Applicable Margins resulting therefrom. Any such change in the Applicable
Margins shall be effective as of the date the Agent so notifies the Company
with respect to all Loans outstanding on such date, and such new Applicable
Margins as determined by the Agent in accordance with this Section shall be
conclusive and binding on the Company absent manifest error. From the date
hereof through and including the date occurring 120 days from the date hereof,
the Applicable Margins shall be those set forth at Level IV above.
"ARI-Vinafood" means American Rice-Vinafood Co., Ltd., a limited liability
company organized under the laws of the Socialist Republic of Vietnam.
"Assignment of Hedging Contracts" shall mean any Assignment of Hedging
Contracts from the Company to the Agent, as agent thereunder for itself and
the Banks, in a form attached hereto as Exhibit F (or containing such
additional or different terms as shall be acceptable to the Banks) from time
to time delivered to the Agent.
"Bank" means Harris Trust and Savings Bank and all other lenders becoming
parties hereto pursuant to Section 12.15 hereof.
"Base Rate" shall mean a fluctuating interest rate per annum at all times
equal to the rate of interest announced by Harris Trust and Savings Bank from
time to time as its prime commercial rate with any change in such rate
resulting from a change in said prime commercial rate to be effective as of
the date of the relevant change in said prime commercial rate (the "Harris
Prime Rate"), provided that if the rate per annum determined by adding 1/2 of
1% to the rate at which Harris would offer to sell federal funds in the
interbank market on or about 10:00 A.M. (Chicago time) on any day (the
"Adjusted Fed Funds Rate") shall be higher than the Harris Prime Rate on such
day, then the Base Rate for such day and for any succeeding day which is not a
Business Day shall be such Adjusted Fed Funds Rate. The determination of the
Adjusted Fed Funds Rate by the Agent shall be final and conclusive provided it
has acted in good faith in connection therewith.
"Borrowing Base" shall mean, as of any time the same is to be determined and
as to the Company and each Guarantor Subsidiary, the sum at such time of:
(a) 85% of the then outstanding unpaid balance (computed, in the case of
Eligible Receivables payable in a currency other than U.S. Dollars, at the
U.S. Dollar Equivalent thereof) of Eligible Receivables of the Company or such
Guarantor; plus
(b) 90% of the then outstanding unpaid balance (computed, in the case of
Eligible Receivables payable in a currency other than U.S. Dollars, at the
U.S. Dollar Equivalent thereof) of Eligible Credit Enhanced Receivables of the
Company or such Guarantor; plus
(c) 75% lower of average cost or market value of Eligible Inventory consisting
of raw rice (including rough rice and milled rice, unpackaged, in bulk) of the
Company or such Guarantor; plus
(d) 70% of the lower of average cost or market value of Eligible Inventory
consisting of rice, olives or pasta finished goods or, to the extent included
in the definition of "Eligible Inventory" hereunder, other finished food goods
of the Company or such Guarantor; plus
(e) 100% of the initial maintenance margin on deposit in each of the Pledged
Commodities Accounts of the Company; minus
(f) the outstanding amount of all Secured Grower Payables; minus
(g) the Rent Reserve.
"Borrowing Base Certificate" shall mean a certificate in the form annexed
hereto as Exhibit B, as modified with the written approval of the Agent.
"Business Day" shall mean any day (other than a Saturday or Sunday) on which
banks are generally open for business in Chicago, Illinois, Houston, Texas,
Minneapolis, Minnesota and Denver, Colorado and, when used with respect to
LIBOR Portions, a day on which banks are also dealing in United States Dollar
deposits in London, England and Nassau, Bahamas.
"Capital Expenditures" shall mean capital expenditures as defined and
classified in accord with generally accepted principles of accounting
consistently applied.
"Capitalized Lease" shall mean, as applied to any Person, any lease of any
Property which, in accordance with generally accepted accounting principles,
is required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligation" shall mean, as applied to any Person, the
discounted present value of the rental obligation, as lessee, under any
Capitalized Lease.
"Carryover Amount" means with respect to each fiscal year of the Company, the
amount by which (x) the sum of (1) the Carryover Amount with respect to the
immediately prior fiscal year of the Company plus (2) $5.5 million exceeds (y)
the amount of Capital Expenditures paid or incurred during the fiscal year of
the Company with respect to which such determination is being made; provided,
however, that for any fiscal year of the Company ending on or after March 31,
1997 that immediately follows a fiscal year in which the EBITDA of the Company
exceeds $30.0 million, then the Carryover Amount for such fiscal year shall be
deemed to be the Carryover Amount for the next preceding fiscal year of the
EBITDA that followed a fiscal year of the Company in which such EBITDA was
less than or equal to $30.0 million.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of
which is that any "person" (as defined above), other than Douglas A. Murphy or
Gerald D. Murphy, acquires a direct or indirect interest in more than 50% of
the voting power of the Voting Stock of the Company or (iv) the first day on
which a majority of the members of the Board of Directors of the Company are
not Continuing Directors. For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring
Voting Stock of the Company shall be deemed to be a transfer of such portion
of such Voting Stock as corresponds to the portion of the equity of such
entity that has been so transferred.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall mean the collateral security provided to the Agent for the
benefit of the Banks pursuant to the Security Documents.
"Commitment Percentage" shall mean the percentage set forth opposite each
Bank's signature hereto or in the assignment agreement to which it is a party
under the heading "Commitment Percentage".
"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.
"Current Ratio" shall mean the ratio of the current assets to current
liabilities of the Company and its Subsidiaries, determined on a consolidated
basis in accordance with generally accepted accounting principles,
consistently applied; provided, however, that there shall be excluded from
current assets any asset related to the sale of the Company's Houston, Texas
properties and there shall be included in current liabilities an amount equal
to all outstanding Loans and L/Cs hereunder.
"Debt" of any Person shall mean as of any time the same is to be determined,
the aggregate of (a) all liabilities, reserves and any other items which would
be classified as a liability on a balance sheet in accordance with generally
accepted accounting principles, (b) all guaranties, endorsements (other than
any liability arising out of the endorsement of items for deposit or
collection in the ordinary course of business) and other contingent
obligations in respect of, or any obligations to purchase or otherwise
acquire, indebtedness of others, (c) all reimbursement and other obligations
with respect to letters of credit and banker's acceptances, (d) the aggregate
amount of Capitalized Lease Obligations, (e) all indebtedness, obligations and
liabilities representing the deferred purchase price of property and (f) all
indebtedness and liabilities secured by any lien or any security interest on
any Property or assets of such person, whether or not the same would be
classified as a liability on a balance sheet, but excluding all general
contingency reserves and reserves for deferred income taxes and investment
credit, and with respect to Debt of the Company, all computed and determined
on a consolidated basis for the Company and its Subsidiaries after the
elimination of intercompany items in accordance with generally accepted
accounting principles consistent with those used in the preparation of the
audit report referred to in Section 5.3 hereof.
"EBIT" shall mean, with reference to any period, Net Income for such period
plus all amounts deducted in arriving at such Net Income amount in respect of
(a) Interest Expense for such period and (b) federal, state and local income
taxes for such period.
"EBITDA" shall mean, with reference to any period, Net Income for such period
plus all amounts deducted in arriving at such Net Income amount in respect of
(a) Interest Expense for such period, plus (b) federal, state and local income
taxes for such period, plus (c) all amounts properly charged for depreciation
of fixed assets and amortization of Intangible Assets during such period.
"Eligible Credit Enhanced Receivable" means any Receivable which would
otherwise constitute an Eligible Receivable but for subparagraphs (g), (i) and
(m) of the definition of such term contained herein or any other Eligible
Receivable which is at all times supported by an irrevocable letter of credit
having terms acceptable to the Banks in all respects and issued by a bank
satisfactory to the Banks and which is, if requested by the Agent,
transferable to the Agent and the rights to draw under which will be assigned
or transferred to the Agent upon the Agent's request.
"Eligible Inventory" shall mean any Inventory of the Company or any Guarantor
in which the Agent has a first priority perfected security interest and which
complies with each of the following requirements:
(a) it consists solely of raw rice (including rough rice and milled rice,
unpackaged, in bulk), rice finished goods inventory, olives and pasta and, to
the extent the same does not exceed an amount equal to 2% of consolidated
total revenues of the Company and its Subsidiaries, other finished food
products;
(b) it is in first class condition, not obsolete, and is readily usable or
salable by the Company or such Guarantor in the ordinary course of its
business;
(c) it substantially conforms to the advertised or represented specifications
and other quality standards of the Company or such Guarantor, and has not been
determined by the Banks to be unacceptable due to age, type, category, quality
and/or quantity;
(d) all warranties as set forth in this Agreement and the applicable Security
Agreements are true and correct with respect thereto;
(e) it has been identified to the Banks in the manner prescribed pursuant to
the Security Agreements;
(f) it is located at a location described on Exhibit E hereto or at another
location within the United States disclosed to and approved by the Banks and,
if requested by the Agent, any Person (other than the Company or such
Guarantor) owning or controlling such location shall have waived, by no later
than July 20, 1996, all right, title and interest in and to such Inventory in
a manner satisfactory to the Banks or it is in transit to or from any such
location and is fully insured and the Company or Guarantor is a charter party
to the vessel or owner of the vessel in which it is being transported and the
Company shall have received a clean bill of lading with respect thereto.
"Eligible Receivables" shall mean any Receivable of the Company or any
Guarantor in which the Agent has a first priority perfected security interest
and which complies with each of the following requirements:
(a) it arises out of a bona fide rendering of services or sale of goods sold
and delivered by or on behalf of the Company or such Guarantor to, or in the
process of being delivered by or on behalf of the Company or such Guarantor
to, the Account Debtor on said Receivables;
(b) all warranties set forth in this Agreement and the applicable Security
Agreement are true and correct with respect thereto;
(c) it has been identified to the Banks in a manner satisfactory to the Banks;
(d) it is evidenced by an invoice (dated not later than 5 days after the date
of shipment or performance of services) rendered to the Account Debtor
thereunder;
(e) it is not owing by an Account Debtor who shall have failed to pay 10% or
more of all Receivables owed by such Account Debtor within the period set
forth in (f) below or who has become insolvent or is the subject of any
bankruptcy, arrangement, reorganization proceedings or other proceedings for
relief of debtors;
(f) it has not remained unpaid in whole or in part more than 90 days after the
invoice date thereof;
(g) it is payable in United States or Canadian Dollars or in the case of an
Eligible Credit Enhanced Receivable, another foreign currency acceptable to
the Banks;
(h) it is not owing by the United States of America or any department, agency
or instrumentality thereof unless the Company or such Guarantor shall have
provided evidence satisfactory to the Required Banks of compliance with the
Assignment of Claims Act but only to the extent that the aggregate amount of
Receivables described in this clause (h) exceeds $500,000;
(i) it is not owing by any Account Debtor located outside of the United States
or so long as the Agent shall have received evidence of perfection and
enforceability of its lien satisfactory to it, Canada, unless such Receivable
is supported by a guaranty, surety bond or other form of credit enhancement in
each case in form and substance and issued by a bank satisfactory to the
Banks, and the rights to draw on demand payment under which will be assigned
or transferred to the Agent upon the Agent's request;
(j) it is net of any credit or allowance given by the Company or such
Guarantor to such Account Debtor;
(k) the Receivable is not subject to any counterclaim or defense asserted by
the Account Debtor thereunder, nor is it subject to any offset or contra
account payable to the Account Debtor (in any case, unless the amount of such
Receivable is net of such counterclaim, defense, offset or contra account);
(l) it is not owing by an Account Debtor that is an Affiliate of the Company
or such Guarantor; and
(m) it is not an Eligible Credit Enhanced Receivable.
"Environmental Laws" shall mean all federal, state and local environmental,
health and safety statutes and regulations, including without limitation all
statutes and regulations establishing quality criteria and standards for air,
water, land and toxic or hazardous wastes and substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERLY" shall mean ERLY Industries Inc., a California corporation.
"ERLY 6% Intercompany Note" shall mean that certain Promissory Note in favor
of the Company, dated May 25, 1993, as amended as of August 24, 1995, in the
aggregate principal amount of $10,000,000, bearing interest at the rate of 6%
per annum and maturing August 1, 2002.
"Event of Default" shall mean any event or condition specified as such in
Section 8.1 hereof and "Default" shall mean any event or condition which with
the lapse of time, the giving of notice or both would constitute an Event of
Default.
"Existing Lender" shall mean Congress Financial Corporation.
"Guarantors" shall mean Comet Ventures, Inc., a California corporation,
BargeCarib, Inc., a Texas corporation, and Comet Rice of Puerto Rico, Inc., a
Puerto Rico corporation and "Guarantor" shall mean any of them.
"Highest Lawful Rate" shall have the meaning specified in Section 12.18
hereof.
"Indenture" shall mean the Indenture dated as of August 24, 1995 between the
Company and U.S. Trust Company of Texas, N.A., as Trustee thereunder.
"Intangible Assets" shall mean amortizeable loan costs, business acquisition
costs, license agreements, trademarks, trade names, patents, capitalized
research and development costs, proprietary products (the results of past
research and development treated as long term assets and excluded from
Inventory), goodwill and all other assets which would be classified as
intangible assets (all determined on a consolidated basis in accordance with
generally accepted accounting principles consistently applied).
"Intercreditor Agreement" shall have the meaning herein as such term is
defined in the Indenture.
"Interest Coverage Ratio" shall mean, for any period, the ratio of EBIT to
Interest Expense of the Company and its Subsidiaries, each determined on a
consolidated basis in accordance with generally accepted accounting
principles, consistently applied, for such period.
"Interest Expense" shall mean with reference to any period all interest
charges (including amortization of debt discount and expense and imputed
interest on capitalized lease obligations) accrued for such period, whether or
not paid, net of interest income received for such period, all determined on a
consolidated basis in accordance with generally accepted accounting
principles, consistently applied.
"Interest Period" shall mean with respect to any LIBOR Portion, the period
commencing on, as the case may be, the creation or conversion date with
respect to such LIBOR Portion and ending one, two, three or six months
thereafter as selected by the Company in its notice as provided herein;
provided, that:
(a) if any Interest Period would otherwise end on a day which is not a
Business Day, that Interest Period shall be extended to the next succeeding
Business Day, unless the result of such extension would be to carry such
Interest Period into another calendar month in which event such Interest
Period shall end on the immediately preceding Business Day;
(b) no Interest Period may extend beyond the final maturity date of the Notes;
(c) the interest rate to be applicable to each Portion for each Interest
Period shall apply from and including the first day of such Interest Period to
but excluding the last day thereof; and
(d) no Interest Period may be selected if after giving effect thereto the
Company will be unable to make a principal payment scheduled to be made during
such Interest Period without paying part of a LIBOR Portion on a date other
than the last day of the Interest Period applicable thereto.
For purposes of determining an Interest Period, a month means a period
starting on one day in a calendar month and ending on a numerically
corresponding day in the next calendar month, provided, however, if an
Interest Period begins on the last day of a month or if there is no
numerically corresponding day in the month in which an Interest Period is to
end, then such Interest Period shall end on the last Business Day of such
month.
"Inventory" shall mean all raw materials, work in process, finished goods, and
goods held for sale or lease or furnished or to be furnished under contracts
of service in which the Company or any Subsidiary now has or hereafter
acquires any right.
"L/C" shall have the meaning specified in Section 1.5 hereof.
"L/C Administrative Fee" shall have the meaning specified in Section 1.5
hereof.
"L/C Agreement" shall have the meaning specified in Section 1.5 hereof.
"L/C Issuance Fee" shall have the meaning specified in Section 1.5 hereof.
"L/C Participation Fee" shall have the meaning specified in Section 1.5
hereof.
"LIBOR Index Rate" shall mean, for any Interest Period applicable to a LIBOR
Portion, the rate per annum (rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point) for deposits in U.S. Dollars for
a period equal to such Interest Period, which appears on the Telerate Page
3750 as of 11:00 a.m. (London, England time) on the day two Business Days
before the commencement of such Interest Period.
"LIBOR Rate" shall mean for each Interest Period applicable to a LIBOR
Portion, (a) the LIBOR Index Rate for such Interest Period, if such rate is
available, and (b) if the LIBOR Index Rate cannot be determined, the
arithmetic average of the rates of interest per annum (rounded upwards, if
necessary, to nearest 1/100 of 1%) at which deposits in U.S. dollars in
immediately available funds are offered to the Agent at 11:00 a.m. (London,
England time) two (2) Business Days before the beginning of such Interest
Period by three (3) or more major banks in the interbank eurodollar market for
a period equal to such Interest Period and in an amount equal or comparable to
the principal amount of the LIBOR Portion scheduled to be made by the Agent
during such Interest Period.
"Loans" shall mean the Revolving Credit Loans.
"Loan Documents" shall mean this Agreement and any and all exhibits hereto,
the Notes, the L/C Agreements, and the Security Documents.
"Management Agreement" shall mean that certain Amended and Restated Management
Agreement dated as of August 24, 1995 by and between ERLY and the Company.
"Mortgage Notes" shall mean the Company's 13% Mortgage Notes due 2002 with
Contingent Interest in the original principal amount of $100,000,000 issued
pursuant to the Indenture.
"Net Income" for any period shall mean the net income of the Company and its
Subsidiaries for such period as computed on a consolidated basis in accordance
with generally accepted accounting principles consistently applied.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company nor
any of its Subsidiaries (other than ARI-Vinafood) (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Debt of the Company or any of its Subsidiaries), or (b) is directly
or indirectly liable (as a guarantor or otherwise) and (ii) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against ARI-Vinafood) would permit (upon notice, lapse
of time or both) any holder of any other Debt of the Company or any of its
Subsidiaries (other than ARI-Vinafood) to declare a default on such other Debt
or cause the payment thereof to be accelerated or payable prior to its stated
maturity.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" shall mean and include any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
limited liability company, corporation, institution, entity, party or
government (whether national, federal, state, county, city, municipal, or
otherwise, including, without limitation, any instrumentality, division,
agency, body or department thereof).
"Plan" shall mean any employee benefit plan covering any officers or employees
of the Company or any Subsidiary, any benefits of which are, or are required
to be, guaranteed by the PBGC.
"Pledged Commodities Account" shall mean any account maintained by the Company
with a futures commission merchant and which is subject to a perfected first
priority security interest in favor of the Agent for the benefit of the Banks
pursuant to an Assignment of Hedging Contracts.
"Portion" shall have the meaning specified in Section 2.1 hereof.
"Property" shall mean any interest in any kind of property or asset, whether
real, personal or mixed or tangible or intangible.
"Receivables" shall mean all accounts, contract rights, instruments,
documents, chattel paper and general intangibles in which the Company or any
Subsidiary now has or hereafter acquires any right.
"Reimbursement Obligation" shall have the meaning specified in Section 1.6
hereof.
"Required Banks" shall mean at any time Banks whose Commitments aggregate 52%
or more of the total Commitments or, if at the time no Commitments are
outstanding, Banks holding 52% or more of the aggregate outstanding principal
balance of the Notes.
"Rent Reserve" shall mean (a) $672,411 at all times through and including July
20, 1996 (provided that the Rent Reserve shall be reduced by the "Estimated
Semi-Annual Rental" amount set forth on Exhibit E hereto opposite the name of
the Person leasing a facility location to the Company or Guarantor, as the
case may be, who has executed and delivered to the Agent a landlord's waiver
agreement in form satisfactory to the Banks) and (b) $0 at all times
thereafter.
"Reserve Percentage" shall mean, for the purpose of computing the Adjusted
LIBOR Rate, the maximum rate of all reserve requirements (including, without
limitation, any marginal emergency, supplemental or other special reserves)
imposed by the Board of Governors of the Federal Reserve System (or any
successor) under Regulation D on Eurocurrency liabilities (as such term is
defined in Regulation D) for the applicable Interest Period as of the first
day of such Interest Period, but subject to any amendments to such reserve
requirement by such Board or its successor, and taking into account any
transitional adjustments thereto becoming effective during such Interest
Period. For purposes of this definition, LIBOR Portions shall be deemed to be
Eurocurrency liabilities as defined in Regulation D without benefit of or
credit for prorations, exemptions or offsets under Regulation D.
"Revolving Credit Commitments" shall mean the commitments of the Banks to make
loans under the Revolving Credit in the amounts set forth opposite their
signatures hereto under the heading "Revolving Credit Commitment" or opposite
their signatures on Assignment Agreements delivered pursuant to Section 12.15
hereof under the heading "Revolving Credit Commitment", as such amounts may be
reduced pursuant hereto.
"Secured Grower Payables" shall mean all amounts owed from time to time by the
Company to any Person on account of the purchase price of agricultural
products if the Required Banks reasonably determine that such Person is
entitled to the benefits of any grower's lien, statutory trust or similar
security arrangement to secure the payment of any amount owed to such Person.
"Security Agreements" shall mean the separate Security Agreements of even date
herewith from the Company and each Guarantor to the Agent, as the same may be
supplemented and amended from time to time.
"Security Documents" shall mean the Security Agreements and any and all other
security agreements, assignments, financing statements and other documents as
shall from time to time secure the Notes and other obligations of the Company
to the Banks or any of them.
"Stockholders' Equity" shall mean stockholders' equity determined on a
consolidated basis in accordance with generally accepted accounting
principles, consistently applied.
"Subsidiary" shall mean collectively any corporation or other entity at least
a majority of the outstanding voting equity interests (other than directors'
qualifying shares) of which is at the time owned directly or indirectly by the
Company or by one of more Subsidiaries or by the Company and one or more
Subsidiaries. The term "Consolidated Subsidiary" shall mean any Subsidiary
whose accounts are consolidated with those of the Company in accordance with
generally accepted accounting principles.
"Subsidiary Intercompany Notes" shall mean the intercompany Promissory Notes
issued by the Company's Subsidiaries in favor of the Company to evidence loans
by the Company and to be pledged to the Trustee under the Indenture.
"Tax Sharing Agreement" shall mean that certain Amended and Restated Tax
Agreement dated as of August 24, 1995 among, inter alia, ERLY and the Company.
"Telerate Page 3750" shall mean the display designated as "Page 3750" on the
Telerate Service (or such other page as may replace Page 3750 on that service
or such other service as may be nominated by the British Bankers' Association
as the information vendor for the purpose of displaying British Bankers'
Association Interest Settlement Rates for U.S. Dollar deposits).
"Termination Date" shall mean May 31, 1999 or such earlier date on which the
Revolving Credit Commitments are terminated in whole pursuant to Sections 3.5,
8.2 or 8.3 hereof.
"Total Capitalization" shall mean the sum of all capital stock, preferred
stock, capital in excess of par value and returned earnings of the Company and
its Subsidiaries, determined on a consolidated basis in accordance with
generally accepted accounting principles, consistently applied, plus the
aggregate principal amount of the Total Consolidated Indebtedness of the
Company and its Subsidiaries.
"U.S. Dollar Equivalent" means the amount of U.S. Dollars which would be
realized by converting the relevant foreign currency into U.S. Dollars in the
spot market at the exchange rate quoted by the Agent, at approximately 11:00
a.m. (London, England time) two Business Days prior to the date on which a
computation thereof is required to be made, to major banks in the interbank
foreign exchange market for the purchase of U.S. Dollars for such foreign
currency.
"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.
SECTION 10. THE AGENT.
Section 10.1. Appointment and Authorization. Each Bank hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to
exercise such powers hereunder and under the Security Documents as are
designated to the Agent by the terms hereof and thereof together with such
powers as are reasonably incidental thereto. The Agent may resign at any time
by sending twenty (20) days prior written notice to the Company and the Banks
and may be removed by the Required Banks upon twenty (20) days prior written
notice to the Company and the Banks. In the event of any such resignation or
removal the Required Banks may appoint a new agent with the consent of the
Company (which consent shall not unreasonably be withheld), which shall
succeed to all the rights, powers and duties of the Agent hereunder and under
the Security Documents. Any resigning or removed Agent shall be entitled to
the benefit of all the protective provisions hereof with respect to its acts
as an agent hereunder, but no successor Agent shall in any event be liable or
responsible for any actions of its predecessor. If the Agent resigns or is
removed and no successor is appointed, the rights and obligations of such
Agent shall be automatically assumed by the Required Banks and (i) the Company
shall be directed to make all payments due each Bank hereunder directly to
such Bank and (ii) the Agent's rights in the Security Documents shall be
assigned without representation, recourse or warranty to the Banks as their
interests may appear.
Section 10.2.Rights as a Bank. The Agent has and reserves all of the rights,
powers and duties hereunder and under its Notes and the Security Documents as
any Bank may have and may exercise the same as though it were not the Agent
and the terms "Bank" or "Banks" as used herein and in all of such documents
shall, unless the context otherwise expressly indicates, include the Agent in
its individual capacity as a Bank.
Section 10.3.Standard of Care. The Banks acknowledge that they have received
and approved copies of the Security Documents, and such other information and
documents concerning the transactions contemplated and financed hereby as they
have requested to receive and/or review. The Agent makes no representations
or warranties of any kind or character to the Banks with respect to the
validity, enforceability, genuineness, perfection, value, worth or
collectibility hereof or of the Notes, Applications or Security Documents or
of the liens provided for thereby or of any other documents called for hereby
or thereby or of the Collateral. The Agent need not verify the worth or
existence of the Collateral and may rely exclusively on reports of the Company
in computing the Borrowing Base, provided that the Agent agrees to furnish to
the Banks copies of any field audit reports made in connection with
inspections which the Agent or its designee may make pursuant to Section 7.5
hereof. Neither the Agent nor any director, officer employee, agent or
representative thereof (including any security trustee therefor) shall in any
event be liable for any clerical errors or errors in judgment, inadvertence or
oversight, or for action taken or omitted to be taken by it or them hereunder
or under the Security Documents or in connection herewith or therewith except
for its or their own gross negligence or willful misconduct. The Agent shall
incur no liability under or in respect of this Agreement or the Security
Documents by acting upon any notice, certificate, warranty, instruction or
statement (oral or written) of anyone (including anyone in good faith believed
by it to be authorized to act on behalf of the Company), unless it has actual
knowledge of the untruthfulness of same. The Agent may execute any of its
duties hereunder by or through employees, agents, and attorneys-in-fact and
shall not be answerable to the Banks for the default or misconduct of any such
agents or attorneys-in-fact selected with reasonable care. The Agent shall be
entitled to advice of counsel concerning all matters pertaining to the
agencies hereby created and its duties hereunder, and shall incur no liability
to anyone and be fully protected in acting upon the advice of such counsel.
The Agent shall be entitled to assume that no Default or Event of Default
exists unless notified to the contrary by a Bank. The Agent shall in all
events be fully protected in acting or failing to act in accord with the
instructions of the Required Banks. Upon the occurrence of an Event of
Default hereunder, the Agent shall take such action with respect to the
enforcement of its liens on the Collateral and the preservation and protection
thereof as it shall be directed to take by the Required Banks but unless and
until the Required Banks have given such direction the Agent shall take or
refrain from taking such actions as it deems appropriate and in the best of
interest of all Banks. The Agent shall in all cases be fully justified in
failing or refusing to act hereunder unless it shall be indemnified to its
reasonable satisfaction by the Banks against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. The Agent may treat the owner of any Note as the holder thereof until
written notice of transfer shall have been filed with it signed by such owner
in form satisfactory to the Agent. Each Bank acknowledges that it has
independently and without reliance on the Agent or any other Bank and based
upon such information, investigations and inquiries as it deems appropriate
made its own credit analysis and decision to extend credit to the Company. It
shall be the responsibility of each Bank to keep itself informed as to the
creditworthiness of the Company and the Agent shall have no liability to any
Bank with respect thereto.
Section 10.4. Costs and Expenses. Each Bank agrees to reimburse the Agent
for all out-of-pocket costs and expenses suffered or incurred by the Agent or
any security trustee in performing its duties hereunder and under the Security
Documents or in the exercise of any right or power imposed or conferred upon
the Agent hereby or thereby, to the extent that the Agent is not promptly
reimbursed for same by the Company or out of the Collateral, all such costs
and expenses to be borne by the Banks ratably in accordance with the amounts
of their respective Commitments.
Section 10.5. Indemnity. The Banks, to the extent not prohibited by
applicable law, shall ratably indemnify and hold the Agent, and its directors,
officers, employees, agents or representatives (including as such any security
trustee therefor) harmless from and against any liabilities, losses, costs or
expenses suffered or incurred by them hereunder or under the Applications or
the Security Documents or in connection with the transactions contemplated
hereby or thereby, regardless of when asserted or arising, except to the
extent they are promptly reimbursed for the same by the Company or out of the
Collateral and except to the extent that any event giving rise to a claim was
caused by the gross negligence or willful misconduct of the party seeking to
be indemnified.
SECTION 11. THE GUARANTEES.
Section 11.1. The Guarantees. To induce the Banks to provide the credits
described herein and in consideration of benefits expected to accrue to each
Guarantor by reason of the Commitments and for other good and valuable
consideration, receipt of which is hereby acknowledged, each Guarantor hereby
unconditionally and irrevocably guarantees jointly and severally to the Agent,
the Banks and each other holder of any of the Company's obligations under the
Loan Documents, the due and punctual payment of all present and future
indebtedness, obligations and liabilities of the Company evidenced by or
arising out of the Loan Documents, including, but not limited to, the due and
punctual payment of principal of and interest on the Notes and Reimbursement
Obligations and the due and punctual payment of all other obligations now or
hereafter owed by the Company under the Loan Documents as and when the same
shall become due and payable, whether at stated maturity, by acceleration or
otherwise, according to the terms hereof and thereof. In case of failure by
the Company punctually to pay any indebtedness guaranteed hereby, each
Guarantor hereby unconditionally agrees jointly and severally to make such
payment or to cause such payment to be made punctually as and when the same
shall become due and payable, whether at stated maturity, by acceleration or
otherwise, and as if such payment were made by the Company.
Section 11.2. Guarantee Unconditional. The obligations of each Guarantor as
a guarantor under this Section 11 shall be unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or release in
respect of any obligation of the Company or of any other Guarantor under this
Agreement or any other Loan Document or by operation of law or otherwise;
(b) any modification or amendment of or supplement to this Agreement or any
other Loan Document;
(c) any change in the corporate existence, structure or ownership of, or any
insolvency, bankruptcy, reorganization or other similar proceeding affecting,
the Company, any other Guarantor, or any of their respective assets, or any
resulting release or discharge of any obligation of the Company or of any
other Guarantor contained in any Loan Document;
(d) the existence of any claim, set-off or other rights which the Guarantor
may have at any time against the Agent, any Bank or any other Person, whether
or not arising in connection herewith;
(e) any failure to assert, or any assertion of, any claim or demand or any
exercise of, or failure to exercise, any rights or remedies against the
Company, any other Guarantor or any Collateral;
(f) any application of any sums by whomsoever paid or howsoever realized to
any obligation of the Company, regardless of what obligations of the Company
remain unpaid;
(g) any release of the Company, any other Guarantor, or any Collateral;
(h) any invalidity or unenforceability relating to or against the Company or
any other Guarantor for any reason of this Agreement or of any other Loan
Document or any provision of applicable law or regulation purporting to
prohibit the payment by the Company of the principal of or interest on any
Note, any Reimbursement Obligations or any other amount payable by it under
the Loan Documents; or
(i) any other act or omission to act or delay of any kind by the Agent, any
Bank or any other Person or any other circumstance whatsoever that might, but
for the provisions of this paragraph, constitute a legal or equitable
discharge of the obligations of the Guarantor under this Section 11.
Section 11.3. Discharge Only Upon Payment in Full; Reinstatement in Certain
Circumstances'. Each Guarantor's obligations under this Section 11 shall
remain in full force and effect until the Commitments are terminated and the
principal of and interest on the Notes and all other amounts payable by the
Company under this Agreement and all other Loan Documents shall have been paid
in full. If at any time any payment of the principal of or interest on any
Note or any other amount payable by the Company under the Loan Documents is
rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of the Company or of a Guarantor, or otherwise,
each Guarantor's obligations under this Section 11 with respect to such
payment shall be reinstated at such time as though such payment had become due
but had not been made at such time.
Section 11.4. Subrogation; Limitation on Right of Recovery. No Guarantor
will exercise any rights which it may acquire by way of subrogation by any
payment made hereunder, or otherwise, until the Notes and all other amounts
payable by the Company under the Loan Documents shall have been paid in full
and after the termination of the Commitments. If any amount shall be paid to
a Guarantor on account of such subrogation rights at any time prior to the
later of (a) the payment in full of the Notes and all other amounts payable by
such Guarantor hereunder and (y) the termination of all the Commitments, such
amount shall be held in trust for the benefit of the Agent and the Banks and
shall forthwith be paid to the Agent and the Banks or be credited and applied
upon the Company's obligations under the Loan Documents, whether matured or
unmatured, in accordance with the terms of this Agreement. Notwithstanding
any other provision hereof, the right to recovery against each Guarantor under
this Section 11 shall not exceed $1.00 less than the amount which would render
such Guarantor's obligations under this Section 11 void or voidable under
applicable law, including without limitation fraudulent conveyance law.
Section 11.5. Waivers. Each Guarantor irrevocably waives acceptance hereof,
presentment, demand, protest and any notice not provided for herein, as well
as any requirement that at any time any action be taken by the Agent, any Bank
or any other Person against the Company, another Guarantor or any other
Person.
Section 11.6. Stay of Acceleration. If acceleration of the time for payment
of any amount payable by the Company under this Agreement or any other Loan
Document is stayed upon the insolvency, bankruptcy or reorganization of the
Company, all such amounts otherwise subject to acceleration under the terms of
this Agreement or the other Loan Documents shall nonetheless be payable
jointly and severally by the Guarantors hereunder forthwith on demand by the
Agent or any Bank.
SECTION 12. MISCELLANEOUS.
Section 12.1. Holidays. If any principal of any of the Notes or
Reimbursement Obligations shall fall due on a Saturday, Sunday or on another
day which is a legal holiday for Banks in the State of Illinois, interest at
the rates such Notes or Reimbursement Obligations bear for the period prior to
maturity shall continue to accrue on such principal from the stated due date
thereof to and including the next succeeding Business Day on which the same is
payable.
Section 12.2. No Waiver, Cumulative Remedies. No delay or failure on the
part of any Bank in the exercise of any power or right shall operate as a
waiver thereof, nor as an acquiescence in any Default or Event of Default nor
preclude any other or further exercise thereof, or the exercise of any other
power or right, and the rights and remedies hereunder of the Banks are
cumulative to, and not exclusive of, any rights or remedies which any of them
would otherwise have.
Section 12.3. Waivers, Modifications and Amendments. Any provision hereof
or of the Notes or Security Documents, may be amended, modified, waived or
released and any Default or Event of Default and its consequences may be
rescinded and annulled upon the written consent of the Required Banks (any
such amendment, modification, waiver, release, rescission or annulment is
hereinafter collectively referred to as a "Modification"); provided, however,
that without the consent of all Banks no such Modification shall increase the
amount or extend the terms of such Bank's Commitment or reduce the interest
rate applicable to or extend the maturity of its Notes or Reimbursement
Obligations or reduce the amount of the fees to which it is entitled hereunder
or change this Section 12.3 or change the definition of "Required Banks" or
"Borrowing Base" or change the number of Banks required to take any action
hereunder or under the Security Documents or release any Guarantor from its
obligations under Section 11 of this Agreement or release the Company of its
obligations under any of the Loan Documents or release all or any substantial
(in value) part of the collateral security afforded by the Security Documents,
except that the Agent may release its lien on Collateral without the consent
of any Bank if made in connection with a sale or other disposition thereof
required to be effected by the provisions hereof or of the Security Documents.
No amendment, modification or waiver of the Agent's protective provisions
shall be effective without the prior written consent of the Agent, and no
amendment or modification of the provisions of Section 11 hereof shall be
effective as to any Guarantor unless in writing signed by it.
Section 12.4. Costs and Expenses; Environmental Indemnity. (a) The Company
agrees to pay on demand all reasonable out-of-pocket costs and expenses of the
Agent and the Banks in connection with the negotiation, preparation,
execution, delivery, recording and/or filing and/or release of this Agreement,
the Notes, the L/C Agreements and the Security Documents and the other
instruments and documents to be delivered hereunder or thereunder or in
connection with the transactions contemplated hereby or thereby or in
connection with any consents hereunder or thereunder or waivers or amendments
hereto or thereto, including the reasonable fees and out-of-pocket expenses of
counsel for the Agent with respect to all of the foregoing, and all recording,
filing, title insurance or other fees, costs and taxes incident to perfecting
a lien upon the collateral security for the Notes, and all reasonable costs
and expenses (including reasonable attorneys' fees), incurred by the Agent,
any security trustee for the Banks, the Banks or any other holders of a Note
in connection with a default or the enforcement of this Agreement, the Notes,
the L/C Agreements or the Security Documents and the other instruments and
documents to be delivered hereunder or thereunder and all costs, fees and
taxes of the types enumerated above incurred in supplementing (and recording
or filing supplements to) the Security Documents in connection with
assignments contemplated by Section 12.15 hereof if counsel to the Agent
believes such supplements to be appropriate or desirable (but the Company
shall be obligated to pay such costs, expenses and taxes incurred in
supplementing the Security Documents in connection with such assignments for
only one concurrent series of assignments). The Company agrees to indemnify
and save the Banks, the Agent and any security trustee for the Banks harmless
from any and all liabilities, losses, costs and expenses incurred by the Banks
or the Agent in connection with any action, suit or proceeding brought against
the Agent, security trustee or any Bank by any person which arises out of the
transactions contemplated or financed hereby or by the Notes or Security
Documents or out of any action or inaction by the Agent, any security Trustee
or any Bank hereunder or thereunder, except for such thereof (a) as is caused
by the gross negligence or willful misconduct of the party indemnified, or (b)
arising from any action brought by the Company against the Agent or any Bank
in which the Company ultimately prevails in a final, non-appealable judgment.
(b) Without limiting the generality of the foregoing, the Company and each
Guarantor unconditionally agrees to forever indemnify, defend and hold
harmless, the Agent and each Bank, and covenants not to sue for any claim for
contribution against, the Agent or any Bank for any damages, costs, loss or
expense, including without limitation, response, remedial or removal costs,
arising out of any of the following: (i) any presence, release, threatened
release or disposal of any hazardous or toxic substance or petroleum by the
Company or any Guarantor or otherwise occurring on or with respect to its
Property, (ii) the operation or violation of any Environmental Law, whether
federal, state, or local, and any regulations promulgated thereunder, by the
Company or any Guarantor or otherwise occurring on or with respect to its
Property, (iii) any claim for personal injury or property damage in connection
with the Company or any Guarantor or otherwise occurring on or with respect to
its Property, and (iv) the inaccuracy or breach of any environmental
representation, warranty or covenant by the Company or any Guarantor made
herein or in any loan agreement, promissory note, mortgage, deed of trust,
security agreement or any other instrument or document evidencing or securing
any indebtedness, obligations or liabilities of the Company or any Guarantor
owing to the Agent or any Bank or setting forth terms and conditions
applicable thereto or otherwise relating thereto, except for damages arising
from the Agent's or such Bank's willful misconduct or gross negligence. This
indemnification shall survive the payment and satisfaction of all
indebtedness, obligations and liabilities of the Company and the Guarantors
owing to the Agent and the Banks and the termination of this Agreement, and
shall remain in force beyond the expiration of any applicable statute of
limitations and payment or satisfaction in full of any single claim under this
indemnification. This indemnification shall be binding upon the successors
and assigns of the Company and each Guarantor and shall inure to the benefit
of Agent and the Banks and their respective directors, officers, employees,
agents, and collateral trustees, and their successors and assigns.
(c) The provisions of this Section 12.4 and the protective provisions of
Section 2 hereof shall survive payment of the Notes and the termination of the
Banks' Revolving Credit Commitments hereunder.
Section 12.5. Stamp Taxes. Although the Company is of the opinion that no
documentary or similar taxes are payable in respect to this Agreement, the
Security Documents, the Reimbursement Obligations or the Notes, the Company
agrees that it will pay such taxes, including interest and penalties, in the
event any such taxes are assessed, irrespective of when such assessment is
made and whether or not any credit to it is then in use or available.
Section 12.6. Survival of Representations. All representations and
warranties made herein or in the Security Documents or in certificates given
pursuant hereto shall survive the execution and delivery of this Agreement,
the Security Documents and the Note, and shall continue in full force and
effect with respect to the date as of which they were made as long as any
credit is in use or available hereunder.
Section 12.7. Construction. The parties hereto acknowledge and agree that
this Agreement shall not be construed more favorably in favor of one than the
other based upon which party drafted the same, it being acknowledged that all
parties hereto contributed substantially to the negotiation and preparation of
this Agreement.
Section 12.8. Accounting Principles. All computations of compliance with
the terms hereof shall be made on the basis of generally accepted principles
of accounting applied in a manner consistent with those used in the
preparation of the audit report of the Company referred to in the first
sentence of Section 5.5 hereof.
Section 12.9. Addresses for Notices. All communications provided for herein
shall be in writing and shall be deemed to have been given or made when served
personally or three days after being deposited in the United States mail
addressed, if to the Company, at 16825 Northchase Drive, Suite 1600, Houston,
Texas 77060 Attention: Vice President-Finance, if to the Agent at 111 West
Monroe Street, Chicago, Illinois 60690 Attention: Agribusiness Division, if
to the Banks at their addresses as shown on the signature pages hereof or on
any Assignment Agreement, if to the Guarantors at their addresses as shown on
the signature pages hereof, or at such other address as shall be designated by
any party hereto in a written notice given to each party pursuant to this
Section 12.9.
Section 12.10. Headings. Article and Section headings used in this
Agreement are for convenience of reference only and are not a part of this
Agreement for any other purpose.
Section 12.11. Severability of Provisions. Any provision of this Agreement
which is unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of
such provision in any other jurisdiction. All rights, remedies and powers
provided in this Agreement and the Notes may be exercised only to the extent
that the exercise thereof does not violate any applicable mandatory provisions
of law, and all the provisions of this Agreement and the Notes are intended to
be subject to all applicable mandatory provisions of law which may be
controlling and to be limited to the extent necessary so that they will not
render this Agreement or the Notes invalid or unenforceable.
Section 12.12. Counterparts. This Agreement may be executed in any number
of counterparts, and by different parties hereto on separate counterparts, and
all such counterparts taken together shall be deemed to constitute one and the
same instrument.
Section 12.13. Binding Nature. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of the
Banks and the benefit of their successors and assigns, including any
subsequent holder of an interest in the Notes. The Company may not assign its
rights hereunder without the written consent of the Banks.
Section 12.14. Participants and Note Assignors. (a) Each Bank shall have
the right, at its own cost to grant participations (to be evidenced by one or
more agreements or certificates of participation) in the Loans made, and/or
Revolving Credit Commitment and participations in L/Cs and Reimbursement
Obligations held, by such Bank at any time and from time to time, and to
assign its rights under such Loans, participations in L/Cs and Reimbursement
Obligations or the Notes evidencing such Loans to one or more other Persons;
provided that no such participation or assignment shall relieve any Bank of
any of its obligations under this Agreement, and any agreement pursuant to
which such participation or assignment of a Note or the rights thereunder is
granted shall provide that the granting Bank shall retain the sole right and
responsibility to enforce the obligations of the Company under the Loan
Documents, including, without limitation, the right to approve any amendment,
modification or waiver of any provision thereof, except that such agreement
may provide that such Bank will not agree without the consent of such
participant or assignee to any modification, amendment or waiver of this
Agreement that would (A) increase any Revolving Credit Commitment of such
Bank, or (B) reduce the amount of or postpone the date for payment of any
principal of or interest on any Loan or Reimbursement Obligation or of any fee
payable hereunder in which such participant or assignee has an interest or (C)
reduce the interest rate applicable to any Loan or other amount payable in
which such participant or assignee has an interest or (D) release any
guarantor for any of the Company's Obligations under the Loan Documents, and
provided further that no such assignee or participant shall have any rights
under this Agreement except as provided in this Section 12.14, and the Agent
shall have no obligation or responsibility to such participant or assignee,
except that nothing herein provided is intended to affect the rights of an
assignee of a Note to enforce the Note assigned. Any party to which such a
participation or assignment has been granted shall have the benefits of
Section 2.7, 2.8, 2.9 and 2.10 hereof but shall not be entitled to receive any
greater payment under any such Section than the Bank granting such
participation or assignment would have been entitled to receive with respect
to the rights transferred. Any Bank assigning any Note hereunder shall give
prompt notice thereof to the Company and the Agent, who shall in each case
only be required to treat such assignee of a Note as the holder thereof after
receipt of such notice. The Company and each Guarantor authorizes each Bank
to disclose (with appropriate confidentiality agreements) to any purchaser or
prospective purchaser of an interest in its Loans or Reimbursement Obligations
owed to it or its Revolving Credit Commitment under this Section 12.14 any
financial or other information pertaining to the Company or any Guarantor.
Section 12.15. Assignment of Commitments by Bank. Each Bank shall have the
right at any time, with the prior consent of the Company and the Agent (which
consents will not be unreasonably withheld (it being understood that of such
proposed assignee is a Bank to whom payments would be required to be made
pursuant to Section 12.16(c) hereof, the Company shall be entitled to withhold
its consent) and which consents of the Company will not be required during the
existence of any Event of Default or Default hereunder), to sell, assign,
transfer or negotiate all or any part of its Revolving Credit Commitment to
one or more commercial banks or other financial institutions; provided that
such assignment is in an amount of at least $5,000,000. Upon any such
assignment, and its notification to the Agent, the assignee shall become a
Bank hereunder, all Loans, Reimbursement Obligations and the Revolving Credit
Commitment it thereby holds shall be governed by all the terms and conditions
hereof, and the Bank granting such assignment shall have its Revolving Credit
Commitment and its obligations and rights in connection therewith, reduced by
the amount of such assignment. Concurrently with the execution and delivery
of an assignment agreement pursuant hereto, the Company shall execute and
deliver a Note to the assignee Bank in the amount of its Commitment and a new
Note to the assigning Bank in the amount of its Commitment after giving effect
to the reduction occasioned by such assignment, all such Notes to constitute
"Notes" for all purposes of this Agreement and the other Loan Documents. Upon
each such assignment the Bank granting such assignment shall pay to the Agent
for the Agent's sole account a fee of $3,000. The Company and each Guarantor
authorizes each Bank to disclose (with appropriate confidentiality agreements)
to any purchaser or prospective purchaser of an interest in its Loans or
Reimbursement Obligations owed to it or its Revolving Credit Commitment under
this Section 12.15 any financial or other information pertaining to the
Company and each Guarantor.
Section 12.16. Withholding Taxes.
(a) U.S. Withholding Tax Exemptions. Each Bank that is not a United States
person (as such term is defined in Section 7701(a)(30) of the Code) shall
submit to the Company and the Agent on or before the date the initial
Borrowing is made hereunder or, if later, the date such Bank becomes a Bank
hereunder, two duly completed and signed copies of either Form 1001 (relating
to such Bank and entitling it to a complete exemption from withholding on all
amounts to be received by such Bank, including fees, pursuant to this
Agreement and the Loans) or Form 4224 (relating to all amounts to be received
by such Bank, including fees, pursuant to this Agreement and the Loans and
Reimbursement Obligations) of the United States Internal Revenue Service.
Thereafter and from time to time, each such Bank shall submit to the Company
and the Agent such additional duly completed and signed copies of one or the
other of such Forms (or such successor forms as shall be adopted from time to
time by the relevant United States taxing authorities) as may be (i) notified
by the Company or Agent to such Bank and (ii) required under then-current
United States law or regulations to avoid or reduce United States withholding
taxes on payments in respect of all amounts to be received by such Bank,
including fees, pursuant to this Agreement or the Loans and Reimbursement
Obligations. Upon the request of the Company or Agent, each Bank that is a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) shall submit to the Company a certificate to the effect that it is such
a United States person.
(b) Inability of Bank to Submit Forms. If any Bank determines, as a result of
any change in applicable law, regulation or treaty, or in any official
application or interpretation thereof, that it is unable to submit to the
Company any form or certificate that such Bank is obligated to submit pursuant
to subsection (a) of this Section 12.16, or that such Bank is required to
withdraw or cancel any such form or certificate previously submitted or any
such form or certificate otherwise become ineffective or inaccurate, such Bank
shall promptly notify the Company and Agent of such fact and the Bank shall to
that extent not be obligated to provide any such form or certificate and will
be entitled to withdraw or cancel any affected form or certificate, as
applicable.
(c) Payment of Additional Amounts. If, as a result of any change in
applicable law, regulation or treaty, or in any official application or
interpretation thereof after the date of this Agreement or, if later, the date
a Bank becomes a Bank hereunder, and the Company is required by law or
regulation to make any deduction, withholding or backup withholding of any
taxes, levies, imposts, duties, fees, liabilities or similar charges of the
United States of America, any possession or territory of the United States of
America (including the Commonwealth of Puerto Rico) or any area subject to the
jurisdiction of the United States of America ("U.S. Taxes") from any payments
to a Bank in respect of Loans or Reimbursement Obligations then or thereafter
outstanding, or other amounts owing hereunder, the amount payable by the
Company will be increased to the amount which, after deduction from such
increased amount of all U.S. Taxes required to be withheld or deducted
therefrom, will yield the amount required under this Agreement to be payable
with respect thereto; provided that the Company shall not be required to pay
any additional amount pursuant to this subsection (c) to any Bank that (i) is
not, on the date this Agreement is executed by such Bank or, if later, the
date such Bank became a Bank hereunder, either (x) entitled to submit Form
1001 relating to such Bank and entitling it to a complete exemption from
withholding on all amounts to be received by such Bank, including fees,
pursuant to this Agreement and the Loans and Reimbursement Obligations or Form
4224 relating to all amounts to be received by such Bank, including fees,
pursuant to this Agreement and the Loans and Reimbursement Obligations or (y)
a U.S. person (as such term is defined in Section 7701(a)(30) of the Code), or
(ii) has failed to submit any form or certificate that it was required to file
pursuant to subsection (a) of this Section 12.16 and entitled to file under
applicable law, or (iii) is no longer entitled to submit Form 1001 or Form
4224 as a result of any change in circumstances other than a change in
applicable law, regulation or treaty or in any official application or
interpretation thereof. Within 30 days after the Company's payment of any
such U.S. Taxes, the Company shall deliver to the Agent, for the account of
the relevant Bank(s), originals or certified copies of official tax receipts
evidencing such payment. The obligations of the Company under this subsection
(c) shall survive the payment in full of the Loans and Reimbursement
Obligations and the termination of the Revolving Credit Commitments. If any
Bank or the Agent determines it has received or been granted a credit against
or relief or remission for, or repayment of, any taxes paid or payable by it
because of any U.S. Taxes paid by the Company and evidenced by such a tax
receipt, such Bank or Agent shall, to the extent it can do so without
prejudice to the retention of the amount of such credit, relief, remission or
repayment, pay to the Company such amount as such Bank or Agent determines is
attributable to such deduction or withholding and which will leave such Bank
or Agent (after such payment) in no better or worse position than it would
have been in if the Company had not been required to make such deduction or
withholding. Nothing in this Agreement shall interfere with the right of each
Bank and the Agent to arrange its tax affairs in whatever manner it thinks fit
nor oblige any Bank or the Agent to disclose any information relating to its
tax affairs or any computations in connection with such taxes.
Section 12.17. Jurisdiction; Venue. THE COMPANY HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS AND OF ANY ILLINOIS COURT SITTING IN CHICAGO FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. THE COMPANY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
Section 12.18. Lawful Rate. All agreements between the Company, the Agent
and each of the Banks, whether now existing or hereafter arising and whether
written or oral, are expressly limited so that in no contingency or event
whatsoever, whether by reason of demand or acceleration of the maturity of any
of the indebtedness hereunder or otherwise, shall the amount contracted for,
charged, received, reserved, paid or agreed to be paid to the Agent or each
Bank for the use, forbearance, or detention of the funds advanced hereunder or
otherwise, or for the performance or payment of any covenant or obligation
contained in any document executed in connection herewith (all such documents
being hereinafter collectively referred to as the "Credit Documents"), exceed
the highest lawful rate permissible under applicable law (the "Highest Lawful
Rate"), it being the intent of the Company, the Agent and each of the Banks in
the execution hereof and of the Credit Documents to contract in strict
accordance with applicable usury laws. If, as a result of any circumstances
whatsoever, fulfillment by the Company of any provision hereof or of any of
such documents, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by applicable usury law
or result in the Agent or any Bank having or being deemed to have contracted
for, charged, reserved or received interest (or amounts deemed to be interest)
in excess of the maximum, lawful rate or amount of interest allowed by
applicable law to be so contracted for, charged, reserved or received by the
Agent or such Bank, then, ipso facto, the obligation to be fulfilled by the
Company shall be reduced to the limit of such validity, and if, from any such
circumstance, the Agent or such Bank shall ever receive interest or anything
which might be deemed interest under applicable law which would exceed the
Highest Lawful Rate, such amount which would be excessive interest shall be
refunded to the Company or, to the extent (i) permitted by applicable law and
(ii) such excessive interest does not exceed the unpaid principal balance of
the Notes and the amounts owing on other obligations of the Company to the
Agent or any Bank under any Loan Document applied to the reduction of the
principal amount owing on account of the Notes or the amounts owing on other
obligations of the Company to the Agent or any Bank under any Loan Document
and not to the payment of interest. All interest paid or agreed to be paid to
the Agent or any Bank shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full period of the
indebtedness hereunder until payment in full of the principal of the
indebtedness hereunder (including the period of any renewal or extension
thereof) so that the interest on account of the indebtedness hereunder for
such full period shall not exceed the highest amount permitted by applicable
law. This paragraph shall control all agreements between the Company, the
Agent and the Banks.
Section 12.19. Governing Law. (a) THIS AGREEMENT AND THE RIGHTS AND DUTIES
OF THE PARTIES HERETO, SHALL BE CONSTRUED AND DETERMINED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF ILLINOIS, EXCEPT TO THE EXTENT PROVIDED IN
SECTION 12.19(b) HEREOF AND TO THE EXTENT THAT THE FEDERAL LAWS OF THE UNITED
STATES OF AMERICA MAY OTHERWISE APPLY.
(b) NOTWITHSTANDING ANYTHING IN SECTION 12.19(a) HEREOF TO THE CONTRARY,
NOTHING IN THIS AGREEMENT, THE NOTES, OR THE OTHER LOAN DOCUMENTS SHALL BE
DEEMED TO CONSTITUTE A WAIVER OF ANY RIGHTS WHICH THE COMPANY, THE AGENT OR
ANY OF THE BANKS MAY HAVE UNDER THE NATIONAL BANK ACT OR OTHER APPLICABLE
FEDERAL LAW.
Section 12.20. Limitation of Liability. NO CLAIM MAY BE MADE BY THE
COMPANY, ANY SUBSIDIARY OR ANY GUARANTOR AGAINST ANY BANK OR ITS AFFILIATES,
DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS FOR ANY SPECIAL, INDIRECT
OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL CONDUCT (WHETHER
THE CLAIM THEREFOR IS BASED ON CONTRACT, TORT OR DUTY IMPOSED BY LAW) IN
CONNECTION WITH, ARISING OUT OF OR IN ANY WAY RELATED TO THE TRANSACTIONS
CONTEMPLATED AND RELATIONSHIPS ESTABLISHED BY THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION
THEREWITH. THE COMPANY, EACH SUBSIDIARY AND EACH GUARANTOR HEREBY WAIVE,
RELEASE AND AGREE NOT TO SUE UPON SUCH CLAIM FOR ANY SUCH DAMAGES, WHETHER OR
NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
Section 12.21. Nonliability of Lenders. The relationship between the
Company and the Banks is, and shall at all times remain, solely that of
borrower and lenders, and the Banks and the Agent neither undertake nor assume
any responsibility or duty to the Company to review, inspect, supervise, pass
judgment upon, or inform the Company of any matter in connection with any
phase of the Company's business, operations, or condition, financial or
otherwise. The Company shall rely entirely upon its own judgment with respect
to such matters, and any review, inspection, supervision, exercise of
judgment, or information supplied to the Company by any Bank or the Agent in
connection with any such matter is for the protection of the Bank and the
Agent, and neither the Company nor any third party is entitled to rely
thereon.
Section 12.22. No Oral Agreements.; THIS WRITTEN AGREEMENT, TOGETHER WITH
THE OTHER LOAN DOCUMENTS EXECUTED CONTEMPORANEOUSLY HEREWITH AND ANY PRIOR
AGREEMENTS RELATING TO FEES PAYABLE TO HARRIS TRUST AND SAVINGS BANK,
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set
forth.
Dated as of June 7, 1996.
AMERICAN RICE, INC.
By
Its
COMET VENTURES, INC.
By
Its
Address:
10990 Wilshire Boulevard
Suite 1800
Los Angeles, California 90024
Attention:
COMET RICE OF PUERTO RICO, INC.
By
Its
Address:
Attention:
BARGECARIB, INC.
By
Its
Address:
16825 Northchase Drive
Suite 1600
Houston, Texas 77060
Attention:
Accepted and Agreed to at Chicago, Illinois as of the day and year last above
written.
Each of the Banks hereby agrees with each other Bank that if it should receive
or obtain any payment (whether by voluntary payment, by realization upon
collateral, by the exercise of rights of setoff or banker's lien, by
counterclaim or cross action, or by the enforcement of any rights under the
Credit Agreement, Notes or Security Documents or otherwise) in respect of the
obligations of the Company under the Credit Agreement, Notes and Security
Documents in a greater amount than such Bank would have received had such
payment been made to the Agent and been distributed among the Banks as
contemplated by Section 3.6 hereof then in that event the Bank receiving such
disproportionate payment shall purchase for cash without recourse from the
other Banks an interest in the obligations of the Company to such Banks rising
under the Credit Agreement and Notes in such amount as shall result in a
distribution of such payment as contemplated by Section 3.6 hereof. In the
event any payment made to a Bank and shared with the other Banks pursuant to
the provisions hereof is ever recovered from such Bank, the Banks receiving a
portion of such payment hereunder shall restore the same to the payor Bank,
but without interest.
Amount and Percentage of
Commitments:
Revolving Commitment
Credit Percentage
Commitment
$47,500,000 100%
HARRIS TRUST AND SAVINGS BANK
By
Its Vice President
Address:111 W. Monroe Street
Chicago, Illinois 60690
Attention:Agribusiness Division
EXHIBIT A
AMERICAN RICE, INC.
SECURED REVOLVING CREDIT NOTE
Chicago, Illinois
$___________________________, 1996
On _____________, 1999, for value received, the undersigned, American Rice,
Inc., a Texas corporation (the "Company"), promises to pay to the order of
___________________ ______________ (the "Bank"), at the principal office of
Harris Trust and Savings Bank in Chicago, Illinois, the principal sum of (i)
_____________________ Dollars ($________________), or (ii) such lesser amount
as may at the time of the maturity hereof, whether by acceleration or
otherwise, be the aggregate unpaid principal amount of all Loans owing from
the Company to the Bank under the Revolving Credit provided for in the Credit
Agreement hereinafter mentioned.
This Note evidences indebtedness consisting of a "Base Rate Portion" and
"LIBOR Portions" as such terms are defined in that certain Secured Credit
Agreement dated as of June 7, 1996 by and between the Company, Harris Trust
and Savings Bank individually and as Agent and certain Banks which may from
time to time become parties thereto (the "Credit Agreement") made and to be
made to the Company by the Bank under the Revolving Credit provided for under
the Credit Agreement and the Company hereby promises to pay accrued and unpaid
interest at the office specified above on each Loan evidenced hereby at the
rates and times specified therefor in the Credit Agreement.
Each Loan made under the Revolving Credit provided for in the Credit Agreement
by the Bank to the Company against this Note, any repayment of principal
hereon, the status of each such loan from time to time as part of the Base
Rate Portion or a LIBOR Portion and the interest rates and interest periods
applicable thereto shall be endorsed by the holder hereof on the reverse side
of this Note or recorded on the books and records of the holder hereof
(provided that such entries shall be endorsed on the reverse side hereof prior
to any negotiation hereof) and the Company agrees that in any action or
proceeding instituted to collect or enforce collection of this Note, the
entries so endorsed on the reverse side hereof or recorded on the books and
records of the Bank shall, absent manifest error, be prima facie evidence of
the unpaid balance of this Note and the status of each loan from time to time
as part of a Base Rate Portion or a LIBOR Portion and the interest rates and
interest periods applicable thereto.
This Note is issued by the Company under the terms and provisions of the
Credit Agreement and is secured, inter alia, by certain Security Agreements
and other instruments and documents from the Company, and this Note and the
holder hereof are entitled to all of the benefits and security provided for
thereby or referred to therein, equally and ratably with all other
indebtedness thereby secured, to which reference is hereby made for a
statement thereof. This Note may be declared to be, or be and become, due
prior to its expressed maturity upon the occurrence of an event of default
specified in the Credit Agreement, voluntary prepayments may be made hereon,
and certain prepayments are required to be made hereon, all in the events, on
the terms and with the effects provided in the Credit Agreement.
All agreements between the Company, the Agent (as defined in the Credit
Agreement) and each of the Banks (as defined in the Credit Agreement), whether
now existing or hereafter arising and whether written or oral, are expressly
limited so that in no contingency or event whatsoever, whether by reason of
demand or acceleration of the maturity of any of the indebtedness hereunder or
otherwise, shall the amount contracted for, charged, received, reserved, paid
or agreed to be paid to the Agent or each Bank for the use, forbearance, or
detention of the funds advanced hereunder or otherwise, or for the performance
or payment of any covenant or obligation contained in any document executed in
connection herewith (all such documents being hereinafter collectively
referred to as the "Credit Documents"), exceed the highest lawful rate
permissible under applicable law (the "Highest Lawful Rate"), it being the
intent of the Company, the Agent and each of the Banks in the execution hereof
and of the Credit Documents to comply in strict accordance with applicable
usury laws. If, as a result of any circumstances whatsoever, fulfillment by
the Company of any provision hereof or of any of such documents, at the time
performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by applicable usury law or result in the Agent or
any Bank having or being deemed to have contracted for, charged, reserved or
received interest (or amounts deemed to be interest) in excess of the maximum,
lawful rate or amount of interest allowed by applicable law to be so
contracted for, charged, reserved or received by the Agent or such Bank, then,
ipso facto, the obligation to be fulfilled by the Company shall be reduced to
the limit of such validity, and if, from any such circumstance, the Agent or
such Bank shall ever receive interest or anything that might be deemed
interest under applicable law that would exceed the Highest Lawful Rate, such
amount that would be excessive interest shall be refunded to the Company or,
to the extent (i) permitted by applicable law and (ii) such excessive interest
does not exceed the unpaid principal balance of the Notes (as defined in the
Credit Agreement) and the amounts owing on other obligations of the Company to
the Agent or any Bank under any Loan Document (as defined in the Credit
Agreement) applied to the reduction of the principal amount owing on account
of the Notes or the amounts owing on other obligations of the Company to the
Agent or any Bank under any Loan Document and not to the payment of interest.
All interest paid or agreed to be paid to the Agent or any Bank shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full period of the indebtedness hereunder until payment
in full of the principal of the indebtedness hereunder (including the period
of any renewal or extension thereof) so that the interest on account of the
indebtedness hereunder for such full period shall not exceed the highest
amount permitted by applicable law. This paragraph shall control all
agreements between the Company, the Agent and the Banks.
The undersigned hereby expressly waives diligence, presentment, demand,
protest, notice of protest, notice of intent to accelerate, notice of
acceleration, and notice of any other kind.
IT IS AGREED THAT THIS NOTE AND THE RIGHTS AND REMEDIES OF THE HOLDER HEREOF
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF ILLINOIS, PROVIDED, HOWEVER, THAT NOTHING IN THIS NOTE SHALL BE
DEEMED TO CONSTITUTE A WAIVER OF ANY RIGHTS WHICH THE COMPANY, THE AGENT OR
ANY OF THE BANKS MAY HAVE UNDER THE NATIONAL BANK ACT OR OTHER APPLICABLE
FEDERAL LAW.
AMERICAN RICE, INC.
By
Its
EXHIBIT B
AMERICAN RICE, INC.
BORROWING BASE CERTIFICATE
To the Banks Party to the
_____________, 1996
Secured Credit Agreement with
American Rice, Inc.
Pursuant to the terms of that certain Secured Credit Agreement (the
"Agreement") dated as of ______________, 1996 among the undersigned, American
Rice, Inc. (the "Company"), you, individually and as Agent thereunder, and the
other banks party thereto, the Company delivers to you the following
computation of the Borrowing Base, as defined in the Agreement, as of the
computation date noted above. The Company certifies that the following
computation of the Borrowing Base was made in accordance with the Agreement
and that as of the last day of the preceding computation period, to the best
of its knowledge and belief, no Default or Event of Default has occurred or,
if any such Default or Event of Default has occurred, a description of such
Default or Event of Default and the action, if any, taken by the Company to
remedy the same are specified hereinbelow: ________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________.
I.BORROWING BASE CALCULATION
A.Accounts Receivable
1.Gross Accounts
2.Less:
a)Owned by an account debtor who is an Affiliate of Subsidiary
b)Owned by an account debtor who is in an insolvency or reorganization
proceeding
c)Unpaid more than 90 days from invoice date
d)Ineligible because of 14% concentration factor
e)Otherwise intangible
3.Total Deductions
4.Eligible Accounts
5.Available Accounts Receivable (line 4 X .85)
B.Credit enhanced Accounts Receivable
a)Amount of Letter of Credit enhanced A/R
b)Amount of Bank Guaranteed enhanced A/R
1.Total Enhanced A/R
2.Available Enhanced A/R (line 1 X .90)
C.Raw & Milled Bulk Rice
1.Gross inventory of raw and milled bulk rice (supporting detail
attached)
a)Rice not located at approved locations
b)Obsolete, not merchantable
c)Otherwise ineligible
2.Total deductions
3.Eligible inventory
4.Available Raw and Milled Bulk Rice (line 3 X .75)
D.Finished Goods Inventory
1.Gross finished goods inventory (supporting detail attached)
a)Finished goods not located at approved locations
b)Obsolete, not merchantable
c)Otherwise ineligible
2.Total Deductions
3.Eligible Finished Goods
4.Available Finished Goods (line 3 X .70)
E.Initial maintenance margins in Pledged Commodities Accounts
F.Secured Grower Payables
G.Borrowing Base (sum of A5, B2, C4, D4 and E less Line F
H.Loans Outstanding
1.Revolving loans outstanding
2.Special Purpose Letters of Credit outstanding
3.Documentary Letters of Credit outstanding
a)(H3 X .30)
4.Total Adjusted Outstanding Short-term Indebtedness
I.Unused Availability
Accounts Receivable Aging:
GENERAL LEDGER ACTIVITY
Aging
A/R at _________$____________ Current ____________
Add _____ Sales $____________ 30-60 Days ____________
Less ____ Cash (____________) 60-90 Days ____________
Less ____ CM's (____________) Over 90 Days ____________
A/R at _________$____________ TOTAL ____________
Accounts Payable Aging:
Current____________________
30-60 Days____________________
60-90 Days____________________
Total:____________________
Withholding Taxes have been paid through ________________
Dated as of this ________ day of __________________, 199__.
AMERICAN RICE, INC.
BY:
ITS:
EXHIBIT C
AMERICAN RICE, INC.
COMPLIANCE CERTIFICATE
This Compliance Certificate is furnished to Harris Trust and Savings Bank, as
agent (the "Agent"), pursuant to that certain Secured Credit Agreement dated
as of June 7, 1996 by and among American Rice, Inc. (the "Company"), Harris
Trust and Savings Bank and the other Banks parties thereto (the "Agreement").
Unless otherwise defined herein, the initially capitalized terms used in this
Compliance Certificate have the meanings ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1.I am the duly elected _____________________________________ of the Company;
2.I have reviewed the terms of the Agreement and I have made, or have caused
to be made under my supervision, a detailed review of the transactions and
conditions of the Company during the accounting period covered by the attached
financial statements;
3.The examinations described in paragraph 2 did not disclose, and I have no
knowledge of, the existence of any condition or event which constitutes a
Default or an Event of Default during or at the end of the accounting period
covered by the attached financial statements or as of the date of this
Certificate, except as set forth below; and
4.Schedule I attached hereto sets forth financial data and computations,
evidencing the Company's compliance with certain covenants of the Agreement,
all of which data and computations are true, complete and correct as of the
date indicated thereon.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action that the Company has taken, is taking or proposes to
take, as applicable, with respect to each such condition or event:
_______________________________________________________
_______________________________________________________
The foregoing certifications, together with the computations set forth in
Schedule I hereto and the financial statements delivered with this Certificate
in support hereof, are made and delivered this ________ day of
______________________, 19___.
AMERICAN RICE, INC.
By
Its
SCHEDULE I
AMERICAN RICE, INC.
COMPLIANCE CALCULATIONS FOR SECURED
CREDIT AGREEMENT DATED AS OF JUNE 7, 1996
CALCULATIONS AS OF _______________, 199__
A. Current Ratio (Section 7.25).
1. Consolidated current assets $___________
2. Consolidated current liabilities $___________
3. Ratio of Line A1 to Line A2 ______ to 1.0
4. Line A3 ratio shall not be less than 1.25 to 1.0
Company compliance - circle yes/no
B. Adjusted Tangible Net Worth (Section 7.24).
1. Total Shareholders' Equity $___________
2. Intangibles and write-ups $__________
3. Unpaid principal balance of Shareholder Notes $__________
4. Sum of Lines B2 and B3 $__________
5. Line 1 minus Line 4 $__________
6. Line B5 must be greater than or equal to $__________
Company compliance - circle yes/no
C. Interest Coverage Ratio (Section 7.23)
1. Net Income for Measurement Period $_________
2. Interest Expense for Measurement Period $_________
3. Income taxes for Measurement Period $_________
4. Sum of Lines C1 through C3 (EBIT) $_________
5. Ratio of Line C4 to Line C2 ____ to 1.0
6. Line C5 Ratio of this Part I shall not be less than___ to 1.0
Company compliance - circleyes/no
D. Adjusted Funded Debt Ratio (Section 7.22)
1. Total Debt (including guarantees of debts of another and
excluding Revolving Credit) $_________
2. Lowest principal outstanding under Revolving Credit averaged for
15 days during most recent 12 months $_________
3. Sum of Lines D1 and D2 (Adjusted Funded Debt) $_________
4. Net Income for past 4 quarters $_________
5. Interest Expense for past 4 quarters $_________
6. Income Taxes for past 4 quarters $_________
7. Depreciation and amortization
expense for past 4 quarters $_________
8. Sum of Lines D4 through D7 (EBITDA) $_________
9. Ratio of Line D3 to Line D8 _____ to 1.0
10. Line D9 ratio shall not exceed _____ to 1.0
Company compliance - circle yes/no
E. Capital Expenditures (Section 7.8)
1. Capital expenditures fiscal year to date $_________
2. Permitted Annual Amount
(excluding Carryover Amount) $_________
3. Carryover Amount $_________
4. Sum of Lines E2 and E3 $_________
Compliance - does Line 1 exceed Line 4 - circle yes/no
F. Sales of Inventory to Affiliates and Foreign Subsidiaries
(Section 7.7)
1. Total inventory sales to Affiliates
and Foreign Subs $_________
2. 2% of consolidated revenues $_________
3. Amount of inventory ________ metric tons
4. Inventory by Country:
Country Amount
5. Did RMTI receivable exceed $500,000 for any
15 consecutive day period yes/no
6. Compliance with Section 7.7 limitations
on inventory sales yes/no
7. Management fees to ERLY $__________
8. Tax sharing payments to ERLY $__________
9. Were Line 7 and Line 8 payments made
pursuant to offset against ERLY 6% Note yes/no
10. Company in compliance with Section 7.7 yes/no
EXHIBIT D
ENVIRONMENTAL CHECKLIST
COMPANY:
ADDRESS:
PHONE:
NATURE OF ENVIRONMENTAL RISKS FACED BY COMPANY
Does the Company have Corporate Policies and Procedures addressing
Environmental Risks?
What is the main thrust of this policy?
What controls are in place to ensure the Policy and Procedures are followed?
Who is the corporate officer responsible for environmental issues?
Does this officer report directly to the Board of Directors?
What is the amount of capital expenditures planned for environmental
compliance and rehabilitation?
What contingency plans and financial reserves are in place for an
environmental disaster?
Is the Company currently in compliance with all existing regulatory
requirements?
List those areas where the Company is not in compliance and provide the
Company's plans to rectify and the date to be rectified?
Is the Company aware of new regulatory requirements which may be enacted?
How does the Company stand in relation to these new requirements?
Is the Company in compliance with all permits and licenses?
List those where the Company is not in compliance, the nature of the
noncompliance, plans and date for corrections?
Are there any outstanding orders or pending environmental litigation involving
the Company? Describe if any.
Level of insurance coverage carried by the Company for environmental risks?
Questionnaire Completed by:
Exhibit E
Permitted Inventory Locations
Estimated
LOCATION Owner of Premises Semi-Annual Rentals
Sutton Warehouse Colusa Glenn Dryer $180,000
49 E. Oak Colusa Glenn Dryer
Maxwell, CA 95955
Maxwell Plant Colusa Glenn Dryer See above
One Comet Lane Corporation
Maxwell, CA 95955
Biggs Plant Sunwest Foods, Inc. $325,000
507 Bannock Street
Biggs, CA 95917
Greenville Dryer Farmers Grain Terminal $24,000
1715 Theobald
Greenville, MS 38701
Freeport Plant and Warehouse Port of Freeport $143,411
Freeport, Texas 77541
Schedule 5.2
Subsidiaries
Jurisdiction of
Incorporation or Ownership
Name Organization Percentage
1.Comet Ventures, Inc. California 90%
2.Comet Rice of Puerto Rico, Inc. Delaware 100%
3.Comet Rice of Jamaica Limited Jamaica 100%
4.Rice Corporation of Haiti, S.A. Haiti 100%
5.BargeCarib, Inc. Texas 100%
6.ARI-Vinafood Vietnam 55%
7.ARI-Comet de Mexico, S.A. de C.V. Mexico 100%
8.Corporation RICA, S.A. de C.V. El Salvador 50%
Schedule 5.4
Litigation
Black Sea Shipping Co. vs. American Rice
Kingwood Lake Estates vs. Murphys, ERLY & ARI
Ibrahim Jabra & Sons vs. Alpha Trading & ARI
Meyers Brothers et al vs. Comet Rice, Inc.
SCHEDULE 5.13
COMPLIANCE WITH LAWS
None
SCHEDULE 7.12
EXISTING LOANS, ADVANCES AND INVESTMENTS IN SUBSIDIARIES
(In Thousands of Dollars)
Subsidiary Loans Advances Equity Investment Net Total
- ---------------- ----- -------- ----------------- ---------
Comet Rice of Puerto $0 $8,811 ($8,729) $82
Rico, Inc.
Rice Corporation of 0 (2,368) (9,673) 7,305
Haiti
BargeCarib, Inc. 0 128 (313) (185)
Comet Rice of 0 7,684 (4,130) 3,554
Jamaica, Inc.
Comet Ventures, Inc. 0 4,132 39 4,171
ARI-Vinafood, JV 0 982 2,044 3,026
---- -------- ------- -------
$0 $19,369 ($1,416) $17,953
